Prospectus for the public offering in Germany and Luxembourg of

Transcription

Prospectus
for the public offering in Germany and Luxembourg
of
6,000,000 ordinary no-par value bearer shares (the “Delivery Shares”)
and of
up to 900,000 ordinary no-par value bearer shares
(subject to an over-allotment option)
and
for admission to the regulated market (regulierter Markt)
with simultaneous admission to the
regulated market sub-segment with additional post-admission obligations
(Prime Standard) of the Frankfurt Stock Exchange
of
15,050,000 existing ordinary no-par value bearer shares
(existing share capital)
and
up to 6,000,000 newly issued ordinary no-par value bearer shares deriving from a
capital increase from authorised capital for a contribution in cash
- each such share carrying full dividend rights from and including the
financial year 2011 —
of
China Specialty Glass AG
Gruenwald/Munich, Germany
International Securities Identification Number (ISIN): DE000A1EL8Y8
German Securities Identification Number (WKN): A1EL8Y
Sole Global Coordinator
Joint Bookrunner and Joint Lead Manager
VISCARDI AG, Munich, Germany
Joint Bookrunner and Joint Lead Manager
biw Bank für Investments und Wertpapiere AG, Willich, Germany
Selling Agents
comdirect bank AG
Quickborn, Germany
DAB bank AG
Munich, Germany
Cortal Consors S.A.
Zweigniederlassung Deutschland
Nuremberg, Germany
S Broker AG & Co. KG
Wiesbaden, Germany
Asiasons WFG Securities Pte Ltd
Singapore
17 June 2011
ING-DiBa AG
Frankfurt/Main, Germany
This document constitutes a prospectus for the purposes of sec. 5 German Securities
Prospectus Act (Wertpapierprospektgesetz) (“WpPG”) and art. 3 of the prospectus
directive 2003/71/EC (the “Prospectus Directive”), and has been filed with and
approved by the German Federal Financial Supervisory Authority (Bundesanstalt für
Finanzdienstleistungsaufsicht) (the “BaFin”) after a review for completeness of the
prospectus, including a review for coherence and comprehensibility of the presented
information, according to sec. 13 para. 1 WpPG. The approved prospectus will be
notified by the BaFin to the competent authorities in the Luxembourg in accordance
with sec. 18 WpPG and art. 18 of the Prospectus Directive to allow a public offering in
Luxembourg.
TABLE OF CONTENTS
1.
1.1
1.2
1.3
1.4
1.5
2.
2.1
2.2
2.3
2.4
2.5
3.
3.1
3.2
3.3
4.
5.
5.1
5.2
5.3
5.4
5.5
6.
7.
7.1
7.2
7.3
8.
8.1
8.2
8.3
8.4
8.5
8.6
8.7
8.8
8.9
8.10
8.11
9.
9.1
9.2
9.3
9.4
10.
10.1
10.2
11.
SUMMARY OF THE PROSPECTUS ........................................................ 5
General information on China Specialty Glass-Group and its business ..........5
Summary of the Offering...................................................................... 13
Summary of Key Financial Information................................................... 21
Selected Financial Information .............................................................. 22
Summary of the Risk Factors ................................................................ 26
GERMAN TRANSLATION OF THE SUMMARY — ZUSAMMENFASSUNG
DES PROSPEKTS .............................................................................. 32
Allgemeine Informationen zur China Specialty Glass-Group und ihrer
Geschäftstatigkeit ............................................................................... 32
Zusammenfassung des Angebots .......................................................... 40
Zusammenfassung ausgewählter Finanzangaben..................................... 50
Ausgewählte Finanzangaben ................................................................. 52
Zusammenfassung der Risikofaktoren.................................................... 55
RISK FACTORS ................................................................................ 62
Risks Related to China Specialty Glass-Group’s Business .......................... 62
Risks Related to the Political, Social and Legal Environment of the People’s
Republic of China ................................................................................ 94
Risk Related to the Offering................................................................ 105
RESPONSIBILTY STATEMENT ........................................................ 108
GENERAL INFORMATION ............................................................... 109
Documents on Display ....................................................................... 109
Statutory Auditors ............................................................................. 109
Forward-Looking Statements .............................................................. 110
Third Party Information...................................................................... 111
Notes Regarding Currency and Financial Information ............................. 114
SUBJECT-MATTER OF THE PROSPECTUS ........................................ 116
SELLING RESTRICTIONS ............................................................... 117
Notice to U.S. Residents..................................................................... 118
Notice Regarding the European Economic Area ..................................... 118
Notice Regarding Japan...................................................................... 119
THE OFFERING .............................................................................. 120
Subject-Matter of the Offering ............................................................ 120
Price Range, Offering Period, Subscription, Offer Price and Number of Allotted
Shares ............................................................................................. 122
Rights Attached to the Offered Shares ................................................. 123
Projected Timetable for the Offering .................................................... 124
Information Concerning the Shares in the Company .............................. 124
Allotment Criteria .............................................................................. 126
Stabilisation Measures, Over-Allotment and Greenshoe Option................ 127
Stock Exchange Admission and Commencement of Trading .................... 128
Delivery and Settlement..................................................................... 129
Designated Sponsor........................................................................... 129
Market Protection Agreements (Lock up) .............................................. 129
REASONS FOR THE OFFERING, USE OF ISSUE PROCEEDS, ISSUE
COSTS AND INTERESTED THIRD PARTIES ..................................... 131
Issue Proceeds and Costs ................................................................... 131
Reasons for the Offering .................................................................... 131
Use of the Issue Proceeds .................................................................. 132
Interested Parties involved in the Offering............................................ 133
DIVIDEND POLICY; EARNINGS AND DIVIDENDS PER SHARE ........ 135
Dividend Rights and Dividend Policy .................................................... 135
Earnings and dividend per share ......................................................... 136
DILUTION...................................................................................... 137
2
12.
12.1
12.2
12.3
13.
14.
14.1
14.2
14.3
14.4
14.5
14.6
15.
15.1
15.2
15.3
15.4
15.5
15.6
16.
16.1
16.2
16.3
16.4
16.5
16.6
16.7
16.8
16.9
16.10
16.11
16.12
16.13
16.14
16.15
16.16
16.17
17.
17.1
17.2
17.3
17.4
17.5
17.6
17.7
17.8
17.9
17.10
17.11
17.12
17.13
17.14
17.15
17.16
17.17
CAPITALISATION, INDEBTEDNESS AND BORROWING REQUIREMENTS
...................................................................................................... 139
Capitalisation and Indebtedness .......................................................... 139
Borrowing Requirements .................................................................... 140
Working Capital Statement ................................................................. 141
SELECTED FINANCIAL INFORMATION ........................................... 142
OPERATING AND FINANCIAL REVIEW ........................................... 147
Overview.......................................................................................... 149
Key Factors Affecting Results of Operations .......................................... 151
Results of Operations......................................................................... 154
Statement of financial position data..................................................... 161
Cash flow statement .......................................................................... 168
Critical Accounting Policies ................................................................. 170
MARKET AND INDUSTRY OVERVIEW ............................................. 175
Introduction ..................................................................................... 175
Chinese economy .............................................................................. 176
Security glass market ........................................................................ 179
Construction glass market .................................................................. 183
Sales and distribution ........................................................................ 184
Competition...................................................................................... 185
REGULATORY FRAMEWORK ........................................................... 188
PRC Legal System ............................................................................. 188
The General Principles of the Civil Law ................................................. 192
The Opinions of the Supreme People’s Court on Several Issues concerning
the Implementation of the General Principles of the Civil Law (for Trial
Implementation) ............................................................................... 192
Laws Regarding Social Standards ........................................................ 192
Laws and Regulations concerning Use of Bulletproof Glass by Financial
Institutions....................................................................................... 195
Governmental Regulations in Product Sales and Distribution ................... 196
Company Law ................................................................................... 197
Investment Regulations, Distribution and Transfer Restrictions ............... 197
Regulations on Overseas Listing .......................................................... 202
PRC Tort Liability Law ........................................................................ 202
PRC Product Liability Law ................................................................... 203
Protection of Consumer Rights and Interests ........................................ 205
PRC Competition and Antitrust Laws .................................................... 206
PRC Environmental Law ..................................................................... 207
PRC Tax Laws ................................................................................... 210
Patent and Trademark Protection ........................................................ 213
Legislation on Land in the PRC ............................................................ 217
BUSINESS...................................................................................... 221
Overview.......................................................................................... 221
History............................................................................................. 223
Strengths ......................................................................................... 223
Strategy........................................................................................... 227
Products........................................................................................... 231
Customers........................................................................................ 240
Sales and Distribution ........................................................................ 243
Marketing......................................................................................... 245
Production........................................................................................ 246
Procurement and Supply .................................................................... 249
Research and Development ................................................................ 252
Employees........................................................................................ 254
Insurance......................................................................................... 256
Material Contracts ............................................................................. 256
Property, Plant and Equipment............................................................ 259
Intellectual Properties ........................................................................ 263
Investments ..................................................................................... 266
3
17.18
17.19
18.
18.1
Environment ..................................................................................... 268
Legal Proceedings.............................................................................. 269
GENERAL INFORMATION ON THE COMPANY.................................. 270
Formation, Entry in the Commercial Register, Company Name and Registered
Office............................................................................................... 270
18.2
Company Object ............................................................................... 271
18.3
Financial Year and Term of the Company.............................................. 271
18.4
Group Structure and Recent Corporate Developments of the Group ......... 272
18.5
Development of the Group’s Business .................................................. 278
18.6
Announcements; Paying and Depositary Agent...................................... 279
19.
INFORMATION ON THE CAPITAL OF THE COMPANY AND APPLICABLE
PROVISIONS ................................................................................. 281
19.1
Registered Share Capital; Authorised Capital ........................................ 281
19.2
General Form, general Representation and general Transferability of Shares
....................................................................................................... 282
19.3
General Provisions relating to Profit Allocation and Dividend Payments, to a
Liquidation of the Company and to Subscription Rights as well as General
Provisions governing Changes in the Share Capital ................................ 283
19.4
Takeover Offers, Exclusion of Minority Shareholders (Squeeze-Out) and
Shareholding Notification Requirements ............................................... 286
20.
INFORMATION ON THE GOVERNING BODIES OF THE COMPANY.... 292
20.1
Overview.......................................................................................... 292
20.2
Management Board ........................................................................... 294
20.3
Supervisory Board............................................................................. 301
20.4
Certain Information on the Members of the Supervisory Board and the
Management Board ........................................................................... 307
20.5
General Shareholders’ Meeting............................................................ 308
20.6
Corporate Governance ....................................................................... 311
21.
SHAREHOLDER STRUCTURE (BEFORE AND AFTER THE OFFERING) 313
22.
RELATED PARTY TRANSACTIONS................................................... 315
22.1
Lease Agreements ............................................................................. 316
22.2
Credit Guarantees ............................................................................. 317
22.3
Undertakings .................................................................................... 318
22.4
Licence Agreements........................................................................... 318
22.5
Trademark Transfer Agreement........................................................... 319
22.6
Other Transactions ............................................................................ 319
23.
TAXATION IN GERMANY ................................................................ 322
23.1
Taxation of Corporations .................................................................... 322
23.2
Taxation of Shareholders.................................................................... 324
23.3
Other Taxes...................................................................................... 331
24.
TAXATION IN LUXEMBOURG.......................................................... 332
24.1
Taxation of Income Derived from and Capital Gains Realized on the Shares
held by Luxembourg Residents............................................................ 333
24.2
by Luxembourg Non-residents ............................................................ 335
24.3
Other Taxes...................................................................................... 336
25.
UNDERWRITING............................................................................ 338
25.1
Underwriting Agreement .................................................................... 338
25.2
Commissions .................................................................................... 338
25.3
Securities Loans and Greenshoe Option................................................ 339
25.4
Termination ...................................................................................... 340
25.5
Indemnification ................................................................................. 341
25.6
Other Relationships ........................................................................... 342
26.
RECENT DEVELOPMENTS AND OUTLOOK ....................................... 343
GLOSSARY................................................................................................. 345
FINANCIAL SECTION……………………………………………………………………….…F-1
SIGNATURE PAGE………………………………………………………………………………S-1
4
1.
SUMMARY OF THE PROSPECTUS
The following summary is intended as an introduction to this Prospectus and
should be read in conjunction with the more detailed information contained in
the rest of this Prospectus. Investors should base their decision on whether
to invest in the shares described in this Prospectus on the examination of the
entire Prospectus.
China Specialty Glass AG, Gruenwald, Germany (the “Company” or
“CSG-AG” and together with its direct and indirect subsidiaries “China
Specialty Glass-Group” or the “Group”), VISCARDI AG, Munich, Germany
(“VISCARDI”
or
“Sole
Global
Coordinator”),
and
biw
Bank
für
Investments und Wertpapiere AG, Hausbroicher Str. 222, 47877 Willich,
Germany (“biw AG”) (VISCARDI and biw AG together the “Joint Lead
Managers” or “Underwriters”) assume responsibility for the content of the
summary of the Prospectus, including a translation thereof, in accordance
with sec. 5 para. 2 sent. 3 no. 4 of the German Securities Prospectus Act
(Wertpapierprospektgesetz — WpPG). They may be held liable for the
content of the summary, but only in the event that the summary is
misleading, incorrect or contradictory when read in conjunction with other
parts of the Prospectus.
In the event that claims are asserted before a court of law based on
information contained in this Prospectus, the investor appearing as plaintiff
may be required to bear the costs of translating the Prospectus prior to the
commencement of legal proceedings in compliance with the national laws of
the individual Member States of the European Economic Area.
1.1
General information on China Specialty Glass-Group and its business
1.1.1
Introduction and Overview
The Company is a stock corporation under German law headquartered in
Gruenwald near Munich, Germany, and is registered with the commercial
register of the local Court of Munich under HRB 185783 and under the name
of China Specialty Glass AG. The Company is the holding company of Hing
Wah Holdings (Hong Kong) Limited (“HWG HK-Holding”) which was
incorporated under the laws of Hong Kong. HWG HK-Holding holds all shares
of Guangzhou Hing Wah Glass Industry Co., Ltd. (“HWG-Ltd.”), incorporated
in Guangzhou, Guangdong Province, China, which is currently the only
operating company of the Group. HWG-Ltd. has a subsidiary, Sichuan Hing
5
Wah Glass Co., Ltd. (“HWG-SC”) which was incorporated in Chengdu City,
Sichuan Province, China, and has not been operationally trading at the date
of this Prospectus, although it has invested in property, plant and equipment,
land use rights and design rights and has assumed liabilities in respect of
these investments and commitments in respect of its planned investments.
HWG HK-Holding, HWG-Ltd. and HWG-SC are collectively referred to as
“HWG HK-Group”; the Company and HWG HK-Group are collectively
referred to as “China Specialty Glass-Group” or the “Group” (see graphic
illustration below for clarification of the Group structure as of the date of this
Prospectus).
Ultimate holding
1)
"CSG-AG" or "Company"
Listing entity
"China Specialty Glass-Group"
or "Group"
100%
2)
Hing Wah Holdings (Hong Kong) Ltd
Intermediate holding
"HWG HK-Holding"
"HWG HK-Group"
100%
Guangzhou Hing Wah Glass Industry Co. Ltd
Operational entity
3)
"HWG-Ltd"
100%
Sichuan Hing Wah Glass Industry Co. Ltd3)
Subsidiary
"HWG-SC"
Incorporated in 1) Germany, 2) Hong Kong and 3) China (PRC)
China Specialty Glass-Group Group plans an initial public offering (“IPO”) of
CSG-AG at the Frankfurt Stock Exchange in June 2011 after a planned IPO in
December 2010 was postponed due to an unfavourable market and IPO
environment at that time.
China Specialty Glass-Group develops, produces and sells specialty glass
under its “Hing Wah” brand. The Group distributes its products to customers
in the domestic market in China directly through its own sales network. China
Specialty Glass-Group considers itself to be one of the leading security glass
manufacturers in China producing security glass, a class of specialty glass
used primarily for personal protection against physical violence and forced
intrusion, for the Chinese banking security and automotive security industry.
It also provides various specialty glass products for the construction glass
market. For security glass products which are demanded by the Chinese
6
banking security and automotive security industry, the Group is a significant
player both in terms of production output and market share (source: p. 104,
“Research Report on China Bulletproof Glass Industry” from Respect Market
Research Inc., in the following “RMR Report”, 2010). The Group provides
technical consultation and installation guidance to its customers in connection
with sales. China Specialty Glass-Group’s current production facility is located
in Guangzhou, Guangdong Province, in southern China, and operated by the
Group’s wholly-owned operative subsidiary HWG-Ltd. The Group’s new
production facility in Sichuan Province, which is to be operated by HWG-SC,
is currently under construction.
China Specialty Glass-Group’s major products sold under its “Hing Wah”
brand can be categorized into two groups: security glass which includes
bulletproof glass and intruder-resistant glass; and construction glass which
includes
architecture
laminated
glass,
architecture
tempered
glass,
fire-resistant glass, hollow glass and electrically-controlled colour-changing
glass.
The Group’s security glass is used in places where cash or valuable goods are
traded such as banks, jewellery stores, securities brokerage houses, postal
service and insurance companies (“Bank Security Glass Market”). The
Group’s security glass is also used for armoured vehicles which offer security
and safety to their passengers such as cash-in-transit vehicles for banks,
police
vehicles,
military
personnel
carriers
and
armoured
limousines
(“Automotive Security Glass Market”). In addition, the Group provides its
construction glass products to the construction industry where they are used
as windows, doors, curtain walls (outer covering of buildings of which the
outer walls are non-structural and merely protect the building from the
weather) or internal decorations in commercial buildings and private houses
(“Construction Glass Market”).
The Group began selling its products in 1994. Its end customers are
exclusively commercial enterprises: banks in the Bank Security Glass Market,
refitting automobile manufacturers in the Automotive Security Glass Market,
and construction service providers in the Construction Glass Market.
The sales of HWG-Ltd., which is currently the Group’s only wholly-owned
operative subsidiary, increased from EUR 40.2 million in 2008 to EUR 50.9
million in 2009 and to EUR 69.6 million in 2010 corresponding to an average
annual growth rate of 31.7% during this period. The net profits increased
from EUR 10.6 million in 2008 to EUR 14.1 million in 2009 and to EUR 22.3
7
million in 2010 corresponding to an average annual growth rate of 45.6%.
The majority of the sales was generated by the Group’s security glass which
is sold on the Bank Security Glass Market with sales of EUR 17.5 million, EUR
23.0 million and EUR 32.1 million for 2008, 2009 and 2010, respectively; and
on the Automotive Security Glass Market with sales of EUR 15.4 million, EUR
22.4 million and EUR 30.0 million for the years 2008, 2009 and 2010,
respectively. These sales correspond to 43.5%, 45.2% and 46.1% and
38.3%, 44.0% and 43.1% of total revenue for these years, respectively.
The Company believes that the Chinese security glass market (Bank Security
Glass Market and Automotive Security Glass Market) and Construction Glass
Market will continue to develop in a positive way in the future. In particular,
with the expected increase in consumer wealth and commercial activities, the
commercial entities which demand bank security glass are also expected to
expand both in number (e.g., increase of bank branches in rural areas and
smaller cities) and in individual size (e.g., increase of operating surface area
of post offices). In these commercial entities, security measures are closely
monitored and regulated by the Chinese government. Demand for the
Group’s products, which are certified by the regulatory authorities, is
expected to increase accordingly. Similarly, an increase in the number of
wealthy Chinese citizens and their concern for and awareness of safety and
security for themselves and their families bodes well for the increase in
demand for the Group’s automotive security glass and construction glass
products. The Company intends to increase production and sales of the
Group’s glass products to meet this demand.
1.1.2
The
Strategy
Company
believes
the
following
strategic
objectives
and
their
implementation will drive the Group’s future growth:
·
Profit from the growth of the Chinese security glass market by expanding
the domestic sales network and strengthening the Hing Wah brand and in
mid-range scope
from
market
diversification
through
international
expansion:
As a significant player in the Chinese security glass market, the Company
intends to further expand the Group’s sales network domestically in order
to benefit from the further growth of the Chinese security glass market.
The Company intends to expand the presence of the Group’s sales teams
in China by covering the provinces or regions that are currently not
actively served by the Group and by covering the regions that are
8
already served by the Company more densely in order to put the Group
closer to its existing and future customers, thus better serving their
needs and increasing the attractiveness of the Group’s product offers.
The Company believes this expansion will significantly increase the
awareness of the Hing Wah brand and the Group’s product sales. The
Company also intends to expand the sales of the Group’s products
internationally in order to reduce the Group’s dependency on the Chinese
domestic market.
·
Expand production capacity and participate in consolidation of Chinese
security glass industry and growth in western and central regions in
China:
As transportation costs for security and construction glass are significant,
especially with regard to long distance delivery, the Group has so far
focused on more developed provinces and regions close to the Group’s
current
production
site
in
Guangzhou,
Guangdong
Province.
The
Company believes the market for the Group’s products in these regions
and provinces is far from saturated and intends to continue to participate
in its future growth. To this end, the Company intends to increase the
Group’s production capacity and efficiency in its current production site in
Guangzhou by adding new production facilities, upgrading the production
equipment and increasing the automation of its production process. The
Company also intends to use the Group’s Guangzhou facility to expand its
market presence in selected Asian countries. The Company also believes
that the future sales growth will increasingly come from regions and
provinces in China where the Group currently has a competitive
disadvantage due to the long distance to the Group’s present production
site. Therefore, the Company plans to establish a new production site
closer to the potential end customers in the city of Chengdu, Sichuan
Province, in order to benefit not only from the growth in the security
glass, but also in the construction glass market in these regions and
provinces. It is planned that the new facility will commence operation in
the second half of 2011 and reach maximum production capacities in
about two years’ time. Additionally, the Company intends to expand the
Group’s production capacities and access to experienced personnel and
local markets in other parts of China through acquisitions of smaller
competitors.
9
·
Focus on higher-margin products and product innovation in the security
glass market as well as on the lower-margin Construction Glass Market:
The Company intends to expand the business of the Group in the security
glass market which is a niche market characterized by the absence of a
large number of competitors and a high unit selling price for products.
The Company intends to continue the Group’s tradition of innovation and
bring new and competitive products to the market in the years to come,
while improving its products already on the market by adding new
features or improving product performance. The Company believes that
both are essential to customers’ product loyalty and to the Group’s
market position. In contrast, the Construction Glass Market demands a
high product volume and variety at a lower profit margin. To optimize the
utilization rate, which refers to the ratio between actual production
output and the available production capacity in the same year, of its
production
facilities
and
gain
benefit in
large-scale
raw material
purchase, the Company intends to continue serving this product segment
without losing its main focus on the security glass market.
·
Strengthen Research and Development (“R&D”) capacity and capability:
The Company considers the Group’s R&D capability and capacity to
innovate to be essential for its future growth and its ability to continue to
dominate in the high-margin security glass market. Therefore, it intends
to
expand
the
Group’s
R&D
activities
by
increasing
its
annual
expenditures, establishing a separate research and development centre
at the Guangzhou headquarters of HWG-Ltd., increasing the number of
its R&D staff and continuing its co-operation with established universities
and
professional
colleges
in
China.
The
Group’s
research
and
development activities are expected to focus on introducing new products
such as multi-resistant security windows and interlocking secure doors (a
specially designed door system that offers additional security features
over normal doors) to the market. The R&D team also intends to bring
forth innovations that improve production efficiency and cut production
costs as well.
10
1.1.3
Competitive Strengths
The Group considers the following competitive strengths as essential for its
future growth:
·
Industry pioneer, strong market presence and well-recognized brand in
China
·
Largest security glass manufacturer in China (source: p. 103 – 105, RMR
Report, 2010) benefitting from economies of scale, extensive distribution
channel and strong customer loyalty
·
Cost-efficient production, effective cost control and profitable operation
·
Focus on regulated product segment benefitting from government policy
and restrictive regulations
·
Strong product innovation capability
·
Experienced management team with industrial expertise and extensive
business network in China
1.1.4
Further
Information
on
the
Company
and
China
Specialty
Glass-Group
Management Board
Mr. Nang Heung Sze, Mr. Chun Li Shi and Mr.
Chi-Hsiang Michael Lee
Supervisory Board
Mr. Helmut Meyer, Mr. Xin Yong Shi and Mr. Volker
Schlegel
Share
capital
shares
and
(before
implementation
EUR 15,050,000.00 divided into 15,050,000 non
par-value ordinary bearer shares
of
the Offering)
Auditor
The Company’s auditor is Grant Thornton GmbH
Wirtschaftsprüfungsgesellschaft (“Grant Thornton”),
11
Domstrasse 15, 20095 Hamburg, a member of the
German
Chamber
of
Public
Accountants
(Wirtschaftsprüferkammer).
Shareholders
Before implementation of the Offering 11,194,957
(before
shares (74.39%) are held indirectly by Mr. Nang
implementation
of
the Offering)
Heung Sze through Luckyway Global Group Limited,
735,568 shares (4.89%) are held indirectly by
Mr. Ching Hoi Sze through
Quick
Reach
Group
Limited, 524,928 shares (3.49%) are held indirectly
by Mr. Hung Hui Ke through Expert Intelligence
Global Limited, 1,694,034 shares (11.26%) are held
indirectly by Mr. Yan Kong Wong through Sea Dragon
Investments Limited and 900,513 shares (5.98%)
are held indirectly by Mr. Chi Mang Cheung through
Hong Kong Investments Group Limited. The latter
four companies (together the “HW Investors”) and
Luckyway Global Group Limited which is also the
Founding Shareholder of the Company (together
the “Current Major Shareholders”) hold all shares
in the Company immediately prior to the Offering.
Registration
financial year
and
The Company is registered with the commercial
register
of
HRB 185783.
the
The
local
court
calendar
of
year
Munich
(i.e.
under
1 January
through 31 December) is also the financial year
(Geschäftsjahr) of the Company. The first financial
year was a short financial year (Rumpfgeschäftsjahr).
Employees
As of 31 March 2011, China Specialty Glass-Group
had a total of 479 employees (trainees included). As
of the date of this Prospectus there has been no
material change in the number of employees.
Miscellaneous
Parties related to the Company have engaged and
presently engage in business and legal relationships
with companies of China Specialty Glass-Group.
12
1.2
Summary of the Offering
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 the
Federal Republic of Germany, Luxembourg and the
United States of America. The Offering consists of up
to
6,900,000
no-par
value
bearer
shares
(lnhaber-Stückaktien) of China Specialty Glass AG,
each with a calculated value of EUR 1.00 and carrying
full dividend rights from and including the financial
year 2011 (the "Offered Shares").
Of this amount,
(i) 6,000,000 no-par value bearer shares originate
from a securities loan free of charge that was granted
by Luckyway Global Group Limited to biw AG (the
“Delivery Shares”; see “Delivery of the Offered
Shares and Securities Loan” below). In order to fulfil
its retransfer obligation vis-à-vis Luckyway Global
Group Limited from the securities loan, biw AG will
subscribe
the
shares
from
an
according
capital
increase of the Company from authorised capital
against cash contributions, which is expected to be
resolved by the Management Board and approved by
the Supervisory Board on or around 20 June 2011 with
the
then
existing
shareholders
waiving
their
subscription rights. Upon registration of the capital
increase with the commercial register of the Company
the shares from the capital increase will be transferred
to Luckyway Global Group Limited.
(ii) 900,000 no-par value bearer shares originate
from a securities loan free of charge that was granted
by Luckyway Global Group Limited, Quick Reach Group
Limited,
Expert
Dragon
Investments
13
Intelligence
Global
Limited
and
Limited,
Hong
Sea
Kong
Investment
Group
Limited
(the
“Greenshoe
Shareholders”) to biw AG in connection with a
potential over-allotment (the “Greenshoe Shares”).
Both the Delivery Shares and the Greenshoe Shares
are part of the Company’s current share capital of
15,050,000 shares (the “Existing Shares”) which
shall be admitted to trading at the regulated market of
the Frankfurt Stock Exchange.
Offering Period
The offering period is expected to begin on 20 June
2011 and to end on 29 June 2011 at 12:00 noon
Central European Summer Time (“CEST”).
Purchase orders are freely revocable until the offering
period expires.
On the final day of the offering period, retail and
institutional investors will be able to submit offers to
purchase shares until 12:00 noon CEST.
Price Range and
The price range within which purchase orders may be
Offer Price
submitted is between EUR 9.00 and EUR 12.00 per
Offered Share.
After the offering period expires, the Company and the
Underwriters will use the order book created in the
bookbuilding process to jointly set the offer price for
the Offered Shares (“Offer Price”) and the placement
volume. Pricing and placement volume will be set
based on the orders submitted by investors during the
offering period and collected in the order book.
The
Offer
Price
is
scheduled
to
be
published
subsequently to the fixing of the Offer Price in an ad
hoc disclosure on an electronic information system and
on the Company’s website (www.csg-ag.de) on 29
June 2011.
In particular for the event that the placement volume
14
proves insufficient to satisfy all orders submitted at
the Offer Price, the Underwriters reserve the right to
reject orders, either in whole or in part.
Amendments to the
The Company reserves the right, in agreement with
Terms of the Offer
the Underwriters, to reduce the number of Offered
Shares, to lower or raise the upper limit and/or the
lower limit of the price range and/or to extend or
shorten the offering period. If the option to modify the
number of Offered Shares, the price range and/or the
offering period (collectively referred to as the “Offer
Terms”) is exercised, and to the extent required
under
the
German
Securities
(Wertpapierprospektgesetz),
a
Prospectus
supplement
to
Law
this
Prospectus will be filed with BaFin and published
following approval thereof on the Company’s website
(www.csg-ag.de). To the extent legally required, any
changes will also be published in an ad hoc disclosure.
Investors will not be notified individually.
Delivery of the
It is expected that delivery of the Offered Shares will
Offered Shares and
take place two banking days following expiration of
Securities Loan
the offering period subject to payment to biw AG of
the Offer Price.
Luckyway Global Group Limited will enter into a
securities loan agreement under which it grants to biw
AG a total number of 6,000,000 no-par value bearer
shares by way of a securities loan free of charge to
facilitate timely delivery of these shares to the
investors. The Greenshoe Shareholders will provide
biw AG with 900,000 no-par value bearer shares (the
“Greenshoe Shares”) for a potential over-allotment
by way of a securities loan free of charge (see
“Greenshoe Shares, Greenshoe Option”).
Over-Allotment/
In connection with the placement of the Offered
Stabilisation
Shares, and to the extent permitted by applicable law,
and in connection of the Offering, VISCARDI as
stabilisation manager may make over-allotments and
15
execute stabilisation measures aimed at supporting
the stock exchange or market price of the Company’s
shares in order to offset any sales pressure that may
exist. Stabilisation measures may be affected as of the
date of the commencement of trading of the Existing
Shares and must be completed no later than the 30th
calendar day after such date.
Greenshoe Shares,
The Greenshoe Shareholders will provide biw AG, prior
Greenshoe Option
to the allotment of the Offered Shares, with 900,000
no-par
value
bearer
shares
(the
“Greenshoe
Shares”) (a maximum of 15% of the total number of
Delivery
Shares
being
allocated)
for
a
potential
over-allotment by way of a securities loan free of
charge. The Greenshoe Shareholders will grant biw AG
the option to purchase the Greenshoe Shares from the
Greenshoe Shareholders at the Offer Price less the
agreed commission and other costs (“Greenshoe
Option”), and thus satisfy the retransfer obligation
from the securities loan.
General Allotment
The Company, the Greenshoe Shareholders and the
Criteria
Underwriters will 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).
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.
Sole Global
VISCARDI
Coordinator
Germany
Joint Bookrunners,
VISCARDI
16
AG,
Brienner
Str.
1,
80333
Munich,
AG,
Brienner
Str.
1,
80333
Munich,
Joint Lead Managers
Germany
and Underwriters
biw
Bank
für Investments und Wertpapiere
AG,
Hausbroicher Str. 222, 47877 Willich, Germany
Selling Agents
DAB bank AG, Landsberger Str. 300, 80687 Munich,
Germany
comdirect bank AG, Pascalkehre 15, 25451 Quickborn,
Germany
Cortal Consors S.A., Zweigniederlassung Deutschland,
Postfach 1743, 90006 Nuremberg, Germany
S Broker AG & Co. KG, Karl-Bosch-Str. 10,
65203 Wiesbaden, Germany
Asiasons WFG Securities Pte Ltd, 5 Shenton Way,
#28-01, UIC Building, Singapore 068808
ING-DiBa
AG,
Theodor-Heuss-Allee
106,
60468
Frankfurt am Main, Germany
Admission to
An application for admission of all up to 21,050,000
Trading and Listing
shares of the Company including the shares from the
capital increase to trading on the regulated market
segment (Regulierter Markt) of the Frankfurt Stock
Exchange
with
simultaneous
admission
to
the
sub-segment of the regulated market with additional
post-admission
obligations
(Prime
Standard)
is
expected to be filed on 29 June 2011. It is expected
that the trading of the Existing Shares will commence
on the second banking day following the expiration of
the offering period, i.e. on 1 July 2011, and that the
trading of the shares from the capital increase will
commence two banking days following the registration
of the capital increase, i.e. on 13 July 2011.
Early Termination of
The underwriting agreement which will be concluded
the Offering
inter alia between the Company, the Greenshoe
Shareholders and the Underwriters shortly after the
date of this Prospectus provides that the Underwriters
may terminate the underwriting agreement under
certain circumstances, even after the shares have
been delivered.
17
If the underwriting agreement is terminated before the
shares have been delivered, 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.
Market Protection
The Company will undertake vis-à-vis the Underwriters
Agreement
that for a period of 6 months from the first day of
(Lock-up)
trading of the Company’s Existing Shares it will not
and for a period of further 6 months it will not without
the prior written consent of the Underwriters:
(a) implement any capital increase from authorised
capital;
(b) propose
any
capital
increase
to
its
general
shareholders’ meeting;
(c) announce, implement or propose to its general
shareholders’ meeting any issue of any financial
instruments carrying conversion or option rights
with respect to the shares in the Company or any
transactions
having
an
equivalent
economic
effect;
(d) directly or indirectly sell, offer, market, distribute,
transfer, encumber or in any other way dispose of
shares in the Company;
(e) enter into any transactions (including derivative
transactions) that are the economic equivalent of
the above.
Luckyway
Global
Group
Limited
will
undertake
vis-à-vis the Underwriters that, for a period of 12
months from the from the first day of trading of the
18
Existing Shares it will not and for a period of further 6
months it will not without the prior written consent of
the Underwriters:
(a) initiate or consent to any of the measures set out
above;
(b) directly or indirectly sell, offer, market, distribute,
transfer, encumber or in any other way dispose of
shares or other financial instruments in the
Company; 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);
(c) 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 relating to
any of such transactions is announced.
Furthermore, Expert Intelligence Global Limited, Hong
Kong Investment Group Limited, Quick Reach Group
Limited and Sea Dragon Investments Limited will
undertake vis-à-vis the Underwriters that, for a period
of 6 months from the first day of trading of the
Existing Shares, they will not undertake any of the
aforementioned transactions.
These lock-up restrictions do not apply to the issuance
of shares in the Company for the purpose of making
acquisitions or the capital increase according to which
the Underwriters will subscribe shares of the Company
in order to fulfil its retransfer obligation vis-à-vis
Luckyway Global Group Limited from the securities
loan.
19
Costs of the Offering
As the costs are contingent on the total number of
for the Company
shares placed and the Offer Price, which determine the
amount of commissions, it is not possible at present to
reliably predict the amount of the costs. Based on the
price range, the Company estimates that it will incur
costs (including Underwriters’ fees and assuming that
the Company pays the full amount of the discretionary
performance-based incentive fee and assuming full
exercise
of
the
Greenshoe
Option)
between
approximately EUR 4.5 million and EUR 5.4 million.
Use of Proceeds
The Company plans to use the net issue proceeds
accruing to it from the placement of the Offered
Shares to finance further internal and external growth
including, if any, selected acquisitions, to implement
and finance its strategic objectives and for general
business purposes. Assuming that all of the Delivery
Shares are placed and assuming full exercise of the
Greenshoe Option, the attainable gross issue proceeds
accruing to the Company from the Offering will be
between approximately EUR 54.0 million and EUR 72.0
million. Further assuming that the net issue proceeds
of the Offering accruing to the Company amount to
approximately EUR 49.5 million to EUR 66.6 million,
the net issue proceeds will be used as follows:
·
approximately 25% of the net issue proceeds for
the establishment of a new production base in
Sichuan;
·
financing further growth;
·
establishing a new research and development
centre;
·
modernizing and expanding production capacity of
Guangzhou factory;
·
the financing
of
the
exclusive
distributorship
agreement with the industrial group Saint-Gobain;
·
working capital.
20
German Securities
A1EL8Y
Identification
Number (WKN)
International
DE000A1EL8Y8
Securities
Identification
Number (ISIN)
Ticker Symbol
1.3
8GS
Summary of Key Financial Information
The current Group structure with
CSG-AG as holding company was
established in November 2010 by way of contribution in kind of the shares in
HWG HK-Holding to the Company. CSG-AG itself was founded on 10 May
2010 and entered into the commercial register on 18 May 2010. Therefore,
only the consolidated financial statements of CSG-AG for the short financial
year 2010 (from date of initial existence of the Group on 22 November 2010
until 31 December 2010), in which CSG-AG’s subsidiaries were consolidated
as of 22 November 2010, and the consolidated interim financial statements
of CSG-AG for the three months ended 31 March 2011, all in accordance with
International Financial Reporting Standards (“IFRS”) as endorsed for
application in the EU, as well as the single entity financial statements of
CSG-AG
in
accordance
with
the
German
Commercial
Code
(Handelsgesetzbuch – HGB) for the short financial year 2010 (from
incorporation of CSG-AG on 10 May 2010 until 31 December 2010) exist as
financial statements of the Company and the Group in its current form. For
the time before its establishment, in particular for the financial years 2008
and 2009, the Group has no historical financial data and thus has a complex
financial history within the meaning of Article 4a of the Regulation (EC) No.
809/2004. The consolidated financial statements of CSG-AG for 2010 as well
as the single entity financial statements for 2010 have been audited by Grant
Thornton, whereas the consolidated interim financial statements have been
reviewed by Grant Thornton.
HWG-Ltd. is the wholly owned, intermediate subsidiary of the Company,
having its legal domicile in the People's Republic of China, and currently
carries out exclusively the operational business within the Group. On
21
31 October and 5 November 2007, HWG HK-Holding entered into two share
purchase agreements to purchase all of the shares in HWG-Ltd. and on
15 January 2008 the acquisition became effective by registration with the
competent authority.
HWG-Ltd. was during the reporting period the only significant operating
subsidiary of the Group. Hence, in order to present the business, financial
condition and result of operations for the last three financial years and the
first quarter of 2011 in relation to the business of the Group, HWG-Ltd. has
prepared financial statements as at and for the years ended 31 December
2008, 31 December 2009 and 31 December 2010 as well as interim financial
statements for the three months ended 31 March 2011, all in accordance
with IFRS, as endorsed for application in the EU. The financial statements
were audited by Grant Thornton with the exception of the interim financial
statements which were reviewed by Grant Thornton.
The abovementioned financial statements of HWG-Ltd. are 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 allow the investor to compare the development of
the business, financial condition and the results of operations of China
Specialty Glass-Group over the last three years and the first quarter of 2011.
As, in addition, the consolidated financial statements and single entity
financial statements of CSG-AG only refer to a short financial year (2010),
the selected financial information which is reflected in section 1.4 "Selected
Financial Information" was derived from the aforementioned financial
statements of HWG-Ltd. and the consolidated interim financial statements of
CSG-AG for the three months ended 31 March 2011.
1.4
Selected Financial Information
The tables below show selected information relating to the audited financial
statements of HWG-Ltd. for the financial years 2008, 2009 and 2010 as well
as the reviewed interim financial statements of HWG-Ltd. and the reviewed
consolidated interim financial statements of CSG-AG for the first three
months of the financial year 2011, all in accordance with IFRS, as endorsed
for application in the EU. The figures are 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.
22
HWG-Ltd.
Selected Financial
Information
Twelve months ended 31 December
2008
2009
2010
(audited)¹
(audited)¹
(audited)¹
EUR
EUR
thousand
%
EUR
thousand
%
thousand
%
Selected Statement of
Comprehensive Income
Data
Revenue
40,216
100%
50,910
100%
69,564
100%
Cost of sales
-23,000
57%
-28,032
55%
-38,111
55%
Gross Profit
Selling and distribution
expenses
17,216
43%
22,878
45%
31,453
45%
-1,205
3%
-1,704
3%
-2,277
3%
-848
2%
-874
2%
-1,038
1%
-965
3%
-1,384
3%
-1,878
3%
14,198
35%
18,916
37%
26,260
38%
51
0%
47
0%
108
0%
-104
0%
-106
0%
-110
0%
14,145
35%
18,857
37%
26,258
38%
-3,545
9%
-4,726
9%
-4,006
6%
10,600
26%
14,131
28%
22,252
32%
Administrative expenses
Research and development
costs
Profit from operations
Finance income
Finance costs
Profit before income tax
Income tax
Profit for the period
financial position Data
Total assets
24,892
31,753
59,651
Total liabilities
12,604
6,904
10,299
Total equity
12,288
24,849
49,352
10,841
11,548
22,343
-710
-185
-4,706
Selected Cash Flow and
Financing Data
Cash flow from operating
activities
Cash flow from investing
activities
Cash flow from financing
activities
-5,725
-7,672
859
14,330
16,811
37,801
1,383
1,604
1,813
12,947
15,207
35,988
Gross profit margin
42.8%
44.9%
45.2%
EBIT
14,198
18,916
26,260
EBIT margin
35.3%
37.2%
37.7%
Net profit margin
26.4%
27.8%
32.0%
467
464
451
Cash at end of period
Interest bearing bank
borrowings
Net funds (Cash less
borrowings)
Other Selected Financial
data
Number of employees
¹ Audited information with the exception of "Other Selected Financial Data" which is calculated
or derived from the audited financial statements
23
HWG-Ltd.
Selected Financial
Information
Three months ended
31 March 2011
(reviewed)1
EUR
thousand
Three months ended
31 March 2010
(reviewed)1
EUR
thousand
%
%
Data
Revenue
16,441
Cost of sales
Gross Profit
expenses
costs
Finance income
Finance costs
Income tax
100%
11,454
100%
-8,850
54%
-6,451
56%
7,591
46%
5,003
44%
-609
4%
-441
4%
-326
2%
-190
2%
-391
2%
-338
3%
6,265
38%
4,034
35%
79
0%
18
0%
-30
0%
-22
0%
6,314
38%
4,030
35%
-950
5%
-685
6%
5,364
33%
3,345
29%
Selected Balance Sheet
Data²
Total assets
Total liabilities
Total equity
Financing Data
activities
activities
activities
borrowings
borrowings)
61,998
59,651
9,627
10,299
52,371
49,352
3,109
6,114
-2,368
-2
-142
-22
36,700
24,668
1,624
1,747
35,076
22,921
46.2%
43.6%
data
Gross profit margin
EBIT
6,265
4,034
EBIT margin
38.1%
35.2%
Net profit margin
32.6%
29.2%
456
456
Number of employees
¹ The interim financial data has been subject to review.
² The 2010 figures shown in the “Selected Balance Sheet Data” derive from the twelve months
ended 31 December 2010 shown in the financial statements of HWG-Ltd.
24
CSG-AG
Selected Consolidated
Financial Information
Three months ended 31
March 2011
(reviewed)1
EUR
Thousand
Short year ended 31
December 2010
(audited)
EUR
Thousand
%
Statement of Comprehensive Income Data
Revenue
16,441
100%
Cost of sales
-8,850
54%
Gross profit
expenses
7,591
46%
-609
4%
-440
3%
-391
2%
6,151
37%
costs
Finance income
Finance costs
Taxation
Net profit
37
0%
-26
0%
6,162
37%
-950
5%
5,212
32%
Balance Sheet Data
Total assets
62,728
60,374
Total liabilities
10,051
10,563
Equity
52,677
49,811
Selected Consolidated Cash
Flow Data
activities
activities
activities
borrowings
Net cash (cash and cash
equivalents less interest
bearing bank liabilities)
2,516
-2,386
-138
36,739
37,912
1,624
1,813
35,115
36,099
Further Selected
Consolidated Financial Data
Gross profit margin
EBIT
46,2%
6,151
EBIT-margin
37,4%
Net profit margin
31,7%
Number of employees
456
25
%
1.5
Summary of the Risk Factors
Before deciding to purchase shares of China Specialty Glass AG, prospective
investors are invited to carefully read and consider the risks described below
and the other information contained in this Prospectus. The occurrence of
one or more of these risks, either individually or in conjunction with other
circumstances, could materially impair the business activities of China
Specialty Glass AG and/or any of its direct and indirect subsidiaries and/or
have a material adverse effect on the financial condition and results of
operations of China Specialty Glass-Group. The order in which the risks are
described is neither an indication as to the likelihood of occurrence nor the
severity or significance of the individual risks. At the same time, these risk
factors are based on assumptions that may subsequently prove to be
incorrect. In addition, further risks or factors, of which the Company is
currently unaware, may be of significance and impair the business activities
of China Specialty Glass-Group and have a material adverse effect on its
financial condition and results of operations. The market price of the
Company’s shares could substantially decline due to the occurrence of any
such risks. Investors could lose part or all of their investment.
Risks related to China Specialty Glass Group’s business
·
The markets for security glass and construction glass in which the Group
operates
and
distributes
its
products
are
competitive.
Increasing
competition could have negative effects on the Group.
·
The sale of a substantial portion of China Specialty Glass-Group’s
products is subject to China Compulsory Certifications issued by a
qualified certification institution and approval certificates for production
registration of security products issued by the local counterpart of the
Ministry of Public Security and failure to obtain or renew these
certifications or certificates could hinder the sale of the respective
products.
·
The Group’s business depends largely on the demand for bulletproof glass
by Chinese financial institutions (e.g. banks) and refitting automotive
manufacturers.
·
The Group operates in a highly regulated market and depends on
maintaining its ability to sell its products to customers in the sensitive
areas of Chinese internal security and finance.
26
·
China Specialty Glass-Group is subject to risks of interruptions in
operation, quality problems and unexpected technical difficulties, as well
as to product safety, occupational safety and environmental risks.
·
Rising material prices and labour costs could adversely affect the
profitability of China Specialty Glass-Group’s business.
·
High fluctuation of employees may have a negative effect on the Group.
·
The Management Board of the Company is not experienced with German
legal requirements for listed companies and has no German language
skills and only one member of the Management Board speaks English. In
addition, the Group currently only has small finance and accounting
departments with limited experience. Furthermore, the Group does not
have a comprehensive risk management system or comprehensive
system of internal control.
·
As all members of the Management Board are located outside Germany
and two members of the Supervisory Board reside in Germany, the
Company’s Supervisory Board may have difficulties in
adequately
supervising the Management Board.
·
The Group’s expansion plan to set up a production base in Chengdu,
China, may fail.
·
The Group’s failure to execute its expansion plans and manage its growth
successfully could adversely affect the Group’s future performance.
·
The Group’s international expansion strategy may fail.
·
The Group may experience difficulties in making strategic acquisitions of
businesses and technologies.
·
China Specialty Glass-Group might not be able to protect its intellectual
property and know-how adequately and they might be infringed by third
parties.
·
China Specialty Glass-Group could infringe on the intellectual property
rights of third parties or have to license such rights from third parties in
order to operate.
·
The Company may be unable to produce new products that gain sufficient
commercial acceptance.
27
·
The Exclusive Distributorship Agreement with the industrial group
Saint-Gobain may fail or may not be profitable.
·
Defects or improper handling of the China Specialty Glass-Group’s
products could result in a damage of its reputation and could adversely
affect the Group’s business.
·
China Specialty Glass-Group may have insufficient insurance to cover its
potential risks.
·
The Group could fail to retain and recruit key personnel, which could
adversely affect the future performance of the Group.
·
The Company and/or the Group may not be able to secure adequate
financing to fund the Group’s growth.
·
Guangzhou Property Management Center has not completed land use
right formalities with regard to an area covering 53 square meters and a
separate piece of allocated land of 9,416 square meters on which the
buildings are leased to HWG-Ltd. and thus might not be allowed to use
the buildings any more.
·
The Group is exposed to risks relating to potential legal disputes,
administrative proceedings, fines or damage claims, in particular with
respect to shareholder compensation, alleged patent breaches, as well as
warranty claims from product liability.
·
China Specialty Glass-Group may be required to make additional
payments for social insurance and housing funds.
·
The interests of the current major shareholder Luckyway Global Group
Limited may conflict with the interests of the Company and other
shareholders. These conflicts of interests may be amplified as Luckyway
Global Group Limited is controlled by members of the Management Board.
·
The Group maintains and will continue to maintain business and legal
relationships for its business operations with companies or persons that
are related to China Specialty Glass-Group or its board members.
·
The Group is exposed to fluctuations in foreign exchange rates and to
potential exchange restrictions.
·
The most significant asset in the financial statements of the Company is
HWG HK-Holding, which has been contributed through a capital increase
28
by way of contribution in kind. An extraordinary depreciation of HWG
HK-Holding would have negative effects on the Company’s financial
position and profitability.
·
The
Company
became
the
holding
company
of
China
Specialty
Glass-Group in 2010 shortly after the Company was acquired by the
Founding Shareholder Luckyway Global Group Limited and therefore has
a short financial history which may impact the quality and comparability
of China Specialty Glass-Group’s financial information.
·
The tax burden of the Group may increase as a result of tax audits or as
a result of German Trade Tax.
·
The tax status of China Specialty Glass-Group as a “high-tech enterprise”,
a beneficiary of the tax arrangement between the People’s Republic of
China (“PRC”) and Hong Kong or as a “tax resident enterprise” or tax
legislation or its interpretation might change which could increase the tax
burden of the Group.
·
There exist a number of tax risks which could result in additional tax
liabilities for HWG-Ltd. or the Group.
·
The business activities of the operating company of China Specialty
Glass-Group are and will continue to be subject to laws and regulations
relating to environmental protection.
·
HWG-Ltd. may be presumed to have market dominance in the Chinese
security glass market and therefore may be subject to restrictions under
the PRC Anti-Monopoly Law.
Risks related to the political, social and legal enviroment of the
People’s Republic of China
·
The Group’s business, financial condition, results of operations and
prospects could be adversely affected by the economic, political and legal
environment and developments in China.
·
The Chinese “Provisions on the Acquisition of Domestic Enterprises by
Foreign Investors” (the M&A Provisions) may have a material adverse
effect on the Company.
29
·
The Company is a holding company and faces typical risks from its
holding activities, e.g. its liquidity depends upon having access to the
liquid funds of its operating subsidiary located in China.
·
Regulations of the State Administration of Foreign Exchange (“SAFE”)
relating to offshore investments by PRC residents or passport holders
may adversely affect the Company’s business operations and financing
alternatives.
·
PRC regulations relating to loans and direct capital investments by
offshore parent companies to PRC entities may delay or prevent China
Specialty Glass-Group from using the proceeds of this Offering or from
adopting the most favourable financing structure.
·
Economic instability in China could adversely affect the Group’s business.
·
A destabilization of the political system could threaten China’s economic
liberalization and have a negative impact on the Group’s business.
·
Health epidemics and outbreaks of contagious diseases, including avian
influenza, could materially and adversely affect the Chinese economy and
the Group’s business.
·
The PRC legal system and regional and national taxation laws contain
inherent uncertainties and inconsistencies which can create uncertainty
regarding the Group's business.
·
The judiciary’s lack of independence and limited experience and the
difficulty of enforcing court decisions and governmental discretion in
enforcing court orders could prevent China Specialty Glass-Group from
obtaining effective remedies in court proceedings.
·
Seeking recognition and enforcement in China of foreign judgements
against the Company, its assets, management personnel or directors
might be difficult or impossible for investors.
·
Restrictions might be imposed on foreign investments in PRC companies.
30
Risk related to the Offering
·
The Company cannot ensure that public trading in the Company’s shares
will develop.
·
A volatile stock exchange price for the shares might develop.
·
The Underwriting Agreement might be rescinded, in which case the
Offering would not take place.
·
The Group conducts its operations through its subsidiaries and, as a
result, is dependent and will depend to a large extent on its subsidiaries
to pay dividends to the Group so that it, in turn, has funds to pay
dividends to its shareholders.
·
For investors financing the share purchase price with a loan there is an
increased risk of loss.
31
2.
GERMAN TRANSLATION OF THE SUMMARY — ZUSAMMENFASSUNG
DES PROSPEKTS
Die folgende Zusammenfassung ist als Einführung zu diesem Prospekt zu
verstehen und steht im Zusammenhang mit den in anderen Teilen des
Prospekts enthaltenen detaillierteren Informationen. Anleger sollten ihre
Entscheidung, ob sie in die in diesem Prospekt beschriebenen Wertpapiere
investieren, auf die Prüfung des gesamten Prospekts stützen.
Die China Specialty Glass AG, Grünwald, Deutschland (die “Gesellschaft”
oder die “CSG-AG”, zusammen mit ihren unmittelbaren und mittelbaren
Tochtergesellschaften die “China Specialty Glass-Group” oder “Gruppe”),
die VISCARDI AG, München, Deutschland (“VISCARDI” oder der “Alleinige
Globale Koordinator”) und biw Bank für Investments und Wertpapiere AG,
Hausbroicher Str. 222, 47877 Willich, Deutschland („biw AG“) (VISCARDI
und biw AG gemeinsam die „Transaktionsführenden Banken“ oder die
„Übernehmenden Banken“) übernehmen gemäß § 5 Abs. 2 S. 3 Nr. 4
Wertpapierprospektgesetz (WpPG) die Verantwortung für den Inhalt dieser
Prospektzusammenfassung einschließlich einer Übersetzung hiervon. Sie
können für den Inhalt der Zusammenfassung haftbar gemacht werden,
jedoch nur für den Fall, dass die Zusammenfassung irreführend, unrichtig
oder widersprüchlich ist, wenn sie zusammen mit den anderen Teilen dieses
Prospekts gelesen wird.
Für den Fall, dass vor einem Gericht Ansprüche aufgrund der in diesem
Prospekt enthaltenen Informationen geltend gemacht werden, könnte der als
Kläger
auftretende
Anleger
in
Anwendung
der
einzelstaatlichen
Rechtsvorschriften der einzelnen Staaten des Europäischen Wirtschaftsraums
die Kosten für die Übersetzung des Prospekts vor Prozessbeginn zu tragen
haben.
2.1
Allgemeine
Informationen
zur
China
Specialty
Glass-Group
und
ihrer
Geschäftstatigkeit
2.1.1
Einführung und Überblick
Die Gesellschaft ist eine Aktiengesellschaft deutschen Rechts mit Sitz in
Grünwald, nahe München, Deutschland, und ist im Handelsregister des
Amtsgerichts München unter HRB 185783 sowie unter dem Namen China
Specialty Glass AG eingetragen. Die Gesellschaft ist die Holdinggesellschaft
von Hing Wah Holdings (Hong Kong) Limited („HWG HK-Holding“), die
32
gemäß den Gesetzen Hongkongs gegründet wurde. Die HWG HK-Holding hält
alle Anteile
an
der
Guangzhou
Hing Wah
Glass
Industry
Co.,
Ltd.
(„HWG-Ltd.“), gegründet in Guangzhou, Provinz Guangdong, China, welche
gegenwärtig die einzige operativ tätige Gesellschaft der Gruppe ist. HWG-Ltd.
hat eine Tochtergesellschaft, die Sichuan Hing Wah Glass Co., Ltd.
(“HWG-SC”), die in Chengdu, Provinz Sichuan, China, gegründet wurde und
bis zum Datum dieses Prospekts noch nicht operativ tätig geworden ist,
obwohl
sie in
investiert
und
Sachanlagen,
Landnutzungsrechte und Baumusterrechte
Verbindlichkeiten
hinsichtlich
ihrer
durchgeführten
Investitionen und Verpflichtungen hinsichtlich ihrer geplanten Investitionen
aufgenommen hat. HWG HK-Holding, HWG-Ltd. und HWG-SC werden
zusammen als „HWG HK-Group“ bezeichnet; die Gesellschaft und die HWG
HK-Group werden zusammen als „China Specialty Glass-Group“ oder die
„Gruppe“ bezeichnet (siehe graphische Darstellung unten zur Verdeutlichung
der Struktur der Gruppe zum Zeitpunkt dieses Prospekts).
1)
"CSG-AG" oder
"Unternehmen"
Muttergesellschaft
"China Specialty Glass-Gruppe"
oder "Gruppe"
Gesellschaft für Börsengang
100%
2)
Zwischengesellschaft
"HWG HK-Holding"
"HWG HK-Gruppe"
100%
Guangzhou Hing Wah Glass Industry Co. Ltd3)
Operative Gesellschaft
"HWG-Ltd"
100%
Tochtergesellschaft
"HWG-SC"
Registriert in 1) Deutschland, 2) Hong Kong and 3) China (VR)
Die China Specialty Glass-Group strebt einen Börsengang der CSG-AG an der
Frankfurter Wertpapierbörse im Juni 2011 an, nachdem ein geplanter
Börsengang im Dezember 2010 aufgrund eines damals ungünstigen Marktund Börsenumfeldes verschoben wurde.
Die
China
Specialty
Glass-Group
entwickelt,
produziert
und
verkauft
Spezialglas unter ihrer Marke „Hing Wah”. Die Gruppe vertreibt ihre Produkte
direkt durch ihr eigenes Verkaufsnetzwerk an Kunden auf dem inländischen
Markt in China. Die China Specialty Glass-Group sieht sich als einen der
33
führenden Sicherheitsglashersteller in China, der für die chinesische Bankenund Sicherheitsfahrzeugindustrie Sicherheitsglas herstellt, ein Spezialglas,
welches in erster Linie für den persönlichen Schutz gegen physische Gewalt
und
erzwungenes
verschiedene
Eindringen
verwendet
Spezialglasprodukte
Sicherheitsglasprodukte,
die
Sicherheitsfahrzeugindustrie
von
wird.
für
der
nachgefragt
Sie
den
vertreibt
zudem
Bauglasmarkt.
chinesischen
werden,
ist
Für
Bankendie
und
Gruppe
ein
dominierender Akteur sowohl in Bezug auf die Produktionsleistung als auch
den
Marktanteil
(Quelle:
S.
104,
“Bericht
zur
chinesischen
Panzerglasindustrie” aus Respect Market Research Inc., im Folgenden als
“RMR Bericht” bezeichnet, 2010). Die Gruppe bietet ihren Kunden im
Zusammenhang mit dem Verkauf technische Beratung und Hilfestellung für
den Einbau an. Die derzeitige Produktionsanlage der China Specialty
Glass-Group befindet sich in Guangzhou, Provinz Guangdong, in Südchina,
und wird von der operativen hundertprozentigen Tochtergesellschaft der
Gruppe, der HWG-Ltd., betrieben. Die neue Produktionsanlage der Gruppe in
Sichuan, welche von HWG-SC betrieben werden soll, befindet sich derzeit im
Bau.
Die von der China Specialty Glass-Group unter der Marke „Hing Wah“
vertriebenen Hauptprodukte können in zwei Gruppen unterteilt werden:
Sicherheitsglas, einschließlich Panzerglas und einbruchsicheres Glas; sowie
Bauglas,
einschließlich
Verbund-Sicherheitsglas
und
Hartglas
für
architektonische Zwecke, feuerbeständiges Glas, Hohlglas und elektrisch
gesteuertes farbwechselndes Glas.
Das Sicherheitsglas der Gruppe wird an Orten eingesetzt, an denen mit Geld
oder wertvollen Gütern gehandelt wird, wie bei Banken, Juweliergeschäften,
Börsenmaklerhäusern,
Zustelldiensten
und
Versicherungsunternehmen
(“Banken-Sicherheitsglas-Markt”). Das Sicherheitsglas der Gruppe wird
außerdem für gepanzerte Fahrzeuge genutzt, die Passagieren Sicherheit und
Schutz
bieten
Polizeifahrzeuge,
sollen,
wie
Werttransportfahrzeuge
Militärpersonaltransporter
und
für
gepanzerte
Banken,
Limousinen
(“Fahrzeug-Sicherheitsglas-Markt”). Zudem vertreibt die Gruppe ihre
Bauglasprodukte
in
der
Bauindustrie,
wo
sie
als
Fenster,
Türen,
Vorhangfassaden (Abdeckung von Gebäuden, deren Außenwände nicht
tragend sind, sondern lediglich gegen das Wetter Schutz bieten) oder
Innenausstattung
in
Geschäftsgebäuden
und
Privathäusern
verwendet
werden (“Bauglasmarkt”).
Die Gruppe hat 1994 begonnen ihre Produkte zu vertreiben. Ihre Endkunden
34
sind ausschließlich Handelsunternehmen, im Banken-Sicherheitsglas-Markt
Banken,
im
Fahrzeug-Sicherheitsglas-Markt
Um-/Ausrüstungen
vornehmen,
und
im
Automobilhersteller,
Bauglasmarkt
die
Dienstleister im
Baugewerbe.
Der
Umsatz
der
aktuell
alleinigen
operativen
hundertprozentigen
Tochtergesellschaft der Gruppe HWG-Ltd. erhöhte sich von EUR 40,2
Millionen in 2008 auf EUR 50,9 Millionen in 2009 und auf EUR 69,6 Millionen
in 2010. Dies entspricht einer durchschnittlichen jährlichen Wachstumsrate
von 31,7% in diesem Zeitraum. Das Nettoergebnis erhöhte sich von EUR
10,6 Millionen in 2008 auf EUR 14,1 Millionen in 2009 und auf EUR 22,3
Millionen
in
2010.
Wachstumsrate
Dies
von
entspricht
45,6%.
Die
einer
durchschnittlichen
Mehrheit
der
Verkäufe
jährlichen
betraf
das
Sicherheitsglas der Gruppe, das auf dem Banken-Sicherheitsglas-Markt mit
Verkäufen von EUR 17,5 Millionen, EUR 23,0 Millionen bzw. EUR 32,1
Millionen
für
2008,
2009
bzw.
2010;
und
dem
Fahrzeug-Sicherheitsglas-Markt mit Verkäufen von EUR 15,4 Millionen, EUR
22,4 Millionen bzw. EUR 30,0 Millionen für 2008, 2009 bzw. 2010 verkauft
wird. Diese Verkäufe entsprechen 43,5%, 45,2% und 46,1% bzw. 38,3%,
44,0% und 43,1% der Gesamtumsatzerlöse für diese Jahre.
Die
Gesellschaft
ist
der
Sicherheitsglasmarkt
Auffassung,
dass
sich
der
chinesische
(Banken-Sicherheitsglas-Markt
und
Fahrzeug-Sicherheitsglas-Markt) und Bauglasmarkt in der Zukunft weiter
positiv entwickeln wird. Insbesondere mit Blick auf den erwarteten Anstieg
des Konsumentenwohlstandes und der Geschäftsaktivitäten wird erwartet,
dass Handelsunternehmen, die Banken-Sicherheitsglas benötigen, sowohl im
Hinblick auf Anzahl (z.B. Zunahme der Bankfilialen in ländlichen Gebieten
und
kleineren
Städten)
und
individuelle
Größe
(z.B.
Erhöhung
der
Betriebsfläche von Postämtern) ebenfalls entsprechend zunehmen werden. In
diesen Handelsunternehmen werden Sicherheitsmaßnahmen umfassend von
der chinesischen Regierung überwacht und reguliert. Es ist zu erwarten, dass
die Nachfrage für die Produkte der Gruppe, die von den Kontrollbehörden
zertifiziert werden, entsprechend ansteigt. Ebenso verspricht ein Anstieg der
Anzahl von wohlhabenden chinesischen Staatsbürgern und ihrem Bedürfnis
nach und ihrem Bewusstsein für Sicherheit und Schutz für sich selbst und
ihre Familien einen Anstieg der Nachfrage nach Produkten der Gruppe im
Bereich Fahrzeug-Sicherheitsglas und Bauglas. Die Gesellschaft plant, die
Produktion und Verkäufe der Glasprodukte der Gruppe zu erhöhen, um diese
Nachfrage zu erfüllen.
35
2.1.2
Strategie
Die Gesellschaft ist der Auffassung, dass die folgenden strategischen Ziele
und ihre Umsetzung das zukünftige Wachstum der Gruppe antreiben werden:
·
Vom
Wachstum
des
chinesischen
Sicherheitsglasmarktes
durch
Erweiterung des inländischen Vertriebsnetzwerkes und Stärkung der
Marke Hing Wah sowie mittelfristig von der Diversifizierung der Märkte
durch internationale Expansion profitieren:
Als ein maßgeblicher Akteur auf dem chinesischen Sicherheitsglasmarkt
plant die Gesellschaft, das Vertriebsnetzwerk der Gruppe im Inland
weiter auszubauen, um vom weiteren Wachstum des chinesischen
Sicherheitsglasmarktes zu profitieren. Die Gesellschaft hat vor, die
Präsenz des Vertriebsteams in China zu erweitern, indem Provinzen oder
Regionen, die die Gruppe derzeit nicht aktiv bedient, abgedeckt werden
und Regionen, die bereits bedient werden, stärker angesprochen werden,
um die Gruppe näher an ihre derzeitigen und zukünftigen Kunden zu
bringen. So sollen die Bedürfnisse der Kunden besser befriedigt und die
Attraktivität der Produktangebote der Gruppe gesteigert werden. Die
Gesellschaft ist der Meinung, dass diese Expansion die Wahrnehmung der
Marke Hing Wah sowie die Produktverkäufe der Gruppe bedeutend
steigern wird. Die Gesellschaft beabsichtigt ferner, den Verkauf der
Produkte der Gruppe international zu erweitern, um die Abhängigkeit der
Gruppe auf dem chinesischen Inlandsmarkt zu reduzieren.
·
Erweiterung
der
Konsolidierung
der
Produktionskapazitäten
chinesischen
und
Teilnahme
Sicherheitsglasindustrie
an
und
der
dem
Wachstum in westlichen und in zentralen Regionen in China:
Da die Transportkosten für Sicherheits- und Bauglas erheblich sind,
insbesondere bei Lieferungen über weite Entfernungen, hat sich die
Gruppe bislang auf besser entwickelte Provinzen und Regionen in der
Nähe ihres derzeitigen Produktionsstandortes in Guangzhou, Provinz
Guangdong, konzentriert. Die Gesellschaft glaubt, dass der Markt für die
Produkte der Gruppe in diesen Regionen und Provinzen noch weit von
einer Sättigung entfernt ist und plant, weiterhin an dessen zukünftigem
Wachstum
teilzunehmen.
Dazu
möchte
die
Gesellschaft
die
Produktionskapazität und -effizienz der Gruppe an ihrem derzeitigen
Produktionsstandort
in
Guangzhou
durch
die
Errichtung
neuer
Produktionsanlagen, die Aufrüstung ihrer Produktionsausrüstung sowie
durch eine Steigerung der Automatisierung ihres Produktionsprozesses
36
erhöhen. Die Gesellschaft plant zudem, die Anlage in Guangzhou für den
Ausbau ihrer Marktpräsenz in ausgewählten asiatischen Ländern zu
nutzen.
Die Gesellschaft
ist außerdem der Auffassung,
dass
das
zukünftige Verkaufswachstum zunehmend von Regionen und Provinzen in
China ausgehen wird, wo die Gruppe derzeit durch die große Distanz zu
ihrem Produktionsstandort einen Wettbewerbsnachteil hat. Daher plant
die Gesellschaft, eine neue Produktionsstätte in der Stadt Chengdu,
Provinz Sichuan, zu errichten, die näher an den potentiellen Endkunden
liegt, um vom Wachstum sowohl im Sicherheitsglas- als auch im
Bauglasmarkt in diesen Regionen und Provinzen zu profitieren. Die neue
Anlage soll in der zweiten Jahreshälfte 2011 den Betrieb aufnehmen und
die maximale Produktionskapazität in etwa zwei Jahren erreichen.
Außerdem beabsichtigt die Gesellschaft die Produktionskapazitäten der
Gruppe und den Zugang zu erfahrenem Personal und lokalen Märkten in
anderen Teilen Chinas durch Akquisitionen kleinerer Wettbewerber zu
erweitern.
·
Fokussierung
auf
Produkte
Produktinnovationen
im
mit
höherer
Gewinnspanne
sowie
und
auf
den
in
dem
Bauglasmarkt mit niedrigerer Gewinnspanne:
Die
Gesellschaft
plant,
das
Geschäft
der
Gruppe
Sicherheitsglasmarkt zu erweitern, der ein Nischenmarkt ist und sich
durch das Fehlen einer großen Anzahl von Wettbewerbern und einen
hohen Verkaufspreis pro Stück für Produkte auszeichnet. Die Gesellschaft
strebt an, in den kommenden Jahren die Innovationstradition der Gruppe
fortzuführen sowie neue und wettbewerbsfähige Produkte auf den Markt
zu bringen, während die bereits auf dem Markt vorhandenen Produkte
durch
Hinzufügung
neuer
Eigenschaften
oder
Verbesserung
der
Produktleistung verbessert werden sollen. Die Gesellschaft ist der
Ansicht, dass beides wesentlich ist für die Produkttreue der Kunden und
die
Marktstellung
der
Gruppe.
Im
Gegensatz
dazu
erfordert
der
Bauglasmarkt ein hohes Produktionsvolumen sowie Produktionsvielfalt
bei geringeren Gewinnspannen. Um die Nutzungsrate, die das Verhältnis
von
tatsächlicher
Produktionsleistung
und
verfügbarer
Produktionskapazität im selben Jahr meint, ihrer Produktionsanlagen zu
optimieren
und
Vorteile
beim
Einkauf
von
umfangreichen
Ressourcenlieferungen zu generieren, plant die Gesellschaft, dieses
Produktsegment weiterhin zu bedienen, ohne dabei ihren Hauptfokus auf
die Sicherheitsglasindustrie zu verlieren.
37
·
Stärkung der Kapazitäten und des Leistungsvermögens im Bereich
Forschung und Entwicklung (“F&E“):
Die Gesellschaft sieht die F&E-Kapazitäten der Gruppe und deren
Innovationskraft als essentiell an für ihr zukünftiges Wachstum sowie ihre
Fähigkeit,
dominieren.
den
margenstarken
Daher
plant
sie,
die
F&E-Aktivitäten
weiterhin
der
Gruppe
zu
zu
erweitern, und zwar durch eine Steigerung der jährlichen Ausgaben, der
Errichtung eines gesonderten Zentrums für Forschung und Entwicklung
am Hauptsitz der HWG-Ltd. in Guangzhou, eine Steigerung der Anzahl
ihrer Mitarbeiter im Bereich F&E und durch Fortführung ihrer Kooperation
mit etablierten Universitäten und Berufsakademien in China. Es wird
erwartet, dass sich die Aktivitäten der Gruppe im Bereich Forschung und
Entwicklung auf die Einführung neuer Produkte, wie multiresistente
Sicherheitsfenster und verriegelbare Sicherheitstüren (ein spezielles
Türsystem,
welches
zusätzliche
Sicherheitseigenschaften
gegenüber
gewöhnlichen Türen aufweist) konzentrieren werden. Das F&E-Team
plant zudem, Innovationen hervorzubringen, die die Produktionseffizienz
verbessern und Produktionskosten einsparen.
2.1.3
Wettbewerbsstärken
Die Gesellschaft sieht die folgenden Wettbewerbsstärken als unerlässlich für
ihr zukünftiges Wachstum an:
·
Vorreiter der Branche, starke Marktpräsenz und anerkannte Marke in
China
·
Größter Sicherheitsglashersteller in China (Quelle: S. 103 – 105, RMR
Bericht, 2010), der von Skaleneffekten, weitreichenden Vertriebskanälen
und starker Konsumententreue profitiert
·
Kostengünstige
Produktion,
effektive
Kostenkontrolle
und
rentabler
Betrieb
·
Fokus auf reguliertem Produktsegment, das von der Regierungspolitik
und restriktiven Gesetzesvorschriften profitiert
·
Starkes Potenzial im Bereich Produktinnovation
·
Erfahrenes
Management-Team
mit
Industriefachwissen
ausgedehntem geschäftlichem Netzwerk in China
38
und
2.1.4
Weitere
Informationen
zur
Gesellschaft
und
der
China Specialty Glass-Group
Vorstand
Herr Nang Heung Sze, Herr Chun Li Shi und Herr
Aufsichtsrat
Herr Helmut Meyer, Herr Xin Yong Shi und Herr
Volker Schlegel
Grundkapital
und
EUR 15.050.000,00, eingeteilt in 15.050.000 auf den
Aktien
(vor
der
Inhaber lautende Aktien ohne Nennbetrag
Durchführung
des
Börsengangs)
Wirtschaftsprüfer
Der Wirtschaftsprüfer der Gesellschaft ist die Grant
Thornton
(“Grant
GmbH
Wirtschaftsprüfungsgesellschaft
Thornton”),
Domstrasse
15,
20095
Hamburg, Mitglied der Wirtschaftsprüferkammer.
Aktionäre (vor der
Vor der Durchführung des Börsengangs hält Herr
Durchführung
Nang Heung Sze indirekt durch die Luckyway Global
Börsengangs)
des
Group Limited 11.194.957 Aktien (74,39%); 735.568
Aktien (4,89%) werden indirekt von Herrn Ching Hoi
Sze durch die Quick Reach Group Limited gehalten,
524.928 Aktien (3,49%) werden indirekt von Herrn
Hung Hui Ke durch die Expert Intelligence Global
Limited gehalten, 1.694.034 Aktien (11,26%) werden
indirekt von Herrn Yan Kong Wong durch die Sea
Dragon Investments Limited gehalten und 900.513
Aktien (5,98%) werden indirekt von Herrn Chi Mang
Cheung durch die Hong Kong Investments Group
Limited
gehalten.
Die
zuletzt
genannten
vier
Gesellschaften (zusammen die „HW Investoren“)
und die Luckyway Global Group Limited, die auch
Gründungsaktionärin
der
Gesellschaft
ist
(zusammen die „Gegenwärtigen Großaktionäre“),
halten unmittelbar vor dem Börsengang alle Aktien
an der Gesellschaft.
39
Eintragung
Geschäftsjahr
und
Die
Gesellschaft
Amtsgerichts
ist
im
München
Handelsregister
unter
des
HRB 185783
eingetragen. Das Kalenderjahr (d.h. 1. Januar bis
31. Dezember)
Gesellschaft.
ist
auch
Das
das
erste
Geschäftsjahr
Geschäftsjahr
der
war
ein
Rumpfgeschäftsjahr.
Mitarbeiter
Zum 31. März 2011 beschäftigte die China Specialty
Glass-Group
insgesamt
479
Mitarbeiter
(einschließlich Auszubildende). Zum Zeitpunkt des
Prospekts hat sich die Anzahl der Mitarbeiter nicht
wesentlich verändert.
Verschiedenes
Mit der Gesellschaft verbundene Parteien gingen und
gehen
derzeit
geschäftliche
und
rechtliche
Beziehungen mit Gesellschaften der China Specialty
Glass-Group ein.
2.2
Zusammenfassung des Angebots
Angebot
Das Angebot besteht aus einem öffentlichen
Angebot in der Bundesrepublik Deutschland und
Luxemburg
sowie
Privatplatzierungen
in
anderen Staaten außerhalb der Bundesrepublik
Deutschland, Luxemburg und den Vereinigten
Staaten von Amerika. Gegenstand des Angebots
sind bis zu 6.900.000 Inhaberstückaktien der
China
Specialty
Glass
AG
mit
einem
berechneten Wert von jeweils EUR 1,00 und mit
voller
Gewinnanteilberechtigung
ab
und
einschließlich des Geschäftsjahres 2011 (die
„Angebotsaktien“).
Davon stammen
(i) 6.000.000 Inhaberstückaktien aus einem
unentgeltlichen
Wertpapierdarlehen,
welches
Luckyway Global Group Limited der biw AG
40
gewährt hat (die „Lieferungs-Aktien“; siehe
unten
„Lieferung
der
Angebotsaktien
Wertpapierdarlehen“).
Um
Rückübertragungspflicht
Global
Group
ihre
gegenüber
Limited
und
Luckyway
aus
dem
Wertpapierdarlehen zu erfüllen, wird die biw AG
die
Aktien
aus
einer
Barkapitalerhöhung
der
entsprechenden
Gesellschaft
aus
genehmigtem Kapital zeichnen, die am oder um
den 20. Juni 2011 vom Vorstand beschlossen
und vom Aufsichtsrat genehmigt wird, wobei die
dann
vorhandenen
Aktionäre
auf
ihre
Bezugsrechte verzichten. Nach Eintragung der
Kapitalerhöhung
Gesellschaft
in
das
werden
Handelsregister
die
Aktien
aus
der
der
Kapitalerhöhung auf Luckyway Global Group
Limited übertragen.
(ii) 900.000 Inhaberstückaktien stammen aus
einem
unentgeltlichen
Wertpapierdarlehen,
welches Luckyway Global Group Limited, Quick
Reach Group Limited, Expert Intelligence Global
Limited, Sea Dragon Investments Limited and
Hong Kong Investment Group Limited (die
„Greenshoe-Aktionäre“)
Hinblick
auf
eine
der
biw
eventuelle
AG
im
Mehrzuteilung
gewährt haben (die „Greenshoe-Aktien“).
Sowohl
die
Lieferungs-Aktien
Greenshoe-Aktien
sind
Teil
als
des
auch
die
aktuellen
Grundkapitals der Gesellschaft von 15.050.000
Aktien (die „Bestehenden Aktien“), die zum
Börsenhandel
am
regulierten
Markt
der
Frankfurter Wertpapierbörse zugelassen werden
sollen.
Angebotsfrist
Die Angebotsfrist beginnt voraussichtlich am
20. Juni 2011 und endet voraussichtlich am 29.
Juni 2011 und 12.00 Uhr (Mitteleuropäische
Sommerzeit („MESZ“).
41
Kaufangebote
sind
bis
zum
Ende
der
Angebotsfrist frei widerruflich.
Am
letzten
Tag
der
Angebotsfrist
können
Kaufangebote von privaten und institutionellen
Anlegern bis 12:00 Uhr (MESZ) abgegeben
werden.
Preisspanne und
Die Preisspanne, innerhalb derer Kaufangebote
Platzierungspreis
abgegeben werden können, beträgt EUR 9,00
bis 12,00 pro Angebotsaktie.
Nach
Ablauf
der
Platzierungspreis
Angebotsfrist
für
die
(„Platzierungspreis“)
werden
der
Angebotsaktien
sowie
das
Platzierungsvolumen von der Gesellschaft und
den Übernehmenden Banken anhand des im
Bookbuilding-Verfahren
erstellten
gemeinsam
festgelegt.
Der
sowie
Platzierungsvolumen
das
Orderbuchs
Platzierungspreis
werden
auf
Grundlage der von den Investoren während der
Angebotsfrist erteilten Aufträge festgelegt und
im Orderbuch gesammelt.
Es ist vorgesehen, dass der Platzierungspreis im
Anschluss
an
Platzierungspreises
die
in
Festlegung
Form
einer
des
Ad-hoc
Mitteilung über ein elektronisch betriebenes
Informationssystem und auf der Internetseite
der Gesellschaft (www.csg-ag.de) am 29. Juni
2011 veröffentlicht wird.
Insbesondere
für
Platzierungsvolumen
den
nicht
Fall,
dass
das
ausreicht,
um
sämtliche Kaufaufträge zum Platzierungspreis
zu bedienen, behalten sich die Übernehmenden
Banken das Recht vor, Kaufaufträge ganz oder
teilweise abzulehnen.
42
Änderungen der
Die Gesellschaft behält sich, in Abstimmung mit
Angebotsbedingungen
den Übernehmenden Banken, das Recht vor, die
Anzahl der Angebotsaktien zu verringern, die
obere und/oder untere Grenze der Preisspanne
zu ermäßigen oder zu erhöhen und/oder die
Angebotsfrist zu verlängern oder zu verkürzen.
Wenn die Option zur Änderung der Anzahl der
Angebotsaktien, der Preisspanne und/oder der
Angebotsfrist
(zusammen
die
„Angebotsbedingungen“) ausgeübt wird, und
soweit dies nach dem Wertpapierprospektgesetz
erforderlich ist, wird ein Nachtrag zum Prospekt
bei der BaFin eingereicht und nach erfolgter
Billigung durch die BaFin auf der Internetseite
der Gesellschaft (www.csg-ag.de) veröffentlicht.
Soweit dies rechtlich erforderlich ist, werden
alle Änderungen auch in einer Ad-hoc Mitteilung
veröffentlicht. Eine individuelle Unterrichtung
der Anleger erfolgt nicht.
Lieferung der
Die
Lieferung
der
Angebotsaktien
Angebotsaktien und
voraussichtlich
Wertpapierdarlehen
Ablauf der Angebotsfrist gegen Zahlung des
zwei
Platzierungspreises
erfolgt
Bankarbeitstage
an
die
nach
Übernehmenden
Banken (oder den Abrechnungsagenten).
Luckyway Global Group Limited wird einen
Wertpapierdarlehensvertrag
abschließen
und
gemäß diesem Vertrag der biw AG insgesamt
6.000.000 Inhaber-Stückaktien kostenfrei durch
ein
unentgeltliches
Wertpapierdarlehen
gewähren, um die rechtzeitige Lieferung dieser
Aktien an die Investoren zu erleichtern. Die
Greenshoe-Aktionäre
900.000
werden
der
biw
Inhaberstückaktien
“Greenshoe-Aktien”)
im
Rahmen
AG
(die
eines
unentgeltlichen Wertpapierdarlehens für eine
eventuelle Mehrzuteilung zur Verfügung stellen
(siehe „Greenshoe-Aktien, Greenshoe-Option“).
43
Mehrzuteilung/
Im Zusammenhang mit der Platzierung der
Stabilisierung
Angebotsaktien können im rechtlich zulässigen
Umfang
und
im
Angebot
Zusammenhang
mit
Mehrzuteilungen
dem
und
Stabilisierungsmaßnahmen von VISCARDI als
Stabilisierungsmanager vorgenommen werden,
um den Börsen- oder Marktpreis der Aktien der
Gesellschaft zu stützen und einen bestehenden
Verkaufsdruck
auszugleichen.
Stabilisierungsmaßnahmen
können
mit
dem
Zeitpunkt der Aufnahme der Börsennotierung
der
Bestehenden
Aktien
der
Gesellschaft
eingeleitet werden und müssen spätestens am
30. Kalendertag danach abgeschlossen werden.
Greenshoe-Aktien,
Die Greenshoe-Aktionäre werden der biw AG
Greenshoe-Option
vor der Zuteilung der Angebotsaktien 900.000
Inhaberstückaktien (die “Greenshoe-Aktien”)
(maximal 15% der insgesamt zuzuteilenden
Lieferungs-Aktien)
im
Rahmen
eines
unentgeltlichen Wertpapierdarlehens für eine
eventuelle Mehrzuteilung zur Verfügung stellen.
Die Greenshoe-Aktionäre werden der biw AG die
Option einräumen, die Greenshoe-Aktien von
den
Greenshoe-Aktionären
Platzierungspreis
zum
abzüglich
vereinbarter
Provisionen und sonstiger Kosten zu erwerben
(„Greenshoe-Option“),
wodurch
sie
der
Verpflichtung zur Rückübertragung aus dem
Wertpapierdarlehen nachkommen.
Allgemeine
Die Gesellschaft, die Greenshoe-Aktionäre und
Zuteilungskriterien
die
Übernehmenden
„Grundsätze
für
Banken
die
werden
Zuteilung
die
von
Aktienemissionen an Privatanleger“ beachten,
die
am
7. Juni
2000
Börsensachverständigenkommission
Bundesministerium
herausgegeben wurden.
44
der
von
der
beim
Finanzen
Mindestzuteilung
Sobald das Orderbuch geschlossen wurde, wird
eine etwaige Mindestzuteilung festgelegt, und
gemäß
den
Zuteilungsgrundsätzen
veröffentlicht. Es besteht kein Recht auf eine
Zuteilung.
Alleiniger Globaler
VISCARDI AG, Brienner Str. 1, 80333 München,
Koordinator
Deutschland
VISCARDI AG, Brienner Str. 1, 80333 München,
Gemeinsame Buchführer,
Deutschland
Transaktionsführende
biw Bank für Investments und Wertpapiere AG,
Banken und
Hausbroicher
Übernehmende Banken
Deutschland
Verkaufsagenten
DAB bank AG, Landsberger Str. 300, 80687
Str.
222,
47877
Willich,
München, Deutschland
comdirect bank AG, Pascalkehre 15, 25451
Quickborn, Deutschland
Cortal
Consors
S.A.,
Zweigniederlassung
Deutschland, Postfach 1743, 90006 Nürnberg,
Deutschland
S Broker AG & Co. KG, Karl-Bosch-Str. 10,
65203 Wiesbaden, Deutschland
Asiasons WFG Securities Pte Ltd, 5 Shenton
Way, #28-01, UIC Building, Singapur 068808
ING-DiBa AG, Theodor-Heuss-Allee 106, 60468
Frankfurt am Main, Deutschland
Zulassung zum
Ein Antrag auf Zulassung sämtlicher bis zu
Börsenhandel und zur
21.050.000
Börsennotierung
einschließlich
Aktien
der
der
Gesellschaft
Aktien
aus
der
Kapitalerhöhung zum Regulierten Markt an der
Frankfurter Wertpapierbörse zusammen mit der
Zulassung
zum
Teilbereich
des
Regulierten
Marktes mit weiteren Zulassungsfolgepflichten
(Prime Standard) wird voraussichtlich am 29.
Juni 2011 eingereicht. Die Notierungsaufnahme
der Bestehenden Aktien wird voraussichtlich am
zweiten
45
Bankarbeitstag
nach
Ablauf
der
Angebotsfrist, d.h. am 1. Juli 2011, und die
Notierungsaufnahme
Kapitalerhöhung
der
wird
Bankarbeitstage
Aktien
d.h.
der
voraussichtlich
zwei
Eintragung
der
nach
Kapitalerhöhung,
aus
am
13.
Juli
2011,
erfolgen.
Vorzeitige Beendigung
Der Übernahmevertrag, der kurz nach dem
des Angebots
Datum dieses Prospekts unter anderem von der
Gesellschaft, den Greenshoe-Aktionären sowie
den
wird,
Übernehmenden
sieht
vor,
Banken
dass
die
abgeschlossen
Übernehmenden
Banken den Übernahmevertrag bei Vorliegen
von bestimmten Umständen kündigen können.
Dies ist auch nach Lieferung der Aktien möglich.
Im
Falle
einer
Kündigung
des
Übernahmevertrags vor Lieferung der Aktien
findet das Angebot nicht statt. In einem solchen
Fall werden Aktienzuteilungen an die Investoren
ungültig
und
die
Investoren
haben
keinen
Lieferungsanspruch. Ansprüche aus gezahlten
Zeichnungsgebühren und den Investoren im
Zusammenhang
mit
entstandenen
Kosten
ausschließlich
nach
der
Zeichnung
bestimmen
den
sich
rechtlichen
Verhältnissen zwischen dem jeweiligen Investor
und
der
Institution,
bei
der
dieser
ein
Kaufangebot abgegeben hat.
Marktschutzvereinbarung
Die Gesellschaft verpflichtet sich gegenüber den
(Lock-Up)
Übernehmenden Banken, für einen Zeitraum
von
6
Monaten
ab
dem
Tag
der
Notierungsaufnahme der Bestehenden Aktien
der
Gesellschaft
Zeitraum
von
6
sowie
für
Monaten
einen
ohne
weiteren
vorherige
schriftliche Zustimmung der Übernehmenden
Banken:
(a)
46
keine Kapitalerhöhung aus genehmigtem
Kapital durchzuführen;
(b)
keine
Kapitalerhöhung
ihrer
Hauptversammlung vorzuschlagen;
(c)
keine Emission von mit Wandlungs- oder
Optionsrechten
auf
Aktien
Gesellschaft
der
ausgestatteten
Finanzinstrumenten und keine anderen
wirtschaftlich vergleichbare Transaktionen
anzukündigen, durchzuführen oder ihrer
Hauptversammlung vorzuschlagen;
(d)
weder mittelbar noch unmittelbar Aktien
der
Gesellschaft
anzubieten,
zu
zu
verkaufen,
vermarkten,
zu
vertreiben, zu übertragen, zu belasten
oder
in
anderer
Weise
darüber
zu
verfügen;
(e)
keine
Transaktionen
Derivativgeschäfte)
den
oben
(einschließlich
durchzuführen,
genannten
die
wirtschaftlich
entsprechen.
Luckyway Global Group Limited verpflichtet sich
gegenüber den Übernehmenden Banken, für
einen Zeitraum von 12 Monaten ab dem Tag der
der
Gesellschaft
Zeitraum
von
sowie
6
für
Monaten
einen
ohne
weiteren
vorherige
schriftliche Zustimmung der Übernehmenden
Banken:
(a)
die oben genannten Maßnahmen weder
zu initiieren noch ihnen zuzustimmen;
(b)
weder mittelbar noch unmittelbar Aktien
oder
andere
Finanzinstrumente
der
Gesellschaft zu verkaufen, anzubieten, zu
47
vermarkten,
zu
vertreiben,
zu
übertragen, zu belasten oder in anderer
Weise darüber zu verfügen; gleiches gilt
für alle Transaktionen, die wirtschaftlich
einem
Verkauf
Ausgabe
entsprechen,
von
Options-
Wandlungsrechten
Gesellschaft
z.B.
auf
und
oder
Aktien
andere
die
der
vergleichbare
Transaktionen
(einschließlich
Derivativgeschäfte);
(c)
weder direkt noch indirekt zu veranlassen
oder
zuzustimmen,
Gesellschaft
dass
Aktien
oder
Finanzinstrumente,
der
andere
die
in
Aktien
umgewandelt werden können oder ein
Recht
zum
Erwerb
Gesellschaft
verkauft,
von
Aktien
gewähren,
angeboten,
anderweitig
ausgegeben,
vermarktet
abgegeben
der
werden
oder
oder
anderweitig darüber verfügt wird oder ein
Angebot
bezüglich
einer
solchen
Transaktion bekannt gemacht wird.
Weiterhin verpflichten sich Expert Intelligence
Global Limited, Hong Kong Investment Group
Limited, Quick Reach Group Limited und Sea
Dragon Investments Limited gegenüber den
Übernehmenden Banken, für einen Zeitraum
von
6
Monaten
ab
dem
Tag
der
der Gesellschaft keine der oben genannten
Transaktionen durchzuführen.
Diese
Marktschutzvereinbarungen
sind
nicht
anwendbar auf die Ausgabe von Aktien zur
Finanzierung
einer
Akquisition
oder
die
Kapitalerhöhung, nach der die Übernehmenden
Banken
Aktien
werden,
um
48
der
ihre
Gesellschaft
zeichnen
Rückübertragungspflicht
gegenüber Luckyway Global Group Limited aus
dem Wertpapierdarlehen zu erfüllen.
Kosten des Börsengangs
Da sich die Kosten des Börsengangs nach der
für die Gesellschaft
gesamten Anzahl der platzierten Aktien und
dem Platzierungspreis, auf deren Grundlage der
Provisionsbetrag
bestimmt
wird,
richten,
können die Kosten des Börsengangs von der
Gesellschaft
zu
diesem
Zeitpunkt
nicht
zuverlässig eingeschätzt werden. Basierend auf
der Preisspanne, schätzt die Gesellschaft, dass
sich die von der Gesellschaft zu tragenden
Kosten (einschließlich der Provisionen für die
Übernehmenden
Banken
und
angenommen,
dass die Gesellschaft den gesamten Betrag des
freiwilligen leistungsorientierten Erfolgshonorars
bezahlt
sowie
angenommen,
dass
die
Greenshoe-Option in vollem Umfang ausgeübt
wird) auf insgesamt zwischen ca. EUR 4,5 Mio.
und EUR 5,4 Mio. belaufen werden.
Verwendung des
Die Gesellschaft plant, den von der Platzierung
Emissionserlöses
der
Angebots-Aktien
Nettoemissionserlös
auf
zur
sie
entfallenden
Finanzierung
des
weiteren internen und externen Wachstums,
einschließlich
etwaiger
Akquisitionen,
zur
Umsetzung und Finanzierung ihrer strategischen
Ziele sowie für allgemeine Geschäftszwecke zu
verwenden.
Angenommen,
alle
Lieferungs-Aktien
werden
und
platziert
angenommen, die Greenshoe-Option wird in
vollem Umfang ausgeübt, wird der erzielbare
Bruttoemissionserlös
des
Angebots
für
die
Gesellschaft etwa zwischen EUR 54,0 Millionen
bis EUR 72,0 Millionen betragen. Unter der
weiteren
Annahme,
dass
der
auf
die
Gesellschaft entfallende Nettoemissionserlös des
Angebots sich auf etwa EUR 49,5 Millionen bis
EUR
66,6
Millionen
beläuft,
wird
Nettoemissionserlös wie folgt verwendet:
49
der
·
Ungefähr 25% des Nettoemissionserlöses
für
die
Erichtung
einer
neuen
Produktionsanlage in Sichuan;
·
zur Finanzierung des weiteren Wachstums;
·
Ungefähr 5% des Nettoemissionserlöses für
die Errichtung eines neuen Forschungs- und
Entwicklungszentrums;
·
für die Modernisierung und Erweiterung der
Produktionskapazitäten
der
Fabrik
in
Guangzhou;
·
für
die
Finanzierung
Vertriebspartnerschaft
der
mit
exklusiven
dem
Industriekonzern Saint-Gobain;
·
als Betriebskapital.
Wertpapier-Kenn-Nummer
A1EL8Y
(WKN)
International Securities
DE000A1EL8Y8
Identification Number
(ISIN)
Ticker-Symbol
2.3
8GS
Zusammenfassung ausgewählter Finanzangaben
Die derzeitige Struktur der Gruppe mit der CSG-AG als Holdinggesellschaft ist
im November 2010 durch die Einbringung der Anteile an der HWG
HK-Holding als Sacheinlage in die Gesellschaft herbeigeführt worden. Die
CSG-AG selbst wurde am 10. Mai 2010 gegründet und am 18. Mai 2010 ins
Handelsregister eingetragen. Aus diesem Grunde stehen für die Gesellschaft
und für die Gruppe in ihrer gegenwärtigen Form nur der Konzernabschluss
der CSG-AG für das Rumpfgeschäftsjahr 2010 (vom Datum der Entstehung
der Gruppe am 22. November 2010 bis zum 31. Dezember 2010), in dem die
50
Tochtergesellschaften der CSG-AG zum 22. November 2010 konsolidiert
wurden, und der Konzernzwischenabschluss für den am 31. März 2011
abgelaufenen Dreimonatszeitraum, beide aufgestellt nach den International
Financial Reporting Standards („IFRS“), wie sie in der EU anzuwenden sind,
sowie
der
Einzelabschluss
der
CSG-AG
nach
den
Vorschriften
des
Handelsgesetzbuchs (HGB) für das Rumpfgeschäftsjahr 2010 (von der
Gründung der CSG-AG am 10. Mai 2010 bis zum 31. Dezember 2010) als
Jahresabschlüsse
zur
Verfügung.
Für
die
Zeit
vor
ihrer
Entstehung,
insbesondere für die Geschäftsjahre 2008 und 2009, verfügt die Gruppe über
keine historischen
Finanzinformationen
und hat
daher eine komplexe
Finanzgeschichte im Sinne von Artikel 4a der Verordnung (EG) Nr. 809/2004.
Der Konzernabschluss der CSG-AG für 2010 sowie der Einzelabschluss für
2010
sind
von
Grant
Thornton
geprüft
worden,
wohingegen
der
Konzernzwischenabschluss von Grant Thornton einer prüferischen Durchsicht
unterzogen wurde.
Das operative Geschäft innerhalb der China Specialty Glass-Group wird
gegenwärtig
ausschließlich
getätigt
von
ihrer
hundertprozentigen
untergeordneten Tochtergesellschaft HWG-Ltd. mit Sitz in der Volksrepublik
China. Am 31. Oktober und 5. November 2007 hat HWG HK-Holding zwei
Anteilskaufverträge
abgeschlossen
und
zum
am
Erwerb
sämtlicher
15. Januar
2008
Anteile
an
wurde
der
der
HWG-Ltd.
Erwerb
durch
Registrierung der zuständigen Behörde wirksam.
HWG-Ltd.
war
während
des
Berichtszeitraums
die
einzige
operative
Tochtergesellschaft der Gruppe von Bedeutung. Deshalb hat HWG-Ltd.
Abschlüsse für die am 31. Dezember 2008, 31. Dezember 2009 und
31. Dezember 2010 endenden Geschäftsjahre sowie einen Zwischenabschluss
für den am 31. März 2011 endenden Dreimonatszeitraum nach IFRS, wie in
der EU anzuwenden, erstellt, um die Vermögens- Finanz- und Ertragslage der
letzten drei Geschäftsjahre und des ersten Quartals 2011 im Hinblick auf die
Geschäftstätigkeit der China Specialty Glass-Group darzustellen. Diese
Abschlüsse
wurden
von
Grant
Thornton
geprüft
mit
Ausnahme
des
Zwischenabschlusses, der von Grant Thornton einer prüferischen Durchsicht
unterzogen wurde.
Die oben genannten Abschlüsse der HWG-Ltd. stellen keine rechtlich
erforderlichen
Abschlüsse
der
Gesellschaft
dar,
sondern
wurden
auf
freiwilliger Basis für dieses Angebot erstellt. Der Zweck dieser Abschlüsse
besteht darin, Investoren einen Vergleich der Entwicklung der VermögensFinanz- und Ertragslage der China Specialty Glass-Group in den letzten drei
51
Jahren und im ersten Quartal 2011 zu ermöglichen. Da sich ferner der
Konzernabschluss und der Einzelabschluss der CSG-AG lediglich auf ein
Rumpfgeschäftsjahr
(2010)
Finanzinformationen,
die
beziehen,
in
Kapitel
2.4
wurden
die
„Ausgewählte
ausgewählten
Finanzangaben“
wiedergegeben werden, den vorgenannten Abschlüssen der HWG-Ltd. und
dem Konzernzwischenabschluss der CSG-AG für den am 31. März 2011
abgelaufenen Dreimonatszeitraum entnommen.
2.4
Ausgewählte Finanzangaben
In der nachfolgenden Tabelle sind ausgewählte Angaben zu den geprüften
Abschlüssen der HWG-Ltd. für die Geschäftsjahre 2008, 2009 und 2010
sowie
zu
dem
jeweils
einer
prüferischen
Durchsicht
unterzogenen
Zwischenabschluss der HWG-Ltd. und dem Konzernzwischenabschluss der
CSG-AG für den am 31. März 2011 endenden Dreimonatszeitraum (alle
Abschlüsse
nach
IFRS,
wie
in
der
EU
anzuwenden)
enthalten.
Die
Zahlenangaben wurden nach anerkannten Grundsätzen gerundet. Additionen
der Zahlenangaben in der Tabelle können daher zu anderen als den ebenfalls
in der Tabelle dargestellten Summen führen.
HWG-Ltd.
Ausgewählte
Finanzangaben
Zum 31. Dezember endendes Geschäftsjahr
2008
2009
2010
(geprüft)¹
(geprüft)¹
(geprüft)¹
EUR
EUR
Tausend
%
EUR
Tausend
%
Tausend
%
Ausgewählte Angaben
aus der Gewinn-und
Verlustrechnung
Umsatzerlöse
40.216
100%
50.910
100%
69.564
100%
Herstellungskosten
-23.000
57%
-28.032
55%
-38.111
55%
Bruttoergebnis
Aufwendungen für Verkauf
und Vertrieb
17.216
43%
22.878
45%
31.453
45%
-1.205
3%
-1.704
3%
-2.277
3%
-848
2%
-874
2%
-1.038
1%
-965
3%
-1.384
3%
-1.878
3%
14.198
35%
18.916
37%
26.260
38%
Verwaltungsaufwand
Kosten für Forschung und
Entwicklung
Ergebnis aus
Geschäftstätigkeit
Finanzerträge
Finanzierungskosten
Ergebnis vor
Ertragssteuer
Ertragssteuern
Periodenüberschuss
51
0%
47
0%
108
0%
-104
0%
-106
0%
-110
0%
14.145
35%
18.857
37%
26.258
38%
-3.545
9%
-4.726
9%
-4.006
6%
10.600
26%
14.131
28%
22.252
32%
aus der Bilanz
52
Summe der
Vermögenswerte
Summe der
Verbindlichkeiten
Summe des Kapitals
aus der
Kapitalflussrechnung
Cash flow aus
Cash flow aus
Investitionstätigkeit
Cash flow aus
Finanzierungstätigkeit
Zahlungsmittel zum
Periodenende
Verzinsliche
Bankverbindlichkeiten
Nettovermögen
(Zahlungsmittel abzüglich
Verbindlichkeiten)
24.892
31.753
59.651
12.604
6.904
10.299
12.288
24.849
49.352
10.841
11.548
22.343
-710
-185
-4,706
-5.725
-7.672
859
14.330
16.811
37.801
1.383
1.604
1.813
12.947
15.207
35.988
Weitere ausgewählte
Finanzinformationen
Bruttoergebnis-Marge
42,8%
44,9%
45,2%
EBIT
14.198
18.916
26.260
EBIT-Marge
35,3%
37,2%
37,7%
Nettoergebnis-Marge
26,4%
27,8%
32.0%
467
464
451
Zahl der Beschäftigten
¹ Geprüfte Finanzangaben mit Ausnahme von “Weitere ausgewählte Finanzinformationen”, die
sich aus den geprüften Abschlüssen berechnen bzw. ableiten lassen
HWG-Ltd.
Ausgewählte
Finanzangaben
Am 31.März 2011
endender
Dreimonatszeitraum
(prüferische Durchsicht)1
EUR
Tausend
Am 31.März 2010
endender
Dreimonatszeitraum
EUR
Tausend
%
%
Ausgewählte Angaben aus
der Gewinn-und
Verlustrechnung
Umsatzerlöse
16.441
Herstellungskosten
Bruttoergebnis
Aufwendungen für Verkauf und
Vertrieb
Verwaltungsaufwand
Entwicklung
Ergebnis aus
100%
11.454
-8.850
54%
-6.451
56%
7.591
46%
5.003
44%
-609
4%
-441
4%
-326
2%
-190
2%
-391
2%
-338
3%
6.265
38%
4.034
35%
79
0%
18
0%
-30
0%
-22
0%
6.314
38%
4.030
35%
-950
5%
-685
6%
5.364
33%
3.345
29%
Finanzerträge
Finanzierungskosten
Ergebnis vor Ertragssteuer
Ertragssteuern
Periodenüberschuss
der Bilanz²
Summe der Vermögenswerte
100%
61.998
53
59.651
Summe der Verbindlichkeiten
Summe des Kapitals
der Kapitalflussrechnung
Cash flow aus
Cash flow aus
Cash flow aus
Zahlungsmittel zum
Periodenende
Verzinsliche
Nettovermögen
Verbindlichkeiten)
9.627
10.299
52.371
49.352
3.019
6.114
-2.368
-2
-142
-22
36.700
24.668
1.624
1.747
35.076
22.921
46,2%
43,6%
Finanzinformationen
EBIT
6.265
4.034
EBIT-Marge
38,1%
35,2%
Nettoergebnis-Marge
32,6%
29,2%
456
456
¹ Die Zwischenfinanzangaben wurden einer prüferischen Durchsicht unterzogen.
² Die in der Rubrik „Ausgewählte Angaben aus der Bilanz“ für 2010 ausgewiesenen Zahlen
entstammen dem geprüften Abschluss der HWG-Ltd. zum 31. Dezember 2010.
CSG-AG
Ausgewählte
Konzern-Finanzangaben
Am 31.März 2011
endender
Dreimonatszeitraum
EUR
Tausend
Zum 31. Dezember 2010
endendes
Rumpfgeschäftsjahr
(geprüft)
EUR
Tausend
%
der Konzern-Gewinn-und
Verlustrechnung
Umsatzerlöse
16.441
100%
Herstellungskosten
-8.850
54%
Bruttoergebnis
Aufwendungen für Verkauf und
Vertrieb
7.591
46%
Verwaltungsaufwand
Entwicklung
Ergebnis aus
-609
4%
-440
3%
-391
2%
6.151
37%
37
0%
-26
0%
6.162
37%
-950
5%
5.212
32%
Finanzerträge
Finanzierungskosten
Ergebnis vor Ertragssteuer
Ertragssteuern
Periodenüberschuss
der Konzernbilanz
Summe der Vermögenswerte
62.728
60.374
Summe der Verbindlichkeiten
10.051
10.563
Summe des Kapitals
52.677
49.811
54
%
der Konzern-Kapitalflussrechnung
Cash flow aus
Cash flow aus
Cash flow aus
Zahlungsmittel zum
Periodenende
Verzinsliche
Nettovermögen
Verbindlichkeiten)
2.516
-2.386
-138
36.739
37.912
1.624
1.813
35.115
36.099
Konzern-Finanzinformationen
EBIT
46,2%
6.151
EBIT-Marge
37,4%
Nettoergebnis-Marge
31,7%
456
¹ Die Zwischenfinanzangaben wurden einer prüferischen Durchsicht unterzogen.
2.5
Zusammenfassung der Risikofaktoren
Potentielle Anleger sollten die nachfolgend beschriebenen Risiken sowie die
anderen in diesem Prospekt enthaltenen Informationen sorgfältig lesen und
abwägen, bevor sie die Entscheidung zum Kauf von Aktien der China
Specialty Glass AG treffen. Das Eintreten eines oder mehrerer dieser Risiken,
entweder einzeln oder zusammen mit anderen Umständen, kann sich
wesentlich nachteilig auf die Geschäftstätigkeit der China Specialty Glass AG
und/oder ihre direkten bzw. indirekten Tochtergesellschaften auswirken
und/oder die Finanzlage und das Betriebsergebnis der China Specialty Glass
AG
erheblich
beeinträchtigen.
Die
Reihenfolge
der
Beschreibung
der
Risikofaktoren ist kein Hinweis auf die Wahrscheinlichkeit des Eintretens
eines solchen Risikos oder auf die Schwere bzw. Bedeutung der einzelnen
Risiken. Gleichzeitig basieren diese Risikofaktoren auf Vermutungen, die sich
zu einem späteren Zeitpunkt als unzutreffend herausstellen können. Darüber
hinaus können weitere Risiken oder Faktoren, von denen die Gesellschaft
derzeit keine Kenntnis hat, von Bedeutung sein, die Geschäftstätigkeit der
China Specialty Glass-Group schädigen und ihre Finanzlage sowie ihr
Betriebsergebnis erheblich beeinträchtigen. Infolge des Eintretens solcher
Risiken könnte der Börsenkurs der Aktien der Gesellschaft erheblich sinken.
Anleger könnten ihr investiertes Kapital ganz oder teilweise verlieren.
55
Risiken im Zusammenhang mit der Geschäftstätigkeit der China
Specialty Glass-Group
·
Die Märkte für Sicherheitsglas und Bauglas, in denen die Gruppe tätig ist
und ihre Produkte vertreibt, sind von Wettbewerb geprägt. Steigender
Wettbewerb könnte sich negativ auf die Gruppe auswirken.
·
Der Vertrieb eines erheblichen Teils der Produkte der China Specialty
Glass-Group unterliegt sowohl Pflichtzertifizierungen in China (China
Compulsory
Certification),
die
von
einem
zugelassenen
Zertifizierungsinstitut ausgestellt werden, als auch Genehmigungsbögen
für die Anmeldung der Produktion von Sicherheitsprodukten, die vom
örtlichen Pendant des Ministeriums für Öffentliche Sicherheit ausgestellt
werden, und sollte es nicht gelingen, diese Zertifizierungen
oder
Genehmigungsbögen zu erlangen oder erneuern, so könnte dies den
Verkauf der entsprechenden Produkte behindern.
·
Die Geschäftstätigkeit der Gruppe hängt größtenteils von der Nachfrage
nach Panzerglas seitens chinesischer Kreditinstitute (z.B. Banken) und
Automobilhersteller, die Um-/Nachrüstungen vornehmen, ab.
·
Die Gruppe ist in einem hochregulierten Markt tätig und ist abhängig von
der Beibehaltung der Möglichkeit, ihre Produkte an Kunden aus sensiblen
Bereichen der chinesischen nationalen Sicherheit und des chinesischen
Finanzwesens zu verkaufen.
·
Die
China
Specialty
Glass-Group
Betriebsunterbrechungen,
technischen
Schwierigkeiten
unterliegt
Risiken
Qualitätsproblemen
sowie
Risiken
im
und
in
Form
von
unerwarteten
Zusammenhang
mit
Produktsicherheit, Arbeitssicherheit und Umweltschutz.
·
Steigende Materialpreise und Lohnkosten können die Rentabilität der
Geschäftstätigkeit der China Specialty Glass-Group beeinträchtigen.
·
Eine hohe Mitarbeiterfluktuation kann negative Auswirkungen auf die
Gruppe haben.
·
Der Vorstand der Gesellschaft hat keine Erfahrung mit den gesetzlichen
Vorschriften für börsennotierte Unternehmen in Deutschland und hat
keine Deutschkenntnisse und nur ein Vorstandsmitglied spricht englisch.
Zusätzlich verfügt die Gruppe derzeit nur über kleine Abteilungen für
Finanzen und Buchhaltung mit wenig Erfahrung und darüber hinaus über
56
keine Rechtsabteilung. Zudem verfügt die Gesellschaft derzeit über kein
umfassendes
Risikomanagementsystem
oder
umfassendes
internes
Kontrollsystem.
·
Da alle Mitglieder des Vorstands außerhalb Deutschlands leben und zwei
Mitglieder des Aufsichtsrats in Deutschland wohnen, kann der Aufsichtsrat
der Gesellschaft unter Umständen Schwierigkeiten bei der hinreichenden
Überwachung des Vorstands haben.
·
Der Expansionsplan der Gruppe, eine Produktionsstätte in Chengdu,
China, aufzubauen, könnte fehlschlagen.
·
Sollte es der Gruppe nicht gelingen, ihre Expansionspläne durchzuführen
und ihr Wachstum erfolgreich zu gestalten, könnte dies die zukünftige
Leistung der Gruppe negativ beeinflussen.
·
Die internationale Expansionsstrategie der Gruppe könnte fehlschlagen.
·
Die Gruppe könnte auf Schwierigkeiten stoßen, strategische Akquisitionen
von Geschäften und Technologien vorzunehmen.
·
Die China Specialty Glass-Group ist unter Umständen nicht in der Lage,
ihr geistiges Eigentum und Know-how hinreichend zu schützen und dieses
Eigentum bzw. Know-how könnte durch Dritte verletzt werden.
·
Die China Specialty Glass-Group könnte Rechte Dritter am geistigen
Eigentum verletzen und könnte gezwungen sein, sich solche Rechte von
Dritten lizenzieren zu lassen, um tätig zu werden.
·
Die Gesellschaft ist unter Umständen nicht in der Lage, neue Produkte
herzustellen, die ausreichend kommerzielle Akzeptanz erhalten.
·
Die
Exklusivvertriebsvereinbarung
mit
dem
Industriekonzern
Saint-Gobain kann fehlschlagen oder nicht gewinnbringend sein.
·
Mängel
bei
Produkten
der
China
Specialty
Glass-Group
oder
unsachgemäße Handhabung der Produkte können zu einer Rufschädigung
der Gruppe führen und die Geschäftstätigkeit der Gruppe beeinträchtigen.
·
Die China Specialty Glass-Group ist unter Umständen nicht ausreichend
versichert, um ihre potentiellen Risiken zu decken.
·
Der Gruppe könnte es nicht gelingen, Schlüsselpersonal zu binden und
einzustellen,
was
die
zukünftige
57
Leistung
der
Gruppe
negativ
beeinflussen könnte.
·
Die Gesellschaft und/oder die Gruppe sind unter Umständen nicht in der
Lage, eine hinreichende Finanzierung sicherzustellen, um das Wachstum
der Gruppe zu finanzieren.
·
Guangzhou Property Management Center hat die Formalitäten für die
Landnutzungsrechte hinsichtlich einer Fläche von 53 m2 und einem
separaten zugeordneten Grundstück von 9.416 m2, auf denen Gebäude
an HWG-Ltd. vermietet sind, noch nicht abgeschlossen und könnte
infolgedessen die Berechtigung verlieren, die Gebäude weiter zu nutzen.
·
Die
Gruppe
ist
Risiken
Rechtstreitigkeiten,
im
Zusammenhang
Verwaltungsverfahren,
Schadenersatzansprüchen
ausgesetzt,
mit
potentiellen
Bußgeldern
insbesondere
im
oder
Hinblick
auf
Entschädigung von Aktionären, vermeintliche Patentverletzungen sowie
Garantieansprüchen aus Produkthaftung.
·
Die China Specialty Glass-Group muss unter Umständen zusätzliche
Zahlungen für Sozialversicherung und Zuschüsse zum Eigenheimerwerb
(housing funds) leisten.
·
Die Interessen des derzeitigen Großaktionärs Luckyway Global Group
Limited können zu den Interessen der Gesellschaft und anderer Aktionäre
in Widerspruch stehen. Diese Interessenskonflikte können verstärkt
werden, da Luckyway Global Group Limited von Mitgliedern des Vorstands
kontrolliert wird.
·
Die
Gruppe
unterhält
Geschäfts-
und
Rechtsbeziehungen
für
ihre
Geschäftstätigkeiten mit Unternehmen und Personen, die mit der China
Specialty
Glass-Group
oder
deren
Vorstandsmitgliedern
in
Zusammenhang stehen, und wird diese auch weiterhin unterhalten.
·
Die
Gruppe
ist
Wechselkursschwankungen
und
potentiellen
Devisenbeschränkungen ausgesetzt.
·
Der bedeutendste Vermögensgegenstand in der Bilanz der Gesellschaft ist
die HWG HK-Holding, welche im Wege einer Sachkapitalerhöhung
eingebracht worden ist. Eine außerordentliche Abschreibung der HWG
HK-Holding hätte negative Auswirkungen auf die Finanz- und Ertragslage
der Gesellschaft.
·
Die Gesellschaft wurde 2010 zur Holdinggesellschaft der China Specialty
58
Glass-Group,
kurz
Aktiengesellschaft
nachdem
sie
wirtschaftlich
nach
deutschem
neugegründet
wurde,
Recht
und
als
verfügt
deshalb nur über eine kurze Finanzgeschichte, was sich auf die Qualität
und
Vergleichbarkeit
der
Finanzinformationen
der
China
Specialty
Glass-Group auswirken könnte.
·
Die Steuerlast der Gruppe kann infolge von Steuerprüfungen oder
aufgrund der deutschen Gewerbesteuer steigen.
·
Der
Steuerstatus
der
China
Specialty
Glass-Group
als
„Hochtechnologie-Unternehmen“ als Begünstigte des Steuerabkommens
zwischen China und Hongkong oder als „steuerlich im Inland ansässiges
Unternehmen“, die Steuergesetzgebung oder deren Auslegung können
sich verändern, was die Steuerlast der Gruppe erhöhen könnte.
·
Es
bestehen
mehrere
steuerliche
Risiken,
die
zu
höheren
Steuerverbindlichkeiten für HWG-Ltd. oder die Gruppe führen könnten.
·
Die Geschäftstätigkeiten der operativen Gesellschaft der China Specialty
Glass-Group unterliegen den Gesetzen und Vorschriften mit Bezug auf
Umweltschutz und werden diesen auch weiterhin unterliegen.
·
Es
könnte
angenommen
marktbeherrschende
werden,
Stellung
im
dass
chinesischen
HWG-Ltd.
eine
Sicherheitsglassmarkt
zukommt und HWG-Ltd. könnte daher gewissen Beschränkungen des
chinesischen Kartellrechts unterworfen werden.
Risiken
im
Zusammenhang
mit
dem
politischen,
sozialen
und
rechtlichen Umfeld der Volksrepublik China
·
Die Geschäftstätigkeit, finanzielle Lage, das Betriebsergebnis und die
Perspektiven der Gruppe könnten durch das wirtschaftliche, politische und
rechtliche Umfeld sowie die wirtschaftlichen, politischen und rechtlichen
Entwicklungen in China negativ beeinflusst werden.
·
Die
chinesischen
„Bestimmungen
zur
Akquisition
inländischer
Unternehmen durch ausländische Investoren“ (die M&A-Bestimmungen)
können zu erheblichen Beeinträchtigungen für die Gesellschaft führen.
·
Die Gesellschaft ist eine Holdinggesellschaft und unterliegt typischen
Risiken aus ihren Holdingtätigkeiten, z.B. hängt ihre Liquidität davon ab,
ob sie Zugang zu den liquiden Mitteln ihrer operativen Tochtergesellschaft
mit Sitz in China hat.
59
·
Die SAFE Regulations in Bezug auf Offshore-Investments von Bürgern der
Volksrepublik China oder Inhabern eines chinesischen Passes können die
Geschäftstätigkeiten
und
Finanzierungsalternativen
der
Gesellschaft
beeinträchtigen.
·
Die Regelungen der Volksrepublik China für Darlehen und direkte
Kapitalanlagen von Offshore-Muttergesellschaften an Unternehmen der
Volksrepublik China können dazu führen, dass die China Specialty
Glass-Group die Erlöse dieses Angebots nur verzögert oder gar nicht
nutzen kann, oder können die Gruppe daran hindern, die günstigste
Finanzierungsstruktur anzuwenden.
·
Die wirtschaftliche Instabilität in China kann die Geschäftstätigkeit der
Gruppe beeinträchtigen.
·
Eine Destabilisierung des politischen Systems kann die wirtschaftliche
Liberalisierung Chinas bedrohen und sich negativ auf die Geschäfte der
Gruppe auswirken.
·
Epidemien
oder Ausbrüche ansteckender Krankheiten, einschließlich
Vogelgrippe, können die chinesische Wirtschaft und die Geschäfte der
Gruppe wesentlich beeinträchtigen.
·
Das Rechtssystem der Volksrepublik China sowie regionale und nationale
Steuergesetze beinhalten inhärente Unklarheiten und Unstimmigkeiten,
was Unsicherheit bezüglich der Geschäfte der Gruppe schaffen kann.
·
Die mangelnde Unabhängigkeit und begrenzte Erfahrung der Justiz,
Schwierigkeiten bei der Durchsetzung von Gerichtsurteilen sowie der
Ermessensspielraum
der
Regierung
gerichtlichen Entscheidungen
bei
der
Vollstreckung
aus
können dazu führen, dass die China
Specialty Glass-Group keine wirksamen Rechtsbehelfe im Rahmen einer
Gerichtsverhandlung erhalten kann.
·
Die Anerkennung und Durchsetzung ausländischer Urteile in China gegen
die Gesellschaft, ihr Vermögen, Führungspersonal oder Vorstände könnte
für Investoren schwierig oder unmöglich sein.
·
Ausländischen Investitionen in Unternehmen der Volksrepublik China
können Beschränkungen auferlegt werden.
60
Risiken im Zusammenhang mit dem Angebot
·
Die Gesellschaft kann nicht garantieren, dass sich ein öffentlicher
Börsenhandel mit Aktien der Gesellschaft entwickelt.
·
Ein volatiler Börsenkurs für die Aktien kann sich entwickeln.
·
Der
Übernahmevertrag
könnte
aufgehoben
werden,
woraufhin
das
Angebot nicht stattfinden würde.
·
Die Gruppe tätigt ihre Geschäfte durch ihre Tochtergesellschaften und ist
demzufolge jetzt und auch in Zukunft in hohem Maße davon abhängig,
dass die Tochtergesellschaften Dividende an die Gruppe bezahlen, damit
die Gruppe wiederum die Mittel dafür hat, Dividende an ihre Aktionäre
auszuschütten.
·
Für Anleger, die den Aktienkaufpreis fremdfinanzieren, kommt es zu
einem erhöhten Verlustrisiko.
61
3.
RISK FACTORS
The risks described below and the other information contained in this
Prospectus should be carefully read and considered by future investors before
they reach a decision whether to purchase shares in the Company. The
occurrence of these risks alone or in combination with other circumstances
may materially affect the cash flow and business of China Specialty
Glass-Group as well as its financial condition and results of operations.
Moreover, the share price could fall significantly if any of these risks were to
materialize, in which case the investors could lose part or all of their
investment. Additional risks and uncertainties, which are currently not known
to the Company or which the Company currently believes are immaterial,
could likewise impair the business operations and have a material adverse
effect on the cash flow, the results of operations and the financial condition
of China Specialty Glass-Group. Investors should pay particular attention to
the fact that the operating entity of the Group is incorporated in China and
governed by a legal and regulatory environment which in various aspects
may differ from that of other countries. The order in which the risks are
presented does not necessarily reflect the likelihood of their occurrence or
the magnitude of their potential impact on the cash flows, results of
operations and financial condition of China Specialty Glass-Group, its ability
to continue as a going concern or the price of the shares.
3.1
Risks Related to China Specialty Glass-Group’s Business
3.1.1
The Markets for Security Glass and Construction Glass in which the
Group Operates and Distributes its Products Are Competitive.
Increasing Competition Could Have Negative Effects on the Group.
The Group operates mainly in China and especially in the niche security glass
market with a limited number of competitors. In future, the Group plans to
build up new capacities especially for the much larger Construction Glass
Market. Due to the large number of competitors in the Chinese Construction
Glass Market, the competition in this market is significantly higher than in
the security glass market. Irrespective of the current competition in the
security glass market or Construction Glass Market, it cannot be ruled out
that the competition in both markets will increase through the market entry
of new competitors or by market expansion of current competitors. In
addition, China Specialty Glass-Group and its operating company HWG-Ltd.
are smaller than some of their current or potential future competitors. These
competitors may have greater financial, technical, operational and marketing
62
resources than the Group. They may be able to respond more rapidly or
more effectively to new or emerging technologies, changes in customer
preferences,
supplier related developments or
shifts in
the
business
landscape. They may devote greater resources than the Group to the
development, promotion, sale, and after-sales support of their products, thus
making their products more attractive to customers.
Some of the Group's current or potential competitors may have broader and
more trusted customer bases and more extensive or deeper supplier and
other industry relationships that they can use to retain their current
customers and to attract new customers. Some of these companies may
have more established and larger customer support organizations. In
addition, they may adopt more aggressive pricing policies or offer more
attractive terms to customers than they currently do, or than the Group is
able to offer, or they may bundle their competitive products with broader
product offerings and may introduce new and improved products.
Current and potential competitors might merge or otherwise establish
cooperative relationships with each other or with third parties to enhance
their products or market position. As a result, it is possible that new
competitors or new relationships between existing competitors may emerge
and may rapidly acquire a significant market share to the detriment of the
Group's business.
The Group’s competitors may improve the features and performance of their
current products and introduce new technologies, products and services.
Successful new product introductions or enhancements by its competitors
could reduce the Group’s sales or market acceptance of its products, causing
intense price competition and making its products less attractive to its
customers or even obsolete. To remain competitive, the Group must intensify
its investment in and continue to invest significant resources in, amongst
other things, research and development, sales and marketing and customer
support. There can be no assurance that the Group will have sufficient
resources to make these investments or that it will be able to make the
technological advances necessary for its products and services to remain
competitive. Increased competition could result in price reductions, fewer or
smaller customer orders, reduced margins and loss of market share of China
Specialty Glass-Group.
63
3.1.2
The Sale of a Substantial Portion of China Specialty Glass-Group’s
Products is Subject to China Compulsory Certifications Issued by a
Qualified
Certification
Institution
and
Approval
Certificates for
Production Registration of Security Products Issued by the Local
Counterpart of the Ministry of Public Security and Failure to Obtain or
Renew these Certifications or Certificates Could Hinder the Sale of
the Respective Products.
The sale of the Group’s security glass, e.g. bulletproof glass products, is
subject to obtaining China Compulsory Certifications issued by a qualified
certification institution (“3C Certification”) which have to be renewed
annually. The production and sale of bulletproof glass products is also subject
to obtaining approval certificates for production registration of security
products issued by the Guangdong Administration of Public Security. Such
certificates are valid, in general, for four years and are subject to annual
review. Apart from one certification for the sale of two types of security
glass, the Group has normally obtained the required certifications and
certificates as well as the renewal and annual review of the certifications for
its products until now. Nevertheless, the Group cannot exclude that it will fail
in the future to obtain or to have renewed the necessary certifications or
certificates for its products which could hinder the sale of the respective
products and substantially reduce the Group’s sales.
3.1.3
The
Group’s
Business
Depends
Largely
on
the
Demand
for
Bulletproof Glass by Chinese Financial Institutions (e.g. Banks) and
Refitting Automotive Manufacturers.
The demand of Chinese banks and refitting automotive manufacturers for
bulletproof glass contributed in aggregate approximately 82%, 89% and 89%
to China Specialty Glass-Group’s total revenues in 2008, 2009 and 2010,
respectively. The Group distributes its bulletproof glass through its own
distribution network to its commercial customers, i.e. the Group sells directly
to the financial institutions and refitting automotive manufacturers. In doing
so the Group has to comply with the purchase policies of their customers; in
particular the Group has to participate in bidding processes and to maintain
business relationships with competent procurement managers of such
financial institutions and refitting automotive manufacturers. In this respect
the future growth of the Group will depend on the Group’s ability to maintain
and improve these business relationships, in particular since the Group also
generates further sales of bulletproof glass through referrals within the
64
banking and automotive industry. Any failure by the Group to maintain and
to develop its business relationships with Chinese financial institutions and
refitting automotive manufacturers and their relevant purchasers could have
a material adverse affect on the Group’s business.
3.1.4
The Group Operates in a Highly Regulated Market and Depends on
Maintaining its Ability to Sell its Products to Customers in the
Sensitive Areas of Chinese Internal Security and Finance.
The Group operates its security glass business in the sensitive areas of
Chinese internal security and finance. It cannot be excluded that companies,
especially state-owned banks, or government institutions may in future be
obliged to purchase security sensitive products from Chinese companies as
opposed to foreign-owned companies. The Group cannot rule out that its
business
relationships,
especially
with
state-owned
banks,
might
be
negatively affected by the indirect transfer of its subsidiaries in the People’s
Republic of China (“PRC”) to the Company. Any failure by the Group to
maintain its ability to sell its products to its customers, especially
state-owned banks, could have a material adverse affect on its business.
3.1.5
China Specialty Glass-Group is Subject to Risks of Interruptions in
Operation, Quality Problems and Unexpected Technical Difficulties,
as well as to Product Safety, Occupational Safety and Environmental
Risks.
Despite the technical and safety standards which the Group applies to the
operation and maintenance of its production facilities, the risk of operational
disturbances which have occurred in the past cannot be excluded in the
future. Although HWG-Ltd. intends to use some of the proceeds of the
Offering to modernize HWG-Ltd.’s production facilities, China Specialty
Glass-Group might be burdened with greater expenditures for repair and
maintenance than competing companies with more modern production
facilities. Especially production stoppage due to the older or outdated parts of
the production facilities can adversely affect the performance of the Group.
Furthernore, HWG-Ltd. may be forced to provide large financial outlays at
short notice in order to purchase new production facilities and equipment.
In addition, interruptions in production, product quality problems and
unexpected technical difficulties may be caused by (i) external factors, which
the Group is unable to influence, such as natural disasters including
earthquakes, flooding or lightning, war, electricity shortages, acts of
terrorism, international conflicts, governmental policies or decrees, and
65
general strikes, or by (ii) internal factors, which the Group can partially
influence such as technical interruptions, material defects, accidents or
mistakes in operational procedures that cause fire, explosion or release of
toxic or hazardous substances.
In all of these cases humans, third party property or the environment may
sustain damage resulting in material financial liabilities for the Group.
Damage of this kind may have civil or criminal law consequences and may
lead to the closure of relevant production facilities. If any of the operational
or environmental risks occur, the Group’s business, financial condition and
results of operations may be adversely affected.
3.1.6
Rising Material Prices and Labour Costs Could Adversely Affect the
Profitability of China Specialty Glass-Group’s Business.
China Specialty Glass-Group’s production and profitability depend, amongst
other factors, on the availability and purchase price of raw materials such as
normal flat glass and chemical materials such as Polyurethane (“PU”),
Polyvinyl Butyral (“PVB”) films or Polycarbonate (“PC”). Raw material
purchase and direct labour costs account for the majority of the Group’s total
expenses.
The raw material prices are subject to fluctuations. If the raw materials
required by China Specialty Glass-Group for its business activities are not
available or if significant price changes in raw material costs occurs, in
particular for normal flat glass, and the Group is not able to pass on to
customers price increases of such materials in the future, this could
adversely affect the profitability of China Specialty Glass-Group’s business.
The entire workforce of HWG-Ltd., which is currently China Specialty
Glass-Group’s sole operating company, is located in China. Over the last two
years, labour costs amounted to less than 6% of the Group’s entire costs of
sale. These labour costs include wages, social security contributions and
other welfare benefits. Over the last years, wages have increased. Thus,
when comparing the average salary paid to employees who work for
companies which are not exclusively owned by an individual or individuals in
Chinese urban areas in 2009 and those paid in 2008, the average paid salary
increased by approximately 12% (Source: National Bureau of Statistics of
China,
http://www.stats.gov.cn/was40/gjtjj_detail.jsp?searchword=
%C6%BD%BE%F9%B9%A4%D7%CA&channelid=6697&record=2.).
Moreover, a significant increase in the minimum wages has taken place in
the last years: the minimum wages paid in Guangzhou are regulated by local
66
legislation and have risen from RMB 860 per month (as of 1 April 2008) to
RMB 1,100 per month (as of 1 May 2010) and they are expected to increase
even
further,
as
minimum
wages
promulgated
by
the
Guangzhou
Administration of Human Resource and Social Security have been increasing
steadily over recent years. This increase has a direct effect on the wages
paid by China Specialty Glass-Group. Although the Group’s management is of
the opinion that the Group has compensated its employees with satisfactory
salaries in the past, the Group may be forced to increase wages and other
fringe benefits in order to remain an attractive employer.
Moreover, labour costs have been affected by new statutory provisions – the
PRC Labour Contract Law and its interpretative rules – which came into force
on 1 January 2008 and 18 September 2008, respectively. These regulations
imposed additional obligations on employers and enhanced employee
protection measures such as restrictions on the dismissal of employees and
the requirement of a severance payment in case an employment contract
expires or is terminated. Labour costs in China have risen significantly in
recent years and could continue to increase significantly in the future.
Furthermore, some companies in China have responded to recent labour
unrest with a generous increase in workers’ compensations. Although the
management of the Group considers that its labour force has been fairly
treated and compensated, the possibility cannot be excluded that labour
unrest occurs in the Group’s companies in the future. In addition, there is the
possibility that new legal provisions will impose further obligations on
employers. All these potential developments could have a material adverse
effect on the Group’s business, its financial position and profits.
3.1.7
High Fluctuation of Employees May Have a Negative Effect on the
Group.
The Group employs local workers as well as workers from other parts of
China. One factor that influences employee fluctuation is the return of
migration workers to their hometowns during the annual New Year festivals
and the risk that some of them may not return to their employers in China’s
coastal regions. The Group has experienced fluctuation of its employees in
the past and has been able to recruit and train new workers to replace those
who have left. However, if this development recurs and if the Group is not
able to replace its workforce on time and in quality, a loss of know-how and
internal problems in the production processes (e.g. shortage of production
staff) cannot be excluded. This could have a negative effect on the business
operation, financial position and profitability of the Group.
67
In order to identify satisfactory candidates for its workforce, and to reduce
the dependency on migration workers, HWG-Ltd. has signed agreements with
universities and colleges for internships. Under such agreements, the
universities and colleges supply students to work as interns on HWG-Ltd.’s
production lines. Such interns form a significant portion of HWG-Ltd.’s
production workforce. If the internship agreements are terminated or not
renewed and HWG-Ltd. is unable to reach similar arrangements with other
colleges or to replace the interns with other staff, HWG-Ltd. may face
difficulties in meeting the demand for its products due to serious shortages in
its production staff. In addition, if interns are substituted by permanent
employees, HWG-Ltd.’s labour costs may increase significantly. HWG-Ltd.’s
business, financial condition and results of operations may be adversely
affected if any of the abovementioned risks materialize.
3.1.8
The Management Board of the Company Is Not Experienced with
German Legal Requirements for Listed Companies and Has No
German Language Skills and Only One Member of the Management
Board Speaks English Fluently. In addition, the Group Currently only
Has Small Finance and Accounting Departments with Limited
Experience.
Furthermore,
the
Group
Does
Not
Have
a
Comprehensive Risk Management System or Comprehensive System
of Internal Control.
The Group has no experience in complying with German legal requirements
for listed companies. The entire management of the Company resides in
China, none of the management team members speaks German and only one
member of the Management Board speaks English fluently.
The Group currently only has small finance and accounting departments but
does not have a legal department, and is not used to dealing with increased
legal, accounting, transparency and administrative requirements imposed on
a publicly listed company in Germany. The obligation to comply with German
standards of orderly accounting, the regulations of law, corporate governance
requirements and post-admission obligations, in particular requirements
relating to the publication of ad-hoc information, quarterly reports as well as
various other reporting, notification and publication obligations resulting from
the planned listing of the shares in the Company on the Frankfurt Stock
Exchange will put increased demand on its ability to handle legal,
compliance, finance and accounting matters. In addition, due to limited
experience and resources of these departments, the Group has had and may
have difficulties in preparing financial reports on a timely basis.
68
Moreover substantial transactions such as payments of wages and salaries as
well as entertainment expenses have been made in cash in the past. Such a
huge number of transactions may expose the Group to the risk of
misappropriation.
A number of contracts of the Group have not been concluded in writing, for
example some commercial contracts and employment contracts. In addition,
the working hour arrangements for some employees have not been
registered with the labour authority and are not fully in compliance with PRC
employment regulations. It cannot be excluded that the failure to register the
respective employees could lead to additional and unfounded claims in
connection with these contracts or arrangements, such as wage claims, being
asserted against the respective company of the Group and that after one
year of employment without written employment contracts, unfixed-term
employment contracts would be deemed to have been concluded with the
relevant employees.
Additionally, the Group’s risk management system and internal control
system and the Group’s written documentation of legal matters such as
contracts are basic and may not be adequate as required by law and German
standards of orderly accounting. If the Group fails to implement an adequate
risk management system and internal control system and to comply fully
with post-admission obligations, such failures could lead to penalties and
sanctions as outlined under German law. Furthermore, they could also lead
to material errors in the financial statements of the Company, the discovery
of which after publication of these statements could lead to restatements.
Occurrence of such events may have material adverse effects on the
business, financial condition, and results of operations as well as the share
price of the Company.
3.1.9
As all Members of the Management Board Are Located outside
Germany and Two Members of the Supervisory Board Reside in
Germany, the Company’s Supervisory Board May Have Difficulties in
Adequately Supervising the Management Board.
The Company is a holding company in Germany without any significant
operational business of its own while the Group’s assets are largely located in
China. All members of the Company’s management are located outside
Germany due to their attendance to the Group’s business in China and have
no German and only limited English language skills. Two of the Supervisory
Board members are German citizens, and the remaining member of the
69
Supervisory Board is a PRC citizen. The non-German member of the
Supervisory Board has only limited experience in fulfilling his/her obligations
arising from the German Stock Corporation Act (Aktiengesetz). The German
members of the Supervisory Board also have had and may have difficulties in
fulfilling their statutory supervisory duties vis-à-vis the management residing
in China as a result of the physical distance to China and language barriers.
In addition, the members of the Management Board have only limited
experience with German corporate governance requirements and the
Management Board’s statutory reporting obligations. Any lack of supervision
of the Management Board by the Company's Supervisory Board may have
material adverse effects on the business, financial condition, and results of
operations of the Company.
3.1.10 The Group’s Expansion Plan to Set Up a Production Base in Chengdu,
China, May Fail.
The Company intends to increase its production capacities, especially in the
field of construction glass, by setting up a new production base in Chengdu,
Sichuan Province, China, which is to be operated by its indirect subsidiary
HWG-SC. Apart from the usual risks which are related to such an investment
(these could be, amongst other things, higher cost than originally planned,
difficulties in obtaining required permissions or licences or difficulties in
recruiting qualified personnel), the Group faces additional risks related to the
timely completion of construction of the production base in Chengdu.
The investment in
Chengdu
is based
on
a
project investment and
construction contract between HWG-Ltd. and the Management Committee of
Guangdong
-
(“Management
Wenchuan
Industrial
Committee”)
of
May
Park
Administration
2010,
under
which
Committee
HWG-Ltd.
guarantees a certain investment and tax intensity and undertakes to meet
various deadlines for the different plant construction phases. According to a
confirmation letter issued by the Management Committee on 18 October
2010 the construction of the said project was delayed due to a change in the
location of the construction site which is to be determined by the government.
A new site for the project has been selected. However, the Group has not
obtained the respective land use right for the land where the site is located
yet; it has made advance payments in the context of a bidding process which
has not yet been formally completed. The Group expects that the process will
be formally completed in the year 2011 and that the land use rights will
successfully pass to the Group. However, it cannot be excluded that there
will be further delay or that Group will fail altogether to obtain the land use
70
right which could cause the expansion plan of the Group to fail.
Furthermore, HWG-Ltd. and the Management Committee have not entered
into any new agreement or supplemental agreement for an adjusted
construction plan (following the change in the location of the construction site)
until now. This means that the relevant clauses (including the clauses
concerning the construction deadline) of the project investment and
construction contract are not binding. Non-compliance may entitle the
Management Committee to repatriate the respective land use right free of
any compensation, which could cause the expansion plan of the Group to fail.
Investments made by the Group which include the advance payment made in
the context of the land use right bidding process and payments for
construction work could be lost in this case. However, if the non-compliance
by the Company has been caused by the Management Committee, the
Company has the right to adjust its investment and tax intensity accordingly.
The new production base is the first investment in a production base outside
of Guangzhou, Guangdong province, where the currently sole operating
company of the Group, HWG-Ltd., is located. Thus, the Group does not yet
have any experience in managing such projects in other provinces of China
and its lack of experience may lead to mistakes and additional costs.
Furthermore, the production base in Chengdu and HWG-SC will be located
thousands of miles from Guangzhou, where HWG-Ltd. is headquartered. After
the earthquake in the Sichuan province in 2008 the infrastructure is still
under reconstruction and the current infrastructure does not ensure an
appropriate environment for investments. Furthermore, the geographical
distance between the production base in Chengdu and the management of
HWG-Ltd. in Guangzhou will make it difficult for HWG-Ltd. to monitor the
development
of
the
setting-up
of
the
production
base
and
the
post-completion operation of the production base as well as compliance with
the local authorities.
In addition, the new production base shall mainly focus on glass for the
construction glass market. This strategy may fail, in particular, if the Group is
not able to reach the required revenues. The average profit margin which the
Group may generate in the construction glass business is lower than the
profit margin which the Group reaches in the Bank Security Glass or
Automotive Security Glass Market. To reach comparable profits or even to
avoid losses by manufacturing and selling construction glass from the new
production base in Chengdu, the production base in Chengdu has to reach a
high utilization rate, which refers to the ratio between actual production
71
output and the available production capacity in the same year (“Utilization
Rate”), in connection with a respective market demand. In this respect, a
high Utilization Rate of the new production base may be reached with delay,
as the Utilization Rate of the current production base was around 55.9% in
2010 (the calculation of the Group’s Utilization Rate is subject to 24 hours
operation within a 3 shift model). The Group, however, cannot exclude that
in the future the market demand and thus the utilization rates of its
production bases will be low or its construction glass will not meet the
customers’ expectation.
If any of the abovementioned circumstances are to occur, this could have
material adverse effects on the business, financial condition and results of
operations of the Company.
3.1.11 The Group’s Failure to Execute Its Expansion Plans and Manage Its
Growth Successfully Could Adversely Affect the Group’s Future
Performance.
The Group plans to expand its distribution significantly in the following years,
and intends to further advance such growth, in particular, by expanding and
strengthening its production capacity, modernising its product lines as well as
opening new plants, broadening its marketing and distribution network,
investing in an IT-infrastructure, strengthening its research and development
activities and introducing new products. There can be no assurance that the
Group will be successful, in part or at all, in these activities and thus in
gaining additional customers. Any failure, in part or at all, with regard to the
aforementioned activities could cause the Group's expenses to grow
disproportionately to its revenues, and its revenues to decline or to grow
more slowly than expected.
Many investments which are planned by China Specialty Glass-Group require
high initial expenditures as well as ongoing expenditures for modernisation
and expansion. Such investments will only generate profitable return if
utilization
of the increased production
capacity is warranted by the
corresponding market demands. Should the Group build up additional
capacities that remain unused due to erroneous assessments of the market
development, this could jeopardise the Group's profitability to a considerable
extent.
As the Group expands its operations and market reach, it is expected to
increasingly depend on its IT and data processing systems in the future.
Efficient and uninterrupted operations of such systems which partially have
72
to be reimplemented could become essential for the Group’s normal business
operation. Any untimely and lengthy disruption or interruption of the
operation of the IT and data processing systems used by the Group or
problems with the implementation of the new IT and data processing
systems can affect the ability of the Group to effectively run its business and
may therefore adversely affect its financial condition
and results of
operations.
The Group's anticipated future growth, combined with the requirements the
Company will face as a public listed company, will place a significant strain
on the Company's and the Group’s management, systems and resources.
There is a risk that the Company’s and the Group’s management will have
difficulty to manage the various planned investments successfully, or will fail
to integrate new personnel, operations, technology, software, products and
services satisfactorily into its current operations.
3.1.12 The Group’s International Expansion Strategy May Fail.
The Company intends to expand the Group’s customer base outside of China,
in particular with regard to selected Asian markets. The operations as well as
the
entry
into
other
international
markets
will
require
significant
management attention and commitment of financial resources. Multinational
operations are subject to inherent risks, including but not limited to:
·
increased
costs
in
developing
and
purchasing
products
that
are
compatible with varying local needs;
·
longer accounts receivable collection periods and greater difficulty in
accounts receivable collection;
·
longer sales cycles;
·
potential foreign exchange and repatriation controls on foreign earnings,
exchange rate fluctuations and currency conversion restrictions;
·
the burden of complying with a variety of foreign laws, including delays
or difficulties in obtaining import and export licences, regulations and
unexpected changes in the legal and regulatory environment;
·
difficulties and costs of staffing and managing multinational operations;
·
potentially adverse tax consequences, including tax consequences which
may arise in connection with inter-company pricing for transactions
73
between separate legal entities within a group operating in different tax
jurisdictions;
·
development of and adherence to industry standards in international
markets; and
·
difficulties in establishing strategic partnerships and high marketing
expenses to establish brand awareness.
The geographic diversification of its sales minimises the Group’s dependence
on national legislation as well as the impact of economic changes in single
regions. However, the process of internationalisation carries with it a number
of risks, such as general political, macro-economic, social, legal, cultural and
tax framework conditions in the individual countries, unexpected changes of
regulatory requirements and compliance with a multitude of foreign laws and
regulations, which contain rules that are unknown to China Specialty
Glass-Group and may deviate materially from the standards with which the
Group is familiar. Moreover, China Specialty Glass-Group may not be
sufficiently
familiar
with
foreign
practices
and
may
misjudge
the
opportunities and risks that present themselves within the relevant markets.
3.1.13 The
Group
May
Experience
Difficulties
in
Making
Strategic
Acquisitions of Businesses and Technologies.
China Specialty Glass-Group may make strategic acquisitions of businesses
and technologies that it believes complement or enhance its current business
and operations. In pursuing these acquisitions, the Group may face
competition from other companies operating in the specialty glass industry in
which the Group is engaged. The Group’s ability to make acquisitions may
also be limited by applicable antitrust, anti-takeover, foreign exchange
control and other regulations in China and/or any of the other jurisdictions in
which the Group does business after the expansion. If one or more of these
risks materialise, the Group may be unable to make the desired acquisitions
or to complete them on terms attractive to the Group. If this occurs, the
Group’s ability to grow in certain business areas may be adversely affected.
To the extent that the Group is successful in making such acquisitions, the
Group may have to expend substantial amounts of cash, incur debt, assume
loss-making business units and incur other types of expenses. The Group
may also face difficulties in successfully integrating the businesses or
technologies it acquires into its existing organization. Each of these risks may
have an adverse effect on the Group’s business, cash flows, results of
operations and financial condition.
74
3.1.14 China Specialty Glass-Group Might Not be Able to Protect Its
Intellectual Property and Know-How Adequately and They Might be
Infringed by Third Parties.
The Group holds through its operating company HWG-Ltd. patents and other
intellectual property rights registered only in China as well as non-patentable
or not patented trade secrets and confidential and non-confidential know-how
that are important for the business of the Group. The intellectual property
laws in China are still evolving, and the levels of protection and means of
enforcement for intellectual property rights in China differ from those in other
jurisdictions. In the event that the steps the Group has taken and the
protection afforded by the relevant Chinese laws do not adequately safeguard
the Group’s proprietary technologies or products, it could suffer losses in
revenues and profits due to competing companies selling products which are
unlawfully produced based on the Group’s proprietary intellectual property.
According to PRC patent law, a company should make appropriate bonus and
remuneration payments to an employee who is the inventor or designer of a
patent owned by the Company. Three employees of the Group are named as
the inventors of registered patents of HWG-Ltd. All three employees have
given written statements to HWG-Ltd. waiving their respective rights to
receive such bonus and remuneration payments. However, it cannot be ruled
out that an employee will ask for bonus and remuneration payments in the
future.
In addition, the patent application process, including maintenance and
enforcement, in China is time-consuming and expensive. It cannot be
guaranteed that the Group will be granted the necessary patents based on
currently
pending
and
future
applications.
Even
if
patents
raise
a
presumption of their validity under law, their approval alone does not
necessarily ensure that they are valid or that patents claims can be asserted
successfully in the required or desired scope. The Group could find it
necessary to enforce and protect patents, licences and other intellectual
property rights by taking legal action. Such processes can be time-consuming
and expensive. Moreover, it cannot be guaranteed that all of the Group's
patents are valid or that the Group has sufficient legal protection against
infringement and circumvention. In this case, the Group could lose such legal
disputes, which could limit, prevent or at least substantially delay the further
marketing or launch of such products.
The Group also depends on the existence and protection of its trademark
75
rights, which are registered only in China where the Group sells the majority
of its products. Trademark protection is mainly guaranteed through the right
to take court action against illegal use of a trademark. Effective trademark
protection therefore requires extensive control and research. If the Group
does not identify the illegal use of its trademarks early enough or at all, or if
the Group is unsuccessful in taking court action to protect its trademark
rights, this could adversely affect the reputation and image of the Group at
customer level or could adversely affect its ability to effectively protect its
trademarks.
3.1.15 China Specialty Glass-Group Could Infringe on the Intellectual
Property Rights of Third Parties or Have to License Such Rights from
Third Parties in Order to Operate.
China Specialty Glass-Group owns granted utility patents and pending
invention patents relevant for its products and production technologies in
China. However, it can not be excluded that the Group’s competitors may
have broader patent and other intellectual property rights in and outside of
China, causing the Group to infringe on these rights. Thus, the Group may be
prevented from using the relevant technologies in the countries in which the
Group may distribute its products. This holds true regardless of whether the
Group had previously used these technologies in China or other countries in a
permitted way and had failed to apply for a patent. In all of these cases, the
Group could possibly be denied the opportunity to manufacture or market
products, and the Group would then be forced, if applicable, to acquire
licences or change manufacturing processes. Moreover, the Group could be
obliged to pay damages for patent infringement or infringement of other
intellectual property. In addition, the Group’s competitors could prohibit the
Group from producing or selling such products in countries in which the
respective competitor holds higher priority patent protection. The Group
could also be forced to rely on obtaining access to third-party technologies by
acquiring licences, which would incur significant costs. Moreover, it cannot be
guaranteed that the Group will be able to obtain the licences required for the
success of its business at reasonable terms and conditions in the future. In
addition, it cannot be guaranteed that licences acquired will be granted in the
required scope.
76
Because the Group has neither registered nor applied for registration of any
trademark outside China and part of the Group’s products have been
exported out of China by the Group’s customers, the possibility that the
Group is infringing on third-party rights in connection with trademarks cannot
be excluded.
Furthermore, the trademark used by the Group is registered in the PRC only
for defined products under the category 19 which may not be broad enough
to cover all the products of the Group which use the trademark, especially for
automotive security glass products. In addition, the Chinese characters of the
Hing Wah trademark are not yet registered. HWG-Ltd. has applied for
registration
and the Chinese trademark office has made
preliminary
examinations. If the registration of this trademark is unsuccessful, this will
hinder its usage which could have an adverse effect on the Group’s business
operations.
3.1.16 The Company May Be Unable to Produce New Products That Gain
Sufficient Commercial Acceptance.
The Group’s success in the business area of security glass and construction
glass depends on its ability to develop new, innovative, customer-oriented
and competitive products and to produce them timely, cost-efficiently and in
quantity that can meet the market demands. The ability to develop products
in the security glass and construction glass market and to sell them
successfully depends on a number of factors, including, but not limited to the
following:
·
the ability to attract and retain skilled technical employees;
·
the ability to assess changes in customer preferences and technologies at
the relevant point in time;
·
the ability to successfully complete the development of products in a
timely manner; and
·
the ability to sell products at an acceptable price and quality.
Should the Group fail to substantially maintain or further develop its product
portfolio of security glass and construction glass, customers may elect to
source comparable products from competitors, which could have an adverse
77
impact on the net assets, financial condition and the results of operation. The
same adverse effects will apply if the Group is unable to maintain its existing
customer relationships or to offer innovative services to its customers.
Furthermore, if alternative materials, production processes or technologies
are developed or existing ones are improved, this may facilitate the
production of new products replacing those currently offered in the security
glass and construction glass area. If such newly developed or further
improved products are offered at lower prices, have preferable features or
other advantages, and the Group is not able to offer similar new or improved
products, this may cause material sales losses that have an adverse impact
on the net assets, financial condition and the results of operation.
3.1.17 The Exclusive Distributorship Agreement with the Industrial Group
Saint-Gobain May Fail or May Not Be Profitable.
On 27 May 2011, the Group’s operating company HWG-Ltd. concluded an
exclusive distributorship
agreement
with
the
Saint-Gobain
Group,
an
industrial group with its headquarters in Courbevoie, France, which produces
a range of construction and high-performance materials (“Saint-Gobain”),
specifically with the group company Miroiteries du Rhin SAS, Bennwihr,
France. According to this agreement, Saint-Gobain grants China Specialty
Glass-Group the right to exclusively distribute various glass products (the
“Exclusive Products”) in China and a non-exclusive distribution right with
regard to certain other products of Saint-Gobain (the “Non-exclusive
Products”,
together
with
the
Exclusive
Products
the
“Saint-Gobain
Products”). The agreement stipulates that HWG-Ltd. shall purchase certain
minimum volumes of the Exclusive Products which are specified in the
agreement. According to the agreement, a fixed consideration has to be paid
for the exclusivity in addition to the respective purchase prices for the
delivered Saint-Gobain Products.
The exclusive distributorship agreement could turn out to be unprofitable for
the Group should the sales volume of the Saint-Gobain Products not reach
the level expected by the Group. In particular, the achieved sales volume
could be lower than expected due to competitors that sell glass products on
the Chinese market which are of a better quality or which are cheaper,
especially since the price level for products of a comparable quality is usually
lower in China than in Europe.
Furthermore, any failure by the Group to meet the minimum purchase
volumes for the Exclusive Products within the term determined in the
78
agreement
entitles
Saint-Gobain
to
terminate
the
exclusivity
of
the
distributorship with regard to the Exclusive Products, which could adversely
affect the sales of these products by the Group.
The purchase prices for the Saint-Gobain Products are renegotiated on a
yearly basis. Should the parties of the agreement fail to agree on the future
purchase prices either party is entitled to terminate the agreement, in which
case part of the fixed consideration, depending on the time of termination,
will not be reimbursed. This could have a material adverse affect on the
Group’s business, financial condition and results of operations.
3.1.18 Defects or Improper Handling of the China Specialty Glass-Group’s
Products Could Result in a Damage of its Reputation and Could
Adversely Affect the Group’s Business.
Defects or improper handling of the Group’s products may cause serious
personal injury when violence or accidents occur, in particular when the
security glass does not meet the safety standard for which it was developed
and sold. Although there are quality control measures in place, the products
may contain undetected defects, especially when first introduced or when
new models or versions are released. Should any person be seriously harmed
or killed due to product defects or improper handling of the Group’s products,
this could significantly damage the reputation of the China Specialty
Glass-Group and could result in the rejection of the Group’s products, the
loss of customers, the diversion of resources or increased customer service
and support costs. Such risks could be amplified in a market segment with a
limited number of customers such as the Automotive Security Glass Market
in China in which the Group distributes its security glass. Product defects or
improper handling of the Group’s products could thus adversely affect the
Group’s business, its financial condition and results of operations.
3.1.19 China Specialty Glass-Group May Have Insufficient Insurance to
Cover Its Potential Risks.
Chinese companies are not required to maintain product liability insurance
cover under Chinese law. However, the Group has entered into a product
liability insurance agreement with regard to the products with limited
insurance cover. It cannot be ruled out that companies of the Group may
face product liability claims to an extent which exceeds the cover of its
product liability insurance and thus the insurance may be insufficient.
Furthermore, the Group cannot exclude that it will be successful in
maintaining
or
concluding
product
79
liability
insurance
agreements
at
commercially reasonable rates and thus the Group may not be sufficiently
insured against future product liability claims. In addition, the Group is
subject to numerous other risks including natural disasters, potential
business disruptions or potential litigation, for which the Group has not
obtained any insurance. Therefore, all potential losses resulting from such
risks or business liabilities, loss of data, equipment/machines and employer
liabilities or disruption are currently not covered within the Group. Any
product defects, business disruptions, litigation or natural disasters might
result in the Group incurring substantial costs and may require the
reallocation of the Group’s resources. The occurrence of insufficient and
uninsured damages could have material adverse effects on the business,
financial condition, and results of operations of the Group.
3.1.20 The Group Could Fail to Retain and Recruit Key Personnel, which
Could Adversely Affect the Future Performance of the Group.
The future performance of the Group will depend largely on its ability to
retain its key management, in particular Mr. Nang Heung Sze, the only
English speaking member of the management board Mr. Chi-Hsiang Michael
Lee and the other directors in its currently sole operating company
HWG-Ltd., especially Mr. Chao Zhou, Mr. Chun Li Shi and Mrs. Xueyan Wang.
The Group’s future success will also depend upon its ability to recruit or train
qualified personnel for its current and future operating companies, in
particular for its R&D, management and sales departments. The Group
cannot ensure that it will be able to retain and recruit qualified key personnel
for its operating companies.
Moreover, key personnel might move to competitors or form a competing
company and compete with the Group for customers, business partners, and
other key professionals of the Group using their experience and expertise or
decide not to choose companies of the Group as employer. Although most
individuals in key positions within the Group have signed confidentiality and
non-competition agreements in simple form in connection
with their
employment, the Group cannot assure that it will be able to enforce these
agreements successfully and prevent its current key personnel from moving
to one of its competitors.
Furthermore, the Company’s Chief Executive Officer (“CEO”) and the indirect
major shareholder, Mr. Nang Heung Sze, had owned or controlled various
companies which were active in the glass industry in addition to China
Specialty Glass-Group. Although his ownership or control in those companies
80
has almost completely ceased, it cannot be fully excluded that Mr. Nang
Heung Sze may divert know-how and future inventions from China Specialty
Glass-Group to one of the competing companies if he chooses to leave the
Group. This could result in China Specialty Glass-Group losing valuable
intellectual
property
and having to
acquire
this intellectual
property
elsewhere. Additionally, the other companies or newly founded companies
not belonging to China Specialty Glass-Group, which are or were owned by
Mr. Nang Heung Sze could compete with China Specialty Glass-Group and
cause the Group to lose a part of its market share.
The loss or reduced engagement, for whatever reason (e.g. illness), of any of
the aforementioned persons without suitable replacement could have
material adverse effects on the business, financial condition and results of
operations of the Group.
3.1.21 The Company and/or the Group May Not Be Able to Secure Adequate
Financing to Fund the Group’s Growth.
In order to finance the Group’s growth strategy, the Company and/or Group
may have to raise additional capital in the future through debt or equity
offerings. However, the Company and/or the Group cannot be certain that
suitable financing will be available at the relevant point in time, in the
required amounts or on acceptable terms.
If additional equity or equity-like securities are issued by the Company, this
may result in the dilution of existing shareholders’ holdings. If any of the
abovementioned risks, restrictions or effects materialise, it may have
material adverse effects on the Group’s business, financial conditions and
results of operation. If additional debt was incurred by the Company and/or
the Group, this would result in debt service obligations of the Company
and/or the Group which could have a negative impact on their profitability
and could increase their vulnerability to general adverse economic and
industry conditions or to the materialization of any of the risks mentioned
herein. In addition, the terms of any financing agreement of a company of
the Group could limit its ability to pay dividends or restrict its flexibility in
planning for, or reacting to, changes in its business or its industry.
Moreover, HWG-Ltd. has to obtain approval from the Ministry of Commerce
or its local counterpart to increase its total investment and is subject to
foreign exchange registration if it intends to borrow funds from entities
outside of China. Loans borrowed by HWG-Ltd.’s subsidiary HWG-SC from
outside China are subject to approval from the National Development and
81
Reform Commission or its local counterpart as well as approval by, and
registration with SAFE or its local counterpart.
In addition, HWG-Ltd. and HWG-SC will need to obtain approval and
complete registration formalities if they intend to secure financing through
equity contributions.
In the event that HWG-Ltd. and HWG-SC cannot obtain the necessary
financing on reasonable terms, or at all, they may be forced to scale back
their plans for future business expansion.
Furthermore, HWG-Ltd. and HWG-SC are subject to certain restrictions on
the amount of foreign debt they can borrow (see also section 3.2.5 “PRC
Regulations pertaining to Loans and Direct Capital Investments by Offshore
Parent Companies to PRC Entities May Delay or Prevent China Specialty
Glass-Group from Using the Proceeds of this Offering or from Adopting the
Most Favourable Financing Structure.”). If the Group were not able to provide
HWG-Ltd. or HWG-SC with adequate financial resources, this would have a
negative impact on the financial conditions of the Group.
3.1.22 Guangzhou Property Management Center has Not Completed Land
Use Right Formalities with regard to an Area Covering 53 Square
Meters and a Separate Piece of Allocated Land of 9,416 Square
Meters on which the Buildings are Leased to HWG-Ltd. and thus
Might Not be Allowed to Use the Buildings any more.
The granting formalities for a land use right (the right to utilize a certain
piece of land; land in urban areas of China belongs to the State and only
rights to use are issued to private enterprises or citizens) have not been
completed with regard to an area covering 53 square meters and a separate
piece of allocated land of 9,416 square meters on which the buildings are
leased to HWG-Ltd., the currently sole operating company of the Group.
According to the PRC laws, land and buildings are not permitted to be leased
before the land use right granting formalities have been completed. The legal
consequence of such a lease before completion of the formalities is, with
regard to the two pieces of land described above, that the income (i.e. the
rental) received by the owner of the buildings, Guangzhou City Liwan District
Yaoxiang Property Management Center (previously Guangzhou City Liwan
District Qianjin
Glass
Factory) (“Guangzhou Property Management
Center”), will be confiscated by the competent authority; and Guangzhou
Property Management Center as the lessor will be subject to a certain penalty.
82
Guangzhou Property Management Center’s sole shareholder, Mr. Chun Li Shi,
has undertaken to handle the formalities granting the land use right for the
area of 53 square meters and the piece of allocated land of 9,416 square
meters to achieve a valid lease contract. Furthermore, an additional
undertaking to bear any administrative and civil responsibility arising from
the failure to complete the formalities has been provided by Guangzhou
Property Management Center’s sole shareholder Mr. Chun Li Shi with respect
to the allocated land. However, the leases have been registered with the local
administration of real estate and the administration has not imposed or
indicated any intention to impose any fine or other penalty. Even though no
legal penalties have been imposed on HWG-Ltd. under PRC laws, there is a
risk that HWG-Ltd. will not be allowed to use the buildings any more, which
may have a detrimental impact on the asset, financial and profit situation of
China Specialty Glass-Group as well as its general business activities.
3.1.23 The Group Is Exposed to Risks Relating to Potential Legal Disputes,
Administrative Proceedings, Fines or Damage Claims, in Particular
with Respect to Shareholder Compensation, Alleged Patent Breaches,
as well as Warranty Claims from Product Liability.
In its operating business, the Group is exposed to liability risks, especially in
connection with product liability or warranties. Although the Group has no
pending litigation, the outcome of future proceedings cannot be predicted
with certainty due to the uncertainties always associated with legal disputes
and administrative proceedings. The realisation of one or more legal
disputes, proceedings or damage claims could have materially adverse
effects on the asset, financial position and results of operation of the Group.
3.1.24 China Specialty Glass-Group May Be Required to Make Additional
Payments for Social Insurance and Housing Funds.
According to PRC law in general and Chinese regulations for social insurance
and housing funds in particular, China Specialty Glass-Group is, amongst
others, required to make contributions to the social insurance and housing
funds of its employees. In 2006, the Group started to make payments for
social insurance to its full time employees, but cannot exclude that additional
payments might be requested. In addition, payments with regard to housing
funds have not been made. The Group was not obliged to and has therefore
not made any provisions relating to possible claims for additional payments.
The Company believes but cannot guarantee that such claims would not
exceed EUR 264,000 in total as of 31 December 2010. The current indirect
83
major shareholder Mr. Sze has signed a letter undertaking that he will
reimburse HWG-Ltd. for any losses incurred due to such outstanding
payment obligations.
3.1.25 The Interests of the Current Major Shareholder Luckyway Global
Group Limited May Conflict with the Interests of the Company and
Other Shareholders. These Conflicts of Interests May Be Amplified as
Luckyway Global Group Limited is Controlled by Members of the
Management Board.
The current major shareholder Luckyway Global Group Limited holds 74.39%
of the Company. Assuming placement of all Offered Shares, Luckyway Global
Group Limited will hold 53.18% of the shares (or approximately 50.00% if
the Greenshoe Option is fully exercised). Luckyway Global Group Limited will
still have a significant impact on the important resolutions of the Company. It
will still be able to exercise considerable influence on important resolutions of
the Company at the General Shareholders’ Meeting of the Company
(including the election of the Supervisory Board and the approval of
important capital measures). It cannot be ruled out that the interests of
Luckyway Global Group Limited could conflict with its duties as a Company’s
shareholder to act in the best interests of the Company and/or interests of
other shareholders and it could exercise its influence over the Company to
the detriment of the Company.
Further conflicts may arise due to the fact that Luckyway Global Group
Limited is controlled by a member of the Management Board. In this respect,
Mr. Nang Heung Sze, who is a member of the Management Board as is his
son Mr. Chun Li Shi, controls Luckyway Global Group Limited. Thus, the
indirect shareholding of Mr. Nang Heung Sze could conflict with the individual
interests of Mr. Nang Heung Sze and Mr. Chun Li Shi and their office duties
as members of the Management Board to act in the best interests of the
Company and/or interests of other shareholders. Conflicts of interest could
have an adverse effect on the valuation of the Company’s shares, its results
of operations and its financial condition.
3.1.26 The Group Maintains and Will Continue to Maintain Business and
Legal Relationships for Its Business Operations with Companies or
Persons That Are Related to China Specialty Glass-Group or Its
Board Members.
The Group has entered and will continue to enter into transactions with
related persons or related parties. In particular, HWG-Ltd. concluded two
84
trademark license contracts with Mr. Nang Heung Sze in 2005 and 2008. The
two trademarks used by HWG-Ltd. as licensee were subsequently transferred
from Mr. Nang Heung Sze to HWG-Ltd. according to a trademark transfer
agreement concluded in 2010 (the registration of the transfer of one of the
two trademarks is still pending and the transfer has therefore not yet become
legally effective). In addition, HWG-Ltd. leases office premises and plants
under lease agreements entered into with (i) Mr. Chun Li Shi, Chief Operating
Officer (“COO”) of the Company and son of Mr. Nang Heung Sze who is the
CEO of the Company and its largest indirect shareholder, and (ii) Guangzhou
Property Management Center, a company wholly owned and controlled by Mr.
Chun Li Shi, respectively. Moreover, loan guarantees were provided by
Mr. Nang Heung Sze and Mr. Chun Li Shi and mortgages were provided by
Guangzhou Property Management Center to secure loans borrowed by the
PRC subsidiary of the Group in the past and similar guarantees could be
provided in the future. At the time of providing such guarantees, Mr. Nang
Heung Sze was the actual controller and Mr. Chun Li Shi the director of
HWG-Ltd.
According to the Company some related party transactions were not
concluded at arm’s length, e.g. Mr. Sze granted the use of the trademarks
free of consideration to HWG-Ltd. and the payment for one of the lease
agreements concluded with a related party in 2010 has been paid in advance
for a time period of 29 years.
Said related party transactions may cause conflicts between the interests of
the Group on the one hand and the interests of persons or companies related
to the Group on the other hand. Such conflicts of interest may be resolved to
the detriment of China Specialty Glass-Group and could lead, for example, to
the
conclusion
of
contractual
terms
and
conditions
which
are
disadvantageous to the Group. There is an increased risk in the case of
contracts and relationships with related parties that the contractual terms
and conditions are not in line with the market and may diverge from the
market standard to the detriment of the Group.
The Group has leased all of its office premises and plants from related parties
or companies controlled by related parties. Although some of the lease
agreements have long periods of validity, it cannot be excluded that, on
expiration of the lease terms, the Group cannot lease these office premises
and plants at similar market conditions and rates.
85
3.1.27 The Group is Exposed to Fluctuations in Foreign Exchange Rates and
to Potential Exchange Restrictions.
The single entity financial statements of HWG-Ltd. and the consolidated and
single entity financial statements of CSG-AG included in the Financial Section
of this Prospectus as well as future financial statements of CSG-AG will be
presented in EUR, whereas the Group's operating currency is RMB, which is
currently not a freely convertible currency. A devaluation of the RMB versus
the EUR would therefore have an adverse currency conversion effect on the
Group’s future consolidated financial statements. As the value of the RMB is
controlled by PRC authorities, it is also possible that foreign exchange policies
of the PRC government could have a significant impact on currency exchange
rates.
The Company'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. Fluctuations in
currency exchange rates could have material adverse effects on the business,
financial condition and results of operations of the Company and the Group.
Furthermore, it cannot be excluded that the PRC authorities or other
authorities could implement exchange restrictions. This could limit the ability
of the Group to pay dividends or to transfer funds between the different
companies of the Group.
3.1.28 The Most Significant Asset in the Financial Statements of the
Company Is HWG HK-Holding, Which Has Been Contributed through
a Capital Increase by Way of Contribution in Kind. An Extraordinary
Depreciation of HWG HK-Holding Would Have Negative Effects on the
Company’s Financial Position and Profitabilty.
The registered share capital of the Company amounts to EUR 15,050,000.00
and is comprised of 15,050,000 ordinary no-par value shares. The registered
share capital was mainly generated by means of a capital increase from EUR
50,000.00 by EUR 15,000,000.00 to EUR 15,050,000.00 and the issuance of
15,000,000 no-par value shares against contributions in kind of HWG
HK-Holding into the Company. The capital increase became legally effective
with its registration with the local court of Munich on 22 November 2010. The
capital increase was based on a valuation certificate confirming that the
86
value of HWG HK-Holding is sufficient to cover the registered value of the
capital increase. The auditor for contributions in kind performed the
evaluation of HWG HK-Holding in accordance with the professional valuation
standard in Germany published by the Institute of Accountants/Auditors
(IDW S1). The auditor took into consideration the projections made by
HWG-Ltd. and arrived at a valuation which is higher than the registered
capital of the shares. It cannot be excluded that the company value of HWG
HK-Holding would have been valued differently had different enterprise
valuation methods and criteria being used. Moreover, the risk that a
depreciation of value occurred or will occur after the valuation cannot be
excluded either. In case a different value of the contributed shares in HWG
HK-Holding materialises, it cannot be excluded that possible differential
liability claims are asserted and/or that corrections regarding the valuation
approach are made in the statement of financial position. This could again
have a negative impact on the company’s financial position.
3.1.29 The Company Became the Holding Company of China Specialty
Glass-Group in 2010 Shortly after the Company Was Acquired by the
Founding Shareholder Luckyway Global Group Limited and Therefore
has a Short Financial History which May Impact the Quality and
Comparability
of
China
Specialty
Glass-Group’s
Financial
Information.
The Company is a shelf company which was bought by Luckyway Global
Group Limited and therefore the Company has no financial history prior to
the purchase by Luckyway Global Group Limited in 2010.
The financial information included in this Prospectus has been extracted or
derived from the financial statements of HWG-Ltd. for the years 2008, 2009,
2010 and the interim financial statements for the first quarter of 2011 as well
as consolidated financial statements of CSG-AG for the short financial year
2010 (from 22 November 2010 until 31 December 2010) and the
consolidated interim financial statements of CSG-AG for the three months
ended 31 March 2011 as well as the single entity financial statements of
CSG-AG for the short financial year 2010 (from 10 May 2010 until 31
December 2010). All the aforementioned financial statements have been
prepared in accordance with IFRS, as endorsed for application in the EU, with
the exception of the single entity financial statements of CSG-AG which are
in accordance with the German Commercial Code (Handelsgesetzbuch –
HGB). For a number of reasons, the comparability of the financial information
presented in this Prospectus is subject to significant limitations. As China
87
Specialty Glass-Group is in constant and rapid growth this time lag affects
the direct comparisons between the different financial years. Therefore, the
historical financial information included in this Prospectus may not be
comparable to future periods and may not be indicative of the Group’s future
results of operations, financial condition or cash flow. Any of the above may
impact the quality and comparability of China Specialty Glass-Group’s
financial information.
3.1.30 The Tax Burden of the Group May Increase as a Result of Tax Audits
or as a Result of German Trade Tax.
Until today, neither Chinese nor Hong Kong or German tax authorities have
exercised their right to conduct a tax audit with respect to companies of the
Group. Tax audits are not carried out on a regular basis by the Chinese tax
authorities. Future tax audits may reveal that the tax authorities have views
on tax regulations and circumstances that are different from those of the
Group. In particular, the possibility cannot be excluded that the Group or the
companies of the Group will be required to make additional tax payments.
Dividend distributions from HWG HK-Holding to the Company are inter alia
subject to German trade tax at the level of the Company. A portion of 95% of
these dividends is exempt from German trade tax only (i) to that extent that
the profit of HWG HK-Holding results from dividend distributions from
HWG-Ltd. and HWG-SC in the same business year and (ii) if HWG-Ltd. and
HWG-SC qualify as ordinary operating companies in terms of the trade tax
participation exemption regime which includes inter alia manufacturing,
processing or assembly of tangible property, trade other than with related
parties who make profits from such trade that is taxable in Germany and
which excludes inter alia raising and lending capital and profit distributions
from other companies and (iii) if the Company is able to prove these
requirements towards the German Tax Authorities when it applies for such
exemption. Otherwise dividend distributions from HWG HK-Holding to the
Company are fully taxable for trade tax purposes for the Company. This
increases the tax burden of the Company and has a negative impact on its
financial situation.
In connection with the risk of additional tax payments, there is also an
interest risk because, typically after a grace period, interest must be paid on
additional tax payments. Furthermore, there is a risk that tax penalties could
be triggered in connection with any potential reduction of tax loss carry
forwards or additional tax payments.
88
3.1.31 The Tax Status of China Specialty Glass-Group as a “high-tech
enterprise”, a beneficiary of the tax arrangement between the PRC
and Hong Kong or as a “tax resident enterprise” or Tax Legislation or
Its Interpretation Might Change which could increase the Tax Burden
of the Group.
The PRC Enterprise Income Tax ("EIT") Law was passed in March 2007 and
took effect on 1 January 2008, introducing a uniform income tax rate of 25%
for all enterprises (including foreign-invested enterprises (“FIEs”) such as
HWG-Ltd.). The EIT Law revoked tax exemptions, reductions and other
preferential treatment applicable to FIEs prior to 1 January 2008. However,
there will be a transition period for enterprises that received such preferential
tax treatment prior to the publication of the EIT Law. Unused tax holidays of
FIEs approved before the publication of the EIT Law will continue to be
effective until they expire. If the tax holidays have not started due to losses,
they are to be deemed to commence from the beginning of 2008, i.e. tax
holidays can only be utilised until 2012. The EIT Law also stipulates that
where a company is a high-tech enterprise encouraged by the state, it may
enjoy preferential EIT tax rate of 15%. HWG-Ltd. has obtained a certificate
issued by the competent authorities recognizing it as a high-tech enterprise
and has obtained a notice from Guangzhou Baiyun District State Taxation
Bureau confirming that HWG-Ltd. is entitled to the preferential tax treatment
for high tech enterprise for year 2010. The Group benefited from such tax
holidays as its EIT tax rate for 2010 has been reduced by 10% from 25% to
15%. However, if in future, HWG-Ltd. no longer meets the criteria for
qualifying as a high-tech enterprise, it will no longer enjoy such preferential
treatment.
Moreover, the provisions of the EIT Law on taxation are regulated by an
arrangement concluded between the Mainland China and the Hong Kong
Special Administrative Region, the purpose of which is to avoid a double
taxation of income, i.e. the imposition of two or more taxes on the same
income (the “Tax Arrangement”). According to art. 10 subs. 2 of the Tax
Arrangement, dividends paid to Hong Kong residents are subject to taxation
in China and the relevant tax rate is 5%, if a beneficiary of dividends is a
Hong Kong resident directly holding at least 25% in a company located and
subject to taxation in Mainland China. Thus, dividends distributed to HWG
89
HK-Holding by the subsidiary located in Mainland China may be subject to
the Tax Arrangement and as a consequence subject to a withholding tax in
China at a rate of 5%. Moreover, art. 21 subs. 3 of the Tax Arrangement
stipulates that withholding tax paid in China can be credited against Hong
Kong taxes (if any) payable by HWG HK-Holding.
However, it is possible that HWG HK-Holding is not regarded as a beneficiary
within the meaning of the Tax Arrangement. Therefore, there is the risk that
the dividends paid by a company from Mainland China to HWG HK-Holding
are not subject to the lower withholding tax rate of 5% but the higher tax
rate of 10% as imposed under the EIT Law and its Implementing Rules.
Furthermore, the EIT Law has introduced the concept of tax resident
enterprise ("TRE") according to which an enterprise which is deemed a TRE
would be subject to EIT in the PRC at a rate of 25%. Accordingly, if the “de
facto management body” of HWG HK-Holding and/or CSG-AG was located in
China, they would be subject to EIT in the PRC at a rate of 25% in
accordance with the interpretation of art. 4 of the EIT Implementing Rules
given by the Chinese State Administration of Taxation on its website (see
also
section
16.8
“Investment
Regulations,
Distribution
and
Transfer
Restrictions”). The location of the de facto management body is to be
determined by a substance-over-form method. In particular, mere off-shore
board meetings are not sufficient for the de facto management body being
located outside of China. Currently, HWG HK-Holding is treated as a
non-TRE. The Company has only been established for a short period and its
tax residence status has not been reviewed. The Company considers neither
itself nor HWG HK-Holding to be a TRE. However, since the management of
HWG HK-Holding and the Company are mainly located in China, it cannot be
ruled out that HWG HK-Holding or the Company will be regarded a TRE.
If HWG HK-Holding is regarded as a TRE, the following will apply: in
accordance with art. 26 of the EIT Law and art. 83 of the EIT Implementing
Rules, dividend distribution to TREs due to direct investments are exempted
from EIT. Dividends distributed by HWG-Ltd. to HWG HK-Holding would
therefore be exempted from EIT. However, dividends distributed by HWG
HK-Holding to the Company would be subject to a withholding tax of 10%
according to the EIT Law unless the Company is also regarded as a TRE. If
HWG HK-Holding and the Company are both regarded as TREs, the Company
would be subject to enterprise income tax in China at a rate of 25%, except
that dividends received by the Company from HWG HK-Holding would be
exempted from enterprise income tax in China. The PRC withholding tax on
90
dividends will then only be levied if a TRE distributes dividends to non-TRE
shareholders.
If HWG HK-Holding is not regarded as a TRE, the following applies: According
to the EIT Law, the exemption of withholding tax and dividends distributed
by foreign-invested enterprises to their foreign investors under the current
tax laws is no longer available, therefore any dividends distributed by
HWG-Ltd. will be subject to such withholding tax at a rate of 5%.
HWG HK-Holding and the Company are holding companies without any
significant operations of their own, and much of their income depends on
dividends from the operating subsidiary in China. If HWG-Ltd. as the
operating subsidiary, or HWG HK-Holding, were required to withhold PRC
income tax on dividends paid to China Specialty Glass-Group, this would
have a material adverse effect on the amount of dividends paid to the
shareholders.
The current tax rules and their interpretation relating to an investment in the
Group may be subject to further adverse changes in future as the applicable
tax rates and exemptions may change. Any change in China Specialty
Glass-Group'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 post-tax returns to
shareholders.
Statements in this Prospectus concerning the taxation of China Specialty
Glass-Group 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 post-tax profits of HWG-Ltd.
As almost all operating profits are generated by HWG-Ltd., which is subject
to the tax legislation of China, the materialization of the above risks could
have a material adverse effect on the business, financial condition and
results of operations of China Specialty Glass-Group.
3.1.32 There Exist a Number of Tax Risks which Could Result in Additional
Tax Liabilities for HWG-Ltd. or the Group.
Before implementation of the new EIT law in 2008, Article 33 of the
Implementation Rules of the old EIT law regulated that the residual value of
fixed assets should be no less than 10% of the original cost of the fixed
91
assets, unless the prior approval from the competent tax bureau is obtained.
In 2007 HWG-Ltd. only claimed 5% residual value of the original cost of fixed
assets and no approval was provided. Therefore, it cannot be ruled out that
the surplus depreciation in relation to residual values of property, plant and
equipment in 2007 may cause additional tax liabilities for the Group. In
addition, entertainment expenses claimed by HWG-Ltd. have exceeded the
cap under the old and new EIT Law. This could result in additional tax
payments for the Group.
3.1.33 The Business Activities of the Operating Company of China Specialty
Glass-Group Are and Will Continue to Be Subject to Laws and
Regulations Relating to Environmental Protection.
The currently sole operating company of the Group HWG-Ltd. is located in
China and also manufactures the products of the Group there. With regard to
the manufacturing of the Group’s products the operating company is subject
to Chinese laws and regulations relating to environmental protection. Such
laws and regulations typically cover a wide range of matters, including,
amongst other things, waste handling, and protection of the surrounding air
and use of water. The Company believes that its subsidiary in China complies
in all material aspects with the Chinese environmental legislation currently in
force.
However, the storage of waste glass can pose an environment and health
hazard. Additionally, operating equipment results in noise. Other hazards
such as fire, explosion or mechanical failures, which are out of control of the
Group, may lead to the discharge of toxic substances into the environment.
Occurrence of any of the abovementioned risks could lead to serious personal
injuries, damage to the environment and/or destruction of the Group’s
equipment, plants and other assets. This in turn could lead to production
stoppage, fines and penalties imposed by the relevant authorities, substantial
expenses required to remedy the damage to the environment and potential
damage claimed by employees or customers.
Furthermore, there is a risk that the laws and regulations applicable to the
operating company may become more stringent and require an increased
level of investment by the Group to comply with such standards of
environmental safety. In addition, the operating company is required to hold
certain environmental permits, to obtain approval of environment impact
assessment
report
(“EIAR”)
and
to
inspections for its activities and facilities.
92
pass
environmental
protection
The necessary environmental permits are normally issued for a limited period
and must be renewed upon expiry. Any failure by the operating company to
renew its environmental permits or the revocation of such permit could
prevent it from operating the facilities that require the said permit and may
result in fines. The authorities may also impose some conditions or emission
limits upon the renewal of a permit, which could result in increased costs and
capital expenditure.
Should the Group fail to comply with the laws and regulations relating to the
environmental protection, this could adversely affect the Group's business,
its financial condition and results of operations.
3.1.34 HWG-Ltd. May be Presumed to have Market Dominance in the
Chinese Security Glass Market and Therefore May be Subject to
Restrictions under the PRC Anti-Monopoly Law.
Due to HWG-Ltd.’s extensive market share in the Chinese securities glass
market, it is likely that HWG-Ltd. will be presumed to have market
dominance and therefore may not abuse its dominance to eliminate or
restrict competition. This means that HWG-Ltd. may be subject to certain
restrictions under the PRC Anti-Monopoly Law and in particular, may not
engage in any of the following:
·
selling goods at an unfairly high price or purchasing goods at an
unfairly low price;
·
selling goods at below cost without legitimate reason;
·
refusing to deal with trade counterparties without legitimate reason;
·
restricting trade counterparties to deal exclusively with it or with
business operators designated by it without legitimate reason;
·
selling goods through a tying arrangement without legitimate reason
or imposing other unreasonable trade conditions in the course of
trading;
·
treating equally qualified trade counterparties differently in terms of
transaction
price
or
other
such
transaction
conditions
without
legitimate reason; or
·
carrying out other acts which are regarded by the authorities as abuse
of market dominance.
93
If HWG-Ltd. should abuse its market dominance, the PRC Anti-Monopoly Law
enforcement authority might order it to cease its illegal acts, confiscate its
illegal income and fine it not less than 1% and not more than 10% of its
sales turnover for the preceding year. Furthermore, if HWG-Ltd’s wrongful
acts cause third parties to incur losses, it shall compensate such losses.
Furthermore, due to HWG-Ltd.’s dominant market position, the Group’s
ability to make acquisitions and strategic investments with respect to
competitors may also be limited by applicable merger control laws in China
and/or any of the other jurisdictions in which the Group does business.
If HWG-Ltd. is presumed to have a dominant position and contravenes any of
the above restrictions, this could adversely affect the Group's business, its
financial condition and results of operations.
3.2
Risks Related to the Political, Social and Legal Environment of the People’s
Republic of China
3.2.1
The Group’s Business, Financial Condition, Results of Operations and
Prospects Could Be Adversely Affected by the Economic, Political and
Legal Environment and Developments in China.
All of China Specialty Glass-Group’s business operations are conducted by its
currently sole operating company in China HWG-Ltd. and all of its revenues
are generated by it. Investors should thus be aware that the Group’s
operations are subject to greater risks than operations in more developed
markets, including significant legal, economic and political risks. Moreover,
emerging economies such as 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
The Chinese “Provisions on the Acquisition of Domestic Enterprises
by Foreign Investors” (the M&A Provisions) May Have a Material
Adverse Effect on the Company.
On 8 August 2006, six Chinese regulatory agencies, including the Ministry of
Commerce ("MOFCOM") and the China Securities Regulatory Commission
("CSRC"), promulgated the Provisions for the Acquisitions of Domestic
94
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 regulate, amongst other things, an offshore
special purpose vehicle which is controlled directly or indirectly by Chinese
legal entities and / or individuals for the purpose of offshore listing of the
interests in a domestic company that it actually owns (“SPV”). The M&A
Provisions provide that an SPV must obtain the approval of the CSRC prior to
the listing and trading of its shares on a foreign stock exchange. On 21
September 2006, the CSRC published a notice specifying the documents and
materials required to be submitted to it by SPVs seeking CSRC approval of a
foreign listing. A number of additional requirements must be fulfilled in the
course of an initial public offering, the violation of which may lead to
regulatory actions or other sanctions by the CSRC or other Chinese
regulatory agencies. In addition to the provisions relating to foreign indirect
listings, the
M&A Provisions also stipulate that
domestic companies,
enterprises or natural persons shall, when they merge or acquire domestic
companies related to them in the name of the companies in foreign countries
legally established or controlled by them, be submitted to the MOFCOM for
approval. The person concerned shall not evade the above requirements by
domestic investment of foreign-invested enterprises or by other means.
Various transactions were concluded during the corporate restructuring that
took place within the Group prior to the listing of the Company. The
Company believes that the M&A Provisions relating to foreign indirect listings
neither apply to the direct transfer of the shares in HWG-Ltd. to HWG
HK-Holding, to their indirect transfer to the Company nor to the initial public
offering of the Company’s shares because HWG-Ltd. was a foreign-invested
enterprise before the M&A Provisions came into effect. Therefore HWG-Ltd.
has obtained approval of the share transfer to HWG HK-Holding under the
applicable
“Provisions
for
the
Alteration
of
Investors'
Equities
in
Foreign-funded Enterprises” and has not applied for approval under the M&A
Provisions. However, there can be no assurance that CSRC or the MOFCOM
will agree with this view and not require respective approvals in connection
with the recent corporate restructuring or in connection with the listing of the
Company's shares.
In addition, it cannot be ruled out that CSRC or the MOFCOM will ultimately
refuse to grant such approval. If an approval is required and as long as such
approval has not been granted, CSRC or another competent government
authority could prevent profits from being distributed by HWG-Ltd. to HWG
HK-Holding and to the Company and/or loans from being granted or equity
95
investment being made by HWG HK-Holding or the Company to HWG-Ltd. or
HWG-SC.
3.2.3
The Company Is a Holding Company and Faces Typical Risks from its
Holding Activities, e.g. its Liquidity Depends upon Having Access to
the Liquid Funds of Its Operating Subsidiary Located in China.
The Company is a holding company without any significant operating
business of its own. Most of the Company’s assets are located in Hong Kong
and China. The financial success and continued business of the Company
depends largely on the financial position, profitability and success of its
holdings in the Group’s companies. The Company is not able to sufficiently
finance its running expenses by means of own revenues (excluded are
revenues from shares in companies). If there is no distribution of profits from
the shares, the financial position and profitability of the Company can sharply
deteriorate and consequently endanger the existence of the Company.
Current PRC regulations permit the payment of dividends only out of
accumulated profits determined in accordance with Chinese accounting
standards and regulations. In addition, if a subsidiary of the Group does not
constitute a sino-foreign joint venture under PRC law, it is required to set
aside at least 10% of its post-tax profits each year to fund a statutory
reserve fund until such reserves in aggregate reach 50% of its registered
capital. Furthermore, wholly foreign-owned enterprises may be required to
set aside a portion of their post-tax profits to fund an employee welfare fund
in an amount which lies within the discretion of the subsidiary's board. These
reserves are not distributable as cash dividends.
Under PRC foreign exchange rules and regulations, payments of current
account
items,
including
profit
distributions
and
operating-related
expenditures, may be made in foreign currencies without prior approval but
are subject to procedural requirements. Strict foreign exchange controls
continue to apply to capital account transactions. These transactions must be
approved by, and / or registered with SAFE or its local counterparts, and
repayment of loan principals, distributions of returns on direct capital
investment and investments in negotiable instruments are also subject to
restrictions.
There can be no assurance that the Group will be able to meet all of its
foreign currency obligations under PRC laws or to transfer profits out of
China. Should any of the PRC subsidiaries of the Group be, or become,
restricted and/or legally prohibited from and/or unable to pay dividends or
96
other distributions outside of China, this could have material adverse effects
on the Company’s financial condition.
Further, it is to be explicitly emphasized that any deterioration of the
economic situation or - in the extreme case - any insolvency of either a
subsidiary or of a company in which China Specialty Glass AG holds shares
would have a direct negative impact on the Company. There is also the risk
of possible adjustments on the value of interests and write-offs of receivables
as well as lacking profits from profit and loss transfers, profit sharing,
interest rate agreements or capital gains. In case one of these risks is
realised, it would have a negative impact on the results of operation of the
Company and could possibly even endanger the existence of the Company.
3.2.4
SAFE Regulations Relating to Offshore Investments by PRC Residents
or Passport Holders May Adversely Affect the Company’s Business
Operations and Financing Alternatives.
In October 2005, the State Administration of Foreign Exchange issued a
regulation regarding offshore investments by PRC residents, known as SAFE
Notice 75. It requires PRC residents to register with, and receive approval
from SAFE or its local counterparts in connection with certain offshore
investment activities. According to the Company none of the current direct or
indirect shareholders of the Company are PRC residents, which means legal
entities established in the PRC or individuals who are PRC identity card
holders, PRC passport holders or individuals who habitually reside in the PRC
for reasons related to economic interests.
Mr. Nang Heung Sze who is an indirect shareholder through Luckyway Global
Group Limited is a Hong Kong permanent resident. Therefore, the Company
is of the view that Mr. Nang Heung Sze is not required to register with, and
receive approval from SAFE concerning Notice 75. However, there can be no
assurance that SAFE will agree with this view, even if Mr. Nang Heung Sze
who applied for such a registration with Guangzhou SAFE in June 2010 was
explicitly told by Guangzhou SAFE without receiving a written statement that
he was not required to make such a registration. It cannot be ruled out that
Guangzhou SAFE or another competent authority may change its legal view
in the future and will require Mr. Nang Heung Sze to register with and receive
approval from SAFE concerning Notice 75.
The failure or inability of any of the Company's current or future direct or
indirect shareholders, whose actions the Company does not control, to obtain
any required approvals or to make any required registrations in a timely
97
manner could subject China Specialty Glass-Group to fines and legal
sanctions,
restrict
the
Company's
intended
investments
in
its
PRC
subsidiaries or limit the Group’s ability to make distributions or pay
dividends. Thus, if the competent authority were to change its legal view, the
failure of Mr. Nang Heung Sze to make the registration could subject him and
the Group to fines, legal sanctions and restriction regarding the investments
in HWG-Ltd. or limit the Group’s ability to make distributions or pay
dividends on the ground of failure to register the offshore investments with
SAFE on time.
3.2.5
PRC Regulations relating to Loans and Direct Capital Investments by
Offshore Parent Companies to PRC Entities May Delay or Prevent
China Specialty Glass-Group from Using the Proceeds of this Offering
or from Adopting the Most Favourable Financing Structure.
In utilising the proceeds of this Offering to finance the Group’s business, the
Company, as a holding company, or HWG HK-Holding, may make loans or
additional capital contributions to HWG-Ltd. and/or HWG-SC, subject to
certain conditions and official approvals and/or registrations as further
discussed below.
Loans to HWG-Ltd.
Any loans by an offshore parent company to a foreign invested enterprise
(“FIE”) established by it are subject to registration requirements and must
be within the margin between each of their total investment amount and
registered capital as approved by the Ministry of Commerce or its local
counterparts. The approved amount of total investment of HWG-Ltd. is the
same as its registered capital. Therefore, unless HWG-Ltd., the PRC
subsidiary of the Company which qualifies as an FIE under PRC Law, obtains
requisite approval to increase its total investment, it is not allowed to borrow
funds from outside China, and any additional offshore funding to HWG-Ltd.
will have to be in the form of equity investment. Whether HWG-Ltd. can
obtain such approval or whether the approved amount can satisfy the needs
of HWG-Ltd. will be subject to the statutory provisions on the minimum ratio
of registered capital in total investment as well as the discretion of the local
approval authority. Furthermore, loans to HWG-Ltd. as a FIE have to be
registered with SAFE or its local counterpart.
98
Loans to HWG-SC
The current plan of the management of the Group is to finance HWG-SC’s
production base and its operation by using HWG-Ltd.’s profits. If HWG-Ltd.’s
profits are not sufficient, HWG-SC will have to be financed by loans or capital
contribution from the Company or HWG HK-Holding or through other
channels such as loans from banks. There can be no assurance that HWG-SC
can obtain sufficient or any loans from banks. At the end of 2010 a loan of
RMB 33 million with a term until December 2015 was granted by HWG-Ltd.
to Mr. Sze Nang Heung; of this amount, RMB 6 million had to be repaid by
Mr. Sze to HWG-Ltd. for the settlement of his current account with HWG-Ltd.
Mr. Sze transferred the net amount of the loan of RMB 27 million to HWG-SC
for the purpose of its working capital and assigned to HWG-Ltd. his rights
from the loan. In March 2011 a similar loan agreement was concluded
between HWG-Ltd. and Mr. Sze under which Mr. Sze received a loan of RMB
20 million which he will eventually grant to HWG-SC. The term of this loan is
from 23 March 2011 to 25 March 2016. HWG-SC is not regarded as a FIE but
a domestic company under PRC law with respect to foreign exchange. On this
basis, medium or long-term loans borrowed by HWG-SC from the Company
or HWG HK-Holding or any other entity outside China are subject to approval
from the National Development and Reform Commission (“NDRC”) and SAFE.
If HWG-SC intends to obtain short-term loans (with a term of less than one
year) from the Company or HWG HK-Holding or any other entity outside
China, they are subject to the balance management implemented by the
State, that is to say SAFE would issue an external loan quota at the
beginning of every year providing the total amount of the external loans the
domestic Chinese companies could take out during this year. In addition,
such short-term loans are also subject to the approval of the local SAFE.
Capital Contributions to HWG-Ltd. and/or HWG-SC
In addition, if the Company or HWG HK-Holding finances HWG-Ltd. and/or
HWG-SC through additional capital contributions, such additional capital
contributions must first be approved by, and registered with the competent
government authority.
On 29 August 2008 SAFE promulgated Circular 142, a notice regulating the
conversion by a FIE of foreign currency in its capital account into Renminbi
by restricting how the converted Renminbi may be used. Circular 142
prohibits the use of Renminbi converted from foreign capital to purchase
equity interests in Chinese companies, unless the equity investment is within
99
the approved business scope of the FIE and has been approved by SAFE, or
has
been
“otherwise
provided
for”.
In
addition,
SAFE
increased
its
supervision of the flow and use of the registered capital of a FIE settled in
Renminbi converted from foreign currencies. The use of such Renminbi
capital may not be changed without SAFE’s approval and may not in any case
be used to repay Renminbi loans if the proceeds of such loans have not been
used. Violations of Circular 142 will result in severe penalties, such as
significant fines. Due to such restrictions, if the proceeds of the Offering are
injected into HWG-Ltd. as capital contribution, HWG-Ltd. as a FIE cannot use
such capital to make equity investment in HWG-SC or any other entities. The
Group may therefore not be able to use the proceeds of the Offering to
equity invest unless such investments are made by the Company directly or
through HWG HK-Holding. Furthermore, there is no assurance that entities
invested into by the Company or HWG HK-Holding will enjoy the same level
of preferential tax or other treatments that may be available to entities
invested into by HWG-Ltd.
There can be no assurance that the Group will be able to obtain the relevant
government registrations or approvals in time, if at all, with respect to future
loans or capital contributions by the Company or HWG HK-Holding to
HWG-Ltd. and/or HWG-SC. If the Group 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 the Group.
3.2.6
Economic Instability in China Could Adversely Affect the Group’s
Business.
The Chinese economy differs from the economies of most developed
countries in many aspects, including the amount of government involvement,
the level of development, the growth rate, the control of foreign exchange,
and the allocation of resources.
While the Chinese economy has grown significantly over the past 30 years,
the growth has been uneven geographically among various sectors of the
economy, and throughout 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 the Group's business.
For example, the Chinese economy experienced an accelerated growth in
100
2010 when it overtook Japan to become the world’s second-largest economy
behind the US. The gross domestic product (“GDP”) growth of 10.3% last
year easily exceeded the 9.2% GDP growth for 2009. This rapid growth was
partially contributed to by the increase in exports as the world’s other
economies were recovering from the worst global financial and economic
crisis in decades, by the increase in domestic consumption and heavy capital
investments as the various government economic stimulus policies took
effect. Fearing rising inflation and potentially losing control of the economic
growth,
PRC
central
government
began
to
introduce
macroeconomic
measures and monetary policies at the beginning of 2010 to prevent the
economy from becoming overheated. The People’s Bank of China (“PBC”)
raised the statutory reserve requirement ratio for banks six times and
increased interest rate twice in 2010 to soak in the excess liquidity in the
economy and to fight inflation. However, although down from 5.1% in
November, which was the fastest drop in more than two years, China’s
consumer price index still rose to 4.6% year-on-year in December 2010. For
the first three months this year, China’s consumer price index increased from
4.9% during the first two months to 5.4% in March. There can be no
assurance that these measures will be effective in keeping growth of the
economy at a more sustainable level and preventing the inflation from
getting out of control.
In addition, such measures, even if they benefit the overall Chinese economy
in the long-term, may adversely affect the Group if they reduce the business
activities of its end customers such as banks. Furthermore, it is uncertain
how long the global financial crisis will continue or rather how much adverse
impact it will have on the Chinese economy in general and on the Group’s
end customers in particular.
3.2.7
A Destabilization of the Political System Could Threaten China’s
Economic Liberalization and Have a Negative Impact on the Group’s
Business.
While the PRC economy has changed fundamentally from a centrally
controlled 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 the political system which might affect the ownership or
operation of the Group's interests, including, amongst others, changes in
government as well as in legislative and regulatory regimes.
101
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 the Group’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 adverse effects on the business,
financial condition and results of operations of the Group.
3.2.8
Health Epidemics and Outbreaks of Contagious Diseases, Including
Avian Influenza, Could Materially and Adversely Affect the Chinese
Economy and the Group’s Business.
The Group’s business could be adversely affected by the effects of avian
influenza or other epidemics or outbreaks. In recent years, there have been
reports of occurrences of avian influenza in various parts of China, including
a few confirmed human cases and deaths. Any prolonged recurrence of avian
influenza or other adverse public health developments in China may have a
material adverse effect on the Group's business operations. These could
include illness and loss of its management and key employees, as well as
temporary closure of its offices and related other businesses upon which the
Group relies. Such losses would severely disrupt the Group’s business
operations. The Group has not adopted any written preventive measures or
contingency plans to combat any future outbreak of any epidemic.
Since most of the Group's operations and substantially all of the Group’s
suppliers are based in China, an outbreak of contagious diseases in China,
other places in Asia, or elsewhere, or the perception that such an outbreak
could occur, as well as the measures taken by the governments of countries
affected, could have material adverse effects on the business, financial
condition and results of operations of the Group.
3.2.9
The PRC Legal System and Regional and National Taxation Laws
Contain Inherent Uncertainties and Inconsistencies which Can Create
Uncertainty regarding the Group’s Business.
As the Group’s business is currently mainly conducted from China, its
operations are governed principally by PRC laws. China is still in the process
of developing a comprehensive statutory framework, and its legal system is
still considered to be underdeveloped in comparison with legal systems in
most western countries. In particular, PRC foreign investment laws and
company law as well as provisions for the protection of shareholders’ rights
102
and access to information are less developed and confer less protection than
those applicable to companies incorporated in Germany or other member
states of the European Economic Area (“EEA”). The following factors create
uncertainty with respect to the Group’s business:
·
inconsistencies between and among the constitution, national law,
government decrees as well as governmental, ministerial and local
orders, decisions, resolutions and other acts;
·
conflicting local, regional and national rules and regulations;
·
inconsistent use of terms for different rules by different localities and
government departments;
·
lack of judicial and administrative guidance on interpreting legislation;
·
absence of a solid system of checks and balances between the different
parts of the government;
·
relative inexperience of judges and courts in interpreting legislation;
·
high degree of discretion on the part of governmental authorities, which
can result in arbitrary actions such as suspension or termination of
licences or approvals;
·
relatively untested bankruptcy procedures that might be vulnerable to
abuse; and
·
differences in the application of norms between different local authorities.
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 a lack of established practices available for reference. Depending on the
government agency or how an application or a case is presented to such an
agency, the Group may receive less favourable interpretations of law than its
competitors. In addition, any litigation in China may be protracted and result
in substantial legal costs and diversion of resources and management
attention. Similarly, legal uncertainty in China may limit the legal protection
available to potential litigants.
103
3.2.10 The Judiciary’s Lack of Independence and Limited Experience and
the Difficulty of Enforcing Court Decisions and Governmental
Discretion in Enforcing Court Orders Could Prevent China Specialty
Glass-Group
from
Obtaining
Effective
Remedies
in
Court
Proceedings.
Chinas 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
under-funded. Since courts in China are financially dependent on the
respective local governments, judges tend to favour 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 China. Additionally, court
decisions are often used in furtherance of political and commercial aims. The
Group 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
PRC
subsidiaries of China Specialty Glass-Group, their assets or parts thereof,
potentially without adequate compensation, could have material negative and
adverse effects on the Group.
3.2.11 Seeking
Recognition
Judgements
against
and
the
Enforcement
Company,
its
in
China
Assets,
of
Foreign
Management
Personnel or Directors Might Be Difficult or Impossible for Investors.
Most of the Group’s assets are located in Hong Kong and 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 courts in Germany or
most other jurisdictions, including judgments obtained in relation to claims
104
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.
3.2.12 Restrictions Might Be Imposed on Foreign Investments in PRC
Companies.
As part of China’s accession to the World Trade Organization (“WTO”) in
2001,
China
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 China 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. In addition, there is no
guarantee that the Chinese government will not tighten its stance on foreign
investors in other areas not covered by the WTO commitments and that
control over companies operating in certain sectors considered to be
politically sensitive, such as the security glass production, will not change.
The MOFCOM and the National Development and Reform Commission
("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. Based on the latest version of the Foreign
Industry Guidance catalogue (effective as of 1 December 2007), the security
glass and construction glass sector in which the Company operates is a
manufacturing sector and is classified as an encouraged foreign investment
industry.
The Foreign Investment Industry Guidance Catalogue is, however, regularly
revised. Should the security glass and construction glass technology become
subject to foreign investment restrictions or prohibitions imposed by any
future amendments, this could have a material adverse effect on the Group’s
business, financial condition and results of operations.
3.3
Risk Related to the Offering
3.3.1
The Company Cannot Ensure that Public Trading in the Company’s
Shares Will Develop.
Prior to the Offering, there was no public trading in the Company’s shares. In
105
addition, only a small number of Chinese companies, via their German
holding companies, are listed on a German stock exchange and have been
subject to an initial public offering in Germany. As a result, the Company can
give no assurance that liquid trading in the shares in the Company will
develop after the Offering and that the stock exchange price will not fall
below the offer price for the Offered Shares (“Offer Price”). The Offer Price
will not necessarily provide any indication of the stock exchange price at
which the shares will subsequently be traded on the Frankfurt Stock
Exchange or any other exchange. The Company cannot forecast to what
extent investors’ interest in its shares will foster trading, nor whether a liquid
trading market will develop. While the Offering consists of 6,900,000 shares
in the Company, the actual placement volume will be determined by the
Company and the Underwriters after the offering period expires. The actual
placement volume may be significantly lower than 6,900,000 shares and the
free float may therefore be significantly lower than in case of full placement
of all Offered Shares. It cannot be excluded that this will have an adverse
effect on the liquidity of trading in the Company’s shares. 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 Offer Price or at a higher stock exchange price or might
not be able to sell them at all.
3.3.2
A Volatile Stock Exchange Price for the Shares Might Develop.
After the 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, 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 any direct connection with
the Company’s business, its financial condition or profitability or its business
prospects. Because the shares are growth stocks, the Company’s shares are
particularly susceptible to fluctuations.
3.3.3
The Underwriting Agreement Might Be Rescinded, in which case the
Offering Would Not Take Place.
The underwriting agreement provides that the Underwriters may, under
certain conditions, rescind the underwriting agreement. If the underwriting
agreement is rescinded, the Offering will not take place. Claims relating to
106
any securities commissions already paid and costs incurred by any investor in
connection with the subscription are 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 have no claim for delivery of shares in the Company. Any
investors who have made short sales would bear the risk of not being able to
cover such positions.
3.3.4
The Group Conducts Its Operations Through Its Subsidiaries and, as
a Result, Is Dependent and Will Depend to a Large Extent on Its
Subsidiaries to Pay Dividends to the Group so that It, in Turn, Has
Funds to Pay Dividends to Its Shareholders.
Each of China Specialty Glass-Group’s subsidiaries is subject to various
restrictions on its payment of dividends, based on the jurisdiction of its
incorporation. For example, a jurisdiction may limit the amount of dividends
a company may pay, the sources of funds that can be used to pay dividends
or require certain portions of profit be retained as reserves. Furthermore,
payment of dividends by certain subsidiaries is restricted by agreements to
which they are party, in particular their financing arrangements. These
restrictions may prevent the Group’s subsidiaries from paying dividends to
the Group, which, in turn, may limit the Group’s ability to pay dividends to its
shareholders. Additionally, the payment of future dividends will depend on
the conditions then existing, including the Group’s earnings, financial
conditions, future projects, business conditions and other relevant factors.
3.3.5
For Investors Financing the Share Purchase Price with a Loan There
Is an Increased Risk of Loss.
Potential investors should be aware that if they have to finance the
acquisition of shares through a loan, they have to accept not only the loss
incurred by non-occurrence of their expectations, but also to pay interest and
repay the loan. This increases the risk of loss substantially. Potential
investors should not rely on repaying the loan and paying the interest of the
loan with the proceeds of the shares. Prior to the credit-financed acquisition
of shares, potential investors should check their financial standing in relation
to whether they are able to pay the interest of the loan and, where
appropriate, to repay the loan on a short-term basis if losses occur instead of
expected profits.
107
4.
RESPONSIBILTY STATEMENT
China Specialty Glass AG, Gruenwald, Germany (the “Company” or
“CSG-AG” and together with its direct and indirect subsidiaries “China
Specialty Glass-Group” or the “Group”), VISCARDI AG, Munich, Germany
(“VISCARDI” or “Sole Global Coordinator”) and biw Bank für Investments
und Wertpapiere AG, Hausbroicher Str. 222, 47877 Willich, Germany (“biw
AG”) (VISCARDI and biw AG together the “Joint Lead Managers” or
“Underwriters”), assume responsibility for the content of the Prospectus
pursuant to sec. 5 para. 4 of the German Securities Prospectus Act
(Wertpapierprospektgesetz – WpPG) and declare that to their knowledge, the
information contained in this Prospectus is correct and no material facts are
omitted and, having taken all reasonable care to ensure that such is the
case, that the information contained in this Prospectus is, to the best of their
knowledge, in accordance with the facts and contains no omission likely to
affect its import.
108
5.
GENERAL INFORMATION
5.1
Documents on Display
For the period during which this Prospectus is valid, copies of the following
documents cited in this Prospectus may be inspected during regular business
hours at the offices of CSG-AG in Gruenwald near Munich, An den
Roemerhuegeln 1, 82031 Gruenwald, Germany:
·
the Company’s Articles of Association;
·
Financial statements of HWG-Ltd. for the three years ended 31 December
2008, 2009 and 2010 in accordance with IFRS (audited);
·
Interim financial statements of HWG-Ltd. for the three months ended
31 March 2011 in accordance with IFRS (reviewed);
·
Consolidated financial statements of CSG-AG for the short financial year
2010 (from 22 November 2010 until 31 December 2010) in accordance
with IFRS (audited);
·
Consolidated interim financial statements of CSG-AG for the three
months ended 31 March 2011 in accordance with IFRS (reviewed);
·
Single entity financial statements of CSG-AG for the short financial year
2010 in accordance with HGB (from 10 May 2010 until 31 December
2010) (audited).
The Company’s future annual and interim financial reports will be available at
the Company’s offices and on its website www.csg-ag.de.
5.2
Statutory Auditors
The
Company’s
auditor
is
Grant
Thornton
GmbH
Wirtschaftsprüfungsgesellschaft (“Grant Thornton”), Domstrasse 15, 20095
Hamburg, a member of the German Chamber of Public Accountants
(Wirtschaftsprüferkammer).
Grant Thornton has audited the financial statements of HWG-Ltd. from 2008
until 2010, the consolidated financial statements of CSG-AG for the short
financial year 2010 (from 22 November 2010 until 31 December 2010) and
the single entity financial statements of CSG-AG for the short financial year
2010 (from 10 May 2010 until 31 December 2010) and has reviewed the
109
interim financial statements of HWG-Ltd. and the consolidated interim
financial statements of CSG-AG, both for the three months ended 31 March
2011.
All the abovementioned financial statements of HWG-Ltd. and CSG-AG have
been
prepared
in
accordance
with
International
Financial
Reporting
Standards (IFRS), as endorsed for application in the EU, and the additional
requirements of German commercial law pursuant to section 315a para. 1
German Commercial Code (Handelsgesetzbuch – HGB), with the exception of
the Company’s single entity financial statements for the short financial year
from 10 May 2010 to 31 December 2010, which have been prepared in
accordance with HGB. Grant Thornton has issued an unqualified auditor’s
opinion on the aforementioned audited financial statements and has issued
an unqualified review opinion on the aforementioned reviewed financial
statements.
5.3
Forward-Looking Statements
This Prospectus contains certain forward-looking statements referring to the
business, the financial performance and earnings of the Company as well as
China Specialty Glass-Group and the markets and areas of business in which
China Specialty Glass-Group operates. Forward-looking statements are
statements relating to future facts, events and other circumstances not
constituting historical facts. In
particular, this applies to statements
containing information on future financial results, plans and expectations
regarding the business and management of China Specialty Glass-Group, its
growth and profitability and general economic and regulatory conditions and
other factors affecting China Specialty Glass-Group. Expressions such as
“expect”, “intend”, “plan”, “assume” or “probably” are indicative of such
statements. Such statements merely reflect the Company’s opinion at the
present time with respect to future events, and as such their realisation is
subject to risks and uncertainties.
The forward-looking statements in this Prospectus include:
·
the implementation of the Company’s strategic plans and the impact
of these plans on China Specialty Glass-Group’s financial condition
and results of operations;
·
the use of the issue proceeds;
·
the development of competitors and the competitive situation;
110
·
the Company’s expectations with respect to the impact of economic,
operational, legal and other risks relating to China Specialty
Glass-Group’s business; and other statements regarding China
Specialty Glass-Group’s future business development and general
economic
and
technological
developments
and
other
general
conditions relevant to the business.
These
forward-looking
statements
are
based
on
current
planning,
assessments, forecasts and expectations of the Company and on certain
assumptions, which, although the Company believes them to be reasonable
at the present time, may prove to be incorrect. Numerous factors may cause
China Specialty Glass-Group’s actual development, performance or earnings
generated to differ materially from the development, performance or
earnings expressly or implicitly assumed in the forward-looking statements.
For a complete discussion of the factors that could impact the future
development of the business of China Specialty Glass-Group and the markets
on which it operates, the Company specifically recommends reading section 3
“Risk Factors”, section 14 “Operating and Financial Review”, section 15
“Market and Industry Overview”, section 17 “Business” and section 26
“Recent Developments and Outlook” in this Prospectus.
Should any one or more of these changes or uncertainties occur or should
the Company’s underlying assumptions prove incorrect, it cannot be ruled
out that actual results may differ materially from the assumptions, estimates
or expectations described in this Prospectus. This could prevent the Company
from achieving its financial and strategic objectives. Neither the Company
nor the Underwriters intend to update the forward-looking statements set
forth in this Prospectus beyond that which is required by law.
5.4
Third Party Information
This Prospectus contains industry, market and customer data as well as
calculations taken from industry reports, market research reports, publicly
available
information
and
commercial
publications
(“External
Information”). External Information was, in particular, used for statements
regarding markets and market developments. In this context, the available
information with regard to the markets in which the Group distributes its
products is limited and the only market study was provided upon request and
was paid by the Group.
This Prospectus also contains assessments of market data and information
derived therefrom, which is not ascertainable from publications of market
111
research institutes or from any other independent sources. Such information
is based on the Company’s internal assessments made on the basis of the
many years of experience and expertise of its management and staff,
evaluations of industry information (from trade journals, trade fairs,
specialist talks) or Company-internal assessments. These may therefore
differ from the estimates of China Specialty Glass-Group’s competitors or
information gathered in the future by market research institutes or other
independent sources. The Company and the Underwriters do not warrant the
accuracy of the External Information upon which the Company’s assessments
are based.
Other Company estimates, by contrast, are based on published information
or figures from external, publicly available sources. The following sources, in
particular, were relied on in preparing the Prospectus:
·
National
Bureau
of
Statistics
of
China
(Website:
http://www.stats.gov.cn/english/)
·
Bureau
of
Statistics
of
Sichuan
Provincial
Government
Guangdong
Provincial
Government
(http://www.sc.stats.gov.cn/)
·
Bureau
of
Statistics
of
(http://www.gdstats.gov.cn/)
·
China Statistical Yearbook 2009, National Bureau of Statistics of China
·
International Monetary Fund, World Economic Outlook 2010
·
BIS, Working Paper No. 312, Bank for International Settlement, June
2010
·
Understanding China’s Retail Market by Sheng Lu, China Business
Review Online, CBR May-June 2010
·
Chinese automobile market statistics
(www.sohu.com/auto)
·
China Auto News (http://qiche.com.cn/files/201007/22035.shtml as
of 22 July 2010)
·
Inautonews
(http://www.inautonews.com/luxury-car-sales-in-china-
may-reach-11-mln-units-by-2015)
·
China Banking Regulatory Commission Annual Report 2009, June
2010
112
·
China Building Material Association (http://www.cbminfo.com/tabid/
63/InfoID/327671/Default.aspx)
·
“Development Trends of Energy Saving Glass Products – An Analysis
of Building Glass Market” (http://www.chinabmi.com/news/2010720/
45762.html as of 20 July 2010)
·
Icandata
(http://www.icandata.com/data/201103/031GM3292011.
html)
Public information on Chinese security glass, particularly on bulletproof glass,
is scarce. The Company relies on the information provided by the market
research report from Respect Market Research Ltd., an independent market
research company commissioned by the Group:
·
“Research Report on China Bulletproof Glass Industry” from Respect
Market Research Ltd., 2010
Respect Market Research Ltd. claims that the market research was conducted
according to the market standard methodologies and the results/finding of
the research was verified by the authoritive Information Centre of Building
Materials Industry, PRC. In this market research report, the following
information sources were quoted:
·
China Architectural and Industrial Glass Association
·
General Administration of Customs of the People’s Republic of China
·
China Banking Regulatory Commission
·
China Association of Automobile Manufacturers
The majority of the market information contained in this Prospectus is a
condensation of information derived by the Company on the basis of the
above studies. Specific studies were cited only in those cases where the
relevant information may be taken directly from such a study. The remaining
assessments of the Company are based on internal sources, unless expressly
indicated otherwise in this Prospectus.
Industry and market research reports, publicly available sources and
commercial publications generally state that, while the information contained
therein stems from sources that are assumed to be reliable, the accuracy and
completeness of such information is not guaranteed and the calculations
contained therein are based on a number of assumptions. Consequently,
113
these caveats also apply to the information included in this Prospectus.
Neither the Company nor the Underwriters have verified the accuracy or
completeness of External Information. Therefore, the Company and the
Underwriters assume no responsibility for or grant any warranties in respect
of the accuracy of such External Information.
Any information taken from third parties has been accurately reproduced in
this Prospectus. As far as the Company and the Underwriters are aware and
able to ascertain from the information taken from third parties, no facts have
been omitted that would make the reproduced information incorrect or
misleading.
5.5
Notes Regarding Currency and Financial Information
Regarding the financial statements of the Company, investors should be
aware of the fact that CSG-AG’s consolidated and single entity financial
statements presented in this Prospectus are translations into English of the
financial statements prepared in German language.
Investors should further be aware that numerical data (including certain
percentage rates) were rounded up. These adjustments were undertaken to
act in accordance with commercial standards. Thus there is the likelihood of
differences between the total amounts of sums and the individual amounts.
These differences may also occur in regard to individual figures presented in
tables and their aggregate amount. In case of percentage the calculation was
always based on the actual value. Consequently stated percentage rates may
differ from percentage rates based on rounded values.
The currency in which the financial statements of CSG-AG and of HWG-Ltd.
are presented is euro, whereas the operating currency of China Specialty
Glass-Group is Renminbi (“RMB”). The table below shows the exchange rates
used for the respective translations:
31
31
31
31
December 2008
December 2009
December 2010
March 2011
Period end rates
EUR 1.00 = RMB 9.2563
EUR 1.00 = RMB 9.9742
EUR 1.00 = RMB 8.8231
EUR 1.00 = RMB 9.2343
Average rates
EUR 1.00 = RMB
EUR 1.00 = RMB
EUR 1.00 = RMB
EUR 1.00 = RMB
10.1588
9.4904
8.9789
8.9807
Accordingly the financial statements presented in EUR for each relevant
period in this Prospectus are not fully comparable to each other because
different RMB/EUR exchange rates applied to each period presented.
All information contained in this Prospectus regarding currencies if not
114
otherwise indicated refers to euro.
If amounts in other currencies are contained in this Prospectus they are
marked as such by the corresponding currency designation or the respective
symbol.
115
6.
SUBJECT-MATTER OF THE PROSPECTUS
The subject-matter of this Prospectus for the purpose of the public offering in
Germany
and
jurisdictions
Luxembourg
are
up
to
and
private
6,900,000
placement
no-par
value
in
bearer
certain
shares
other
(the
“Offering”), consisting of:
·
6,000,000 no-par value bearer shares from a securities loan free of
charge which was granted by Luckyway Global Group Limited to biw AG
(the “Delivery Shares”; see section 25.3 “Securities Loans and
Greenshoe Option”); an equivalent number of shares from a capital
increase
of
the
Company
from
authorised
capital
against
cash
contribution will be subscribed by biw AG and transferred to Luckyway
Global Group Limited to fulfil the retransfer obligation from the securities
loan; and
·
900,000 no-par value bearer shares that originate from a securities loan
free of charge that was granted by the Greenshoe Shareholders to biw
AG in connection with a potential over-allotment (the “Greenshoe
Shares”; see section 25.3 “Securities Loans and Greenshoe Option”);
(the “Greenshoe Shares”, together with the Delivery Shares collectively
referred to as the “Offered Shares”).
The subject matter of this Prospectus for the purpose of admission to trading
on the regulated market segment (Regulierter Markt) of the Frankfurt Stock
Exchange with simultaneous admission to the sub-segment of the regulated
market with additional post-admission obligations (Prime Standard) of the
Frankfurt Stock Exchange are up to 21,050,000 ordinary no-par value bearer
shares, consisting of
·
15,050,000 Existing Shares; and
·
up to 6,000,000 shares from a capital increase of the Company,
each with a calculated value of EUR 1.00 and carrying full dividend rights
from and including the financial year 2011.
116
7.
SELLING RESTRICTIONS
The Offering consists of a public offering in the Federal Republic of Germany
and Luxembourg as well as private placements in other jurisdictions outside
the Federal Republic of Germany, Luxembourg and the United States of
America.
Neither the Company nor the Underwriters have taken any action or will take
any action
in
any jurisdiction, with
the exception
of Germany and
Luxembourg, which may result in a public offering of the Offered Shares.
The delivery of this Prospectus and the marketing of the Offered Shares are
subject to restrictions in certain countries. Persons who come into possession
of this Prospectus are required by the Company and the Underwriters to
inform themselves about such restrictions and to observe such restrictions,
including any tax issues and currency restrictions that may be relevant in
connection with the Offering. All investors should examine through their own
advisers the tax consequences of an investment in the Offered Shares. This
Prospectus does not constitute an offer of or an invitation to purchase or
subscribe for any Offered Shares in any jurisdiction in which such an offer or
invitation would be unlawful. The Offered Shares are subject to transfer and
selling restrictions in certain jurisdictions. Potential purchasers and/or
subscribers of the Offered Shares are to comply with all applicable laws and
provisions in countries or territories in which they acquire, subscribe for,
offer or sell the Offered Shares or possess or distribute this Prospectus and
are to obtain consent, approval or permission, as required, for the acquisition
of the Offered Shares. Neither the Company nor the Company’s auditors nor
the Underwriters accept any liability for any violation of these restrictions by
any person, irrespective of whether such a person is an existing shareholder
or a potential purchaser and/or subscriber of the Offered Shares.
This Prospectus may not be distributed in or otherwise made available, and
the Offered Shares may not be offered or sold, directly or indirectly, in any
jurisdiction outside Germany or Luxembourg, unless such distribution,
offering, sale or exercise is permitted under applicable laws in the relevant
jurisdiction, and the Company and the Underwriters may require receipt of
satisfactory documentation to that effect.
117
7.1
Notice to U.S. Residents
The Offered Shares have not been approved, disapproved or recommended
by the U.S. Securities and Exchange Commission, any state securities
commission in the United States of America or any other U.S. regulatory
authority, nor have any of such regulatory authorities passed upon or
endorsed the merits of the Offering or the accuracy or adequacy of this
Prospectus. The Offered Shares have not been and will not be registered
under the U.S. Securities Act of 1933, as amended (“US Securities Act”), or
any state securities laws in the United States of America. No offer or sale of
the Offered Shares is permitted unless in connection with an offering or sale
under Regulation S of the US Securities Act.
7.2
Notice Regarding the European Economic Area
In relation to each Member State of the European Economic Area that has
implemented the Prospectus Directive (each a “Relevant Member State”),
no offering of the Offered Shares to the public will be made in any Relevant
Member State prior to the publication of a prospectus concerning the Offered
Shares which has been approved by the competent authority in such
Relevant Member State or, where relevant, approved in another Relevant
Member State and notified to the competent authority in such Relevant
Member State, all pursuant to the Prospectus Directive, except that with
effect from and including the date of implementation of the Prospectus
Directive in such Relevant Member State, an offering of the Offered Shares
may be made to the public at any time in such Relevant Member State:
a) to legal entities which are authorised or regulated to operate in the
financial markets as well as entities not so authorised or regulated whose
corporate purpose is solely to invest in securities;
b) to legal entities which meet at least two of the following criteria: (i) an
average of at least 250 employees in the last financial year; (ii) a total
balance sheet sum exceeding EUR 43,000,000.00; and (iii) an annual net
turnover exceeding EUR 50,000,000.00 showing on their last single entity
or consolidated financial statements;
c)
to fewer than 100 natural or legal persons other than qualified investors
within the meaning of the Prospectus Directive, subject to the prior
written consent of the Company and the Underwriters; or
118
d) in any other circumstances which do not require the publication by the
Company of a prospectus under art. 3 of the Prospectus Directive.
For the purposes of the aforementioned section, the expression an “offering
of the Offered Shares to the public” in relation to the Offered Shares in any
Relevant Member State means a communication to persons in any form and
by any means, presenting sufficient information on the terms of the Offering
and the Offered Shares, so as to enable an investor to decide purchase or
subscribe for the Offered Shares, as the same may be varied in that Relevant
Member State by any measure implementing the Prospectus Directive in that
Relevant Member State. The term “Prospectus Directive” means the Directive
2003/71/EC including any relevant implementation
procedures in the
Relevant Member State.
7.3
Notice Regarding Japan
The shares have not been and will not be registered under the Securities and
Exchange Law of Japan and may not be offered or sold, directly or indirectly,
in Japan or to, or for the account or benefit of, any resident of Japan (which
term as used herein means any person resident in Japan, including any
corporation or other entity organized under the laws of Japan) or to, or for
the account or benefit of, any person for reoffering or resale, directly or
indirectly, in Japan or to, or for the account or benefit of, any resident of
Japan,
except
(i)
pursuant
to
an
exemption
from
the
registration
requirements of, or otherwise in compliance with, the Securities and
Exchange Law of Japan and (ii) in compliance with any other relevant laws
and regulations of Japan.
119
8.
THE OFFERING
8.1
Subject-Matter of the Offering
The Offering will be made and trading in the Offered Shares will take place in
euro. The Offered Shares are denominated in euro.
The subject-matter of the Offering including any potential over-allotment
(the “Offering”) relates to a total of up to 6,900,000 ordinary no-par value
bearer shares, consisting of:
·
6,000,000 Delivery Shares and
·
900,000 no-par value ordinary bearer shares originating from a securities
loan free of charge that was granted by the Greenshoe Shareholders to
biw AG in connection with a potential over-allotment (the “Greenshoe
Shares”),
each with a calculated value of EUR 1.00 and carrying full dividend rights
from and including the financial year 2011.
The Offering consists of a public offering in the Federal Republic of Germany
and Luxembourg as well as private placements in other jurisdictions outside
the Federal Republic of Germany, Luxembourg and the United States of
America.
Luckyway Global Group Limited will enter into a securities loan agreement
under which it grants to biw AG a total number of 6,000,000 no-par value
bearer shares (Inhaber-Stückaktien) by way of a securities loan free of
charge. The purpose of the securities loan is to facilitate timely delivery of up
to 6,000,000 shares of the Company (in case of a full exercise of the
Over-allotment) to the investors. In order to fulfil its retransfer obligation
vis-à-vis Luckyway Global Group Limited from the securities loan, biw AG will
subscribe for up to 6,000,000 shares from a capital increase of the Company
from authorised capital against cash contributions described below and
transfer these shares to Luckyway Global Group Limited upon registration of
the capital increase with the commercial register.
These up to 6,000,000 shares are expected to be issued from the Authorised
Capital 2010/I by a resolution of the Management Board subject to the
approval of the Supervisory Board. The meetings are expected to be held on
or around 20 June 2011. The then existing shareholders will waive their
120
subscription rights to the shares from the capital increase. biw AG will be
entitled to subscribe for up to 6,000,000 shares shortly after the end of the
offering period. 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 Munich on 4 July 2011. It is expected that
registration and effectiveness of the capital increase will take place on or
around 11 July 2011.
Assuming that the maximum number of shares is issued, the share capital of
the Company after the capital increase will amount to EUR 21,050,000.00
consisting of 21,050,000 no-par value shares with a calculated amount of
EUR 1.00 per share.
Depending on the extent to which the Delivery Shares are placed with
investors and the extent to which the over-allotment is exercised, the
Offered Shares will represent a calculated total of up to EUR 6,900,000 of the
Company’s share capital. Thus, taking into account the maximum placement
volume of Delivery Shares and an according capital increase amount and
including a potential over-allotment, up to 32.78% of the Company’s shares
will be offered under the Offering. 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 Delivery Shares under the Offering will
accrue to the Company. The net proceeds from the sale of the Greenshoe
Shares, if applicable, will accrue to the Greenshoe Shareholders.
VISCARDI AG, Brienner Str. 1, 80333 Munich, is the Sole Global Coordinator
and
together
with
biw
Bank
für
Investments
und
Wertpapiere
AG,
Hausbroicher Str. 222, 47877 Willich, Joint Lead Manager and Joint
Bookrunner of the Offering. Selling Agents are DAB bank AG, Landsberger
Str. 300, 80687 Munich, comdirect bank AG, Pascalkehre 15, 25451
Quickborn, Cortal Consors S.A., Zweigniederlassung Deutschland, Postfach
1743, 90006 Nuremberg, and S Broker AG & Co. KG, Karl-Bosch-Str. 10,
65203 Wiesbaden, Asiasons WFG Securities Pte Ltd, 5 Shenton Way, #28-01,
UIC Building, Singapore 068808 and ING-DiBa AG, Theodor-Heuss-Allee 106,
60468 Frankfurt am Main, Germany.
121
8.2
Price Range, Offering Period, Subscription, Offer Price and Number of Allotted
Shares
The price range within which purchase orders may be submitted is between
EUR 9.00 and EUR 12.00. Shortly after the publication of the Prospectus, the
Company and the Underwriters will begin the roadshow for the shares, most
likely on 20 June 2011.
The offering period, during which investors will be given the opportunity to
submit orders for the Offered Shares, is expected to begin on 20 June 2011
and is expected to end on 29 June 2011 at 12:00 noon CEST. On the final
day of the offering period, retail and institutional investors will be able to
submit orders until 12:00 noon CEST. Orders will be 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
to the Underwriters as well as to the Selling Agents. Orders must be
submitted for a minimum of 50 shares and may stipulate a price limit within
the price range which is denominated in round euro amounts or round euro
cent figures of 25, 50 or 75 cents.
The Company reserves the right, in agreement with the Underwriters, to
reduce the number of Offered Shares, to lower or raise the upper limit and/or
the lower limit of the price range and/or to extend or shorten the offering
period. If the option to modify the number of Offered Shares, the price range
and/or the offering period (collectively referred to as the “Offer Terms”) is
exercised, and to the extent required under the German Securities
Prospectus Law (Wertpapierprospektgesetz), a supplement to this Prospectus
will be filed with BaFin and published following approval thereof on the
Company’s website (www.csg-ag.de). To the extent legally required, any
changes will also be published in an ad hoc disclosure. Printed copies of the
supplement will be available free of charge during regular business hours at
the office of VISCARDI, Brienner Str. 1, 80333 Munich and at the office of
biw Bank für Investments und Wertpapiere AG, Hausbroicher Str. 222, 47877
Willich. Investors will not be notified individually.
Changes to the Offer Terms will not invalidate orders that have already been
submitted. Investors who have already submitted orders prior to the
publication of any supplement are entitled under the German Securities
Prospectus Law to revoke their orders within two business days of the
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publication of the supplement. The revocation must be declared in text form
to the party specified in the supplement as the recipient of such revocation;
revocations is 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
Underwriters,
see
section
25.4
“Termination”.
After the offering period expires, the Company and the Underwriters will use
the order book created in the bookbuilding process to jointly set the Offer
Price and the placement volume. Pricing and the placement volume will be
set based on the orders submitted by investors during the offering period and
collected in the order book.
Once the Offer Price has been fixed, the Offered Shares will be allotted to
investors based on the submitted orders. The Offer Price is scheduled to be
published subsequently to the fixing of the Offer Price in an ad hoc disclosure
on an electronic information system and on the Company’s website
(www.csg-ag.de) on 29 June 2011. Investors who have submitted their
orders through the Underwriters should be able to obtain the information
from the Underwriters as to the Offer Price and the number of shares they
have been allotted starting, at the earliest, on the banking day immediately
following pricing. 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 to the Underwriters is expected to take place two banking days
following expiration of the offering period. Particularly in the event that the
placement volume proves insufficient to satisfy all the orders submitted at
the Offer Price, the Underwriters reserve the right to reject orders, either in
whole or in part.
8.3
Rights Attached to the Offered Shares
The Offered 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 8.5 “Information Concerning the
Shares in the Company” below and section 19 “Information on the Capital of
the Company and Applicable Provisions”.
123
8.4
Projected Timetable for the Offering
The scheduled timetable for the Offering is as follows:
17 June 2011
Approval of the Prospectus by BaFin
Notification of approval of the Prospectus to the Luxembourg
Commission for the Supervision of the Financial Sector
(Commission de Surveillance du Secteur Financier – CSSF)
Publication of the Prospectus on the Company’s website
www.csg-ag.de
20 June 2011
Commencement of the offering period
29 June 2011
End of the offering period at 12:00 noon CEST
Determination of the Offer Price, placement volume and
allotment
Publication of the Offer Price and the number of Offered
Shares as well as the allotment criteria placed in an ad-hoc
disclosure on an electronic information system and on the
Company’s website www.csg-ag.de
30 June 2011
Listing approval issued by the Frankfurt Stock Exchange for
the Existing Shares
1 July 2011
Book-entry delivery of the Offered Shares to investors against
payment of the Offer Price
Commencement of trading of the Company’s Existing Shares
Subscription of up to 6,000,000 shares from the capital
increase by biw AG
11 July 2011*
Registration of the capital increase with the commercial
register of the Company
13 July 2011*
Listing approval issued by the Frankfurt Stock Exchange for
the shares from the capital increase
* May be delayed due to the commercial register of the local court in Munich.
This Prospectus and any supplements thereto will be published on the
Company’s website (www.csg-ag.de). Printed copies of the Prospectus and
any supplements thereto will be available upon request and free of charge
during regular business hours at the office of VISCARDI, Brienner Str. 1,
80333 Munich, Germany, as well as at the office of biw Bank für Investments
und Wertpapiere AG, Hausbroicher Str. 222, 47877 Willich, Germany from
the day of publication.
8.5
Information Concerning the Shares in the Company
8.5.1
Dividend Rights, Rights to Share in the Liquidation Proceeds,
Subscription Rights and Voting Rights
Dividend Rights
The shares of the Company carry full dividend rights from and including the
financial year 2011. This applies as well to the shares from the capital
increase from the time of the registration of the capital increase (which is
124
expected to take place on or around 11 July 2011).
Dividends are paid in euro to each shareholder’s account through central
depository to the custodian bank which will pay them to the shareholders’
accounts. The distribution of dividends on the Company’s shares for the past
fiscal year is subject to the General Shareholders’ Meeting (for further
details, see section 19.3.1 “Provisions relating to Profit Allocation 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 section 23
“Taxation in Germany” and section 24 “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.
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.
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.
Exemption are made in regard to conditional capital increase 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 may partially or completely exclude the
subscription rights in specific cases. The exclusion of the subscription rights
need to be permissible under the German Stock Corporation Act (for further
details, see section 19.3.3 “Provisons relating to Subscription Rights”).
Voting Rights
In accordance with the Company’s Articles of Association, each share carries
one vote at the General Shareholders’ Meeting. All shares including shares of
Luckyway Global Group Limited, Quick Reach Group Limited, Expert
125
Intelligence Global Limited, Sea Dragon Investments Limited and Hong Kong
Investment Group Limited (the “Current Major Shareholders”) 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 20.5 “General Shareholders’ Meeting”).
8.5.2
Form and Representation of the Shares
All of the Company’s shares are or will be issued as ordinary no-par value
bearer shares (Inhaber-Stückaktien). The shares are represented by one or
more global certificates without dividend coupons. The shares are deposited
with Clearstream Banking AG, Frankfurt/Main, as securities clearing and
depository bank. The same applies to the shares from the capital increase,
which will be represented by an additional global certificate and also be
deposited with Clearstream Banking AG, Frankfurt/Main. The Articles of
Association of the Company excludes the shareholders’ claim to be issued
with share certificates, unless such certificates are required under the
regulations of a stock exchange on which the share is listed.
8.5.3
Transferability, Lock-Up
The shares are freely transferable. With the exception of the restrictions set
out in the section 8.11 “Market Protection Agreements (Lock up)” and
section 25 “Underwriting”, there are no lock-up requirements or restrictions
on the transferability of the Company’s shares.
8.5.4
ISIN/WKN/Common Code/Ticker Symbol
The Securities Identification Number (WKN) of the shares is A1EL8Y, the
International Securities Identification Number (ISIN) is DE000A1EL8Y8 and
the Ticker Symbol is 8GS.
8.6
Allotment Criteria
8.6.1
General Allotment
No agreements exist between the Company, the Greenshoe Shareholders
and the Underwriters with respect to the allotment procedure prior to the
commencement of the offering period. The Company, the Greenshoe
Shareholders and the Underwriters will comply with the “Principles for the
Allotment of Shares Issues to Private Investors” (“Grundsätze für die
126
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). The Company, the Greenshoe
Shareholders and the Underwriters 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.
8.6.2
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.
8.7
Stabilisation Measures, Over-Allotment and Greenshoe Option
In connection with the placement of the Company’s shares and to the extent
permitted by applicable law including the Commission Regulation (EC) No.
2273/2003 dated 22 December 2003 and in connection with the Offering,
VISCARDI as stabilisation manager may make over-allotments and execute
stabilisation measures aimed at supporting the stock exchange or market
price of the Company’s shares in order to offset any sales pressure that may
exist. The stabilisation manager is under no obligation to take stabilisation
measures. Therefore, there is no guarantee that any stabilisation measures
will indeed be implemented. If stabilisation measures are taken, these may
be terminated at any time without prior notice. Such measures may be taken
from the date the Existing Shares list for trading in order to support the
initial exchange price, if necessary, and must be completed no later than 30
calendar days after such date (“Stabilisation Period”). Stabilisation
measures may lead to the stock exchange or market price of the Company’s
shares being higher than would have been the case without such measures.
In addition, such measures may temporarily result in the stock exchange or
market price reaching a level that is not sustainable in the long run.
As regards potential stabilisation measures, in addition to the maximum total
of 6,000,000 Delivery Shares of the Company being offered, investors may
be allotted up to 900,000 additional shares from a securities loan free of
charge that was granted by the Greenshoe Shareholders to biw AG (a
maximum of 15% of the total number of Delivery Shares being allocated)
(“Over-allotment”). Over-allotment within this meaning is also possible if
the Delivery Shares offered are not fully placed with investors. For the
127
number of shares provided by the various Greenshoe Shareholders see
section 25.3 “Securities Loans and Greenshoe Option”.
In this context, the Greenshoe Shareholders will grant biw AG the option to
purchase up to 900,000 Existing Shares (a maximum of 15% of the total
number of Delivery Shares being allocated) from the Greenshoe Shareholders
at the Offer Price less the agreed commission and other costs (“Greenshoe
Option”), and thus satisfy the retransfer obligation under the securities loan.
This Greenshoe Option expires 30 calendar days after trading in the Existing
Shares commences and may be exercised at maximum to the extent that
shares of the Company have been placed by way of Over-allotment.
Within
one
week
following
the
end
of
the
Stabilisation
Period,
an
announcement will be published in the Frankfurter Allgemeine Zeitung and on
the Company’s website (www.csg-ag.de) as
to whether
or not
any
stabilisation measures were carried out, the date on which these stabilisation
measures were commenced, the date on which the last stabilisation measure
was taken, and the price range within which stabilisation measures were
carried out (for each date on which a stabilisation measure was carried out).
The implementation of the Over-allotment and the exercise of the Greenshoe
Option and the date thereof, as well as the number and class of the relevant
shares will also be promptly published in the manner stated above.
8.8
Stock Exchange Admission and Commencement of Trading
An application for admission of all the Company’s shares (including the
shares from the capital increase) to trading on the regulated market
(regulierter Markt) with simultaneous admission to the regulated market
sub-segment with additional post-admission obligations (Prime Standard) of
the Frankfurt Stock Exchange is expected to be finalised on 29 June 2011. It
is expected that trading of the Existing Shares will commence on the second
banking day following the expiration of the offer period, i.e. on 1 July 2011
and that the trading of the shares from the capital increase will commence
two banking days following the registration of the capital increase, i.e. on
13 July 2011. The decision on admission of the shares is at the sole
discretion of the Frankfurt Stock Exchange.
128
8.9
Delivery and Settlement
The Offered Shares will be delivered through Clearstream Banking AG,
Frankfurt/Main, Germany, to the investors’ securities deposit account
maintained by a bank through a depository chain with Clearstream Banking
AG, Frankfurt/Main.
Delivery of the Offered Shares to investors against payment of the Offer Price
is expected to take place on 1 July 2011. The shares will be made available
to shareholders as co-ownership interests in the respective global certificate.
8.10
Designated Sponsor
VISCARDI is assuming the function of a designated sponsor for the
Company’s shares trading on the Frankfurt Stock Exchange. According to the
designated sponsor agreement which the Company will execute with
VISCARDI, VISCARDI will include the submission of limit orders to buy or sell
shares of the Company into the electronic trading system of the Frankfurt
Stock Exchange during regular trading hours. This is designed, in particular,
to achieve higher liquidity in the trading of the shares.
8.11
Market Protection Agreements (Lock up)
The Company will undertake vis-à-vis the Underwriters that for a period of 6
months from the first day of trading of the Existing Shares it will not and for
a period of further 6 months it will not without the prior written consent of
the Underwriters:
(a)
implement any capital increase from authorised capital;
(b)
propose any capital increase to its general shareholders’ meeting;
(c)
announce, implement or propose to its general shareholders’ meeting
any issue of any financial instruments carrying conversion or option
rights with respect to the shares in the Company or any transactions
having an equivalent economic effect;
(d)
directly or indirectly sell, offer, market, distribute, transfer, encumber
or in any other way dispose of shares in the Company;
(e)
enter into any transactions (including derivative transactions) that are
129
the economic equivalent of the above.
Luckyway Global Group Limited will undertake vis-à-vis the Underwriters
that, for a period of 12 months from the from the first day of trading of the
Existing Shares it will not and for a period of further 6 months it will not
without the prior written consent of the Underwriters:
(a)
initiate or consent to any of the measures set out above;
(b)
directly or indirectly sell, offer, market, distribute, transfer, encumber
or in any other way dispose of shares or other financial instruments in
the Company; 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);
(c)
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 relating to
any of such transactions is announced.
Furthermore, Expert Intelligence Global Limited, Hong Kong Investment
Group Limited, Quick Reach Group Limited and Sea Dragon Investments
Limited will undertake vis-à-vis the Underwriters that, for a period of 6
months from the first day of trading of the Existing Shares, they will not
undertake any of the aforementioned transactions.
These lock-up restrictions do not apply to the issuance of shares in the
Company for the purpose of making acquisitions or the capital increase
according to which the Underwriters will subscribe shares of the Company in
order to fulfil its retransfer obligation vis-à-vis Luckyway Global Group
Limited from the securities loan.
130
9.
REASONS FOR THE OFFERING, USE OF ISSUE PROCEEDS, ISSUE
COSTS AND INTERESTED THIRD PARTIES
9.1
Issue Proceeds and Costs
The gross issue proceeds from the sale of the Delivery 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 shares offered and actually placed and the Offer
Price.
Assuming that all of the Delivery Shares are placed, the attainable gross
issue proceeds accruing to the Company from the Offering will be between
approximately EUR 54.0 million and EUR 72.0 million. Due to the fact that
the costs are contingent on the total number of shares placed and the Offer
Price, which determine the amount of commissions, it is not possible at
present to reliably predict the amount of the costs. Based on the price range,
the Company estimates that it will incur costs (including Underwriters’ fees
and assuming that the Company pays the full amount of the discretionary
performance-based incentive fee) totalling approximately EUR 4.5 million to
EUR 5.4 million. Subject to the aforementioned uncertainties, the Company
believes
that,
given
these
assumptions,
it
is
possible
to
generate
approximately EUR 49.5 million to EUR 66.6 million in net issue proceeds.
The net proceeds from the sale of the Greenshoe Shares, insofar as it is
exercised, will accrue to the Greenshoe Shareholders. The Greenshoe
Shareholders will receive approximately EUR 8.7 million as the arithmetic
mean of the net issue proceeds considered possible by the Greenshoe
Shareholders from the sale of the Greenshoe Shares if the Greenshoe Option
is fully exercised.
9.2
Reasons for the Offering
The net issue proceeds accruing to the Company are intended to strengthen
the Company’s capitalisation and financial position and support the intended
expansion of its activities and the implementation of its strategy. In
particular, the Company aims to finance the growth process. The listing is
also intended to enable the Company to sharpen its public profile as well as
its profile on the international capital market.
131
9.3
Use of the Issue Proceeds
The Company plans to use the net issue proceeds accruing to it from the
placement of the Offered Shares to finance further internal and external
growth including, if any, selected acquisitions, to implement and finance its
strategic objectives and for general business purposes. Specifically, based on
the assumption that the net issue proceeds of the Offering accruing to the
Company amount to approximately EUR 58.0 million, the Company plans to
split the net issue proceeds between the following purposes:
Purpose
approx. %
Establishment of new production base in Sichuan Province
25
Financing of further growth
25
Establishment of a new research and development centre
5
Modernize and expand production capacity of Guangzhou
factory
25
Financing of the exclusive distributorship agreement with
the industrial group Saint-Gobain
10
Working capital
10
Establishment of a new production base in Sichuan Province
The Group is currently establishing a new factory in Sichuan Province. It has
applied to acquire the right to use a land with an area of approximately
200,000 square meters. It estimates that the operations of this new factory
can commence in the second half of 2011 and that the maximum production
capacities of around 2.8 million square meters per annum for construction
glass products or around 800,000 square meters per annum for security
glass products will be reached in about two years’ time.
Financing of further growth
The Group plans to finance its further growth with the net issue proceeds.
Establishment of a new research and development centre
The Group plans to invest in the development of a research and development
centre. The Group intends to acquire some new research and development
and inspection equipment in order to innovate and develop new projects. It
has some ideas for the future on the increasing output of “the bulletproof and
132
intruder-resistant glass” and hopes to obtain new patents, which could lead
to some new product lines.
The Group further intends to strengthen its cooperation
with some
universities and colleges in order to recruit the talents and the experts of
bulletproof glass industry and to establish and to develop a strong research
and development team.
Modernize and expand production capacity of Guangzhou factory
The Group plans to modernize and expand all its existing machines for the
production of construction glass, the flat type of the bulletproof glass product
line, the product lines for bulletproof glass for cars and accessory production
equipment. For further details see section 17.4 “Strategy”.
Financing of the exclusive distributorship agreement with the
industrial group Saint-Gobain
HWG-Ltd. has concluded an exclusive distributorship agreement with the
Saint-Gobain Group under which a certain consideration will be paid by
HWG-Ltd. for the exclusive distribution rights for selected products of
Saint-Gobain in China. For further details see section 17.14.4 “Exclusive
Distributorship Agreement”.
Working capital
The Group intends to strengthen its working capital with the net issue
proceeds.
9.4
Interested Parties involved in the Offering
In connection with the Offering and the listing of the Company’s shares (the
“Transaction”), the Underwriters are in a contractual relationship with China
Specialty Glass-Group. VISCARDI was appointed by the Company as Sole
Global Coordinator and together with biw AG as Joint Lead Manager and Joint
Bookrunner. VISCARDI and biw AG advise the Company on the Transaction
and coordinate the structuring and execution thereof and will purchase and
sell the Offered Shares in accordance with the executed underwriting
agreement. The compensation of the Underwriters is incentive-based and
depends, amongst other factors, on the amount of the offer proceeds such
that the Underwriters have an interest in the successful implementation of
the Offering.
133
The Underwriters or their affiliates may enter into business relations with the
Company or render services to the Company in the ordinary course of
business. VISCARDI also has an interest in the Offering on account of its
designated sponsor agreement, in particular (see section 8.10 “Designated
Sponsor”).
In addition, related parties may have a personal interest in the issue because
there are certain legal and business relationships existing with the Company
(for more information, see section 22 “Related Party Transactions” and
section 20.2.5 “Conflicts of Interest”).
134
10.
DIVIDEND POLICY; EARNINGS AND DIVIDENDS PER SHARE
10.1
Dividend Rights and Dividend Policy
Sec. 60 para. 1 German Stock Corporation Act (“AktG”) stipulates that the
shareholders’ respective share in the profits depends on their share in the
Company’s share capital. Accordingly, each share participates in the
Company’s profit, if any, with a dividend per share on an equal basis.
Under German law, a resolution on a dividend and its distribution must be
based on a balance sheet profit recognised in the Company’s financial
statements prepared in accordance with the German Commercial Code
(“HGB”). When determining the profit that is available for distribution, the
net profit/loss must be adjusted for profit/loss carry forwards from the
previous year and withdrawals from/allocations to reserves. Certain reserves
must generally be established by law (see sec. 150 AktG) and the amount
allocated to such reserves must be deducted in the calculation of the profit
available for distribution until the reserves have been established in full.
Dividends may be decided and distributed only from the Company’s balance
sheet profit stated in its individual financial statements. In contrast to
consolidated financial statements prepared in accordance with International
Financial Reporting Standards (“IFRS”), these individual financial statements
are prepared in accordance with HGB. Dividends are subject to German
capital gains tax (see section 23.2 “Taxation of Shareholders”).
The amount of the dividend will be proposed to the General Shareholders’
Meeting jointly by the Management Board and the Supervisory Board for the
respective past financial year. The dividend for the past financial year will be
decided by the shareholders at the General Shareholders’ Meeting of the
following year. Dividends decided at the General Shareholders’ Meeting are
payable on the first business day following the General Shareholders’
Meeting, unless otherwise provided for in the dividend resolution. Details of
the dividends will be published in the electronic version of the German
Federal
Gazette
(elektronischer
Bundesanzeiger).
In
accordance
with
sec. 195 of the German Civil Code (“BGB”), the entitlement to a dividend
becomes time-barred within the regular period of limitation of three years for
the benefit of the Company.
The Company’s ability to pay a dividend in future years will depend on the
amount of the annual result and the net profit available for distribution. This
ability is limited to the profits generated from the Company’s subsidiaries and
135
sub-subsidiaries, i.e. the operative business located in China, due to the
company being a holding company. The Company cannot make a statement
as to the amount of future profits or as to whether profits will be generated
at all. Accordingly, the Company cannot guarantee that dividends will be paid
in future years. The amount of the actual dividend payout will depend on a
number of factors (see section 3 “Risk factors”). Factors that influence the
dividend include the profitability, liquidity, capital requirements and business
outlook of the Company as well as the general economic environment.
10.2
Earnings and dividend per share
CSG-AG was a shelf company which was founded on 10 May 2010 and the
Group was established in November 2010. Therefore no dividends were paid
in the past. HWG-Ltd. as currently sole operating company of the Group did
however generate profits and distribute dividends in the past. On the basis of
its financial statements as at and for the years ended 31 December 2008,
31 December 2009 and 31 December 2010, the following summary shows
the profit for the respective financial year of HWG-Ltd. 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 31 December 2008,
31 December 2009 and 31 December 2010. 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 CSG-AG following the capital increase and transfer of
shares in HWG-HK Holding to CSG-AG.
Financial Year ended 31 December
2008
2009
10,600,000
14,131,000
22,252,000
8,103,000
0
2,339,000
15,050,000
15,050,000
15,050,000
Earnings per share in EUR (undiluted) ......... 0.70
0.94
1.48
Earnings per share in EUR (diluted)
0.70
0.94
1.48
Dividends per share in EUR
0.54
0.00
0.16
Profit for the year (in EUR)
Dividends
Assumed number of shares on
2010
31 December*
* For better comparability, the number of shares in CSG-AG following the effectiveness of the
capital increase to 15,050,000 shares has been used throughout the period.
136
11.
DILUTION
The net book value of the Company’s equity attributable to the Company’s
shareholders amounted to EUR 52.7 million as of 31 March 2011 based on its
interim consolidated financial statements prepared in accordance with
International Financial Reporting Standards, as endorsed for application in
the EU, for the three months ended 31 March 2011. This corresponds to
approximately EUR 3.50 per share (calculated on the basis of 15,050,000
shares of the Company in issue as of the date of this Prospectus).
Assuming that:
•
all 6,900,000 Offered Shares are placed;
•
the Underwriters fully exercise the Greenshoe Option; and
•
the Offer Price of EUR 10.50 corresponds to the midpoint of the price
range of between EUR 9.00 and EUR 12.00,
the net issue proceeds of the Offering accruing to the Company will amount
to approximately EUR 58.0 million considered possible by the Company (see
also Section 9 “Reasons for the Offering, Use of Issue Proceeds, Issue Costs
and Interested Third Parties”) and assuming that the Offering which is the
subject of this Prospectus had been implemented on or around 31 March
2011, the net book value of the Company’s equity attributable to the
Company’s shareholders at that time would have amounted to approximately
EUR 110.7 million (or approximately EUR 5.26 per share) (calculated on the
basis of 21,950,000 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 CSG-AG’s equity
attributable to the Company’s shareholders of approximately EUR 1.76 per
share corresponding to an increase of 50.2% for the Existing Shareholders
and a direct dilution of about EUR 5.24 per share for the purchasers of the
Offered Shares and, thus, investors who acquire shares at the midpoint of
the price range of between EUR 9.00 and EUR 12.00, which is EUR 10.50, per
Offered Share are diluted by about 49.9%.
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):
137
Price per share (€)
10.50
Equity attributable to shareholders of the
Company per share (€) as of 31 March 2011
3.50
Calculated on the basis of 15,050,000 shares held by the
Current Major Shareholders
Amended equity attributable to shareholders of the Company per share (€)
as of 31 March 2011, and as adjusted under the assumption
of full implementation of the capital increase
5.26
Percentage by which the amended equity value
exceeds the equity value
50.2%
Amount (€) by which the price per share exceeds the total share
capital per share (immediate dilution per share)
5.24
Percentage by which the price per share exceeds the total share
capital per share
49.9%
138
12.
CAPITALISATION, INDEBTEDNESS AND BORROWING REQUIREMENTS
12.1
Capitalisation and Indebtedness
The following table shows the
actual
consolidated
capitalisation
and
indebtedness of the Company in accordance with IFRS as endorsed for
application in the EU as of 31 March 2011. The capitalisation of the Company
will change following the implementation of the Offering due to the net issue
proceeds accruing to the Company depending on the extent of the placement
volume of the Delivery Shares and the according amount of the connected
capital increase (see section 25.3 “Securities Loans and Greenshoe Option”).
For further details please see section 14 “Operating and Financial Review”.
Capitalization
As at 31 March
2011 (in EUR
thousand,
unaudited)
Total Current Debt
10,051
Guaranteed*
1,624
Secured
-
Unguaranteed/ Unsecured
8,427
Total Non Current Debt
-
Guaranteed
-
Secured
-
Unguaranteed/ Unsecured
-
Shareholder’s Equity (excl. retained
earnings)
15,774
Share Capital
15,050
Legal Reserve
724
Other Reserves (excl. retained
earnings and foreign exchange
fluctuation reserve)
Total
-
25,825
*Short-term bank loans have been guaranteed by personal guarantees and mortgages from
related parties. Further details are given in section 22 “Related Party Transactions”.
139
Indebtedness
As at 31 March
2011 (in EUR
thousand,
unaudited)
A. Cash
36,739
B. Cash Equivalent
-
C. Trading Securities
-
D. Liquidity (A + B + C)
36,739
E. Current Financial Receivable
13,815
F. Current Bank Debt
1,624
G. Current Portion of Non Current Debt
-
H. Other Current Financial Debt
-
I. Current Financial Debt (F + G + H)
1,624
J. Net Current Financial Indebtedness (I – E – D)
(48,930)
K. Non Current Bank Loans
-
L. Bonds Issued
-
M. Other Non Current Loans
-
N. Non Current Financial Indebtedness (K + L + M)
-
O. Net Financial Indebtedness (J + N)
(48,930)
The Group is exposed to contingent liabilities amounting to TEUR 264 for
potential
social security
back
payment
claims,
at
least TEUR 54
as
tax-related contingencies and potential contingencies from an investment
and construction project contract which are not quantifiable. Further details
are given in section 14.6 “Critical Accounting Policies”. As at 31 March 2011,
the HWG HK-Group had no further contingent or indirect liabilities.
12.2
Borrowing Requirements
In order to finance the intended growth of China Specialty Glass-Group (see
section 17.4 “Strategy”), further borrowing is necessary, especially to the
extent that the investments under construction and under development and
any further investments require financial resources in excess of the proceeds
received by the Company from the Offering of the Delivery Shares.
Although the Company estimates that it will have sufficient equity and debt
resources following implementation of the Offering to fund its current and
planned investments, no assurance is given that China Specialty Glass-Group
will be in a position to conclude any necessary financing arrangements on
favourable terms, or at all. In the event that China Specialty Glass-Group
140
was not in a position to secure the necessary financing, the Company could
be forced to change its investment plans or to incur higher than expected
financing costs.
12.3
Working Capital Statement
In the opinion of the Company, the working capital of the Group is sufficient
for the Group’s present requirements, that is to cover at least those payment
obligations which will become due within the twelve months following the
date of this Prospectus.
141
13.
SELECTED FINANCIAL INFORMATION
With regard to the establishment of the Group in November 2010, the Group
has a complex financial history within the meaning of art. 4 a of the
Regulation (EC) No. 809/2004. The Company was founded on 10 May 2010,
registered on 18 May 2010 and then acquired on 27 May 2010 by the
Founding Shareholder Luckyway Global Group Limited. On 30 June 2010, the
General
Shareholders’
Meeting
resolved
a
capital
increase
from
EUR 50,000.00 by EUR 15,000,000.00 to EUR 15,050,000.00 through the
issuance of an aggregate of 15,000,000 shares against contributions in kind.
Luckyway Global Group Limited, Quick Reach Group Limited, Expert
Intelligence Global Limited, Sea Dragon Investments Limited and Hong Kong
Investment Group Limited acquired all shares by contributing all their shares
in HWG HK-Holding into the Company. The capital increase became legally
effective on 22 November 2010. This led to the formation of the Group.
Thus, CSG-AG’s consolidated financial statements for the short financial year
2010 (from date of initial existence of the Group on 22 November 2010 until
31 December 2010), in which the Company’s subsidiaries were consolidated
as of 22 November 2010, the consolidated interim financial statements of
CSG-AG for the three months ended 31 March 2011 as well as the single
entity financial statements of CSG-AG for the short financial year 2010 (from
10 May 2010 until 31 December 2010) are the first financial data (within the
meaning of annex 1 no. 20.1 of the Regulation (EC) No. 809/2004) of the
Company and the Group in its current form, other historical data do not
exist. The aforementioned financial statements of CSG-AG are in accordance
with IFRS as endorsed for application in the EU with the exception of the
single entity financial statements which are in accordance with HGB. The
consolidated financial statements for 2010 as well as the single entity
financial statements for 2010 have been audited by Grant Thornton, whereas
the consolidated interim financial statements have been reviewed by Grant
Thornton.
The Company is the holding company of HWG HK-Group and thereby is
managing the respective companies and/or administering the participation of
the respective companies in the glass industry. The HWG HK-Group consists
of HWG HK-Holding, HWG-Ltd. and HWG-SC. The operational business of the
Group is currently carried out exclusively by HWG-Ltd. and will in future,
according to the Company’s plans, also be carried out by HWG-SC. HWG-SC,
which was established in May 2010, has not yet started operational trading
142
business, although it has already invested in property, plant and equipment,
land use rights and design rights and has assumed liabilities in respect of its
investments and commitments in respect of its planned investments. The
entities of HWG HK-Group existing prior to the incorporation of the Company
are under common control within the meaning of IFRS 3 “Business
Combinations”.
In order to present the net assets, financial position and results of operations
for the last three fiscal years and the first quarter of 2011 in relation to the
operational business which is entirely carried out in China, HWG-Ltd. has
prepared financial statements in accordance with IFRS, as endorsed for
application in the EU, as of and for the years ended 31 December 2008,
31 December 2009 and 31 December 2010 as well as interim financial
statements for the three months ended 31 March 2011. These financial
statements were audited by Grant Thornton with the exception of the interim
financial statements which have been reviewed by Grant Thornton.
The aforementioned financial statements of HWG-Ltd. are 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 allow the investor to compare the development of
the business, financial condition and the results of operations of the
Company over the last three years and the first quarter of 2011. As, in
addition, the consolidated financial statements and single entity financial
statements of CSG-AG only refer to a short financial year (2010), the
selected financial information which is reflected in this section was derived
from
the
aforementioned
financial
statements
of
HWG-Ltd.
and
the
consolidated interim financial statements of CSG-AG for the three months
ended 31 March 2011.
For a number of reasons, the comparability of the financial information
presented in the tables below is subject to significant limitations:
The financial information set out below should be read in conjunction with the
explanations and notes given by the management in section 14 “Operating
and Financial Review”.
The tables below show selected information relating to the financial
statements of HWG-Ltd. for the financial years 2008, 2009 and 2010 and the
first quarter of 2011 and to the consolidated interim financial statements of
CSG-AG for the first quarter of 2011.
143
The following figures were commercially rounded; their sums when added
may not be the same as the sums indicated.
HWG-Ltd.
Selected Financial
Information
Twelve months ended 31 December
2008
2009
2010
(audited)¹
(audited)¹
(audited)¹
EUR
EUR
thousand
%
EUR
thousand
%
thousand
%
Data
Revenue
40,216
100%
50,910
100%
69,564
100%
Cost of sales
-23,000
57%
-28,032
55%
-38,111
55%
Gross Profit
expenses
17,216
43%
22,878
45%
31,453
45%
-1,205
3%
-1,704
3%
-2,277
3%
-848
2%
-874
2%
-1,038
1%
-965
3%
-1,384
3%
-1,878
3%
14,198
35%
18,916
37%
26,260
38%
51
0%
47
0%
108
0%
-104
0%
-106
0%
-110
0%
14,145
35%
18,857
37%
26,258
38%
-3,545
9%
-4,726
9%
-4,006
6%
10,600
26%
14,131
28%
22,252
32%
costs
Finance income
Finance costs
Income tax
financial position Data
Total assets
24,892
31,753
59,651
Total liabilities
12,604
6,904
10,299
Total equity
12,288
24,849
49,352
10,841
11,548
22,343
-710
-185
-4,706
Financing Data
activities
activities
activities
borrowings
borrowings)
-5,725
-7,672
859
14,330
16,811
37,801
1,383
1,604
1,813
12,947
15,207
35,988
data
Gross profit margin
42.8%
44.9%
45.2%
EBIT
14,198
18,916
26,260
EBIT margin
35.3%
37.2%
37.7%
Net profit margin
26.4%
27.8%
32.0%
467
464
451
Number of employees
¹ Audited information with the exception of "Other Selected Financial Data" which is calculated
or derived from the audited financial statements
144
HWG-Ltd.
Selected Financial
Information
Three months ended
31 March 2011
(reviewed)1
EUR
thousand
Three months ended
31 March 2010
(reviewed)1
EUR
thousand
%
%
Data
Revenue
16,441
Cost of sales
Gross Profit
expenses
costs
Finance income
Finance costs
Income tax
100%
11,454
100%
-8,850
54%
-6,451
56%
7,591
46%
5,003
44%
-609
4%
-441
4%
-326
2%
-190
2%
-391
2%
-338
3%
6,265
38%
4,034
35%
79
0%
18
0%
-30
0%
-22
0%
6,314
38%
4,030
35%
-950
5%
-685
6%
5,364
33%
3,345
29%
Selected Balance Sheet
Data²
Total assets
Total liabilities
Total equity
Financing Data
activities
activities
activities
borrowings
borrowings)
61,998
59,651
9,627
10,299
52,371
49,352
3,109
6,114
-2,368
-2
-142
-22
36,700
24,668
1,624
1,747
35,076
22,921
46.2%
43.6%
data
Gross profit margin
EBIT
6,265
4,034
EBIT margin
38.1%
35.2%
Net profit margin
32.6%
29.2%
456
456
Number of employees
² The 2010 figures shown in the “Selected Balance Sheet Data” derive from the twelve months
ended 31 December 2010 shown in the financial statements of HWG-Ltd.
145
CSG-AG
Financial Information
Three months ended 31
March 2011
(reviewed)1
EUR
Thousand
Short year ended 31
December 2010
(audited)
EUR
Thousand
%
Statement of Comprehensive Income Data
Revenue
16,441
100%
Cost of sales
-8,850
54%
Gross profit
expenses
7,591
46%
-609
4%
-440
3%
-391
2%
6,151
37%
costs
Finance income
Finance costs
Taxation
Net profit
37
0%
-26
0%
6,162
37%
-950
5%
5,212
32%
Balance Sheet Data
Total assets
62,728
60,374
Total liabilities
10,051
10,563
Equity
52,677
49,811
Selected Consolidated Cash
Flow Data
activities
activities
activities
borrowings
Net cash (cash and cash
equivalents less interest
bearing bank liabilities)
2,516
-2,386
-138
36,739
37,912
1,624
1,813
35,115
36,099
Further Selected
Consolidated Financial Data
Gross profit margin
EBIT
46,2%
6,151
EBIT-margin
37,4%
Net profit margin
31,7%
Number of employees
456
146
%
14.
OPERATING AND FINANCIAL REVIEW
The Company was founded on 10 May 2010 and registered on 18 May 2010
and therefore has no historical data, except for the consolidated financial
statements for the short financial year 2010 (from 22 November 2010 until
31 December 2010), the consolidated interim financial statements of CSG-AG
for the three months ended 31 March 2011 as well as the single entity
financial statements for the short financial year 2010 (from 10 May 2010
until 31 December 2010). Since the business of China Specialty Glass-Group
essentially corresponds to the business activities of its wholly owned indirect
subsidiary, HWG-Ltd., the following discussion and analysis of the financial
condition and results of operations is based on the audited financial
statements of HWG-Ltd. in accordance with IFRS, as endorsed for application
in the EU, as of 31 December 2008, 31 December 2009 and 31 December
2010 as well as the reviewed interim financial statements of HWG-Ltd. for
the three months ended 31 March 2011.
The audited financial statements of HWG-Ltd. for the financial years ended
31 December
2008,
2009
and
2010,
the
reviewed
interim
financial
statements of HWG-Ltd. for the three months ended 31 March 2011, the
audited consolidated financial statements of CSG-AG for the short financial
year 2010 (from the date of the Group coming into existence on 22
November 2010 until 31 December 2010), the reviewed consolidated interim
financial statements of CSG-AG for the three months ended 31 March 2011
as well as the audited single entity financial statements of CSG-AG for the
short financial year 2010 (from incorporation of CSG-AG on 10 May 2010
until 31 December 2010) are presented in the Financial Section of this
Prospectus. All the aforementioned financial statements have been prepared
in accordance with IFRS, as endorsed for application in the EU, with the
exception of the single entity financial statements of CSG-AG which are in
accordance with HGB.
The financial information printed in the Financial Section of this Prospectus
does not guarantee any future financial condition and results of operations of
China Specialty Glass-Group or in respect of any periods other than those
covered by it.
The following discussion and analysis of the business, financial condition and
results of operations of the operative company HWG-Ltd. should be read in
conjunction with other information in this Prospectus, including but not
limited to section 3 “Risk Factors”, section 12 “Capitalisation, Indebtedness
147
and Borrowing Requirements” and section 17 “Business”, including the
financial statements and the related notes thereto contained in the Financial
Section and section 13 ‘‘Selected Financial Information’’ of this Prospectus.
As HWG-Ltd. is currently the sole operating company of the China Specialty
Glass-Group and none of the other group entities had any trading operations
during 2008 to 2010, the financial data of the China Specialty Glass-Group
for these periods is substantially that of HWG-Ltd. and hence only this data
of HWG-Ltd. is presented, discussed and analysed below. The major
differences between the financial data of HWG-Ltd. and the consolidated
financial data of CSG-AG can be explained on the basis of their respective
interim financial statements for the three months ended 31 March 2011 as
follows:
HWG-SC incurred TEUR 27 of administrative costs in the three months to
31 March 2011 (three months to March 2010 TEUR 0), and consequently the
consolidated profit of CSG-AG for the three months to 31 March 2011 is
TEUR 27 lower than the profit for the single entity HWG-Ltd. for the three
months to 31 March 2011 in this regard. HWG-SC has not yet started
operational trading business, although it has already invested in property,
plant and equipment, land use rights and design rights and has assumed
liabilities in respect of its investments and commitments in respect of its
planned investments. These investments amounted to EUR 3.9 million as at
31 March 2011. HWG-SC has bank balances of TEUR 29, liabilities to related
parties of EUR 3.0 million and equity of EUR 1.0 million as at 31 March 2011.
HWG HK-Holding incurred TEUR 37 of administrative costs in the three
months to 31 March 2011, and consequently the consolidated profit of
CSG-AG for the three months to 31 March 2011 is TEUR 37 lower than the
profit for the single entity HWG-Ltd. for the three months to 31 March 2011
in this regard. HWG HK-Holding did not incur any material administrative
costs in the three months to 31 March 2010, hence there are no material
differences between the profit of HWG-Ltd. and the consolidated profit of
HWG HK-Holding for the three months to 31 March 2010.
CSG-AG incurred TEUR 49 of administrative costs in the three months to
31 March 2011 (three months to 31 March 2010 TEUR 0), and consequently
consolidated profit of CSG-AG for the three months to 31 March 2011 is
TEUR 49 lower than the profit for the single entity HWG-Ltd. for the three
months to 31 March 2011 in this regard. CSG-AG also owes its shareholder
Luckyway TEUR 996 for financing of running costs and advance payments of
IPO related costs. The advance payments of IPO related costs amounted to
148
TEUR 876 at 31 March 2011 and were recorded under other assets as
payments made in advance.
The consolidated financial data of CSG-AG at 31 March 2011 discloses
EUR 0.7 million higher assets, EUR 0.3 million higher equity and EUR 0.4
million higher liabilities than the single entity financial data of HWG-Ltd. at
31 March 2011.
At 31 March 2011, net funds (Cash less borrowings) are EUR 35.1 million in
the consolidated financial data of CSG-AG and also in the single entity
financial data of HWG-Ltd. because none of the Group companies apart from
HWG-Ltd. had substantial cash balances.
With reference to the single entity financial statements of CSG-AG, this
company is a holding company, has neither sales nor employees and its
major asset is its investment in HWG HK-Holding.
The following figures were commercially rounded. It is therefore possible that
the addition of such rounded amounts will not yield the same figures as the
sum of the full amounts.
14.1
Overview
China Specialty Glass-Group develops, produces and sells specialty glass
in the domestic market in China directly through its own sales network. China
Specialty Glass-Group considers itself to be one of the leading specialty glass
manufacturers in China producing in particular security glass for the Chinese
banking and automotive refitting manufacturers industry and various
specialty glass products for the Construction Glass Market. For bulletproof
security glass products which are demanded by the Chinese banking and
automotive refitting manufacturers industry, the Group is a significant player
in the respective security glass market segment, both in terms of production
output and market share. China Specialty Glass-Group’s current operative
facility is located in Guangzhou in the Guangdong Province in southern China
and managed by the Group’s operative company HWG-Ltd.
China Specialty Glass-Group’s major products sold under its “Hing Wah”
brand
name
are
categorized
into
two
groups:
security
glass
and
construction glass. Security glass is divided into two main segments,
according to its area of application: firstly, security glass which improves the
security of fixed locations, e.g. bank branches or jewellery stores (collectively
149
referred to as “bank security glass”), and secondly, security glass for the
refitting of vehicles in the automotive sector (collectively referred to as
“automotive security glass”). Security glass includes bulletproof glass,
bomb blast-resistant glass and intruder-resistant glass. Construction glass
includes
architectural
laminated
glass,
architectural
tempered
glass,
glass.
The demand for the Group’s security glass products derives mainly from the
Chinese banking and automotive refitting manufacturers industry. On the one
hand, the Group’s bank security glass is demanded by commercial entities
where cash or valuable goods are traded such as banks, jewellery stores,
securities brokerage houses, postal service and insurance companies. On the
other hand, the Group’s automotive security glass is used for refitting
vehicles for which security and safety have a high priority such as
cash-in-transit vehicles for banks, police vehicles, military personnel carriers
and armoured limousines. In addition, the Group provides its construction
glass products mainly to the construction industry, where they are used as
windows, doors, curtain walls (outer covering of buildings of which the outer
walls are non-structural and merely protect the building from the weather) or
internal decorations in commercial buildings and private houses.
The Group has sold its products since 1994 and its end customers are
exclusively commercial enterprises, such as banks for its bank security glass,
refitting automobile manufacturers for its automotive security glass and
construction service providers for its construction glass. For the distribution
of the Group’s products, the Group currently relies on its own sales network
consisting of sales representatives covering 19 provinces and regions in
China.
The demand for security glass by the banking and the automotive refitting
manufacturers industry and for construction glass by construction service
providers in China is increasing. Similarly, the Group, which is engaged in
these markets, has grown with the respective markets. The sales of
HWG-Ltd. increased from EUR 40.2 million in 2008 to EUR 50.9 million in
2009 and to EUR 69.6 million in 2010. The net profits of HWG-Ltd. increased
million in 2010. In this respect, the Group benefited from its leading position
in the respective glass market. Accordingly, bank security glass with sales of
EUR 17.5 million, EUR 23 million and EUR 32.1 million and automotive
security glass with sales of EUR 15.4 million, EUR 22.4 million and EUR
150
30 million have been the most significant revenue contributors for the years
2008, 2009 and 2010, generating 43.5%, 45.2% and 46.1% and 38.3%,
44.0% and 43.1% of total revenue, respectively.
Following research studies, the Chinese security glass market segments
(bank, automotive refitting manufacturers) and Construction Glass Market
are expected to continue to develop positively in the future. In particular,
with the expected increase in consumer wealth and commercial activities, the
commercial entities which demand bank security glass are also expected to
expand both in number (e.g., increase of bank branches in rural areas and
smaller cities) and in individual size (e.g., increase of operating surface area
of post offices). In respect of these commercial entities, safety measures
where security glass plays a major role are closely monitored and regulated
by the government. Therefore, the Company hopes that the demand for the
Group’s products, which are certified by the regulatory authorities, will
increase accordingly. Similarly, an increase in the number of wealthy Chinese
citizens and their concern for and awareness of safety and security for
themselves and their families bodes well for an increase in demand for the
Group’s automotive security glass or construction glass products.
14.2
Key Factors Affecting Results of Operations
The Company believes that the following factors have either contributed
materially to the development of the financial condition and results of
operations of the Group during the period covered by the historical financial
information included in the Financial Section of this Prospectus, or are
expected to have a material influence on the Group’s financial condition and
results of operations.
14.2.1 Changes in raw material prices
The profitability of China Specialty Glass-Group’s business is affected by
changes in costs of raw materials, in particular changes in the price of flat
glass. The costs of purchasing flat glass collectively account for the majority
of the operative Group subsidiary HWG-Ltd.’s total cost of sales.
China is the largest normal flat glass producer in the world. 577 million
weight boxes (one weight box equals 50 kg, or 10 square meters of 2 mm
thick glass [source: Baidu, http://baike.baidu.com/view/1511663.htm from
Taglist as of 23 July 2010]) of normal glass were produced in China from 1
January
2010
until
30
November
2010
(source:
Icandata,
http://www.icandata.com/data/201103/031GM3292011.html). This can be
151
translated to 28.85 million tons or 5.77 billion square meters of 2 mm thick
flat glass. The basic raw material supply for bulletproof glass in China is
sufficient.
There were more than 4,000 specialty (technical) glass manufacturers in
China in 2009 (source: p. 26 and 82 of Respect Marketing Research Report
(“RMR Report”), 2010). There were more than 1,000 tempered glass
manufacturers in China. In 2009, these manufacturers produced about 180
million square meters of tempered glass, 40 million square meters of
laminated glass, 150 million square meters of insulating glass and more than
80 million square meters of surface-coated glass. Within the glass industry in
China a specialty glass industry with a wide range of products has already
developed, which can competently meet production demand from bulletproof
glass enterprises (source: p. 26 and 82 of RMR Report, 2010). Therefore, the
price of flat glass is expected to remain stable in the foreseeable future.
To the extent that China Specialty Glass-Group is able to pass on higher raw
material costs to its customers or to agree on certain price increases with
them, its results of operation are not expected to be adversely affected. If
the costs of raw materials decrease and China Specialty Glass-Group has to
lower the price of its products accordingly, its results of operations are
expected to be positively affected. Any significant change in raw material
costs, and in particular for the purchase of flat glass, is expected to have a
minor effect on China Specialty Glass-Group’s results of operations.
14.2.2 Changes in applicable tax rates of HWG-Ltd.
For the financial years 2008 to 2010, HWG-Ltd. as operative company
calculated its enterprise income tax (“EIT”) using the unified tax rate of 25%
in 2008 and 2009 and 15% in 2010.
In 2009, HWG-Ltd. was approved to be a national high-tech enterprise by the
Ministry of Science and Technology. According to the Method for Ratifying
and Managing High-tech Enterprises issued by the Ministry of Science and
Technology, Ministry of Finance and National Taxation Bureau, HWG-Ltd. was
granted, in April 2010, a preferential treatment on EIT, which was reduced to
15% from the original 25%. This exemption enabled HWG-Ltd. to improve its
post tax profitability after 2009. As this change of tax status was granted by
the local tax authority in April 2010, HWG-Ltd. used the 25% tax rate for the
first three months in 2010 and 15% for the rest of the year. As the new tax
rate applied retrospectively to 1 January 2010, the over-paid tax is treated
as tax receivables.
152
14.2.3 Increase in labour costs
The production of bulletproof glass products in China is quite labour-intensive
and almost all of China Specialty Glass-Group’s work force is located in
China. Average annual salaries of urban employees in the PRC increased
significantly within the periods under review. This increase is also a result of
the introduction of new labour law legislation in China that became effective
as of 1 January 2008 and general shortage of skilled workers in China. The
average labour remuneration of state-owned enterprises in urban areas in
2009 increased by 12% over 2008 while that of privately-owned enterprises
in 2009 increased by 6.6% over 2008 (National Bureau of Statistics of China,
http://www.stats.gov.cn/
tjfx/jdfx/t20100716_402657787.htm,
http://
www.stats.gov.cn/was40/gjtjj_detail.jsp?channelid=19761&record=31).
14.2.4 Effects of currency fluctuations
The financial statements of HWG-Ltd. (as the operative company of China
Specialty Glass-Group) for the periods under review were prepared in EUR
and CSG-AG’s consolidated financial statements for the short financial year
2010 as well as future consolidated financial statements will be prepared in
EUR, while HWG-Ltd.’s operating currency is RMB, which is currently not a
freely convertible currency. A devaluation of the RMB versus the EUR would
therefore have an adverse foreign currency translation effect on China
Specialty Glass-Group’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 the EUR
would
therefore
increase
China
Specialty
Glass-Group’s
profitability
measured in EUR while alternatively a decrease in the value of RMB against
EUR would decrease China Specialty Glass-Group’s profitability measured in
EUR.
14.2.5 Demand for bulletproof glass in China
According to statistics from the China Architectural and Industrial Glass
Association, the demand for bulletproof glass in China reached 1.196 million
square meters in 2009, maintaining a growth rate of at least 25% annually
for five years successively. In 2009, the actual output of bulletproof glass
was 957,000 square meters, with the potential unfilled demand reaching
273,100 square meters. Furthermore, from the gap between the supply and
demand in recent years, the growth speed of demand exceeded that of
output.
153
From 2005 to 2009, the demand scale of bulletproof bank glass in China
exceeded the scale of output. In 2006, the demand scale was 287,000
square meters, enjoying year-on-year growth of 33.49% and in 2007, the
two figures were 371,000 square meters and 29.27% respectively. In 2008,
the demand for bulletproof bank glass was 424,000 square meters and in
2009, the demand scale was 516,000 square meters, seeing a year-on-year
growth of 21.7%.
From 2005 to 2009, the bulletproof car market in China developed rapidly,
increasing the demand for bulletproof automotive glass products. In 2005,
the demand for bulletproof automotive glass was 159,000 square meters; in
2006, 189,000 square meters; in 2007, 223,000 square meters, witnessing
year-on-year growth of about 18%; and in 2008, this figure reached 355,000
square meters, up by 59.19% compared with 2007; in 2009, the figure was
487,000 square meters, seeing a year-on-year growth of 37.18%.
From 2005 to 2007, the bulletproof glass industry in China maintained swift
growth. In 2007, the market size of bulletproof glass reached RMB 770
million (EUR 74 million). In 2008, the industry slowed its growth due to the
financial crisis. In 2009, the growth of the bulletproof glass market in China
reached 18.29%, with the total market size reaching RMB 974 million (EUR
103 million). Despite the significant impact of the financial crisis, the sales
revenue of the industry is showing a positive growth trend.
Hence, the ability to increase the profitability of the Group’s products will
depend on its ability to expand its production capacity and market
penetration in China.
14.3
Results of Operations
The following discussion of the results of operations is based on the audited
financial statements of HWG-Ltd. in accordance with IFRS, as endorsed for
application in the EU as of 31 December 2008, 31 December 2009 and
31 December 2010 and the first quarter of 2011 (reviewed):
154
31 December (audited)
Revenue
31 March (reviewed)
2008
2009
2010
2011
2010
TEUR
TEUR
TEUR
TEUR
TEUR
40,216
50,910
69,564
16,441
11,454
Cost of sales
-23,000
-28,032
-38,111
-8,850
-6,451
Gross Profit
17,216
22,878
31,453
7,591
5,003
Selling and distribution Expenses
-1,205
-1,704
-2,277
-609
-441
-848
-874
-1,038
-326
-190
-965
-1,384
-1,878
-391
-338
14,198
18,916
26,260
6,265
4,034
51
47
108
79
18
-104
-106
-110
-30
-22
14,145
18,857
26,258
6,314
4,030
Income tax expenses
-3,545
-4,726
-4,006
-950
-685
Profit attributable to shareholders
10,600
14,131
22,252
5,364
3,345
2,229
-1,570
3,621
-2,345
2,325
12,829
12,561
25,873
3,019
5,670
Finance income
Finance costs
Other comprehensive income:
Exchange Differences
Total comprehensive income
after tax
14.3.1 Revenues
Revenues of HWG-Ltd., which is the operative company of China Specialty
Glass-Group, are exclusively earned from the sales of security glass to banks
and refitting automotive manufacturers and construction glass products to
the construction industry.
Revenues were EUR 40.2 million in the financial year 2008, as a result of an
increase of 8% in the average selling price of bank security glass as well as
an increase of 12.5% in the quantity of automotive security glass which was
partially offset by a slight decreases in the quantity of bank security glass by
3.7% and of construction glass by 8.3%.
In the financial year 2009, revenues increased further by 26.6% over the
previous year to EUR 50.9 million. This was due to 4%, 11% and 26%
increases in the average unit selling price of bank security glass, automotive
security glass and construction glass, respectively, as well as increases in
quantity of bank security glass and automotive security glass by 18.8% and
27.5%, respectively. These increases were partially offset by the significant
decrease by 43.4% in quantity of construction glass sold.
155
In the financial year 2010, revenues increased further by 36.6% over the
previous year to EUR 69.6 million. This was due to an increase in quantity of
bank security glass by 74,000 square meters and automotive security glass
by 13,000 square meters sold as well as an increase in average selling prices
in all market segments. In the first quarter of 2011, revenues were EUR 16.4
million compared to EUR 11.5 million for the first three months of 2010 due
to the company being able to increase both quantity and price of products
sold.
The Group’s customers are commercial entities and financial institutions such
as refitting automobile manufacturers and state-owned banks which select
security glass product suppliers such
as the Group through
bidding
processes.
The following table shows the changes in revenues according to segment for
the financial years 2008, 2009 and 2010:
Segments
31 March (reviewed)
2008
2009
2010
2011
2010
TEUR
TEUR
TEUR
TEUR
TEUR
Bank Security Glass
17,530
23,039
32,083
6,514
4,768
Auto Security Glass
15,448
22,354
29,971
7,940
5,222
Construction Glass
7,238
5,517
7,510
1,987
1,464
40,216
50,910
69,564
16,441
11,454
Bank Security Glass
Revenues from bank security glass were EUR 17.5 million in 2008 and
increased by 7.4% over the previous year (EUR 16.3 million). This increase
was due to an increase in average unit selling price of 8% of HWG-Ltd. which
was partially offset by a decrease in quantity by 3.7% to approximately
252,000 square meters during the year.
In 2009, revenues from bank security glass increased strongly by 31.4%
over the previous year to EUR 23.0 million. This increase was due to an
increase in the average unit selling price of 4% of HWG-Ltd. together with an
increase in quantity by 18.8% to approximately 299,000 square meters
during the year.
In 2010, revenues from bank security glass further increased strongly by
156
39.3% over 2009 to EUR 32.1 million, due to an increase in quantity sold by
24.1% to 371,200 square meters and a slight increase in average selling
prices by 5,5%.
In the first quarter of 2011, revenues from bank security glass were EUR 6.5
million compared to EUR 4.8 million in the first quarter of 2010.
Automotive Security Glass
Revenue from the automotive security glass segment rose from EUR 13.4
million in 2007 by 14.9% in 2008 to EUR 15.4 million. This increase in
revenue was due to an increase in the quantity of automotive security glass
sold by 12.5% to approximately 133,000 square meters.
Revenue from the automotive security glass segment increased by 44.7% to
EUR 22.4 million in 2009. This increase in revenue was due to an increase in
the quantity of automotive security glass sold by 27.5% to approximately
169,000 square meters as well as an increase in its average unit selling price
by 11% during the year.
Revenue from the automotive security glass segment further increased by
34.1% to EUR 30 million in 2010, which was solely due to a rise in average
selling prices by 17.3%, as quantities sold increased only slightly.
In the first quarter of 2011, revenues from automotive security glass were
EUR 7.9 million compared to EUR 5.2 million in the first quarter of 2010.
Construction Glass
Revenue from the construction glass segment declined from EUR 7.7 million
in 2007 by 6.5% to EUR 7.2 million in 2008. This decrease in revenue was
due to a decrease in the quantity of construction glass sold by 8.3% to
approximately 666,400 square meters.
Revenue from the construction glass segment in 2009 fell by 23.8% to
EUR 5.5 million. This reduction in revenue was due to a decrease in the
quantity of construction glass sold by 43.4% to approximately 377,400
square meters which was partially offset by an increase in its average unit
selling price by 26% during the year.
In 2010 revenue from the construction glass segment increased by 36.1% to
EUR 7.5 million, which was solely due to a rise in average selling prices, as
quantities sold fell slightly.
157
In the first quarter of 2011, revenues from the construction glass segment
were EUR 2.0 million compared to EUR 1.5 million in the first quarter of
2010.
14.3.2 Cost of Sales
31 March (reviewed)
2008
2009
2010
2011
2010
TEUR
TEUR
TEUR
TEUR
TEUR
6,514
4,768
3,836
2,915
60.1%
58.9%
61.1%
Bank Security Glass
Revenues
17,530
23,039
Cost of sales
10,354
13,313
Cost of sales/revenue (%)
59.1%
57.8%
32,083
19,274
Auto Security Glass
Revenues
15,448
22,354
29,971
7,940
5,222
Cost of sales
6,964
10,350
13,456
3,629
2,394
45.1%
46.3%
44.9%
45.7%
45.8%
7,238
5,517
7,510
1,987
1,464
Construction Glass
Revenues
Cost of sales
5,682
4,369
5,381
1,385
1,142
78.5%
79.2%
71.7%
69.7%
78.0%
16,441
11,454
Total
Revenues
40,216
50,910
69,564
Cost of sales
23,000
28,032
38,111
8,850
6,451
54.8%
53.8%
56.3%
57.2%
55.1%
Cost of sales of the operative company HWG-Ltd. mainly relate to costs of
direct materials such as ordinary glass and organic materials, direct labour
costs and manufacturing overheads.
The overall ratio of cost of sales to revenue declined from 57.2% in 2008 to
55.1% in 2009. The decrease in the ratio of cost of sales to revenues was
due to a 31.4% increase in revenues from the bank security glass segment
and a 44.7% increase in revenues from the automotive security glass
segment as well as the lower cost of sales to revenue ratio in these segments
compared to the construction glass segment but was partially offset by the
decrease in revenues from the construction glass segment due to a reduction
158
in sales quantity by 43.4%. Average prices for normal flat glass used for the
production of bulletproof glass increased by approximately 14.3% in 2009,
compared to the previous year.
Cost of sales as a percentage of revenues was 78.5% in the construction
glass segment in 2008 and 79.2% in 2009 as a result of decrease in sales
quantity by 43.4%. In contrast, the ratio of cost of sales to revenues in the
bank security glass segment fell slightly to 57.8% in 2009 compared to
59.1% in 2008 and that in the automotive security glass segment increased
to 46.3% in 2009 compared to 45.1% in 2008.
The overall cost of sales to revenue ratio declined from 55.1% in 2009 to
54.8% in 2010. The continued decrease in the ratio of cost of sales to
revenues was due to an increase in average selling prices in all market
segments. In 2010, the average prices for raw materials used for the
production of security and construction glass increased by 8.8%.
Cost of sales as a percentage of revenues was 79.2% in the construction
glass segment in 2009 and 71.7% in 2010. In contrast, the ratio of cost of
sales to revenues in the bank security glass segment increased slightly to
60.1% in 2010 compared to 57.8% in 2009 and that in the automotive
security glass segment fell to 44.9% in 2010 compared to 46.3% in 2009.
For the first three months of 2011, the overall cost of sales to revenue ratio
was 53.8% compared to 56.3% for the first three months of 2010.
14.3.3 Selling and Distribution Expenses
Selling and distribution expenses are principally comprised of transportation
costs, salaries of sales personnel and after-sales personnel, motor vehicle
expenses, travelling expenses and sales-related expenses.
Selling and distribution expenses were TEUR 1,205 in 2008, which represents
tight control over transportation costs compared to the 7.6% rise in revenues
during the same period.
In 2009, selling and distribution expenses rose by 41.4% over the previous
year to TEUR 1,704, while revenues increased by 26.6%. This above-average
increase in selling and distribution expenses mainly derives from the increase
of transportation costs by 49.5%. This increase of transportation costs was
caused by the increase in sales and also by HWG-Ltd. selling more to
customers based further away from the production facility. It was also
affected by the increases in salaries and social insurance expenses resulting
159
from enhanced marketing in the bank and automotive security glass
segments.
In 2010 selling and distribution expenses rose by 33.6% over the previous
year to TEUR 2,277, mainly due to higher sales commissions and a 26%
increase in transportation costs. The increase in transportation costs was
caused by the increase in sales and also by HWG-Ltd. selling more to
customers based further away from the production facility. It was also
affected by increases in salaries by 51% resulting from enhanced marketing
in the bank and automotive security glass segments.
In the first quarter of 2011, selling and distribution expenses were TEUR 609
compared to TEUR 441 for the first quarter of 2010. The increase was due to
the increase in sales.
The ratio of selling and distribution expenses to revenues remained relatively
stable over the reporting period as a whole. It was 3.0% in 2008, 3.3% in
2009, 3.3% in 2010 and 3.7% in the first quarter of 2011 as compared to
3.9% in the first quarter of 2010, respectively.
14.3.4 Administrative expenses
Administrative expenses consist of salaries, entertainment expenses, motor
vehicle expenses, travelling expenses and other office related expenses.
Administrative expenses remained relatively stable over the period from
2008 to 2010, increasing marginally from TEUR 848 in 2008 to TEUR 874 in
2009 and further increasing to TEUR 1,038 in 2010, owing to an increase in
salaries
and
number
of
employees,
entertainment,
depreciation
and
travelling expenses and partially offset by the decrease in motor vehicle
expenses and communication expenses during the year. In the first quarter
of 2011, administrative expenses were TEUR 326 compared to TEUR 190 in
the first quarter of 2010.
14.3.5 Research and development expenses
Research and development expenses consist mainly of salaries for employees
in the R&D department. In 2009, research and development expenses rose
43.4% over the previous year from TEUR 965 to TEUR 1,384. Research and
development expenses increased further in 2010 by 35.6% to TEUR 1,878 in
line with sales. The additional expenses were mainly due to the development
of new products. In the first quarter of 2011, research and development
expenses were TEUR 391 compared to TEUR 338 in the first quarter of 2010.
160
14.3.6 Finance income and finance costs
Finance income relates exclusively to interest on bank balances. In 2008,
finance income was TEUR 51, falling marginally to TEUR 47 in 2009 and
increasing to TEUR 108 in the financial year 2010 due to the higher level of
bank balances. In the first quarter of 2011, finance income was TEUR 79
compared to TEUR 18 in the first quarter of 2010. The increase was due to
interest on a loan granted to HWG-SC.
Finance costs increased marginally from TEUR 104 in 2008 to TEUR 106 in
2009, due primarily to the increase in interest bearing bank borrowings and
despite the fall in interest rates in 2009. Finance costs rose slightly in 2010
from TEUR 106 to TEUR 110 and were TEUR 30 in the first quarter of 2011
compared to TEUR 22 in the first quarter of 2010. Finance costs relate
exclusively to short-term interest bearing bank loans. The effective interest
paid on short-term loans was 8.89% in 2008, 5.44% in 2009 and 5.72% in
2010 and 5.31% in the first quarter of 2011.
14.3.7 Income tax
Income tax increased by 33.3% in 2009 from TEUR 3,545 in the previous
year to TEUR 4,726, corresponding to the rate of increase in profit before
income tax, which also was 33.3% over the same period. The tax rate
remained at 25% as in the previous year. In 2010, income tax decreased by
15.2% to TEUR 4,006. Due to HWG-Ltd. having been granted a preferential
tax rate as a “High-Tech Enterprise”, the tax rate fell to 15% compared to
25% in 2008 and 2009. In the first quarter of 2011 income tax was TEUR
950, in line with the tax rate of 15%.
14.4
Statement of financial position data
The following discussion relating to selected statement of financial position
items is based on the audited financial statements of HWG-Ltd. in accordance
with IFRS, as endorsed for application in the EU as of 31 December 2008, 31
December 2009 and 31 December 2010 as well as on the reviewed
condensed interim financial statements of HWG-Ltd. in accordance with IFRS,
as endorsed for application in the EU, for the three months ended 31 March
2011.
14.4.1 Assets
The following table shows selected asset components of the statement of
financial position:
161
31 March
2011
2008
2009
2010
(reviewed)
TEUR
TEUR
TEUR
TEUR
2,224
2,119
2,839
2,689
-
687
751
712
753
-
-
-
-
-
1,133
1,083
3,060
5,090
Non-current assets
Property, plant and equipment
Lease prepayment for land-use rights
Other assets
Investment in a subsidiary
Loan to related parties
33
166
-
-
3,010
2,972
7,783
9,574
Inventories
1,990
2,356
1,591
2,238
Trade and other receivables
5,562
9,614
11,967
12,935
Related party receivables
-
-
71
133
Tax receivables
-
-
438
418
14,330
16,811
37,801
36,700
21,882
28,781
51,868
52,424
24,892
31,753
59,651
61,998
Deferred tax asset
Current assets
Cash and cash equivalents
Total assets
14.4.2 Non-current assets
Non current assets comprise primarily property, plant and equipment, lease
prepayment for land-use rights, other assets, investment in HWG-Ltd.'s
subsidiary HWG-SC, loans to related parties and also a deferred tax asset.
14.4.3 Property, plant and equipment
Property, plant and equipment mainly consists of a building under a 30 year
lease, production machineries and tools while furniture, fixture and office
equipment mainly consists of office furniture and equipment. Up until 2009,
the amounts in relation to the finance lease building were treated as
payments in advance for building. In 2009 the original intention to buy the
building, for which the purchase price had been paid in advance, was
changed to a long term lease agreement, and the rentals were deemed to
have been paid in advance.
In July 2009 HWG-Ltd. decided to lease rather than purchase the building for
which the advance payment had been made in the year 2007. As the lease is
162
a finance lease, the building is capitalized as a leasehold building from July
2009 onwards.
In addition to the aforementioned lease, HWG-Ltd. also leases property
under operating leases from related parties. Such property under operating
leases is not disclosed in the statement of financial position.
Property, plant and equipment amounted to TEUR 2,224 in 2008 and
decreased mainly due to depreciation and translation adjustments despite
additions to TEUR 2,119 in 2009. In 2010 property, plant and equipment
increased by 34.0% to TEUR 2,839, the main reason being investments in
new leasehold buildings and plant and machinery as well as increases due to
translation adjustments exceeding depreciation. There were no disposals.
At the end of the first quarter of 2011, Property, plant and equipment
amounted to TEUR 2,689.
14.4.4 Lease prepayment for land-use rights
This relates to the land use rights for which an advance payment had been
made in the year 2007 as described above under section 14.4.3 “Other
assets”. Following the conclusion of the lease agreement described above,
which HWG-Ltd. determined to be an operating lease in respect of the land,
as the term is relatively short compared to the useful life of the land, the
advance payment was reclassified as lease prepayment for land-use rights.
The prepayment is being amortized to income over the 30 years term of the
lease.
14.4.5 Other assets
Other assets relate to land use rights. In the financial year 2007 HWG-Ltd.
had made an advance payment to acquire these rights from a related party.
The legal title was not transferred to the company and in 2009, it was
decided to change the intended purchase agreement into a lease. From 2009
onwards the land use rights are disclosed as a lease prepayment for land-use
rights as described in section 14.4.4 “Lease Prepayment for land-use rights”.
14.4.6 Investment in a subsidiary
In 2010 HWG-Ltd. invested in a subsidiary in Sichuan, which was without
trading operations at 31 December 2010.
163
14.4.7 Loan to related parties
In 2010 HWG-Ltd. granted a long term unsecured and interest bearing loan
of TEUR 3,060 to its subsidiary for the financing of capital investments made
by this subsidiary. At 31 March 2011, the amount of this loan was TEUR
2,924, the change being due to foreign exchange conversion. In the first
three months of 2011, HWG-Ltd. granted a further unsecured interest
bearing long term loan to Mr. Nang Heung Sze for the purpose of financing
future investments in Sichuan. The amount of that loan was TEUR 2,166 at
31 March 2011. Both loans bear interest at 5.56% and have a five year term
from the date of the granting of the loan.
14.4.8 Deferred tax asset
The deferred tax asset arises from temporary differences between the
financial reporting and the tax accounts of HWG-Ltd. These arose on sales
recognition differences in the past which no longer occurred in 2010 or in the
first quarter of 2011. Hence at 31 December 2010 and at 31 March 2011
there was no deferred tax asset.
14.4.9 Current assets
Current assets include primarily inventories, trade and other receivables and
cash and cash equivalents.
14.4.10 Inventories
Inventories relate to raw materials and finished goods.
Raw materials
Finished goods
31 March
2011
2008
2009
2010
(reviewed)
TEUR
TEUR
TEUR
TEUR
1,078
1,113
694
934
912
1,243
897
1304
1,990
2,356
1,591
2,238
Inventories were TEUR 1,990 in 2008, consisting of TEUR 1,078 in raw
materials and TEUR 912 in finished goods.
Inventories increased by 18.4% in 2009 to TEUR 2,356, principally due to a
significant increase in finished goods. In 2010, inventories fell by 32.5% to
164
TEUR 1,591, which was mainly the consequence of the company modifying
its supply arrangements in 2010 to purchasing in general just for one
month's production in advance.
At 31 March 2011 inventories amounted to TEUR 2,238.
14.4.11 Trade and other receivables
Trade and other receivables were TEUR 5,562 in 2008. In 2008 other
receivables included advance payments for inventory of TEUR 242.
Trade receivables increased by 72.8% in 2009 to TEUR 9,614, while
revenues increased by 26.6% during the same period.
Trade and other receivables were TEUR 11,967 in 2010, which represents an
increase of 24.5%, compared to 2009, and includes a deposit made in
connection with supply arrangements to secure the purchase of raw materials
of TEUR 748.
At 31 March 2011 trade and other receivables amounted to TEUR 12,935.
All trade and other receivables are non-interest bearing. Trade receivables
are recognized at original invoice amounts, which represent their fair value at
the time of initial recognition. Individual bad debt allowance is only
accounted for if the receivable is finally judged to be uncollectible.
14.4.12 Related party receivable
A related party receivable of TEUR 71 is disclosed at 31 December 2010.
There was no related party receivable balance at 31 December 2008 or at 31
December 2009. The related party receivable was TEUR 133 at 31 March
2011.
14.4.13 Tax receivable
A tax receivable of TEUR 438 is disclosed resulting from overpayment of tax
in 2010. Tax receivables did not occur at 31 December 2008 or 31 December
2009. At 31 March 2011, the tax receivable amounted to TEUR 418, and the
difference was due to foreign exchange translation.
14.4.14 Cash and cash equivalents
Cash and cash equivalents increased year on year from TEUR 14,330 in 2008
to TEUR 16,811 in 2009 and to TEUR 37,801 in 2010 due to the profitability
165
of HWG-Ltd. At 31 March 2011 cash and cash equivalents amounted to TEUR
36,700.
14.4.15 Liabilities and Equity
The following table shows selected liability and equity items:
31 March
2008
2009
2010
2011 (reviewed)
TEUR
TEUR
TEUR
TEUR
Interest-bearing bank borrowings
1,383
1,604
1,813
1,624
Trade and other payables
2,230
3,751
4,908
4,805
888
1,549
1,311
1,032
8,103
-
2,267
2,166
12,604
6,904
10,299
9,627
Share capital
424
424
1,393
1,393
Statutory reserves
213
213
724
724
Current liabilities
Income tax payable
Dividends payable
Capital and reserves
Foreign currency translation reserve
1,412
-158
3,463
1,118
10,239
24,370
43,772
49,136
Total equity
12,288
24,849
49,352
52,371
Total liabilities and equity
24,892
31,753
59,651
61,998
Retained earnings
14.4.16 Current liabilities
Current liabilities comprise interest-bearing bank borrowings, trade and other
payables, income tax payable and dividends payable.
14.4.17 Interest-bearing bank borrowings
Short-term bank loans were TEUR 1,383 in the financial year 2008, a new
bank loan facility of TEUR 1,383 having been entered into, while two
short-term bank loans were fully repaid.
In the financial year 2009, short-term bank loans increased by 16.0% over
the previous year to TEUR 1,604. This was the result of short-term borrowing
used to finance working capital. As of 31 December 2009, total short-term
bank loans of TEUR 1,604 consisted of two bank loans.
166
In 2010 the short-term bank loans of previous year were repaid and two new
short-term bank loans of TEUR 1,813 were obtained to finance working
capital so that At 31 December 2010, short term bank loans amounted to
TEUR 1,813.
At 31 March 2011 short term bank loans amounted to TEUR 1,624.
14.4.18 Trade and other payables
Trade and other payables increased from TEUR 2,230 in 2008 to TEUR 3,751
in 2009. This increase is in line with the increase in cost of sales due to the
positive development of HWG-Ltd.’s business. In 2010, trade and other
payables further increased to TEUR 4,908 and at 31 March 2011 were TEUR
4,805.
Other payables contain payables for wages and salaries, Value Added Tax
(“VAT”) payable and accrued expenses.
Other payables and accruals were TEUR 554 in 2008, TEUR 649 in 2009 and
TEUR 1,021 in 2010. The increase in 2009 was mainly due to bonus
payments to key personnel and the sales-related employees and the main
reason for the increase in 2010 was an increase in VAT payable, due to the
increase in sales.
At 31 March 2011 other payables and accruals were TEUR 966 and mainly
related to VAT and payroll and accrued expenses.
14.4.19 Income tax payable
In the financial year 2009, income tax payable increased by 74.4%, from
TEUR 888 in the previous year, to TEUR 1,549 in line with the increase in net
profit before tax by 33.3% and decreased to TEUR 1,311 in the financial year
2010 in line with the reduction of the applicable tax rate. The amount at 31
December 2010 includes TEUR 114 of withholding tax on dividends. At 31
March 2011, income tax payable amounted to TEUR 1,032.
14.4.20 Dividends payable
Dividends payables amounted to TEUR 8,103 at 31 December 2008, TEUR Nil
at 31 December 2009 and TEUR 2,267 at 31 December 2010. Due to
currency exchange movement, dividends payable were TEUR 2,166 at 31
March 2011.
167
14.4.21 Capital and reserves
As reflected in the above table, total equity was TEUR 12,288 in 2008. The
share capital was TEUR 424.
Equity was TEUR 24,849 in 2009, representing an increase of 102.2% over
the previous year. This increase was due to the net profit of TEUR 14,131
made in 2009. Negative foreign exchange translation effects reduced the
foreign currency translation reserve component by TEUR 1,570 in 2009 to
TEUR -158.
As of 31 December 2010, total equity was TEUR 49,352, as further profits of
TEUR 22,252 increased reserves after deducting dividends of TEUR 2,339 and
a transfer to statutory reserve of TEUR 511 in the amount of TEUR 19,402
and the share capital was increased from TEUR 424 to TEUR 1,393. Positive
foreign
exchange
translation
effects
increased
the
foreign
currency
translation reserve component of equity by TEUR 3,621 to TEUR 3,463.
As of 31 March 2011, total equity was TEUR 52,371, as further profits
increased reserves and the share capital remained TEUR 1,393.
14.5
Cash flow statement
The following discussion relating to selected cash flow items is based on the
audited
financial
statements
of
the
operative
company HWG-Ltd.
in
accordance with IFRS, as endorsed for application in the EU, as of 31
December 2008, 31 December 2009 and 31 December 2010 and the
reviewed financial statements for the three months ended 31 March 2011.
168
31 Dec. (audited)
31 March (reviewed)
2008
2009
2010
2011
2010
TEUR
TEUR
TEUR
TEUR
TEUR
14,145
18,857
26,258
6,314
29
127
181
104
37
-
13
26
-79
-18
Finance costs
104
106
110
30
22
Finance income
-51
-47
-108
6
14,227
19,056
26,467
6,375
Adjustments
Depreciation of property, plant and equipment
Change in lease prepayment for land-use rights
Operating profit before working capital changes
(Increase) / decrease in inventories
(Increase) / decrease in trade and other receivables
(Increase) in receivable from related party
638
-300
1,054
-738
-156
1,190
-4,915
-1,025
-1,549
4,450
-
-
-122
-
-
1,767
656
119
-568
14,602
15,608
27,030
4,207
7,803
51
47
108
79
18
-3,812
-4,107
-4,795
-1,177
-1,707
10,841
11,548
22,343
3,109
-574
-80
-2
Income tax paid
Net cash generated from operating activities
6
4,077
-1,453
(Decrease) / increase in trade and other payables
Cash generated from operations
Finance income received
4,030
Cash flows from investing activities
Acquisition of property, plant and equipment
6,114
-710
-59
Advance payment for leasehold buildings
-
-126
Granting of loan to related party
-
-
-2,955
-2,288
-
-
-
-1,133
-
-
Construction in progress
-
-
-44
-
-
-710
-185
-4,706
-2,368
-2
-
Cash used in investment activities
Cash flows from financing activities
Bank borrowings obtained
Repayment of bank borrowings
Finance costs paid
Dividend paid
Proceeds of share capital issue
Net cash from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Foreign currency translation difference
Cash and cash equivalents at end of period
1,516
1,686
1,796
-
-1,526
-1,349
-1,796
-112
-104
-106
-110
-30
-5,611
-7,903
-
-
-
969
-
-
-5,725
-7,672
859
-142
-22
4,406
3,691
18,496
599
8,199
14,330
16,811
37,801
6,090
16,811
1,725
-1,210
2,494
-1,700
1,767
14,330
16,811
37,801
36,700
24,668
14.5.1 Cash flow from operating activities
Cash flow from operating activities increased by TEUR 707 from TEUR 10,841
in 2008 to TEUR 11,548 in 2009 and increased by a further TEUR 10,795 to
TEUR 22,343 in 2010. In the first three months of 2011, cash flow from
operating activities was TEUR 3,109 compared to TEUR 6,114 in the first
three months of 2010.
14.5.2 Cash flow from investing activities
Investment activity in the period from 2008 to 2010 was related to
acquisition of property, plant and equipment as well as the advance payment
for the land use rights and building which in 2009 became the subject of the
169
-22
30 year lease. Furthermore, in 2010 investment in the capital of and granting
a loan to HWG-Ltd.'s subsidiary HWG-SC led to outflows of TEUR 1,133 and
TEUR 2,955 respectively.
In the first three months of 2011, cash outflow from investing activities was
TEUR -2,368 mainly due to the granting of a loan to Mr. Nang Heung Sze, as
compared to TEUR 2 for the first three months of 2010.
14.5.3 Cash flow from financing activities
Cash flow from financing activities decreased by TEUR 1,947 from a cash
outflow of TEUR –5,725 in 2008 to a cash outflow of TEUR -7,672 in 2009. In
2010 there was a cash inflow of TEUR 859.
In 2008, repayments of short-term bank loans (TEUR 1,526) and new loans
given by banks (TEUR 1,516) and dividends paid to shareholders (TEUR
5,611) led to cash outflow from financing activities of TEUR -5,725.
In 2009, cash outflows from financing activities amounted to TEUR -7,672.
This is mainly due to new bank loans (TEUR 1,686), the repayment of bank
loans (TEUR 1,349) and dividends paid to shareholders (TEUR 7,903).
In 2010 cash inflow from financing activities amounted to TEUR 859 mainly
due to the receipt of the proceeds of the capital increase of TEUR 969 less
outflows from finance costs paid of TEUR 110.
In the first three months of 2011, cash outflow from financing activities was
TEUR 142 mainly due to the repayment of part of the bank loans.
14.5.4 Change in cash funds
Cash funds totalled TEUR 14,330 at the end of 2008, TEUR 16,811 at the end
of 2009 and TEUR 37,801 at the end of 2010. As of 31 March 2011 cash
funds totalled TEUR 36,700. The effects of currency rate fluctuation had a
negative impact on the converted EUR value of cash balances held primarily
in RMB.
14.6
Critical Accounting Policies
HWG-Ltd. 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
management could reasonably have made different assumptions in the
relevant period or with respect to which changes in the assumptions
170
reasonably likely to occur from period to period would have a material impact
on the presentation of its financial condition, changes in financial condition or
results of operations. Investors should read the following paragraphs in
conjunction with the financial statements and interim financial statements,
including the related notes, set out in the Financial Section of this Prospectus
from F-1 onwards.
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 are believed to be reasonable under the circumstances.
HWG-Ltd. 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:
Key sources of estimation uncertainty
Income taxes
HWG-Ltd. has exposure to income tax arising from its 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. HWG-Ltd. 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.
Property, plant and equipment are depreciated on a straight-line basis over
their estimated useful lives. Management determines the estimated useful
lives of property, plant and equipment to be within 5 to 30 years. Changes in
the expected level of usage and technological developments could impact the
economic useful lives and the residual values of these assets. Therefore,
future depreciation charges could be revised. A 5% difference in the
expected useful lives of the property, plant and equipment would not result
in a significant change to HWG-Ltd.’s net profit for the respective financial
years.
171
Inventories
Inventories are measured at the lower of cost and net realizable value. In
estimating net realizable values, management takes into account the most
reliable evidence available at the times the estimates are made. Changes in
these estimates could result in revisions to the valuation of inventories.
Provisions
The respective legislation in the PRC requires HWG-Ltd. to commit itself to
remediate any environmental damage which may have been incurred.
Management is of the opinion that no environmental damage has been
caused by HWG-Ltd. and hence has not provided for this.
Critical judgment made in applying accounting policies
In the process of applying HWG-Ltd.’s accounting policies as described below,
management is of the opinion that there are no instances of application of
judgments which are expected to have a significant effect on the amounts
recognized in the financial statements.
Estimation of cost attributable to other assets (land use rights) and
to property plant and equipment
In 2007, HWG-Ltd. made an advance payment for land use rights and
building, which it intended to purchase. The advance payment of € 1,801,000
was not attributed separately to land use rights and to the building at the
time the advance payment was made. Management obtained a valuation
report which stated the market value of the land use rights and the market
value of the building. The total market value was above the total of the
advanced payment made. Management then allocated the advanced payment
pro rata the market valuation to the land use rights and the building. In
2009, HWG-Ltd. decided not to purchase the land use rights and building but
to lease them and a lease agreement was concluded.
Impairment of trade receivables
HWG-Ltd.’s management assesses the collectability of trade receivables. This
estimate is based on the credit history of HWG-Ltd.’s distributors and the
current market condition. Management assesses the collectability of trade
receivables at the statement of financial position date and makes the
provision, if any.
172
Further details of the accounting policies pertaining to the financial
statements of HWG-Ltd. are included in the Financial Section of this
Prospectus from F-1 onwards.
Contingencies
Investment and Construction Project Contract
As at 31 December 2010, the Group had capital commitments arising from
an investment and construction project contract as follows:
On 30 May 2010, HWG-Ltd. concluded a contract with the Management
Committee of Guangdong – Wenchuan Industrial Park (the Management
Committee) to invest and establish a glass production project and research
and development base in Guangdong – Wenchuan Industrial Park, Sichuan,
PRC. Capital contributions are planned in the amount of the total investment
volume of the project which is RMB 0.3 billion (equivalent to approximately
EUR 33 million at 31 March 2011 exchange rates). Apart from these capital
contributions, the Group may be expected to pay annual taxes of more than
RMB 18 million in connection with the contract between HWG-Ltd. and the
Management Committee. However, the Group will benefit under the contract
from tax advantages and subsidies. HWG-Ltd. agreed with its subsidiary
HWG-SC that any investments arising from the project be conducted by the
subsidiary, financed by loans from HWG-Ltd.
Under the contract, the Group shall pay a deposit of RMB 50 million
(equivalent to EUR 5.6 million) as a guarantee deposit for its obligation to
fulfil the contract whilst the Management Committee will undertake to secure
the land use rights for the land and subsequently transfer the usage rights at
a preferential price to the Group for use to construct the base.
This contract also contains the following potential penalties, which may result
in contingencies for the Group:
In the event of non-compliance of construction speed and production of the
various phases or in the event of failure to make the proposed investment
including the annual taxes, the Management Committee has the right to take
back all the land use rights of the project free of charge. Group management
expects the land use transfer price to be refunded in this eventuality. The
Group may also be liable for compensatory damages if it is responsible for a
breach of contract with adverse affects for the Management Committee.
173
Social insurance back payments
According to PRC law, in particular, Chinese regulations for social insurance
and housing funds, HWG-Ltd.’s operating companies are required to make
contributions for the social insurance and for the housing funds to their
employees. HWG-Ltd. has in the past not paid the full amount which should
have been paid in respect of these contributions, but considers the risk for
additional payments for prior periods to be not probable. As at 31 December
2010, HWG-Ltd. estimates that such a claim for additional payments would
not exceed TEUR 264. As at 25 July 2010, Mr. Nang Heung Sze has
undertaken an agreement with HWG-Ltd. according to which he would
reimburse HWG-Ltd. for any losses incurred for such additional social
insurance and housing funds payments.
Tax-related contingent liabilities
Various uncertainties exist relating to the following matters which could
result in additional tax liabilities for the Group:
·
Depreciation was over-claimed by HWG-Ltd. in relation to residual
values of property, plant and equipment in 2007. The additional tax
payments if any which could arise from this matter are estimated to
be in the region of TEUR 7.
·
Entertainment expenses claimed by HWG-Ltd. had exceeded the cap
under the old and new EIT Law. The additional tax payments if any
which could arise from this matter are estimated to be in the region of
TEUR 47.
Off-Balance Sheet and other Arrangements
HWG-Ltd. 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 HWG-Ltd. or disclosed in the notes to the financial
statements.
174
15.
MARKET AND INDUSTRY OVERVIEW
15.1
Introduction
China Specialty Glass-Group develops, produces and sells specialty glass and
related products under its “Hing Wah” brand. The Group distributes its
products to customers across the domestic market in China through its own
sales network and, to a lesser extent, through trading companies. China
Specialty Glass-Group serves its customers in the banking, automotive
(refitting manufacturers) and construction industries in China.
The Group’s specialty glass products can be categorised into two main
groups: security glass and construction glass. Security glass is divided into
two segments according to its area of application: bank security glass and
automotive security glass. Security glass products include bulletproof glass,
bomb blast-resistant glass and intruder-resistant glass. Construction glass
includes
architecture
laminated
glass,
architecture
tempered
glass,
glass. The sales figures of the last three years are shown in the table below:
Sales (in EUR million )
2008
2009
2010
As of total
Bank security glass
17.5
23.0
32.1
46.1%
Automotive security glass
15.4
22.4
30.0
43.1%
Architechture tempered glass
4.2
3.6
4.4
6.3%
Architechture laminated glass
2.1
1.4
1.8
2.6%
Fire resistant glass
0.9
0.4
0.7
1.0%
Hollow glass
-
-
Electric-controlled colour-changing glass
-
0.1
0.6
0.9%
40.2
50.9
69.6
100%
Security glass
Construction glass
Total
-
China Specialty Glass Group sells its main product, i.e. bulletproof security
glass, in the Bank and Automotive Security Glass Markets where it has a
dominant market position in comparison to its closest competitor (China
Specialty Glass-Group had 48.2%, the closest competitor had 5.5% market
share in 2009; source: p. 104, RMR Report, 2010). Its construction glass
products are sold at a price with a lower margin to the construction industry
in China where competition is more intense and China Specialty Glass-Group
has a relatively small market share.
175
Security glass, especially bulletproof glass, has been the Group’s major and
most competitive product. It contributed 82.0%, 89.2% and 89.2% to
HWG-Ltd.’s total revenue for 2008, 2009 and 2010, respectively. It is sold
mostly to the highly regulated Chinese banking industry and automotive
refitting manufacturer industry. The banking industry is highly developed in
coastal regions in China, where most of the Group’s products are sold. The
following table shows the geographic distribution of sales over the last three
years:
Sales distribution
2008
2009
2010
Coastal regions + Beijing
84%
75%
78%
Rest of China
16%
25%
22%
100%
100%
100%
Total
The past and the expected growth of security glass sales in the banking
industry are driven primarily by the increase in the number of new bank
branches and the continuous renovation of the old branches. The growth of
security glass sales in the automotive refitting manufacturers industry is the
result of the increasing demand for armoured vehicles both for civilian and
governmental use. The Group’s other specialty glass products (construction
glass) are sold mainly in the construction industry, which has benefited from
the rapid growth of the Chinese commercial and residential real estate
market.
15.2
Chinese economy
Despite the worst global financial and economic crisis of the last seventy
years, the Chinese economy has continued its growth during the last three
years. One factor for this development is the economic stimulus package
introduced by the Chinese government in late 2008. The International
Monetary Fund (“IMF”) expects that China will continue its GDP growth in
the near future with a modest inflation rate that is comparable to that of
Germany.
Forecast
Average
1992-2001 2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2015
Annual GDP growth (%)
10.3
9.1
10.1
10.1
11.3
12.7
14.2
9.6
9.2
10.3
9.6
9.5
Inflation rate (%)
6.9
-0.8
1.2
3.9
1.8
1.5
4.8
5.9
-0.7
3.3
2.7
2.0
Inflation rate (%), Germany
2.1
1.5
1.0
1.7
1.5
1.6
2.3
2.6
0.4
1.1
1.4
2.0
Source: IMF, World Economic Outlook, October 2010; National Bureau of Statistics of China; Statistisches Bundesamt Deutschland
176
The rapid economic growth during the last three decades has lifted millions
of Chinese citizens out of poverty. For urban residents, the disposable
income has grown at an average annual growth rate of 12.1% between the
years 2002 and 2009, while for rural residents in China the average annual
growth rate amounted to 11.1%. For 2010, the disposable income for urban
residents grew to an average RMB 19,109. This corresponds to an 11.3%
growth in comparison to the disposable income available for the same period
in 2009 (National Bureau of Statistics of China).
Disposible Income (RMB)
Urban
Growth
Rural
Growth
2002
2003
2004
2005
2006
2007
2008
2009
CAGR
7,702.8
12.3%
8,472.2
10.0%
9,421.6
11.2%
10,493.0
11.4%
11,759.5
12.1%
13,785.8
17.2%
15,780.8
14.5%
17,175.0
8.8%
12.1%
2,475.6
2,622.2
2,936.4
3,254.9
3,587.0
4,140.4
4,760.6
5,153.0
11.1%
4.6%
5.9%
12.0%
10.8%
10.2%
15.4%
15.0%
8.2%
Source: National Bureau of Statistics of China
Since the 1990s, the rate of saving of Chinese private households has been
fluctuating at around 20% of the GDP. In 2008, the rate of saving of private
households amounted to about 23.4% of that year’s GDP. As the GDP
growth rate has been around 10% each year since the 1990s, the Chinese
private households’ rate of saving has increased at a similar pace (source:
p. 10, BIS, Working Paper No. 312, Bank for International Settlement, June
2010). China’s minimalistic social welfare system and the inadequate
healthcare system largely contribute to this phenomenon. On the other
hand, the steady increase in the income level of the general population has
been accompanied by a continuous increase in consumption. China’s retail
market had a value of RMB 10.8 trillion in 2008 and has been growing at
15.3% annually since 1990 (source: China Statistical Yearbook 2009,
National Bureau of Statistics of China). In 2009, this market increased to
RMB 12.5 trillion (source: Understanding China’s Retail Market by Sheng Lu,
China Business Review Online, CBR May-June 2010). In 2010, China’s retail
market contributed RMB 15.5 trillion to the national economy (source:
National Bureau of Statistics of China).
The increase in wealth and disposable income in China is reflected in the
increase in purchases of high-end luxury automobiles, especially those made
in Germany, as well as luxury villas and apartments. The table below shows
the sales of passenger cars including top-end luxury cars in China during the
past five years:
Car sales
2006
2007
2008
2009
2010
CAGR
Total car sales (in thousand)
7,216
8,947
9,537
13,650
18,062
26%
315
688
1,075
967
NA
45%
Top-end luxury cars
Source: www.sohu.com/auto
177
Sales of luxury automobiles (also including top-end luxury cars) in China
grew from 50,000 in the year 2002 to 450,000 in the year 2009, which
corresponds to a compounded annual growth rate (“CAGR”) of around 37%.
The global portion of luxury car sales in China increased from 0.9% in 2002
to
7.9%
in
2009
according
to
China
Auto
News
(http://qiche.com.cn/files/201007/22035.shtml as of 22 July 2010). China’s
luxury car sales are likely to reach 530,000 units in 2010 and may increase
to 1.1 million by 2015, which is predicted by J.P. Morgan and J.D. Power as
quoted by Inautonews, an online automobile news site based in Chicago, USA
(http://www.inautonews.com/luxury-car-sales-in-china-may-reach-11-mln-u
nits-by-2015).
Sales of luxury real estate in China increased by 8.2% of the average annual
rate between 2006 and 2009. At the peak of the financial crisis in 2008, sales
of luxury villas and apartments in terms of Gross Floor Area (“GFA”) were
significantly affected and fell by 37% year-on-year. By 2009, sales of luxury
real estate had recovered to the pre-crisis level. Although the latest statistics
are not available for the total square meters of luxury real estate sold in
China, the demand for such properties in 2010 was comparatively large: In
the last quarter of 2010, the monthly price increase, compared to the same
month in 2009, was between 8.5% and 11.9% for commercial real estate,
between 7.2% to 11% for normal residential real estate and between 12.8%
and 14.8% for luxury real estate.
2
Real estate, GFA (million m )
2006
2007
2008
2009
2010
CAGR
Luxury (Sold)
36.7
45.8
28.7
46.4
NA
8.2%
Total (Sold)
618.6
773.5
659.7
937.1
1,043.0
14.0%
Total (Completed)
558.3
606.1
665.4
702.0
760.0
8.0%
Source: National Bureau of Statitstics of China
To manage the flood of savings and the large amount of consumption-related
financial transactions, both Chinese and foreign banks operating in China
have expanded their service networks and offered more financial products to
Chinese citizen than ever before. Most of the Chinese residents still deposit
their savings and withdraw cash at the bank branches (bank cashiers) in
their neighbourhood. Over 3,000 new bank branches were set up in China
between 2007 and 2009. There were 193,000 domestic bank branches in
China at the end of 2009 (source: p. 29, 30, Annual Report 2009, China
Banking Regulatory Commission, June 2010).
178
15.3
Security glass market
Security glass offers protection against physical attacks, be it weapon
projectiles (bulletproof glass), bomb blasts (bomb resistant glass) or sharp
heavy objects (intruder-resistant glass). It is used by the military in
armoured vehicles and by government and commercial institutions in
sensitive and high-risk facilities. Wealthy individuals demand security glass in
armoured limousines and in luxury residences. Participants in this product
market on the demand side are mostly the banking industry (especially for
financial institution branches) and the automotive refitting manufacturers
industry. In rare cases, security glass is used in the construction industry.
15.3.1 Market size
Production capacity and annual output
In 2009, the global bulletproof glass production capacity amounted to about
ten million square meters. With the annual production capacity of 1.45
million square meters, China is globally a significant bulletproof glass
producer with 14.5% of the global bulletproof glass production capacity.
Country/region
Worldwide
Europe
Japan
North America
China
Rest
Capacity (in thousand m2)
10,000
2,670
2,210
1,580
1,450
2,090
Of the total capacity
100%
26.7%
22.1%
15.8%
14.5%
20.9%
Source: p. 69, RMR report, 2010
The table below shows the breakdown of the Chinese bulletproof glass
market in terms of the product output and total output growth rate from
2005 to 2009.
2005
Year
2
2006
Of total
Output breakup (in thousand m )
2007
Of total
2008
Of total
2009
Of total
Of total
Banking
182
45.8%
259
49.3%
346
48.3%
368
47.5%
457
47.8%
Automotive
143
36.0%
165
31.4%
213
29.7%
243
31.4%
314
32.8%
Construction
2
Total output (in thousand m )
Growth rate
72
18.1%
101
19.2%
158
22.0%
163
21.1%
186
19.4%
397
100.0%
525
100.0%
717
100.0%
774
100.0%
957
100.0%
23.2%
32.2%
36.6%
7.9%
23.6%
Source: p.71, 72, RMR report, 2010
Despite the global financial and economic crisis, the output of Chinese
bulletproof glass has grown at an average annual rate of 24.5% over the last
179
five years. The total production output was around 717,000 square meters,
around 774,000 square meters and around 957,000 square meters for 2007,
2008 and 2009, respectively. Nearly 50% of the bulletproof glass produced
was used by the banking industry (Bank Security Glass Market).
Geographically, the majority of the Chinese bulletproof glass output came
from the coastal provinces of China, of which Guangdong province was the
most active region (taken from 2009 output):
Guangdong
66.25%
Jiangsu
7.63%
Beijing
6.79%
Shangdong
3.76%
Henan
3.34%
Zhejiang
2.82%
Anhui
1.88%
Others
7.53%
Market demands
The table below shows the market demand for bulletproof glass and the
production output in China from 2005 to 2009 (all in thousand square
meters).
2005
Year
Production output
Export
Import
2006
397.0
20.4
16.3
Trade balance*
2007
525.0
25.6
18.6
2008
717.0
34.6
8.9
2009
774.0
34.9
5.4
957.0
42.3
8.2
-4.1
-7.0
-25.7
-29.5
Output available
392.9
518.0
691.3
744.5
922.9
Demand
458.0
588.0
761.0
951.0
1,196.0
Unmet demand
65.1
70.0
69.7
206.5
273.1
*Trade balance = (Import - Export)
Source: General Administration of Customs of the People's Republic of China, 2010, cited through p. 78, RMR report, 2010;
China Architectural and Industrial Glass Association, cited through p. 85, RMR report
180
-34.1
While the import of bulletproof glass into China stagnated over the last five
years, there has been a steady increase in exports. However, relative to the
total production output, exports have taken up only a negligible portion of
the total production output. In 2009, exports made up only 4.4% of the total
output.
The Chinese bulletproof glass production output has increased at an average
annual growth rate of 24.5%. However, the increase in production has not
been able to keep pace with the increase in demand, which experienced an
average annual growth of 27.5%. Growth in exports only exacerbated the
demand-supply imbalance. In 2009, the demand for around 273,100 square
meters of bulletproof glass in China was not met.
Market volume
Annual sales in both technical (specialty) glass and bulletproof glass and their
growth in China are shown in the table below (in million EUR):
Year
Sales (technical glass)
Growth
Sales (bulletproof glass)
Growth
2005
2006
2007
2008
2009
2,547.4
3,452.1
3,976.4
5,504.3
7,675.7
-
35.5%
15.2%
38.4%
39.4%
39.2
50.0
70.5
83.4
98.4
-
27.5%
41.0%
18.2%
18.0%
Source: Architectural and Industrial Glass Association of China, 2010 cited through p. 80, RMR report, 2010; Exchange
rates used were 9.5626 for 2005, 10.3212 for 2006, 10.76355 for 2007, 9.6433 for 2008, 9.80625 for 2009
Sales growth in bulletproof glass was slower in 2008 and 2009 while growth
in technical (specialty) glass sales accelerated in the same period. In 2009,
bulletproof glass sales reached EUR 98 million (RMB 965 million) and made
up only 1.3% of the technical (specialty) glass market.
15.3.2 Market trends
The table below shows the bulletproof glass production capacity growth
forecast from 2010 to 2014 and the market demand in the same forecast
period (in thousand square meters):
Year
2010
2011
2012
2013
2014
1,640
1,860
2,090
2,320
2,540
Banking
563
637
712
773
847
Automotive
602
745
871
1,007
1,121
Production capacity
Demands from
257
312
376
442
508
Total demand
Construction
1,422
1,694
1,959
2,222
2,476
Demand as % of capacity
86.7%
91.1%
93.7%
95.8%
97.5%
Source: p. 111, 117, 118, RMR report, 2010
181
Bank security glass market
Bulletproof glass installation in the large first-tier cities is widespread and still
growing, whereas less than half of the bank branches in second- and
third-tier cities or in rural areas are equipped with bulletproof glass.
Additionally, although the bulletproof property of the security glass is
normally guaranteed by the manufacturers for ten years, it is frequently
replaced by the bank outlets earlier since the branches are often renovated
every few years in order to make them more appealing to their customers
and to stay competitive. New and existing bank branches are reliable sources
of demand for bulletproof glass.
Foreign banks are also increasing their presence in China to benefit from the
growing consumer demand for quality banking service and one of the largest
consumer markets in the world. The Company expects that some of the
existing and some of the new branches will become customers for its
bulletproof glass products in the years to come.
The table below shows the expected newly-added and renovated bank
branches from 2010 to 2014 in China:
Year
2010
2011
2012
2013
2014
Newly established branches from domestic banks
3,079
3,254
3,561
3,782
3,815
Branches to be renovated
18,032
18,815
20,106
21,379
22,132
Total outlets available (excl. foreign bank outlets)
18,032
18,815
20,106
21,379
22,132
Source: China Banking Regulatory Commission, Respect Marketing Research, 2009, cited through p. 114 RMR report
The demand for bulletproof glass from the Chinese banking industry alone
should reach around 712,000 square meters in 2012 (source: p. 114, RMR
Report, 2010).
Automotive security glass market
The increase in the number of bank branches in China is accompanied by an
increase in demand for secure means of transporting cash and other valuable
goods (cash-in-transit vehicles), which leads to a further demand for
bulletproof glass. Other types of vehicles equipped with bulletproof glass
include
police
vehicles
and
military
armoured
personnel
carriers.
Furthermore, private luxury limousines are increasingly refitted to add
security
features.
These
include
bulletproof
or
bomb
blast-resistant
windshields and side windows to provide protection to passengers.
182
The demand for bulletproof glass comes mainly from newly refitted vehicles
that receive security features and from the after-sales service market for
such vehicles, where armoured vehicles are repaired and serviced. According
to the China Association of Automobile Manufacturers, about 7,500 armoured
cars per annum are expected to be added to the existing fleet from 2010 to
2014. 120,000 vehicles were already equipped with bulletproof glass in China
at the end of 2009. A significant portion of this large fleet of armoured
vehicles (15% per annum on average) requires repair and renewal of their
bulletproof glass (source: p. 116, RMR Report, 2010).
15.4
Construction glass market
China is the largest normal flat glass producer in the world. 579 million
weight boxes (one weight box equals 50 kg, or 10 square meters, of 2 mm
thick glass) (source: Baidu, http://baike.baidu.com/view/1511663.htm from
Taglist as of 23 July 2010) of normal glass were produced in 2009 (source:
China
Building
Material
Association.
http://www.cbminfo.com/tabid/
63/InfoID/327671/Default.aspx as of 10 February 2010). This can be
translated into 28.95 million tons or 5.79 billion square meters of 2 mm thick
flat glass. For the first 11 months in 2010, China had already produced 577
million
weight
boxes
of
normal
flat
glass
according
to
icandata
(http://www.icandata.com/data/201103/031GM3292011.html).
Normal flat glass, when processed to add technical features, becomes
specialty glass which includes insulating, architecture laminated, architecture
tempered and surface-coated glass. The number of manufacturers capable of
producing specialty glass in China has risen to approximately 4,000. There
were more than 1,000 tempered glass manufacturers in China in 2009, which
produced about 180 million square meters of tempered glass, 40 million
square meters of laminated glass, 200 million square meters of insulating
glass and more than 80 million square meters of surface-coated glass
(source: National Bureau of Statistics of China, 2010 cited through p. 82,
RMR Report, 2010). The presence of numerous manufacturers for specialty
glass puts intense pressure on the product unit price.
Windows (hollow glass), glass-containing doors (tempered or laminated
glass), glass facades and partition glass walls are some of the products, for
which specialty glass is used. The most common use of specialty glass
products is as architecture glass for real estate and related decorations in the
construction market. The amount of glass used for a new building is
estimated to be around 20% of the GFA on average (source: “Development
183
Trends of Energy Saving Glass Products – An Analysis of Building Glass
Market”, http://www.chinabmi.com/news/2010720/45762.html as of 20 July
2010). With an average of 46 million square meters GFA, specialty glass
used for the luxury market segment of the Construction Glass Market alone
could amount to some nine million square meters in 2009. There are
numerous suppliers for such glass products and competition is intense.
Demand for such products is considerable and the gross margin is
significantly lower than that of security glass.
In the construction glass segment, China Specialty Glass-Group focuses on
specialty glass without security glass features such as bullet resistance,
whereas bulletproof glass is attributed to the security bank glass or
automotive security glass segment.
Due to the limited production capacity and increasing focus on higher-margin
security glass products, the Group has reduced its production and sales of
lower-margin construction glass products over the last three years (see
section 14.3.1 “Revenues”, sub-section “Construction Glass”). With the
planned expansion in production capacity, in particular with the planned
establishment of the new production site in the Sichuan province in the
western region of China, the Group plans to use the new facilities to meet
market demand for high-quality construction glass products in that region
and to increase its production capacity for security glass products.
After the devastating earthquake in Sichuan in 2008, the Chinese central
government invested considerably in infrastructure and housing projects to
rebuild the region. The reconstruction process in the region is expected to
continue for the next five to six years. This emphasis on investments in the
region is in line with the central government’s policy of accelerating the
development of China’s western regions.
15.5
Sales and distribution
Sales of security glass such as bulletproof glass to banking and financial
institutions usually go through a bidding process. Public security organs of
the government recommend qualified manufacturers, such as HWG-Ltd.,
whose products are certified by these organs or their related organizations,
such as the Inspection and Testing Centre for Electronic Products for Security
and Police Use under the Ministry of Public Security of China, to participate in
such a bidding process. After the preliminary screening of all bidders, the
customers (banks) visit selected bidders on-site and invite a limited number
of bidders (at least three) to a final bidding process. The selection of the final
184
security glass supplier is carried out on a score-based valuation process, in
which the manufacturer’s qualification and product license (certificates, 3C
license, etc), production capacity, track record, liquidity, product insurance
and other issues are compared and evaluated. The successful bidder is then
asked to negotiate final contract terms and conditions.
With regard to automotive security glass, there are a limited number of
automobile refitting companies that convert vehicles with a normal chassis
into vehicles for special transportation use such as cash-in-transit vehicles,
police cars, military vehicles or armoured limousines. Bulletproof glass and
related products are directly purchased by these companies from a few
manufacturers such as HWG-Ltd. which offer the scale and capability to
supply. Although there is no bidding process involved in product sales, the
procurement of these companies focuses on those security glass suppliers
with a 3C Certification.
On the other hand, other specialty glass used in the construction industry is
purchased on a project-by-project basis by the general constructors and their
sub-contractors specialising in the installation of glass. Glass needed for a
particular project is usually purchased en masse, which might include
windows, doors and glass walls. The amount of glass products used in a
construction project can be quite substantial, but only a limited amount of
specialty
glass
is
supplied
by
China
Specialty
Glass
Group.
Glass
manufacturers, which are not only capable of providing a diversity of
specialty glass products but also of delivering these products on a large
scale, are preferred for architecture projects. The purchase of other specialty
glass products in the construction industry is also based on a tender process.
15.6
Competition
The specialty glass market is highly fragmented. Currently, there are more
than 4,000 glass manufacturers in China capable of producing specialty glass
in addition to normal flat glass (source: p. 82; RMR Report, 2010). There are
no dominant players in this market and due to the lack of a clear product
differentiation, competition is focused mainly on the price and to a lesser
extent on the scale of production.
185
As a niche in the specialty glass market, the security glass market
(bulletproof/bomb blast/intruder-resistant glass) is highly concentrated: In
China there are only around 62 bulletproof glass producers and among them
the top five producers amassed 63% of the total production output and
commanded 59% of the total market share in 2009.
Production Output (in thousand m 2)
2007
2008
2009
Market
Share
Beijing Mingdun Tongchuang Technology Co., Ltd.
43.0
43.0
45.0
4.6%
Shenzhen Liaoyuan Glass Co., Ltd.
22.0
25.0
30.0
3.1%
Zhangjiagang Xinyu Special Glass Products Co., Ltd.
17.0
18.0
20.0
2.1%
Xiamen Xiangsheng Special Glass Co., Ltd.
11.0
14.0
16.0
1.6%
China Specialty Glass (CSG)
394.0
407.0
491.0
50.4%
Rest
-
-
355.0
36.4%
-
-
957.0
100%
Sales (in RMB million)
2007
2008
2009
Market
Share
Beijing Mingdun Tongchuang Technology Co., Ltd.
49.5
51.0
54.0
5.5%
Shenzhen Liaoyuan Glass Co., Ltd.
15.1
17.6
21.0
2.2%
Zhangjiagang Xinyu Special Glass Products Co., Ltd.
15.4
16.7
17.4
1.8%
8.8
10.3
12.5
1.3%
331.0
357.9
469.9
48.2%
Total
Zhejiang Meidun Protection Technique Co., Ltd.
China Specialty Glass (CSG)
Rest
Total
-
-
399.2
41.0%
-
-
974.0
100%
This industrial concentration in the security glass market in China is the
result of:
·
Government regulation: Sales of security glass are subject to
licenses, 3C Certification and other related certifications from the
Ministry of Public Security and other governmental agencies (see
sections 17 “Business” and 16 “Regulatory Framework”).
·
Stringent customer requirements: End users of security glass such
as banks impose requirements such as production scale, relevant
qualifications,
product
insurance
and
the
credit
standing
on
manufacturers participating in the tender process.
·
Intense capital requirement: Development and production of
security glass demands larger funds to install production facilities and
to continuously innovate through investment in R&D.
186
Top Chinese competitors of the Group
China Specialty Glass-Group has identified the top competitors in the Chinese
domestic market for the main product of HWG-Ltd., i.e. bulletproof glass,
according to their market share. These are:
Beijing Mingdun Tongchuang Technology Co., Ltd.’s products are used
for windscreens and side windows for high-speed trains, military vehicles,
upgraded
civilian
vehicles,
helicopters,
personal
body
armour,
bank
transaction windows, flat panel displays and many others. The company’s
revenues for the years 2007 to 2009 amounted to EUR 4.7 million, EUR 4.8
million and EUR 5.3 million, respectively (source: p. 123, RMR Report, 2010).
Shenzhen Liaoyuan Glass Co., Ltd. specializes in producing bullet
resistant glass, tempered glass, curved tempered glass, insulated glass,
laminated glass, laminated art glass, electronic glass, etc. The company’s
revenues for the years 2007 to 2009 amounted to EUR 1.4 million, EUR 1.7
million and EUR 2.2 million, respectively (source: p. 123, RMR Report, 2010).
Zhangjiagang Xinyu Special Glass Products Co., Ltd. The products of
the company are used in the construction, sanitation, automobile, home
decoration, home appliance industry etc. The company’s revenues for the
years 2007 to 2009 amounted to EUR 1.0 million, EUR 1.3 million and EUR
1.5 million, respectively (source: p. 123, RMR Report, 2010).
Xiamen Xiangsheng Special Glass Co., Ltd. mainly produces various
safety glass including tempered glass, laminated glass, insulated glass,
curved glass, bullet resistant glass, fireproof glass, glue chip glass,
sandblasting glass and other types of glass for furniture and construction
purpose. The company’s revenues for the years 2007 to 2009 amounted to
EUR 0.7 million, EUR 0.7 million and EUR 0.9 million, respectively (source: p.
123, RMR Report, 2010).
187
16.
REGULATORY FRAMEWORK
16.1
PRC Legal System
Overview
The PRC legal system is based on the PRC Constitution and consists of
written laws, regulations and directives. Decided court cases do not
constitute binding precedents. The National People’s Congress of the PRC
(“NPC”) and the Standing Committee of the NPC are empowered by the PRC
Constitution to exercise the legislative power of the state. The NPC has the
power to amend the PRC Constitution and to enact and amend primary laws
governing the state organs, civil affairs and criminal offences and other
matters. The Standing Committee of the NPC is empowered to interpret,
enact and amend laws other than those required to be enacted by the NPC.
The State Council of the PRC is the highest organ of state administration and
has the power to enact administrative rules and regulations. Ministries and
commissions under the State Council of the PRC are also vested with the
power to issue orders, directives and regulations within the jurisdiction of
their respective departments. Administrative rules, regulations, directives
and orders promulgated by the State Council and its ministries and
commissions must not be in conflict with the PRC Constitution or the national
laws and, in the event that any conflict arises, the Standing Committee of the
NPC has the power to annul such administrative rules and regulations
enacted by the State Council and the State Council has the power to annul
such
directives, orders and regulations issued by its ministries and
commissions.
At the regional level, the people’s congresses of provinces and municipalities
and their standing committees may enact local rules and regulations and the
people’s government may promulgate administrative rules and directives
applicable to their own administrative area. These local rules and regulations
may not be in conflict with the PRC Constitution, any national laws or any
administrative rules and regulations promulgated by the State Council.
Some rules, regulations or directives may be enacted or issued at the
provincial or municipal level or by the State Council of the PRC or its
ministries and commissions in the first instance for experimental purposes.
After sufficient experience has been gained, the State Council may submit
188
legislative proposals to be considered by the NPC or the Standing Committee
of the NPC for enactment at the national level.
The power to interpret laws is vested by the PRC Constitution in the Standing
Committee of the NPC. According to the Decision of the Standing Committee
of the NPC Regarding the Strengthening of Interpretation of Laws passed on
10 June 1981, the Supreme People’s Court has the power to give general
interpretation on application of laws in judicial proceedings apart from its
power to issue specific interpretation in specific cases. The State Council and
its ministries and commissions are also vested with the power to give
interpretation of the rules and regulations which they promulgated. At the
regional level, the power to give interpretation of regional laws is vested in
the regional legislative and administration organs which promulgate such
laws. All such interpretations carry legal effect.
PRC Judicial System
The People’s Courts are the judicial organs of the PRC. Under the PRC
Constitution and the Law of Organisation of the People’s Courts of the
People’s Republic of China, the People’s Courts comprise the Supreme
People’s Court, the local people’s courts, military courts and other special
courts. The local people’s courts are divided into three levels, namely, the
basic people’s courts, intermediate people’s courts and higher people’s
courts. The basic people’s courts are divided into civil, criminal and
administrative divisions. The intermediate people’s courts have divisions
similar to those of the basic people’s courts and, where the circumstances so
warrant, may have other special divisions (such as intellectual property
divisions). The judicial functions of the people’s courts at lower levels are
subject to the supervision of people’s courts at higher levels. The people’s
procuratorates also have the right to exercise legal supervision over the
proceedings of people’s courts of the same and lower levels. The Supreme
People’s Court is the highest judicial organ of the PRC. It supervises the
administration of justice by the people’s courts of all levels.
The people’s courts adopt a two-tier final appeal system. A party may, before
the taking effect of a judgment or order, appeal against the judgment or
order of the first instance of a local people’s court to the people’s court at the
next higher level. Judgments or orders of the second instance at the next
higher level are final and binding. Judgments or orders of the first instance of
the Supreme People’s Court are also final and binding. If, however, the
Supreme People’s Court or a people’s court at a higher level finds an error in
189
a final and binding judgment which has taken effect in any people’s court at
a lower level, a retrial of the case may be conducted according to the judicial
supervision procedures. If the president of a people’s court at any level finds
a definite error in a legally effective judgment or written order of his court
and deems it necessary to have the case retried, he shall refer it to the
judicial committee for discussion and decision.
The PRC civil procedures are governed by the Civil Procedure Law of the
People’s Republic of China (the “Civil Procedure Law”) adopted on
9 April 1991 with amendment effective on 1 April 2008. The Civil Procedure
Law contains regulations on the institution of a civil action, the jurisdiction of
the people’s courts, the procedures in conducting a civil action, trial
procedures and procedures for the enforcement of a civil judgment or order.
All parties to a civil action conducted within the territory of the PRC must
comply with the Civil Procedure Law. A civil case is generally heard by a
court located in the defendant’s place of domicile. The jurisdiction may also
be selected by express agreement by the parties to a contract provided that
the jurisdiction of the people’s court selected has some actual connection
with the dispute, that is to say, the plaintiff or the defendant is located or
domiciled, or the contract was executed or implemented in the jurisdiction
selected, or the subject-matter of the proceedings is located in the
jurisdiction selected. A foreign national or foreign enterprise is accorded the
same litigation rights and obligations as a citizen or legal person of the PRC.
If any party to a civil action refuses to comply with a judgment or order
made by a people’s court or an award made by an arbitration body in the
PRC, the aggrieved party may apply to the people’s court to enforce the
judgment, order or award. The right to apply for such enforcement is limited
to two years. A party seeking to enforce a judgment or order of a people’s
court against a party who or whose property is not within the PRC may apply
to a foreign court with jurisdiction over the case for recognition and
enforcement of such judgment or order. A foreign judgment or ruling may
also be recognised and enforced according to the PRC enforcement
procedures by the people’s courts in accordance with the principle of
reciprocity or if there exists an international or bilateral treaty with or
acceded to by the foreign country that provides for such recognition and
enforcement, unless the people’s court considers that the recognition or
enforcement of the judgment or ruling will violate fundamental legal
principles of the PRC or its sovereignty, security or social or public interest.
190
Arbitration and Enforcement of Arbitral Awards
The Arbitration Law of the PRC (the “Arbitration Law”) was promulgated by
the Standing Committee of the NPC on 31 August 1994 and came into effect
on 1 September 1995. It is applicable to, amongst other matters, trade
disputes involving foreign parties where the parties have entered into a
written agreement to refer the matter to arbitration before an arbitration
committee constituted in accordance with the Arbitration Law. Under the
Arbitration Law, an arbitration committee may, before the promulgation by
the PRC Arbitration Association of arbitration regulations, formulate interim
arbitration rules in accordance with the Arbitration Law and the PRC Civil
Procedure Law. Where the parties have by an agreement provided arbitration
as a method for dispute resolution, the parties are not permitted to institute
legal proceedings in a people’s court.
Under the Arbitration Law, an arbitral award is final and binding on the
parties and if a party fails to comply with an award, the other party to the
award may apply to the people’s court for enforcement. A people’s court may
refuse to enforce an arbitral award made by an arbitration committee in case
of mistakes, in applying law, an absence of material evidence or irregularities
concerning the arbitration proceedings, the jurisdiction or the constitution of
the arbitration committee.
A party seeking to enforce an arbitral award of a foreign affairs arbitration
body of the PRC against a party who or whose property is not within the PRC
may apply to a foreign court with jurisdiction over the case for enforcement.
Similarly, an arbitral award made by a foreign arbitration body may be
recognised and enforced by the PRC courts in accordance with the principles
of reciprocity or any international treaty concluded or acceded to by the PRC.
In
respect
of
contractual
and
non-contractual
commercial-law-related
disputes which are recognised as such for the purposes of the PRC law, the
PRC has acceded to the Convention on the Recognition and Enforcement of
Foreign Arbitral Award (“New York Convention”) adopted on 10 June 1958
pursuant to a resolution of the Standing Committee of the NPC passed on 2
December 1986. The New York Convention provides that all arbitral awards
made by a state which is a party to the New York Convention are to be
recognised and enforced by other parties to the New York Convention subject
to their right to refuse enforcement under certain circumstances including
where the enforcement of the arbitral award is against the public policy of
the state to which the application for enforcement is made. It was declared
191
by the Standing Committee of the NPC at the time of the accession of the
PRC that (1) the PRC would only recognise and enforce foreign arbitral
awards on the principle of reciprocity and (2) the PRC would only apply the
New York Convention in disputes considered under PRC laws to be arising
from contractual and non-contractual mercantile legal relations.
16.2
The General Principles of the Civil Law
The General Principles of the Civil Law were adopted by the National People’s
Congress on 12 April 1986 and came into force on 1 January 1987. The 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. The General Principles of the Civil Law consist of eight different
chapters: General Principles, Law of Persons and Entities, Civil Juristic Acts,
Law of Agency, Law of Obligations, Civil Liability, Limitation of Action and
Conflict of Laws. Chinese civil law is subject to certain fundamental principles
set out in the first chapter. Inter alia, all parties in a civil law relationship are
to enjoy equal legal positions and all civil law activities are to abide by the
principle of voluntariness. Pursuant to the principle of good faith, all persons
are to act honestly 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. The Principles also
contain rules regarding the law of agency: Individuals and legal entities may
authorize agents to act on their behalf within the scope of their authority.
The principal is to bear all liabilities as a result of the agents’ acts so
incurred.
16.3
the Implementation of the General Principles of the Civil Law (for Trial
Implementation)
the Implementation of the General Principles of the Civil Law (For Trial
Implementation) were adopted and became effective on 26 January 1988.
They serve to implement the General Principles of the Civil Law.
16.4
Laws Regarding Social Standards
Laws and Regulations Relating to Social Welfare
China's social security system provides people with social welfare, a special
care and placement system, social relief, housing services and social
192
insurance. Thereby social insurance represents the heart of China’s social
security system. It consists of five different parts: pension contribution,
unemployment insurance, basic medical insurance, work-related injury
insurance and maternity insurance (details are subject to the different legal
requirements in various provinces). In addition, the housing funds are
required to be paid for all employees. In regard to pension contribution,
unemployment insurance and basic medical insurance the responsibility
should be carried by the employer and the employee together whereas the
responsibility for work-related injury insurance and maternity insurance rests
with the employer. The employer has to pay for his own contributions and
deduct the applicable contributions of the employees from their salaries and
remit them to the responsible institutions.
A variety of laws and regulations concerning the legal system of social
security, such as the PRC Labour Contract Law, Interim Regulations on the
Collection and Payment of Social Insurance Premiums, Regulations on Work
Injury Insurance, Regulations on Unemployment Insurance, Decision of the
State Council on Establishing Unified Basic Pension Contribution System for
the Staff and Workers in Enterprises, Measures for Maternity Insurance of the
Staff and Workers in Enterprises and the Regulations on Housing Funds have
come into force.
Any employer who violates the regulations concerning the social welfare of
the employee, i.e. failure to pay the social insurance contributions and
housing funds or the retaining of the payment of the employee's portion,
may be ordered by the PRC labour tax and/or housing funds administration
authority to make the required payments within a designated period of time.
Moreover, a liability for penalties may also arise from the described conduct.
Any failure to pay social insurance premiums or housing fund contributions
by the employer also entitles the employee to terminate the employment.
PRC Labour Contract Law
The PRC Labour Contract Law (the “Labour Contract Law”), which came
into effect on 1 January 2008 and supplements the PRC Labour Law which
has been in effect since 1 January 1995, has a certain impact on all existing
and future employment relationships under PRC law.
The Labour Contract Law imposes severe consequences for non-compliance
with the conclusion of employment contracts in written form. Should an
employer fail to conclude a written employment contract with an employee
for a period of one month to one year after the actual commencement of
193
work, the employer must pay the employee twice the salary for the relevant
months. After more than one year after the actual commencement of work,
an unfixed-term of contract is deemed to have been concluded.
Employer and employee may include in their employment contract provisions
on confidentiality concerning commercial secrets of the employer and
confidential issues relating to intellectual property according to the Labour
Contract Law. Non-competition obligations for up to two years after
termination or expiration of the contract may be included in the employment
contract or a confidentiality agreement, if the employee is senior manager,
senior technician or is subject to a confidentiality obligation and if the parties
agree on a compensation. The employer is to pay economic compensation to
the employee on a monthly basis during the non-competition obligation
period after termination or expiration of the contract.
The PRC Labour Contract Law also provides additional reasons for the
termination of employment contracts. For example, the employee may now
terminate the employment if the employer fails to pay social insurance
premiums for the employee if the rules and regulations for the employee are
in breach of laws and regulations and damage the employee’s rights and
interests, or if the contract was concluded due to a deception by the
employer.
The
regulations
on
business–related
dismissal
have
been
concretized and, social criteria regarding the question as to which employees
are to be dismissed have been introduced by the PRC Labour Contract Law.
In case of termination by mutual agreement, compensation must be paid
only if the agreement was proposed by the employer. In case of expiration of
a fixed-term employment contract, compensation must also be paid except
for the case that the employee does not agree to renew the contract even
when the employer proposes to keep or improve the conditions stipulated in
the current contract. The amount of the compensation is to be a one-month
salary per year of employment with a maximum “monthly salary” of three
times the average monthly salary as determined by the competent local
government and a maximum of twelve years of employment. Before the
effectiveness of the PRC Labour Contract Law, there was no cap on the
amount of “monthly salary” for the purpose of calculating the compensation.
The PRC Labour Contract Law also provides that if an employer terminates an
employment contract in violation of laws and an employee demands to
continue to perform such a contract, the employer is to continue to perform
the employment contract. If the employee does not want to continue to
194
perform the employment contract or the performance of the employment
contract has become impossible, the employer is to pay the employee
damages
in
the
amount
of
twice
the
severance
payment.
On
18 September 2008, the State Council issued the Implementing Rules and
made further explanations on several important issues of the PRC Labour
Contract Law. For example, the Implementing Rules emphasize that the
employer and the employee are not to agree on any additional termination
reasons in the employment contract apart from the following circumstances
as stipulated in the PRC Labour Contract Law under which the employment
contract terminates automatically: the employment term expires, the
employee has reached the statutory retirement age or has retired using the
pension to which an entitlement under the law accrued, the employee is dead
or is declared dead or missing by the people's court, the employer is declared
bankrupt in accordance with the law, the employer's business license is
revoked, the employer is ordered to be closed or shut down, the employer
enters into voluntary winding-up, or other circumstances occur as may be
prescribed
in
laws
and
administrative
regulations.
Furthermore,
the
Implementing Rules designate the calculation method of the monthly salary
of an employee for the calculation of statutory severance payments. I.e. such
monthly salary is to be calculated on the basis of the total amount of the
remuneration of the employee for the last twelve months including monthly
salaries, bonuses, allowances and subsidies for that period.
16.5
Laws and Regulations concerning Use of Bulletproof Glass by Financial
Institutions
The People’s Bank of China together with the Ministry of Public Security
promulgated a Provisional Regulation on the Security of Business Place and
Cashbox of Financial Institutions (Yinfa [1998] No. 588) (“Provisional
Security Regulation”) on 7 December 1998. The Provisional Security
Regulation took effect on 1 January 1999 and is currently in force. According
to the Provisional Security Regulation, the counters where cash transactions,
security transactions and settlement accountant are carried out in the
business place of all financial institutions at and above the county level shall
be equipped with the 1.2-meter high bulletproof glass.
On 22 September 2004, the Regulations on Level of Risk and Classification of
Protection for Banking Business Place were promulgated by the Ministry of
Public Security and became effective on 1 December 2004. According to
these regulations, if the bulletproof glass is embedded as the transparent
protective screen in the entrance door of the cash transaction area, the
195
specification
of
such
bulletproof
glass
shall
be
subject
to
Chinese
GA165-1997 Industrial Standard.
16.6
Governmental Regulations in Product Sales and Distribution
The bulletproof glass falls in the category of the protective security products.
According to the Management Methods for the Protective Security Products
promulgated by the General Adminstration of Quality Supervision, Inspection
and Quarantine of the PRC and the Ministry of Public Security of the PRC on
16 June 2000 and effective on 1 September 2000, the production and the
sales of the bulletproof glass shall be registered with the competent
provincial public security authority. The application for the production
registration shall be accompanied, amongst other things, with the test report
issued by the designated test organization. Any failure to complete the
registration will be ordered to rectify within a prescribed period by the public
security authority at and above the county level and may cause a penalty of
up to RMB 10,000.00, where there is any illegal income, i.e. the income from
the manufacture and sales of the bulletproof composite glass, the fine would
be up to RMB 30,000.00.
Since 2001, China has adopted the compulsory certification system and has
drawn up a List of Products Required for China Compulsory Certification (the
“Product List”) in order to protect the life and health of human being and
animal and the environment. A new Regulation Concerning Management of
Compulsory Product Certification (“3C Regulation”) was promulgated by the
State Administration of Quality Supervision, Inspection and Quarantine of the
PRC on 3 July 2009 and took effect on 1 September 2009 to replace the old
regulation. Based on the 3C Regulation, for products that appear on the
Product List the basic safety certification which is called China Compulsory
Certification (“3C Certification”) shall be obtained and they shall be marked
with CCC before they are delivered, sold, imported or used in any business
activities. State Administration for Certification and Accreditation of the PRC
is the competent authority to implement and supervise the compulsory
certification system. On 12 July 2006, State Administration for Certification
and Accrediation promulgated the Implementation Rules for the Compulsory
Certification of Safety Glass (CNCA-04C-028:2006), according to which the
glass products for construction and automobile including the laminated glass,
hollow glass and tempered glass are required to obtain the compulsory
certification. The certification procedure for safety glass comprises a sample
product
test,
initial
workshop
inspection
and
supervision
after
the
certification release. Accordingly, the validity of the above certifications shall
196
be maintained by regular supervision. One year after the issuance of the
certification, the validity of such certification shall be subject to the
qualification notice of annual inspection.
16.7
Company Law
The Standing Committee of the PRC National People's Congress passed
amendments
to
the
Company
Law
concerning
enhanced
corporate
governance, greater protection of shareholders and an easing of restrictions
on the management and operation of companies registered in the PRC on
27 October 2005 and the modified PRC Company Law came into force on
1 January 2006.
All companies with the legal form of limited liability and joint-stock limited
company registered in the PRC including foreign-invested companies, to the
extent not provided in FIE Regulations (see below), are subject to the altered
PRC Company Law. The PRC Company Law demands of all directors and
supervisors to be loyal and diligent towards the company. A liability arises for
damages in case a director, supervisor or senior manager commits a violation
of the laws, the administrative regulations or the Articles of Association whilst
performing his/her duties. Unlawful acts of a director, supervisor, senior
manager or third party which either harm the company’s or the shareholders’
interests entitle a shareholder to take legal actions.
16.8
Investment Regulations, Distribution and Transfer Restrictions
FIE Regulations
The establishment of foreign-invested enterprises in the PRC (“FIE”) need
the approval of the Ministry of Commerce ("MOFCOM") or its local
counterpart depending on its total amount of investment in order to be
established in the PRC. After such establishment, any material corporate
changes in the foreign-invested enterprise, such as capital increase or
reduction, change of business scope, share transfer, or other, are also
subject to approval by the MOFCOM or its local counterpart. For certain
industries, the approval of the ministry with responsibility for that industry is
required as a prerequisite to apply for the approval of the MOFCOM or its
local counterpart. The establishments of foreign-invested enterprises and all
corporate changes only become valid when they are approved by the
responsible approval authority, i.e. MOFCOM or its local counterparts, and
registered
with
the
competent
registration
authority,
i.e.
the
State
Administration for Industry and Commerce (“AIC”) or its local counterpart.
197
Certain material changes to corporate matters of foreign-invested enterprises
become valid when they are approved by MOFCOM or its local counterpart.
Regulations on Foreign Exchange
Under Chinese law foreign currency exchange regulation is primarily
governed by the following rules:
·
the Foreign Currency Administration Rules (1996), as amended (1997
and 2008), or the "Exchange Rules"; and
·
the Administration Rules of the Settlement, Sale and Payment of Foreign
Exchange (1996), or the "Administration Rules”
Under the Exchange Rules, the Renminbi is convertible for current account
items, including the distribution of dividends, interest payments, trade and
service-related foreign exchange transactions. Conversion of Renminbi for
capital account items, such as direct investment, loans, investment for
securities and repatriation of investment, however, is still subject to the
approval of SAFE or its local counterparts.
According to the Administration Rules, foreign-invested enterprises in China
are only entitled to buy, sell and/or remit foreign currencies at those banks
authorised to conduct foreign exchange business after providing valid
commercial documents and, in case of capital account item transactions,
obtaining approval from SAFE or its local counterparts. Capital investments
outside of China by foreign-invested enterprises in China are also subject to
limitations, which include approvals by SAFE and other relevant government
authorities.
SAFE Notice No. 142 on Conversion of Foreign Capital in Foreign-Invested
Enterprises
On 29 August 2008, SAFE published the Circular on Issues Concerning
Improvement of the Administration of Payment and Settlement of Foreign
Currency Capital of Foreign-Invested Enterprises, also known as Notice
no. 142, which regulates the process of foreign currency capital verification
by foreign invested enterprises in China. Notice no. 142 is one of a number of
measures recently implemented by China’s regulators seeking to prevent the
use of funds of foreign-invested enterprises in China and may have
significant consequences for foreign investors due to its potential impact on
acquisitions and investments in China carried out via foreign-invested
enterprises. A
critical
share
of foreign-invested
198
enterprises
in
China
denominates their registered capital in a foreign currency and will typically
convert their registered capital into Renminbi. This converted capital is then
used to develop their enterprise in China. In accordance with Notice no. 142,
RMB funds converted from the foreign currency capital should only be used
for purposes within the approved business scope of the foreign-invested
enterprise and not for domestic equity investment unless specifically
provided for. In general, only investment-type companies and private equity
funds have the business scope to make equity investment; other types of
foreign-invested
enterprises,
such
as
manufacturing
companies,
are
prevented by Notice no. 142 from converting its foreign capital into Renminbi
to make equity investment. Furthermore, Notice no. 142 prohibits the use of
RMB funds to purchase domestic real estate for any purpose other than its
own use, unless the enterprise is licensed as a real estate enterprise. In M&A
transactions, the settlement of the purchase consideration denominated in
foreign currency must be effected via an exclusive foreign currency account
approved by the local branch of SAFE. Furthermore, the use of FIE’s
registered capital settled in RMB may not be changed without SAFE’s
approval, and may not in any case be used to repay RMB loans if the
revenues of such loans have not been used.
Stock Option Plans
On 25 December 2006 the People's Bank of China issued the Administration
Measures on Individual Foreign Exchange Control, and the Implementation
Rules were issued by SAFE on 5 January 2007, both of which became
effective on 1 February 2007. Under these two regulations, any stock option
plans of an overseas listed company in which citizens of the PRC participate
are subject to the approval by SAFE or its authorised branch. On
28 March 2007, SAFE issued the Operational Guidelines on Foreign Exchange
Administration Concerning Participation of Individuals in Stock Purchase
Plans and Stock Option Plans of Overseas Listed Companies or "Notice
No. 78", according to which PRC employees that are granted stock options by
an overseas listed company shall, through a PRC agent or PRC subsidiary of
such overseas listed company, complete certain approval procedures and
transactional foreign exchange matters with SAFE.
SAFE Regulations Relating to Offshore Investment by PRC Residents
The Notice on Issues relating to the Administration of Foreign Exchange in
Fund-raising and Reverse Investment Activities of Domestic Residents
Conducted via Offshore Special Purpose Companies ("Notice No. 75") was
199
issued
by
SAFE
on
21 October
2005.
It
became
effective
on
1 November 2005. SAFE also issued internal implementing rules from time to
time to guide the implementation of laws and regulations on foreign
exchange, including detailed directives on the registration of a special
purpose vehicle outside the PRC that is directly established or indirectly
controlled by a PRC resident for the purpose of carrying out offshore equity
financing with the assets or equity interests they hold in PRC enterprises
("SPV"). As such implementing rules are amended frequently and may or
may not be publicly available, the interpretation and practice concerning
foreign
exchange administration in
different locations are subject to
uncertainty.
As laid down in Notice No. 75 each PRC resident who has ultimate control
over a SPV must complete the overseas investment foreign exchange
registration procedures with the relevant local SAFE branch. This obligation
applies to PRC residents which can be legal entities established in the PRC or
individuals who are PRC identity card holders, PRC passport holders or
individuals who habitually reside in the PRC for reasons related to economic
interests. The registration has to be handled prior to establishing or
assuming control of a SPV. An amendment to the registration with the local
SAFE branch is required to be filed by any PRC resident that directly or
indirectly holds interests in that offshore SPV upon either the injection of
equity interests or assets of an onshore enterprise to the SPV, or the
completion of any overseas fundraising by such SPV. In the case of any
material change involving a change in the capital of the SPV, an amendment
to the registration with the local SAFE branch is also required to be filed by
the respective PRC resident. Relevant material changes include: (i) an
increase or decrease in the company’s capital, (ii) a transfer or swap of
shares, (iii) a merger or division, (iv) a long-term equity or debt investment
or (v) the provision of a guarantee to third parties.
Any failure to comply with the registration procedures pursuant to Notice
No. 75 may result in restrictions being imposed on 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, and may also subject relevant PRC
residents
to
penalties
under
PRC
regulations.
200
foreign
exchange
administration
Dividend Distribution
The distribution of dividends paid by wholly foreign owned enterprises is
regulated mainly by the following provisions:
·
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.
Thereby dividends paid by foreign-invested enterprises in China may only be
paid out of their possibly gained accumulated profits. The payment is subject
to the PRC accounting standards and regulations. Wholly foreign-owned
enterprises in China are obliged to set aside 10% of the profit after tax as
reported in its PRC statutory financial statements to the statutory common
reserve fund in each year, except where the fund has reached 50% of the
wholly foreign-owned enterprise’s registered capital, and certain amounts out
of its accumulated profits each year for bonus and welfare funds. These funds
are not distributable as cash dividends.
According
to
Chinese
Company
Law,
before
distributing
dividends,
subsidiaries of wholly foreign-owned enterprises in China are also obliged to
set aside 10% of the profit after tax as reported it its PRC statutory financial
statements to the statutory common reserve fund in each year, except where
the fund has reached 50% of the company’s registered capital.
The Enterprise Income Tax Law and its implementing rules, both came into
effect
on
1 January
2008,
stipulate
that
dividend
payments
from
foreign-invested enterprises ("FlE") to their foreign shareholders will be
subject to a 10% withholding tax unless the country where the foreign
shareholder is incorporated has concluded a tax treaty with China that
provides for a lower withholding tax rate. Under the double taxation treaty
between China and Hong Kong, if a beneficiary of dividends is a Hong Kong
resident holding directly at least 25% in a tax resident company located on
the Mainland of China, the 5% withholding tax is to be applied.
The EIT Law has 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 will be subject to PRC EIT for their worldwide income, including income
received from its subsidiaries; distribution of dividends to the non-TRE that
201
were generated by a TRE prior to 1 January 2008 will be exempted from
corporate income tax, while distribution of dividends to the non-TRE that
were generated by a TRE after 1 January 2008 will be subject to 10% PRC
withholding tax. In accordance with art. 4 of the Implementing Rules of the
EIT Law, "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 was actually managed by a
management body in China, the overseas company would be regarded as a
TRE and subject to EIT in the PRC for its worldwide income.
16.9
Regulations on Overseas Listing
In 2006, six PRC regulatory agencies, including the MOFCOM, and the CSRC
passed the Regulations on Mergers and Acquisitions of Domestic Enterprises
by Foreign Investors, or the M&A Provisions. The regulations became
effective on 8 September 2006. The M&A Provisions, as amended on 22 June
2009 require an offshore special purpose vehicle (“SPV”) controlled directly
or indirectly by PRC companies or individuals for the purpose of offshore
listings of the interests in a domestic company that it actually owns, to obtain
the approval of the CSRC prior to such offshore listing and trading. On
21 September
2006;
the
CSRC
published
the
procedures
specifying
documents and materials required to be submitted to it by SPVs seeking
CSRC approval of their overseas listings. However, substantial uncertainty
remains regarding the scope and applicability of the M&A Provisions to
overseas listings of offshore SPVs.
16.10
PRC Tort Liability Law
The Tort Liability Law of the PRC was adopted by the National People’s
Congress’ Standing Committee on 26 December 2009 and came 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 live, right to health, right of name, right
of reputation, right of honour, portraiture 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
202
same act, he or she first and foremost assumes 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, the employer is to
be liable for the damages caused by its employees to others in the course of
performing work duties. A manufacturer is to be liable for any damages
caused due to its defective products. A manufacturer is also to be held liable
for any pollution of environment caused unless it can prove that there is no
causation between its acts and the damages caused or there are statutory
reasons for it not to assume all or part of the liability.
16.11
PRC Product Liability Law
The principal law governing product liability is the Product Quality Law, which
was promulgated on 22 February 1993 and amended on 8 July 2000. The
Product Quality Law defines a product as commodity sold following the
processing or manufacturing. Thus, an item qualifies as product under the
Product Quality Law if it meets two main criteria: first, it must have been
produced
for
sale
and
secondly,
it
must
have
been
processed
or
manufactured. The first criterion excludes such items which have not been
circulated for public consumption. In such case, the producer is not liable
under the Product Quality Law. Pursuant to the Product Quality Law, a
producer shall have the following obligations:
·
be responsible for the quality of products it produces;
·
not produce products banned from production according to State laws or
decrees;
·
not fake the place of origin or fake or use the names and addresses of
other producers;
·
not fake or without authorization use quality marks such as certification
marks and fine quality product marks;
·
not adulterate products or pose fake products as genuine or shoddy
products as good or non-standard products as standard;
·
ensure that the marks on the products or the packaging of the products
are true; and
203
·
ensure that, for products that are easily broken, inflammable, explosive,
toxic, erosive or radioactive and products that cannot be handled upside
down in the process of storage or transportation or for which there are
other special requirements, the package thereof meets the corresponding
requirements, carries warning marks or warnings written in Chinese or
points of attention in handling in accordance with the relevant state
provisions.
Pursuant to the Product Quality Law, a seller shall have the following
obligations:
·
a check-for-acceptance system for stock replenishment is to be adopted
to examine quality certificates and other labels of such stock;
·
measures are expected to be adopted to keep products for sale in good
quality;
·
lose-effect and defective or deteriorated products are expected not to be
sold;
·
products must be sold with labels that comply with the relevant
provisions;
·
the seller must not forge the origin of a product or falsely use the name
and address of another producer;
·
the seller must not forge or falsely use another producer’s authentication
marks, marks of famous/premium brand names or other product quality
marks; and
·
the seller must not mix impurities or imitations into products, substitute
a fake product for a genuine one, a defective product for a high-quality
one, or pass off a substandard product as a qualified one.
Violations of the Product Quality Law may result in the imposition of
administrative fines. In addition, the business operator may 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
204
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.
16.12
Protection of Consumer Rights and Interests
The Law on Protection of Consumer Rights and Interests that was adopted on
31 October 1993 by the National People’s Congress’ Standing Committee and
came into effective on 1 January 1994, is formulated for the protection of the
legitimate rights and interests of consumer and sets out standards of
behavior which business operators must observe in their dealings with
consumers, including the following:
·
Business operators are expected to, in their supply of commodities and
services to consumers, fulfil their obligations stipulated in the Law on
Product Quality and other laws and regulations concerned;
·
Business operators are expected to guarantee that the commodities and
services they supply meet the requirements for personal or property
safety. As to commodities and services capable of harming personal or
property safety, business operators are expected to give the consumers
truthful explanation and clear warnings, and shall explain or indicate the
correct ways of using the commodities or receiving services as well as
the methods of preventing damage;
·
Business operators are expected to provide consumers with authentic
information concerning their commodities or services, and may not make
any false and misleading propaganda. Business operators are expected to
give truthful and definite replies to inquiries from consumers about the
qualities of the commodities or services they supply and the operation
methods thereof;
·
Business operators are expected to indicate their real names and marks.
Business operators who lease counters or grounds from others are
expected to indicate their own real names and marks;
·
Business operators are expected to guarantee the quality, functions,
usage and term of validity which the commodities or services they supply
should possess under normal operation or acceptance, unless the defects
of the commodities or services were known to the consumers when they
purchased the commodities or services;
·
Business operators who are under the obligation of repair or replacement
205
or refund of commodities, or other responsibilities in accordance with
regulations of the State or agreements with consumers are expected to
carry out such obligations correspondingly according to such regulations
or agreements, and may not deliberately delay or unreasonably refuse to
do so;
·
Business
operators
announcements,
may
not,
through
entrance
hall
bulletins
format
and
contracts,
other
notices,
methods
and
documents, impose unfair or unreasonable rules on consumers or reduce
or evade their civil liability for infringement of legitimate rights and
interests of consumers. Such contents in format contracts, notices,
announcements,
entrance
hall
bulletins
and
other
methods
and
documents are invalid.
Violations of the Law on Protection of Consumer Rights and Interests may
result in the imposition of administrative fines. In addition, the business
operator may be ordered to suspend its operations and its business license
may be revoked. Criminal liability may be incurred in serious cases.
According to the Law on Protection of Consumer Rights and Interests, a
consumer whose legitimate rights and interests are infringed upon when
purchasing or using commodities may demand compensation from the seller
concerned. In case the liability is on the manufacturers or other sellers who
supplied the commodities to the said sellers, the said sellers, after paying the
compensations to the consumer, have the right to recover the compensations
from the manufacturers or the other sellers. Consumers or other victims
suffering personal injuries or property damage resulting from defects of
commodities may demand compensations either from the sellers or from the
manufacturers. If the liability is on the manufacturers, the sellers are
expected to, after paying the compensations to the consumer, have the right
to recover the compensations from the manufacturers; if the liability is on
the sellers, the manufacturers, after paying compensation, have the right to
recover the compensations from the sellers.
16.13
PRC Competition and Antitrust Laws
Under the Chinese Anti-Unfair Competition Law that was promulgated on
2 September 1993 and became effective on 1 December 1993, business
operators may not use the following unfair methods in their business
transactions which can damage other competitors:
206
·
to feign registered trademarks of others;
·
to use the specific name, package, decoration of famous or noted
commodities, or use a similar name, package, decoration of famous or
noted commodities, which may confuse consumers in distinguishing the
commodities from the famous or noted commodities;
·
to use the name of another enterprise or the personal name of another
person
and
thereby
causing
customer
confusion
relating
to
the
commodity and the other enterprise’s or person’s commodity;
·
to feign or pretend to hold a certificate of attestation, mark of fame and
high qualification, to feign a certificate of place of origin of the
commodities, which may cause misunderstanding or false perception of
the qualification of the commodities.
Violations of the Anti-Unfair Competition Law may result in the responsibility
for compensation, the imposition of administrative fines, and, in serious
cases, revocation of business license and criminal liability.
The Anti-monopoly Law of the People’s Republic of China was promulgated
on 30 August 30 2007 and became effective on 1 August 2008. According to
the anti-monopoly law, the operators are not expected to take such
monopolistic conducts as executing monopolistic agreements among business
operators, abusing a dominant market positions and concentrating other
business operators to eliminate or restrict competition. Violations of the
Anti-monopoly Law may result in the responsibility for compensation and the
imposition of the administrative penalties.
16.14
PRC Environmental Law
Environmental Protection Law
The Environmental Protection Law adopted on 26 December 1989 by the
National
People’s
Congress’
Standing
Committee
provides
the
legal
framework on environmental protection. Units that cause environmental
pollution and other public hazards are expected to incorporate steps and
measures of environmental protection into their plans and establish a
responsibility system for environmental protection. These units are expected
to adopt effective measures to prevent and control the pollution and harms
207
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 are expected to be designed, built and commissioned
together with the principal part of the project. No permission is to 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
environmental
protection
bureaus at
pollutant discharge, while the
or above
the county level are
responsible for the environmental protection work within their respective
jurisdictions.
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 effect on 1 March 1997. Pursuant to
this law, any new construction project, expansion, or reconstruction project
that discharges pollutants into the air are 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 are expected to 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 to 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 are to take measures to control it
and pay fees for excessive emission of such pollution according to the
regulations of the State.
208
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 National People’s Congress’ Standing Committee, is
effective as of 1 September 2000. 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
formulates the national air environmental quality standards and the local
provincial governments formulate the local standards if there are no
applicable national air environmental quality standards. The local provincial
governments can also delineate more specific local standards. Enterprises
which emit smoke into the air must comply with the national and relevant
local air environmental quality standards. If the smoke emitted exceeds
these quality standards, the relevant enterprises must rectify their actions
within a limited timeframe, and the environmental protection authority at
county level can impose a penalty.
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 1 April 2005,
producers, distributors, importers and users of a product are responsible for
the prevention and control of the solid wastes it generates or discharges.
Law on the Prevention and Control of Water Pollution
The Law on the Prevention and Control of Water Pollution was adopted on
11 May 1985 and amended on 15 May 1996 and 28 February 2008,
respectively, and the last amendment became effective on 1 June 2008.
According to this law, the environmental protection department of the State
Council governs the national waste discharge standards and the local
provincial governments promulgate more specific local waste discharge
standards. The discharge of waste must comply with both the national and
local waste discharge standards. Enterprises which discharge waste into
water must pay a treatment fee. If the waste discharged exceeds the
national or local waste discharge standards, the relevant enterprises must
pay a higher waste treatment fee. The environmental protection department
has the right to order the enterprises which severely pollute water to correct
their actions by reducing their waste discharge within a stipulated time
period or order the enterprises to stop production or be closed.
209
16.15
PRC Tax Laws
Enterprise Income Tax ("EIT") Law
Pursuant to previous PRC tax regulations, the general enterprise income tax
rate for foreign-invested enterprises (“FIEs”) was 33%, comprising 30%
national and 3% local income tax. In some special zones and regions, the
applicable tax rate could vary and thus even be as low as 15% or 24%.
Manufacturing FIEs with a term of operation longer than ten years – following
previous tax law regulations – were usually entitled to a tax holiday of two
years which began in the first profitable year after the compensation of
previous losses. This period of full exemption followed a three-year term of
50% tax exemption. The Chinese EIT Law, which came into effect on
1 January 2008, provides for a unified tax rate for foreign-invested as well as
domestically owned companies. The EIT Law stipulates that the 15% tax
rates in special zones and regions will be increased gradually to 25% in the
next five years. According to the tax Circular Guofa (2007) No. 39, for FIEs
originally enjoying a tax rate of 15% based on laws and regulations issued by
the central government, the transitional tax rates for 2008-2012 are
expected to be 18%, 20%, 22%, 24% and 25%, respectively.
Furthermore, the EIT Law provides that tax holidays for FIEs will not be
available to newly established FIEs. However, a grandfathering period will be
granted to FIEs which were approved prior to the promulgation of the EIT
Law.
If tax holidays have not started due to losses, they are to be deemed to
commence from the beginning of 2008, i.e. tax holidays can only be utilised
until 2012. Pursuant to art. 27 and 30 of the EIT Law, tax incentives may be
granted to qualified high new tech enterprises (“HNTEs”), research and
development
activities and income derived from technology transfer.
Concerning qualified high/new tech enterprises, the tax rate can be reduced
to 15%. As the Implementing Rules of the EIT Law state, qualified income
derived from technology transfer within the amount of RMB five million per
year are to be exempted from EIT and the portion exceeding RMB five million
are to be subject to EIT at a half-reduced rate. An additional 50% of the
qualified research and development expenses incurred for development of
new technologies, new products and new work crafts can be deducted before
tax for EIT calculation purposes.
On 14 April 2008, the Ministry of Science and Technology (“MST”), the
Ministry of Finance (“MOF”) and the State Administration of Taxation (“SAT”)
210
issued the Measures for the Recognition of HNTE (the “HNTE Measures”).
Pursuant to art. 10 of the HNTE Measures, an enterprise is expected to - in
order to be recognized as a HNTE – comply with the following conditions:
The applicant is a tax resident enterprise registered in the PRC for more than
one year;
Its products (services) fall within the prescribed scope of the "Category for
High/New Tech Sectors Specifically Supported by the State";
The enterprise owns the core proprietary intellectual property ("IP") right for
its products and services. According to the HNTE Measures, core IP rights
refer to certain IP that is registered by a Chinese enterprise (excluding Hong
Kong,
Macau
and
Taiwan).
This
IP
must
have
been
obtained
by
self-development, transfer, gift, acquisition or other methods within the
previous three years. Such IP also includes those rights obtained through
exclusive licensing for periods of more than 5 years. The guidance for the EIT
Law further provides additional guidance on what qualifies as core IP. Under
these rules, core IP include inventions, new models, new appearance designs
that are not a mere change in patent and shape, software copyrights,
patents of IC design and new species of plants. The Guidance on Recognition
of HNTE jointly issued by the MST, MOF and SAT on 8 July 2008 (the "HNTE
Guidance") also provides that in case of "exclusive licensing”; the Chinese
HNTE applicant must hold the worldwide rights to exclusively use the IP.
Furthermore, according to the HNTE Guidance, in case of "exclusive
licensing", the technology provider must be excluded from using the licensed
technology;
The enterprise is consistently engaged in research and development
activities. The total amount of research and development expenses in the
latest 3 fiscal years or actual operating years (in case the enterprise is not
older than three years) must reach not less than a certain percentage of its
total turnovers in the same period (6% if the annual sales are less than
RMB 50 million, 4% if the annual sales are above RMB 50 million but less
than RMB 200 million and 3% if the annual sales are above RMB 200 million).
Moreover, the research and development expenses incurred within the PRC
are expected to be no less than 60% of the total research and development
expenses. Furthermore, only 80% of the research and development contract
payment for outsourced research and development activities can be treated
as research and development expenses under the HNTE Guidance;
The income generated from its high and new technological products or
211
services exceeds 60% of the total annual income;
The number of research and development staff with a bachelor and above
degree is not less than 30% of the total number of employees of the
enterprise and the number of research and development staff is not less than
10% of the total number of employees of the enterprise;
The enterprise fulfils the following criteria set out by the HNTE Guidance:
1. the research and development organization and management ability of
the enterprise;
2. the ability to industrialise the technical results;
3. the number of core intellectual property rights;
4. the growth of sales and total assets.
The detailed calculation methods of the above indexes are provided by the
HNTE Guidance. An applicant shall have a total score of above 70 (the full
score is 100) regarding these indexes in order to pass the test.
Value Added Tax ("VAT")
VAT is to be paid by enterprises and individuals which sell goods, provide
taxable services (repair, maintenance and processing) in the PRC or import
goods into the PRC.
There are two different categories of VAT taxpayers to which different tax
rates and calculation methods apply: general and small-scale taxpayers. In
case of general taxpayers the VAT resembles the balance between the
output-VAT amount and the input-VAT amount incurred. The VAT rate is
normally 17%. Regarding certain categories of goods a lower tax rate of 13%
applies.
Goods and services of a small-scale taxpayer are subject to a lower VAT rate
than general taxpayers: According to the amended PRC Value Added Tax
Tentative Regulations which came into effect on 1 January 2009, the VAT
rate applicable to small-scale taxpayers was reduced from 4-6% to 3%. A
small scale VAT taxpayer is a manufacturer who has annual taxable sales of
less than RMB 500,000 or a distributor or retailer who has annual taxable
sales of less than RMB 800,000. A deduction on the paid input VAT charged
on imported or domestically purchased materials from the payable amount of
output VAT is not possible, however.
212
Usually, enterprises are entitled to an "exemption, credit and refund" of VAT.
The exported goods are decisive for these exceptions. Thus, the export of
goods can be exempted from VAT, the Input VAT can be used as credit
against output VAT and the negative balance, if any, will be refunded to the
enterprise. Moreover, the exported products determine the VAT refund rates
which are frequently changed by the PRC Government.
16.16
Patent and Trademark Protection
Patent Prosecution
The patent system of the PRC follows the principle of "first to file". Should
more persons file a patent application for the same invention, the person
who had filed the first application will be granted the patent. An invention in
this context must be categorized as an absolute novelty in order to be
patentable. Any prior written or oral publication, demonstration or use before
filing the patent application therefore prevents an invention from being
patented in the PRC. Hong Kong, Taiwan and Macau have independent patent
systems. Thus, patents issued in the PRC are not enforceable in these
countries. The three different types of patents known under PRC patent law
are invention patents, utility model patents and design patents. New
technical schemes being made with regard to the shape or structure of the
product or a combination of the two which are suitable for utilisation are
protected by utility model patents. Inventions protected by invention patents
or utility model patents must be new, creative and have a practical approach,
whereas a design patent is granted if the invention relates to the new design
of the shape or the pattern of the product or a combination of the two. An
invention for which a design patent is rendered must serve two purposes:
firstly, it must create an aesthetic feeling and, secondly, it must be suitable
for industrial use.
A PRC invention patent is valid for 20 years. This period begins on the date
the patent application was filed. Patents for a utility model and design
patents are valid for 10 years from the initial date on which the patent
application was filed. Patent applications must be filed at the State
Intellectual Property Office (“SIPO”) in Beijing. According to the PRC patent
law,
patent
rights take effect on
the date
when
SIPO makes the
announcement granting the patent rights to the patentee. The patentee is to
pay an annual fee beginning with the year in which the patent right was
granted. If the patentee fails to pay the annual fee, the patent right will
cease from the expiration of the time limit within which the annual fee is
213
expected to be paid.
Inventions Made by Employees
Patentable inventions made by employees working in China are subject to
art. 16 PRC patent law and art. 76 to 78 of the implementing rules of the PRC
patent law which regulate compensation through payments of bonus and
remuneration for inventions made by the employee in the course of their
employment. Accordingly, the company which entitles to the invention have
to pay an appropriate bonus and remuneration to the employee for the
invention. In this respect, the company and the employee can agree in the
employment contract on the amount of bonus and remuneration payments
for inventions made by the employee. If there are no agreements providing
any bonus and remuneration for invention or no waiver in this regard and if
the company does not provide any internal rules on how to determine the
bonus and remuneration for inventions, the employee is entitled to demand a
bonus
of
no
less
than
RMB 3,000.00
for
an
invention
patent
and
RMB 1,000.00 for a utility model as well as for a design patent within three
months after publication of the patent. In addition, the employee can
demand remuneration of 2.0% of operating profits derived from exploiting an
invention patent as well as a utility model patent and 0.2% of operating
profits derived from exploiting a design patent. If the company licenses the
patent to third parties, the employee can demand 10% of the licensing fees.
Besides bonus and remuneration payments, an employee can demand that
his name is displayed in the patent documents.
Patent Enforcement
In case of an infringement of a patent, the patent holder who believes the
patent is being infringed may either file a civil legal suit or file an
administrative complaint with a provincial or municipal office of SIPO. Before
instituting any legal proceedings or during the proceedings itself, a PRC court
may issue a preliminary injunction upon the patent holder’s or an interested
party’s request. Either the loss suffered by the patent holder arising from the
infringement or the benefit gained by the infringing party makes up the
compensation for damages of infringement. Since the exact determination of
the damages is difficult to achieve in this manner, damages may be
ascertained in the range between one and three times the licence fee under a
contractual licence. In case the determination of damages is not possible,
statutory damages ranging from RMB 10,000.00 to RMB 1,000,000.00 may
be requested. The burden of proof that the patent is being infringed rests
214
with the patent holder. Only when a holder of a manufacturing process
patent alleges infringement of such a patent, the alleged infringing party has
the burden of proving that there has been no infringement.
Compulsory Licence
Pursuant to the Patent Law, SIPO will grant a compulsory licence in case that
·
an invention or utility model, for which a patent right has been granted,
brings important technical advance of considerable economic significance
in relation to another invention or utility model, for which a patent right
was granted earlier, and
·
the exploitation of the later invention or utility model depends on the
exploitation of the earlier invention or utility model.
Moreover, a compulsory licence can be granted in a few other limited cases,
such as an occurrence of a national emergency or any extraordinary state of
affairs or if the public interest requires so.
International Patent Treaties
The PRC has signed all major intellectual property conventions such as the
Paris Convention for the Protection of Industrial Property, Madrid Agreement
on the International Registration of Marks and Madrid Protocol, Patent
Cooperation Treaty, Budapest Treaty on the International Recognition of the
Deposit of Micro-organisms for the Purposes of Patent Procedure and the
Agreement
on
Trade-Related
Aspects
of
Intellectual
Property
Rights
(“TRIPs”). The patents which are national rights are escorted by a large
degree of international co-operation under the Patent Cooperation Treat
(“PCT”) to which China is a signatory as well. 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
pending
patent
application
does
not
constitute
any
guarantee that a patent will be granted, and even if granted, the scope of a
patent may not be as broad as the subject of the initial application.
Trademarks
In 1982, the PRC Trademark Law was published, followed by the PRC
Trademark Implementing Regulations in 1988, and was amended on
27 October 2001. As noted above, the PRC is a signatory to the Madrid
Agreement and the Madrid Protocol. These agreements provide a mechanism
215
whereby 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 registration and administration of trademarks is done by the PRC
Trademark Office for the whole of China. In regard to trademarks the
"first-to-file" principle applies as well. The PRC Trademark Office is to
examine the trademark which has been applied for registration based on the
relevant trademark laws and regulations. If the application is in line with the
relevant laws and regulations, the PRC Trademark Office will make a
preliminary examination and approval of that trademark and will publicly
announce it. Any person may file an opposition to a trademark which has
been given preliminary examination and approval within three months from
the day it was publicly announced. If no opposition is filed after the period of
public announcement expires, the registration is to be granted.
According to the PRC Trademark Law, the duration of trademark rights are
expected to 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.
An infringement of the exclusive right to use a registered trademark is
committed pursuant to PRC Law, in case of:
·
a use of a trademark that is identical with or similar to a registered
trademark in respect of the same or similar commodities without the
authorisation of the trademark registrant;
·
a sale of commodities infringing upon the exclusive right to use the
trademark;
·
counterfeiting or making, without authorisation, representations of a
registered trademark of another person, or sale of such representations
of a registered trademark as were counterfeited, or made without
authorisation;
·
changing a registered trademark and putting commodities on which the
changed registered trademark is used into the market without the
consent of the trademark registrant; and
·
otherwise infringing upon the exclusive right of another person to use a
registered trademark.
216
In case of an infringement of the trademark, the owner who believes its
trademark is being infringed has the following options:
The trademark owner has the possibility to provide its trademark registration
certificate and other relevant evidence to the State or Local Administration
for Industry and Commerce (the “AIC”). After the presentation of the
evidences the AIC decides if it is going to launch an investigation. The AIC
can order the party committing the infringement to immediately cease the
infringing behaviour, seize and destroy the representations of the trademark
in question and impose a fine. Should the trademark owner be unsatisfied
with the AIC’s decision, it may apply to have the decision reconsidered.
Moreover, the trademark owner may take civil proceedings directly with the
court. Civil redress for trademark infringement includes:
·
injunctions;
·
requiring the infringing party to take steps to mitigate the damage (i. e.,
print notices in newspapers);
·
damages (i. e. compensation for the economic loss and injury to
reputation as a result of trademark infringement suffered by the
trademark holder); whereby the amount of compensation is calculated
according to either the gains acquired by the infringing party from the
infringement during the infringement, or the loss suffered by the
trademark owner including expenses incurred by the trademark holder to
deter
such
infringement.
In
case
of
problems
arising
with
the
determination of the gains acquired by the infringing party from the
infringement, or the loss suffered by the trademark owner, the court may
elect to award compensation of not more than RMB 500,000.00; and
·
if the case is so serious as to constitute a crime, the trademark owner
may lodge a complaint with the relevant public security organ.
16.17
Legislation on Land in the PRC
Land in the PRC is either state-owned or collectively owned, depending on
the location of the land. Land in urban areas of a city or town is state-owned,
whereas land in rural areas of a city or town and rural land is, unless
otherwise specified by law, collectively owned. The state has the right to
reclaim land in accordance with law if required for the benefit of the public.
Although all land in the PRC is owned by the state or by collectives, private
individuals and businesses and other organizations are permitted to hold,
217
lease and develop land for which they are granted or allocated with land use
rights.
In April 1988, the constitution of the PRC was amended by the National
People’s Congress to allow for the transfer of land use rights for value. In
December 1988, the Land Administration Law of the PRC was amended to
permit the transfer of land use rights for value.
Under the Interim Regulations of the People’s Republic of China on Grant and
Transfer
of
the
Right
to
Use
State-owned
Urban
Land
(“Interim
Regulations on Grant and Transfer”) promulgated in May 1990, local
governments at or above county level have the power to grant land use
rights for specific purposes and for a definite period to a land user pursuant
to a contract for the grant of land use rights against payment of a grant
premium. All local and foreign enterprises are permitted to acquire land use
rights unless otherwise provided by law. The state may not reclaim lawfully
granted land use rights prior to expiration of the term of grant. If the public
interest requires repossession by the state of the land under special
circumstances during the term of grant, compensation will be paid by the
state. A land grantee may lawfully transfer, mortgage or lease its granted
land use rights to a third party for the remainder of the term of grant.
Upon expiration of the term of grant, renewal is possible subject to the
execution of a new contract for the grant of land use rights and payment of a
premium. If the term of the grant is not renewed, the land use rights and
ownership of any buildings erected on the land will revert to the state without
compensation.
After land use rights relating to a particular area of land have been granted
by the state, the party to whom such land use rights have been granted may
transfer, lease or mortgage such land use rights, unless a restriction is
imposed, for a term not exceeding the term which has been granted by the
state. A transfer involves the vesting of the land use rights by the transferor
in the transferee during the term for which such land use rights are vested in
the transferor. A lease, on the other hand, does not involve a transfer of such
rights by the lessor to the lessee. Furthermore, a lease, unlike a transfer,
does not usually involve the payment of a premium. Instead, rent is payable
during the term of the lease. Land use rights cannot be transferred, leased or
mortgaged if the provisions of the land grant contract, with respect to the
prescribed period and conditions of investment, development and use of the
land, have not been complied with. In addition, different areas of the PRC
218
have different conditions which must have been fulfilled before the respective
land use rights can be transferred, leased or mortgaged.
All transfers, mortgages and leases of land use rights must be evidenced by
a written contract registered with the relevant local land bureau at
municipality or county level. Upon a transfer of land use rights, all rights and
obligations contained in the contract pursuant to which the land use rights
were originally granted by the state are deemed to be incorporated as part of
the terms and conditions of such transfer, depending on the nature of the
transaction.
Real property that has not been registered and a title certificate which has
not been obtained in accordance with the law cannot be transferred
according to art. 37 of the PRC Law on Administration of Urban Real Estate
(the “Urban Real Estate Law”). Under art. 38 of the Urban Real Estate
Law, if land use rights are acquired by means of grant, the following
conditions must have been met before the land use rights may be
transferred: (i) the premium for the grant of land use rights must have been
paid in full in accordance with the land grant contract and a land use rights
certificate must have been obtained; (ii) investment or development must
have been made or carried out in accordance with terms of the land grant
contract; (iii) more than 25% of the total amount of investment or
development must have been made or completed; and (iv) where the
investment or development involves a large tract of land, conditions for use
of the land for industrial or other construction purpose must have been
confirmed.
According to the PRC Law on Land Administration, adopted by the National
People’s Congress on 25 June 1986, and amended on 28 August 2004, land
in rural and suburban areas, unless stipulated by laws as owned by the
State, is collectively owned by rural residents. Land collectively owned by
rural residents is contracted to and operated by members of the respective
collective economic entity for uses such as plantation, forestry, livestock
husbandry or fishery productions. Before any land collectively owned by rural
residents is contracted to a unit or individual not from the collective economic
entity, it must be agreed by at least two-thirds of the members of the
villager
committee
meeting
or
at
least
two-thirds
of
the
villager
representatives, and be submitted to the people’s government at the
township level for approval. The land use rights of collectively owned land
must not be granted, assigned or leased to any party for any non-agricultural
uses.
219
According to the PRC Law on Land Administration, a state-owned land use
right certificate will be issued by the competent land resource authority at or
above the county level to evidence a private individual, businesses and other
organizations which are entitled to use the state-owned land. With regard to
the house ownership registration, since 1997, several regulations have been
enacted but were replaced by the Housing Registration Method which was
promulgated on 15 February 2008 and took effect on 1 July 2008. According
to the Housing Registration Method, the ownership, change of ownership and
mortgage of ownership of a house are to be registered with the competent
Administration for Real Estate at or above the county level. The holder of the
land use right and the owner of the house erected on the land are expected
to be consistent. The house ownership certificate will be issued to a private
individual, businesses and other organizations which have ownership of the
house. In most areas in the PRC, state-owned land use right and the house
ownership certificate are the two essential certificates to prove the right to
the land and the house erected on such land. Nevertheless, some cities in
China combine two certificates into one certificate, i.e. real estate title
certificate to cover both the state-owned use right and the ownership for the
house erected on the land either with the merge of the two different
authorities into one organ or the mutual agreement reached by the two
different authorities.
220
17.
BUSINESS
17.1
Overview
The China Specialty Glass-Group develops, produces and sells specialty glass
in the Chinese domestic market directly through its own sales network. The
China Specialty Glass-Group considers itself to be one of the leading
manufacturers in China for security glass, a class of specialty glass used
primarily for personal protection against physical violence and forced
intrusion, for the Chinese banking security and automotive security industry.
It also provides various specialty glass products for the Construction Glass
Market. For security-glass products which are required by the Chinese
banking security and automotive security industry, the Group is a dominant
player both in terms of production output and market share (source: p. 104,
RMR
Report,
2010).
The
Group
provides
technical
consultation
and
installation guidance to its customers in connection with sales. China
Specialty Glass-Group’s current production facility is located in Guangzhou,
Guangdong Province, in southern China, and is operated by the Group’s
wholly-owned subsidiary HWG-Ltd, which is currently the Group’s only
operating company. The Group’s new production facility in Sichuan, which is
to be operated by HWG-SC, is currently under construction and is expected
to commence production in the second half of 2011 and to reach maximum
production capacities in about two years’ time.
China Specialty Glass-Group’s major products, which are sold under its “Hing
Wah” brand, are categorized into two groups: security glass which includes
bulletproof glass and intruder-resistant glass; and construction glass which
includes laminated glass, tempered glass, fire-resistant glass, hollow glass
and electrically-controlled colour-changing glass.
The Group’s security glass is used in places where cash or valuable goods are
traded, such as banks, jewellery stores, securities brokerage houses, postal
services and insurance companies (“Bank Security Glass Market”). The
Group’s security glass is also used for armoured vehicles which offer security
and safety to their passengers such as cash-in-transit vehicles for banks,
police
vehicles,
military
personnel
carriers
and
armoured
limousines
(“Automotive Security Glass Market”). In addition, the Group provides its
construction glass products to the construction industry where they are used
for windows, doors, curtain walls (outer covering of buildings of which the
outer walls are non-structural and merely protect the building from the
221
weather) or internal decorations in commercial buildings and private houses
(“Construction Glass Market”).
The Group has sold its products since 1994 and its end customers are
exclusively commercial enterprises: banks in the Bank Security Glass Market,
refitting automobile manufacturers in the Automotive Security Glass Market,
and construction service providers in the Construction Glass Market. For the
distribution of the Group’s products, the Group currently relies on its own
sales network in China.
The sales of HWG-Ltd., which is currently the Group’s only wholly-owned
operative subsidiary, increased from EUR 40.2 million in 2008 to EUR 50.9
million in 2009 and to EUR 69.6 million in 2010, corresponding to an average
annual growth rate of 31.7% during this period. The net profits increased
million in 2010, corresponding to an average annual growth rate of 45.6%.
The majority of the sales was generated by its security glass which is sold in
two markets: The Bank Security Glass Market with sales of EUR 17.5 million,
EUR 23.0 million and EUR 32.1 million for 2008, 2009 and 2010,
respectively; and the Automotive Security Glass Market with sales of EUR
15.4 million, EUR 22.4 million and EUR 30.0 million for the years 2008, 2009
and 2010, respectively. These sales correspond to 43.5%, 45.2% and 46.1%
and 38.3%, 44.0% and 43.1% of total revenue for these years, respectively.
The Company believes that the Chinese security glass markets (Bank
Security Glass Market and Automotive Security Glass Market) and the
Construction Glass Market will continue to develop positively in the future. In
particular, with the expected increase in consumer wealth and commercial
activities, the commercial entities which require security glass are also
expected to grow both in number (e.g. increase of bank branches in rural
areas and smaller cities) and in individual size (e.g. increase of operating
surface area of post offices). In these commercial entities, security measures
are closely monitored and regulated by the government. Demand for the
Group’s products which are certified by the regulatory authorities is expected
to increase accordingly. Similarly, an increase in the number of wealthy
Chinese citizens and their concern for and awareness of safety and security
for themselves and their families bodes well for the increase in demand for
the Group’s automotive security glass or construction glass products. The
Company intends to increase production and sales of the Group’s glass
products to meet this growing demand.
222
17.2
History
HWG-Ltd. began its production in 1994 with its first corporate predecessor
Guangzhou HingWah Auto Glass Industry Co., Ltd., which was founded in
Guangzhou, China, as a joint Chinese-foreign enterprise. Its name was
changed in 1999 to Guangzhou HingWah Glass Industry Co., Ltd. to better
reflect the broader product range. In 2008, HWG-Ltd.’s ownership was
transferred to HWG HK-Holding and HWG-Ltd. became a wholly foreign
owned enterprise (“WFOE”) within the meaning of PRC law.
HWG-Ltd. has offered specialty glass products since its inception. In 1996,
HWG-Ltd. started to develop its proprietary bulletproof glass at the request
of the Chinese Ministry of Public Security. In 1997, HWG-Ltd. launched the
first “Made-in-China” bulletproof glass in China. The Group started using its
“Hing Wah” brand in 2005.
17.3
Strengths
The Group considers the following competitive strengths as essential for its
future growth:
·
Industry pioneer, strong market presence and well-recognized brand in
China:
HWG-Ltd. started to produce and sell its proprietary security glass
products for the Automotive Security Glass Market through its corporate
predecessor Guangzhou HingWah Auto Glass Industry Co., Ltd. in 1997.
Prior to 1997, the security glass industry with regard to bulletproof glass
practically did not exist in China and automobiles containing bulletproof
glass were mostly imported. The Company’s CEO, Mr. Nang Heung Sze,
commenced production of specialty glass in 1985 and in 1994 the
corporate
predecessor
of
HWG-Ltd.
was
established.
Due
to
his
experience in the Chinese public security system and the production of
specialty glass, Mr. Nang Heung Sze was able to identify market trends
and developed the first “Made-in-China” bulletproof automotive glass to
meet the market demand for mobile and secure delivery of cash to bank
branches, thus becoming the pioneer of this emerging niche industry in
China. With Mr. Nang Heung Sze´s experience of over 25 years of
product development and manufacturing, the Group has gained an
extensive knowledge about production processes, market development
trends as well as valuable experience in sales and distribution of its
various specialty glass products, especially bulletproof glass products, in
223
different market segments in China. As the pioneer in this new industry
in China and supported by the local governments, HWG-Ltd. quickly
gained the first-mover advantage and established itself as the premier
bulletproof glass supplier for the Automotive Security Glass and the Bank
Security Glass Markets. China Specialty Glass-Group’s products are
presently sold in about two-thirds of all provinces and regions in China.
The Group believes that its products are well-received by its past and
present customers, and its “Hing Wah” brand is well-recognized by its
customers and peers.
·
Largest
bulletproof
glass
manufacturer
in
China
benefitting
from
economies of scale, extensive distribution channels and strong customer
loyalty:
The China Specialty Glass-Group was the largest bulletproof glass
manufacturer in China in 2009 in terms of production capacity,
production output and revenues (source: p. 103 – 105, RMR Report,
2010). Its closest competitor with regard to the bulletproof glass is only a
fraction of its size. The Company believes that with the establishment of
the Group’s production facility in Chengdu, Sichuan Province, as well as
the upgrading and expansion of the production capacity in the Group’s
current production site in Guangzhou, the Group can secure its leading
position in the security glass industry over the next years. The Company
believes that the Group’s size as the largest producer in this industry
offers a significant advantage over its competitors and enables the Group
to benefit from economies of scale by sourcing raw materials more
cost-efficiently through large quantity purchases. With the envisaged
enlargement of the production capacity, the Company further believes
that the Group can react more quickly to market demand surges and
produce substantial volumes at short notice. This future capability is
expected to offer the Group a further competitive advantage in bids for
large-scale projects in the security glass markets, especially the
Construction Glass Market.
The Company believes that with sales representatives located in different
provinces and regions outside of Guangzhou covering 19 provinces and
regions in China and with sales forces frequently present at the sites of
the Group’s clients, it has a reliable sales and distribution network in the
security glass industry in China. Following further expansion of this
distribution network coupled with the planned production site closer to
the Group’s present and future customers, the Company furthermore
224
believes that it is well-positioned to identify and meet its clients’ present
and future needs. The planned expansion into selected Asian countries is
expected to intensify the Group’s reach to international customers as
well. The Company is of the opinion that its high-quality brand products,
pre-sales
customer
service
and
enlarged
production
capacity
are
convincing arguments to secure the loyalty of the Group’s customers.
Numerous repeat purchases seem to underpin this assessment.
·
Cost-efficient production, effective cost control and profitable operation:
The Company believes that the Group has competitive advantages with
regard to the production process especially in production cost control. As
a constantly reliable and credit-worthy client, the Group was able to
secure favourable and mutually beneficial delivery terms from its raw
material suppliers. The Company believes that the planned increase in
the Group’s production volume and the resulting increase in demand for
raw materials should result in better supply terms for the Group. The
Group
has
consistently
implemented
a
professional
equipment
maintenance regime, thus reducing production stoppage and the amount
of defective products. Furthermore, the Group has focused on production
and sales of lucrative bulletproof glass and related products over the
years. The Company believes that these and other measures (see below)
have contributed and will continue to contribute to the Group’s profitable
operation.
·
Focus on a regulated product segment benefitting from government
policies and restrictive regulations:
The Group is focused on the Chinese security glass market, which is
highly regulated, especially the Bank Security Glass Market. The Chinese
central
government
institutions
at
and
sets
out
above
security
country
standards
level,
for
including
all
a
financial
compulsory
requirement for installing bulletproof glass above counters where cash
transactions, security transactions and settlements are carried out. The
central government and the local governments stipulated that only
certified bulletproof glass producers are allowed to tender for and supply
such products. As a significant bulletproof glass producer in China, the
Company believes that the Group is well-positioned to benefit from these
policies and regulations. The Group’s first bulletproof automotive glass
was developed under the auspices and at the request of the Ministry of
Public Security of China in 1996 and was first sold in 1997. Since then its
225
bulletproof products have been regularly certified by the relevant
government agencies whose certification is essential for being included in
any purchase tender process. The Group’s bulletproof glass is used by
most of the banks in China. The Company believes these policies and
regulations provide the Group with a competitive advantage and will
support its planned growth in this industry.
·
Strong product innovation capability:
In the view of the Company, the Group has a dedicated R&D team and a
fruitful academic research collaboration network in the security glass
industry in China. The Group’s R&D team has already developed several
innovative products and introduced them to the Chinese market. In 2008
HWG-Ltd. introduced a bomb blast-resistant glass product, and in 2009 it
launched an electrically-controlled colour-changing glass product for the
Construction
Glass
Market.
In
2010
HWG-Ltd.
introduced
an
intruder-resistant glass product for the security glass market. The
Company believes that continuous improvements in products already
introduced to the market could also contribute to defending and
consolidating the Group’s market position. The Company further believes
that consolidating its R&D activities into the new R&D centre at the
Group’s production site in Guangzhou (to be established after this initial
public offering) and increasing R&D expenditures will accelerate the
development of new products and production technologies. The Company
firmly believes that a dedicated R&D capability is essential to securing
the Group’s growth and profitability in the long run.
In 2009 HWG-Ltd. was also qualified as a “National High-tech Enterprise”
under PRC tax law. According to this HWG-Ltd. is qualified for a reduction
in income tax from 25% to 15% from January 2010 on, which has lifted
the Group’s post tax profitability levels.
·
Experienced management team with industrial expertise and extensive
business network in China:
The
Group’s
management
team
and
especially
the
Controlling
Shareholder and CEO of the Company, Mr. Nang Heung Sze, have
extensive experience in the security glass industry and maintain a
reliable business network in this industry and in the product application
markets. Mr. Nang Heung Sze has over 25 years of operational
experience in the specialty glass market. He is the Chairman of
Guangdong Province Mingnan Chamber of Commerce, the Vice-chairman
226
of Guangdong Province Returned Overseas Association and Founding
Chairman
of
Shishi
Shilang
Research
Society.
He
was
named
“Outstanding Entrepreneur of Chinese Harmonious Society” in 2008 and
was awarded the “Prize for Scientific and Technological Contribution” by
Guangdong Province Returnee Association in 2007, as well as an
honorary doctorate by the Hong Kong Academy of Science in 1999.
Mr. Nang Heung Sze’s son, the Company’s Chief Operating Officer (COO),
Mr. Chun Li Shi, is a member of the Consultive Committee of the Liwan
District of Guangzhou.
The Company’s Chief Financial Officer, Mr. Chi-Hsiang Michael Lee, has
over 19 years of professional financing and accounting experience,
having worked for international firms such as Summit International
Capital Advisory, American Express Business & Tax Services, KPMG LLP
and PricewaterhouseCoopers LLP in China and the United States of
America. Inter alia, he was managing partner of Summit International
Capital Advisory, manager at KPMG LLP (Los Angeles) and director at
PricewaterhouseCoopers LLP (China).
The key management team members of the Group’s operative subsidiary
HWG-Ltd. Mr. Chao Zhou, Mr. Chun Li Shi and Mrs. Xue Yan Wang have
been with HWG-Ltd. between three and thirteen years. They all have
extensive experience and expertise regarding specialty glass, especially
bulletproof glass.
17.4
Strategy
The Company believes that the following strategic objectives and their
implementation will drive its future growth:
·
Profit from the growth of the Chinese security glass market by expanding
the China domestic sales network and strengthening the Hing Wah brand
and in mid-range scope from market diversification through international
expansion
As a relatively young industry, the Chinese security glass industry has
grown at an average annual rate of 24.5% from 2004 until 2009 (source:
p. 72, RMR Report, 2010). Based on market demands and capacity
forecasts, the Group expects this growth to continue in the foreseeable
future (source: p. 111, RMR Report, 2010). As the dominant player in
this niche market, the Company intends to further expand the Group’s
227
domestic sales network in order to benefit from this growth.
Currently, the Group covers 19 provinces and regions in China with its
sales representatives. The Company intends to expand the presence of
the Group’s sales teams in China by covering the provinces or regions
that are currently not actively served by the Group and by covering those
that are already served by the Company more densely. This expansion of
its sales network is expected to put the Group closer to its existing and
prospective customers, thus meeting their requirements even better and
increasing the attractiveness of the Group’s product offers. The Company
believes this expansion will significantly increase the awareness of the
Hing Wah brand and the Group’s product sales.
The Company intends to introduce the Group’s competitive products into
the international security glass market in order to gradually reduce the
Group’s dependency on the Chinese market. The initial phase will focus
on the export of selected security glass products of the Group through
domestic trading companies specialized in product export and on certain
Asian countries. This shall be followed by sales through existing local
sales networks.
·
Expand production capacity and participate in consolidation of the
Chinese security glass industry and growth in western and central regions
in China:
Transportation costs in the security glass market and the Construction
Glass Market are significant, especially for long-distance delivery. So far,
the Group has focused on more developed provinces and regions close to
the Group’s current production site in Guangzhou, Guangdong Province.
Sales in Guangdong Province alone contributed approximately 45% to
HWG-Ltd.’s total revenue in 2010. The Company thinks that the future
demand for the Group’s products in these more developed regions and
provinces is far from saturated, and therefore intends to consolidate its
position there. The Company intends to increase the Group’s production
capacity and efficiency in its current production site in Guangzhou by
upgrading the production equipment and automating its production
process while reducing the dependency on increasingly costly personnel
and availability of skilful workers. The Company also intends to use the
Group’s Guangzhou facility to expand its market presence in selected
Asian countries. It aims to attract international customers through
high-quality products, larger scale of production and competitive pricing.
228
The Company believes that the future sales growth will increasingly be
generated in regions and provinces in China where the Group currently
has a competitive disadvantage due to the long distance that separates
HWG-Ltd.’s present production site from its potential new customers. Any
major player in this market needs to establish production sites closer to
potential end customers in order to benefit from market growth. The
Company plans to take a major step in this direction by establishing a
new production site in the city of Chengdu, Sichuan Province. The new
facility is currently under construction and is expected to commence
production in the second half of 2011 and reach maximum production
capacities in about two years’ time, pending receipt of the necessary and
additional approvals from the relevant authorities. It is expected to add
maximum production capacities of around 800,000 square meters for
security glass products or around 2.8 million square meters for
construction glass products per annum. The products produced there are
expected to mainly serve the Group’s current and future customers in the
western and central regions and provinces in China.
The Company has deliberately selected Chengdu as its new production
site in order to benefit from significant savings in production costs (direct
labour, electricity and water), from the support of the local government
policies and most importantly, from the significant future growth in the
regions around Sichuan Province, in particular in the Construction Glass
Market. In 2009, the construction area in Sichuan was 262 million square
meters, a 9.9% growth compared to 2008 (Bureau of Statistics, Sichuan
Provincial
Government:
http://www.sc.stats.gov.cn/Select.asp?Tag=F9005zxtjxx/201003/t20100
319 _110379.html). As a comparison, in the same period Guangdong
Province, which is far more developed, had only 242 million square
meters in construction area and a 7.5% annual growth (Bureau of
Statistics,
Guangdong
Provincial
Government.
http://www.gdstats.gov.cn/tjfx/t20100303_77820.htm).
In
2010,
the
construction area in Sichuan increased to 291 million square meters, a
10.9%
growth
compared
to
2009
(http://www.sc.stats.gov.cn/Select.asp?Tag=F9005zxtjxx/201101/t2011
0130_135095.html). To the Company’s knowledge, there are several
large float glass suppliers (to provide the Group with raw material) within
short driving distance from the Company’s new production site, but there
are only a few small specialty glass manufacturers in the region. The
large specialty glass manufacturers for construction glass focus on either
229
high-end or high-volume bulk glass products (which, in the Company’s
opinion, make up only 3% and 12% of the total product sales,
respectively). Hence there is a large demand for the majority of
medium-end and diversified glass products where the Company believes
to have competitive advantages.
Additionally, the Company intends to expand the Group’s production
capacities and improve access to experienced personnel and local
markets
in
other
parts
of
China
through
acquisition
of
smaller
competitors.
·
Focus on higher-margin products and product innovation in the security
glass market as well as in the lower-margin Construction Glass Market:
The Company intends to expand the presence of the Group in the
security glass niche market which is characterized by the absence of a
large number of competitors and a high unit-selling price for products. As
the pioneer of the first “Made-in-China” bulletproof glass for the
automotive security glass and the bank security glass industry, the Group
prides itself on being an industry innovator in China. In 2008, the Group
brought the first bomb blast-resistant glass to the Chinese market. The
Company intends to continue this tradition of innovation and introduce
new and competitive products to the market in years to come.
The Group is continuing to improve its products that are already on the
market by adding new features or enhancing product performance. The
Group’s bulletproof glass has changed in thickness over the years and
other features have been added such as resistance to bomb blast without
sacrificing the main character of the glass, namely, bullet resistance. The
Company believes that product innovation and continuous product
improvements are essential to secure customer loyalty and the Group’s
market position.
In contrast to the security glass market which is characterized by a low
product volume but a high profit margin, the Construction Glass Market
demands a high product volume and variety at a lower profit margin. To
optimize the Utilization Rate of its production facilities and gain benefits
from large-scale raw material purchases, the Company plans that the
Group continues to serve this comparatively low-margin product segment
without losing its main focus on the security glass market in the near
future.
230
·
Strengthen R&D capacity and capability:
The Company considers the innovation of the Group’s R&D capability and
capacity to be essential for its future growth and its ability to continue to
dominate in the high-margin Bank Security Glass and Automotive
Security Glass Markets. Therefore, it intends to expand the Group’s R&D
activities and increase the annual expenditures for R&D, which were EUR
1.9 million in 2010. The Company intends to establish a separate R&D
centre at the Group’s production site in Guangzhou and to increase the
number of the Group’s R&D staff. The Group’s R&D activities are
expected to focus on introducing new products such as multi-resistant
security windows and interlocking secure doors, a specially designed door
system that offers additional security features over normal doors to the
market. The R&D team intends to bring forth innovations that improve
production efficiency and cut production costs.
To complement its own R&D efforts, the Group continues to co-operate
with established universities and professional colleges in China, i.e. Sun
Yat-Sen University and Guangdong University of Technology. These
collaborations are expected to provide the Group with access to academic
and industrial expertise in China.
17.5
Products
The Group was the pioneer in developing and producing security glass in
China. The Company believes that high quality, the required certification by
the competent government authorities and a broad range characterize its
products. The Group sells its main product, bulletproof security glass, in the
Bank and Automotive Security Glass Markets where the Group has a
dominant market position in comparison to its closest competitor (in 2009,
China Specialty Glass-Group had a 48.2% market share, while its closest
competitor had a 5.5% market share, according to RMR Report, 2010, p.
104) and can often command a premium on the selling price. The Group’s
products sold under its “Hing Wah” brand are categorized into: 1) security
glass comprising bank and automotive security glass. Products in this
category consist mainly of bulletproof glass and variations thereof; and 2)
construction glass which includes architecture laminated glass, architecture
tempered glass, fire-resistant glass, hollow glass and electrically-controlled
colour-changing glass etc.
At HWG-Ltd.’s production site, normal flat glass is treated (e.g. physically, to
produce tempered glass) or directly combined in two or more layers with
231
chemical resin in between (laminated glass).
An introduction to specialty glass
When glass is a subject of discussion in everyday life, the term “glass” is
mostly used for normal flat glass or float glass, which is a sheet of glass
made by floating molten glass on a bed of molten metal. This method gives
the sheet a uniform thickness and very flat surfaces. Windows are typically
made out of flat glass. Float glass presently constitutes 90% of the normal
flat glass used in the world. China has been the largest flat glass producer in
the world for the last twenty years (source: China Building Material Daily, 17
May 2010).
Transparent, but still creating a physical barrier, normal glass is hard but
brittle and cannot be used in many demanding applications without being
processed beforehand. These processed glass products are known as
specialty glass.
A single sheet of glass can be treated with heat or chemicals to become
tempered glass. Such glass shatters when broken into small fragments
instead of sharp shards (as normal glass would), making it less likely to
cause personal injury. Depending on how it is treated, tempered glass may
have other desirable features. For instance, it may collapse at much higher
temperature than normal glass (fire-resistant glass). Tempered glass has a
higher strength than normal glass but is more fragile: it may break upon a
slight impact or scratch.
Several sheets of glass combined can offer other desirable application
features which a single sheet of glass, normal or processed, can not. For
instance, two sheets of glass separated by a sealed metal frame (to create a
space in between), make up the so-called hollow glass which offers good
insulation against heat transmission and noise and is widely used in modern
or high-end buildings. When two or more sheets of normal or processed glass
are chemically “glued” together (laminated), the resulting glass can have the
following properties: it can prevent bullets from penetrating it (bulletproof
glass), it can withstand the blast of a bomb (bomb blast-resistant glass) or it
can withstand the blow of sharp or heavy objects (intruder-resistant glass).
Simple laminated glass is also used for windows and doors because of its
safety feature: upon impact, laminated glass will crack but not break.
Specialty glass used in the security glass application mostly consists of
specially laminated types of glass such as bulletproof or bomb blast-resistant
232
glass. It is flat, large and heavy and thus designed mainly for use at fixed
locations as protective glass walls in the building, or dividing walls or
windows in bank branches (bank security glass), jewellery stores and other
protective locations. It can also be made lighter in weight and curved in
desired shapes to be used in armoured limousines or military vehicles. This
latter application is sold in the so-called “Automotive Security Glass
Market”. In terms of volume of glass used, markets where security glass is
used are very small, thus they are niche markets. Most of the glass, normal
or specialty, is used in the construction industry (or market).
17.5.1 Bank and Automotive Security Glass Products
Bulletproof Glass
Bulletproof
or
bullet-resistant
glass
is
usually
constructed
using
polycarbonate thermoplastic or layers of normal glass. China Specialty
Glass-Group’s bulletproof glass has the appearance and clarity of standard
glass but offers effective protection from small arms fire. The Group applies
organic interlayer chemical material such as PVB and PC plate to high-quality
glass. The Group offers a broad range of bulletproof glass products to meet
the specifications of its customers. The Group’s bulletproof glass filters
ultraviolet light and reduces the transmission of sound and heat.
The Group’s flat bulletproof glass, being thicker and thus heavier, is primarily
used in fixed installation such as banks, postal offices, insurance companies,
jewellery stores, luxury villas and business buildings. The Group’s lighter
bulletproof glass, which is shaped and curved using proprietary processing
technology in accordance with clients’ specifications, is mostly used in
cash-in-transit vehicles, armoured limousines, police vehicles and military
personnel carriers.
The Group’s flat bulletproof glass size ranges from 10x10cm to 220x490cm
and offers protection against shots from rifles and pistols. These products are
produced according to the GB17840-1999 Chinese National Standard and the
Chinese GA165-1997 Industrial Standard.
For the fiscal years 2008, 2009 and 2010, the Group generated EUR 17.5
million, EUR 23.0 million and EUR 32.1 million respectively in revenue
through bank bulletproof glass sales, which contributed 43.5%, 45.2% and
46.1% to the total sales in 2008, 2009 and 2010, respectively.
Bulletproof automotive glass is produced according to clients’ specifications.
233
In 2008, 2009 and 2010, the Group generated EUR 15.4 million, EUR 22.4
million and EUR 30.0 million in revenue through auto security glass sales,
which contributed 38.3%, 44.0% and 43.1% to the total sales in 2008, 2009
and 2010, respectively.
With minor modifications, bulletproof glass can be endowed with additional
performance properties such as resistance to bomb blast. Such security glass
products are covered by the Group’s bulletproof glass product category.
Intruder-resistant Glass
Intruder-resistant glass is similar to bulletproof glass in structure and in the
production process except that glass used for the former undergoes a
chemical tempering process before the lamination step. Intruder-resistant
glass is capable of withstanding the forceful impact of heavy objects such as
an axe or hammer. Although the glass surface suffers visible damage upon
repeated impact, the integrity of the glass as a whole remains intact.
The Group started producing and selling a small amount of intruder-resistant
glass products in 2010, which contributed insignificantly to the Group’s total
revenue. These products were used as curtain walls for banks and as glass
counters for banks and jewellery stores. The Group believes that further
architectural applications of the Group’s intruder-resistant glass include
windows, glass doors and curtain walls for toll booths, gas stations, luxury
villas, museums, shopping malls and commercial buildings.
In 2010 the Group successfully developed intruder-resistant glass products
for automotive application. These products have the thickness of normal auto
glass
and
weigh
less
than
bulletproof
glass.
They
are
the
only
intruder-resistant glass products in China that passed the most stringent
laboratory and field tests conducted by the National Public Security Authority
and Police Electronic Equipment Testing Center in 2010. The automotive
application of the Group’s intruder-resistant glass includes police vehicles,
cash-in-transit cars and private limousines.
The Group's intruder-resistant glass is produced in accordance with the
Chinese National Standard GA 844 – 2009, issued by the China Public
Security Authority.
234
17.5.2 Products for the Construction Glass Market
Architecture tempered and semi-tempered glass
Tempered glass is a glass that has been processed by means of controlled
thermal treatment to increase its strength in comparison to normal glass.
This treatment process creates balanced internal stresses which provide the
glass with increased strength and thermal stability. When it breaks,
tempered glass usually shatters into small fragments instead of sharp pieces,
making it less likely to cause severe personal injury. As a result of its safety,
thermal stability and strength, China Specialty Glass-Group’s tempered glass
is used in various demanding applications such as glass doors, glass facades,
partition walls, glass furniture and glass partition walls to protect people from
heat and cold.
Semi-tempered glass is also called reinforced glass. It has a different surface
stress from tempered glass. Its strength level is 1.6 to 2 times higher than
that of normal glass, whereas it is 4 to 5 times higher for tempered glass, in
accordance
with
the
Chinese
National
Standard
GB/T9963-1998.
Semi-tempered glass has good thermal stability. It also has a better
smoothness and lighter transmittance than tempered glass and is more
similar to normal glass in this respect.
The Group’s tempered glass is created by putting normal glass through a
furnace that heats it above its annealing point of about 720°C. The glass is
then rapidly cooled with an air stream, while the inner portion remains free
to flow for a short time period. Since any cutting, grinding, sharp impacts or
even scratches after this process will cause the tempered glass to shatter,
any cutting or grinding of the glass must be completed before the tempering.
The size of the Group’s tempered glass ranges from 30x30cm to 244x800cm
and has a thickness ranging from 4mm to 25mm for tempered and 4mm to
10mm for semi-tempered glass. These products are produced according to
the GB/T9963-1998 Chinese National “Tempered Glass” Standard and the
GB17841-1999 Chinese National “Tempered and Semi-tempered Curtain Wall
Glass” Standard. For the fiscal years 2008, 2009 and 2010, HWG-Ltd.
generated EUR 4.2 million (RMB 42.5 million), EUR 3.6 million (RMB 34.2
million) and EUR 4.0 million (RMB 36.0 million), respectively, in revenue
through tempered glass sales, which contributed 10.4%, 7.1% and 5.8% to
the total sales in 2008, 2009 and 2010, respectively.
235
Architecture laminated glass
When two or more layers of normal or tempered glass with a polyvinyl
butyral (PVB) resin film as interlayer in the middle are pressed together at
high temperature and under high pressure, the result is laminated glass.
While the chemical resin’s glue-like property keeps the layers of glass bonded
even when broken by force, its high strength prevents the glass from
breaking into large sharp pieces. This typically produces a "spider web"
cracking pattern when the force applied is not enough to completely pierce
the glass. As such, laminated glass is used in areas where safety is of a
major concern. When the glass is physically or chemically treated or when
chemical additives are applied in the interlayer, the resulting laminated glass
possesses other desirable properties such as fire resistance, better heat or
sound insulation or the capacity to act as ultraviolet light filter.
Laminated glass products of the Group are sold in the construction industry
as windows or doors, sunshades, ceilings, curtain or glass walls, glass
furniture, shop windows and aquaria, where safety is a primary concern.
Bulletproof glass, a special type of laminated glass which has been
strengthened against violent impact, is used primarily for security purposes
in markets such as the banking market and the market for special
automobiles (see section 17.5.1 “Bank and Automotive Security Glass
Products”).
The size of the Group’s laminated architecture glass ranges from 30x30cm to
220x330cm with thickness ranging between 6.38mm to 40mm. These
products are produced according to the GB9962-1999 Chinese National
Standard. In 2008, 2009 and 2010, HWG-Ltd. generated EUR 2.1 million
(RMB 21.6 million), EUR 1.4 million (RMB 13.2 million) and EUR 1.8 million
(RMB 16.4 million) in revenue from the sale of laminated glass, which
contributed 5.2%, 2.7% and 2.6% to the total sales in 2008, 2009 and 2010,
respectively.
Fire-resistant glass
China Specialty Glass-Group produces fire-resistant glass by means of both
chemical and thermal tempering processes. Thermally-tempered glass is
immersed in a bath of molten potassium, which is a chemical element with
the symbol K (elemental potassium is a soft silvery-white metallic alkali
metal that oxidizes rapidly in air and is very reactive with water), caesium
236
(caesium is a chemical element with the symbol Cs; it is a soft, silvery-gold
alkali metal with physical and chemical properties similar to those of
rubidium and potassium) salts, and sodium (sodium is a metallic element
with the symbol Na; it is a soft, silvery-white, highly reactive metal and is a
member of the alkali metals) ions in the thin glass surface and is exchanged
with potassium and caesium ions creating a surface compression. The
Group’s single layer fire-resistant glass offers fire protection that is 6 to 12
times higher than that of ordinary glass and 1.5 to 3 times higher than that
of normal tempered glass with the same thickness according to the Chinese
National Standard GB15763.1-2001. After 60 to 180 minutes of exposure to
a flame at 1,000°C, fire-resistant glass remains intact (source: verification
report dated 7 May 2009, National Centre for Quality Supervision and Testing
of Fire Building Materials in accordance with the China National Standard
GB15763.1-2001).
The
Group’s
fire-resistant
glass
retains
the
light
transmission characteristics of normal glass and is insensitive to ultraviolet
radiation. This type of glass of the Group can be processed into other
products such as laminated glass or hollow glass.
The Group’s fire-resistant glass can be installed in luxury buildings, hotels,
shopping malls, libraries and museums in fireproof walls, doors, windows and
alleyways.
The Group produces fire-resistant glass with sizes ranging from 30x30cm to
244x500cm. It is produced according to the GB15763.1-2001 Chinese
National Standard. The Group’s fire-resistant glass is classified under the
product category architecture tempered glass and contributed insignificantly
to the Group’s total sales in 2008, 2009 and 2010.
Compound fire-resistant glass
The Group’s compound fire-resistant glass is composed of two or more layers
of thermally-tempered glass with fire-resistant resin filling the space between
glass layers. Exposed to fire, the fire-resistant resin gradually becomes froth;
it expands and becomes even carbonized. This change effectively reduces the
heat transfer across the glass, thus forming a protective layer against the fire
and the resulting heat. In addition to its fire-resistance property and light
transparency identical to normal glass, the Group’s compound fire-resistant
glass also offers noise reduction similar to laminated glass.
The Group’s compound fire-resistant glass can be installed in luxury
buildings, hotels, shopping malls, libraries and museums in fireproof walls,
doors, windows and alleyways as well as in machine rooms, laboratories and
237
control rooms.
The Group produces compound fire-resistant glass with sizes ranging from
10x10cm to 240x330cm. It is produced according to the GB15763.1-2001
Chinese National Standard. In 2008, 2009 and 2010, HWG-Ltd. generated
EUR 0.9 million (RMB 9.4 million), EUR 0.4 milion (RMB 5.0 million) and EUR
0.7 million (RMB 6.0 million) in revenue through compound fire-resistant
glass sales, which contributed 2.2%, 0.8% and 1.0% to the total sales in
2008, 2009 and 2010, respectively.
Hollow glass
China Specialty Glass-Group’s hollow glass is usually composed of two layers
of thermally-tempered glass separated by an aluminium alloy isolation frame
to create a hollow space in the middle which is filled with a drying agent
(molecular sieve) and inert gas. It is sealed by a chemical sealant. Hollow
glass provides insulation against noise and frost.
Hollow glass is widely used in buildings at locations where high mechanical
strength and safety are required, e.g. for glass doors, architectural curtain
walls, façades, glass furniture and partition walls which are subject to
extreme temperature or weather changes.
The Group produces hollow glass with sizes ranging from 20x20cm to
220x350cm. The thickness of the aluminium frame ranges from 6mm to
18mm, and the maximum thickness of the hollow glass is typically below
60mm. It is produced according to the GBT1944-2002 Chinese National
Standard.
Electrically-controlled colour-changing glass
China Specialty Glass Group’s electrically-controlled colour-changing glass is
made by sandwiching a liquid crystal film (this refers to a chemical substance
in a state of matter that has properties between those of a conventional
liquid and those of a solid crystal; such chemical substances are widely used
in electronic displays) between two sheets of glass. In resting state or under
electric current passing through the liquid crystal, electrically-controlled
colour-changing glass can be switched from a transparent to an opaque
appearance. Used as part of a window, this enables a quick switch from clear
vision to complete privacy.
Electrically-controlled colour-changing glass is used for the windows of
high-end
vehicles,
high-speed
bullet
238
trains,
hotels,
airliners,
yachts,
laboratories, operating rooms, bedrooms, living rooms, meeting rooms,
security and sensitive areas, banks, jewellery stores, display boxes etc. The
Group’s products are currently used in selected government buildings.
The Group produces electrically-controlled colour-changing glass with a size
ranging from 20x20cm to 100x300cm. Thickness ranges from 6mm to
18mm. It is produced according to the Group’s QB/XHDZ-2003 Standard. The
Group generated EUR 0.1 million and EUR 0.6 million in revenue through
electrically-controlled
color-changing
glass
sales
in
2009
and
2010,
respectively. Production of this product started in July 2009.
17.5.3 New products in development
The Group continues to develop innovative products to meet the market
demands.
As far as automotive products are concerned, the Group will further improve
its original slim intruder-resistant glass products in order to minimize its
production cost to an affordable level, reduce the thickness of products and
explore low-end applications such as anti-theft purpose.
Moreover, the Group continues to develop an innovative product, “warm
glass”, which is applied to the windshield of motor vehicles. Warm glass can
generate a certain amount of heat by itself without any filament in order to
protect the glass surface against any fog or frost and thus improves the
safety of car driving.
At the same time the Group will explore the suitability, economy and safety
of current intruder-resistant glass products in the range of construction and
counter intruder-resistant glass products. As a result, the abovementioned
products can be applied further to the financial services industry, gold and
jewellery industry, supermarkets as well as public usage.
For the aspect of decorating glass products the Group plans to innovate
illuminating
glass
and
electrical
control
multi-colour-changing
glass.
Illuminating glass is installed with a light source so that it can have
sight-seeing
and
multi-colour-changing
illumination
glass
is
functions.
developed
Electrically-controlled
upon
the
current
electrically-controlled single-colour-changing glass and has the effect of
various colour changes.
The Group is actively developing new building glass products integrating
solar photovoltaic technology.
239
17.6
Customers
China Specialty Glass-Group sells its security glass products through its own
sales network directly to its end customers in the bank and security
automotive industry. Its major customers for bank security glass are
domestic and foreign banks in China and for automotive security glass
refitting automobile manufacturers. In the Construction Glass Market,
construction service providers are the customers of the Group. The five top
customers from the years 2008 to 2010 are listed below (number in brackets
refers to the customer’s previous year’s ranking):
2008
TEUR
N o.
Customer
Market Segment
Sales
% of Total Sales
1
2
3
4
5
Customer A (1)
Customer B (2)
Customer D (4)
Customer H (8)
Customer E (5)
Top five customers
Automotive
Automotive
Automotive
Automotive
Automotive
1,940
1,919
1,325
1,199
1,187
7,570
4.8%
4.8%
3.3%
3.0%
3.0%
18.8%
40,216
100%
Total sales
2009
TEUR
N o.
Customer
Market Segment
Sales
% of Total Sales
1
2
3
4
5
Customer A (1)
Customer D (3)
Customer L (7)
Customer B (2)
Customer H (4)
Top five customers
Automotive
Automotive
Automotive
Automotive
Automotive
2,544
1,756
1,701
1,693
1,711
9,405
5.0%
3.4%
3.3%
3.3%
3.4%
18.5%
50,910
100%
Total sales
2010
No.
1
2
3
4
5
Customer
Customer A (1)
Customer B (4)
Customer D (2)
Customer L (3)
Customer H (5)
Top five customers
Market Segment
Automotive
Automotive
Automotive
Automotive
Automotive
Total sales
240
TEUR
Sales
% of Total Sales
3,520
2,599
2,580
2,406
2,216
13,320
5.1%
3.7%
3.7%
3.5%
3.2%
19.2%
69,564
100%
17.6.1 Bank Security Glass
Security measures in domestic and foreign banks in China are highly
regulated. According to Article 5.3.7 of the Regulation of Levels of Risk and
Protection of Bank Operational Premises issued by the Ministry of Public
Security of China on 22 September 2004 (effective on 1 December 2004),
bank branches must meet certain security standards with respect to their
business places. This explicitly includes the installation of bulletproof glass in
accordance with the Chinese National Standard GA165 in the service area of
the branch where cash transactions take place (see section 16 “Regulatory
Framework”). The Company believes that the Group is the preferred provider
of this type of security glass to banks throughout China, especially in the
well-developed coastal regions and provinces.
The Group’s customers in this market segment include the branches of
China’s state-owned banks, inter alia, Bank of China, China Construction
Bank, Industrial and Commercial Bank of China, Agricultural Bank of China
and Bank of Communication, as well as the branches of other large Chinese
local banks, such as China Merchants Bank, Guangdong Development Bank,
Shenzhen Development Bank, Postal Saving Bank of China and Shanghai
Pudong Development Bank, and of HSBC Holdings. Furthermore, the Group’s
bank security glass is also acquired by other banks, such as Hang Seng Bank,
Citibank and Bank of East Asia, through distributors or decorations
companies.
Each bank has its own purchasing policy which differs from that of other
banks. Some banks or branches place their orders for the Group’s bulletproof
glass centrally through their provincial or regional headquarters and then
distribute the products to their local branches. Others place their orders
directly through their local branches. Although the total value of the product
sales to the bank industry is large, the volume of each order is relatively
small in comparison to that of the security automotive market.
In addition to selling its security glass to newly opened bank branches, the
Group also sells its security glass to branches that have already installed
bulletproof glass and tend to replace it sooner than product guarantees
warrant, thus providing a reliable source of future repeated sales for China
Specialty Glass-Group in this market.
HWG-Ltd. normally provides a credit line of between 30 and 60 days to its
customers in this market. It grants longer credit lines to its long-term
customers while requiring pre-payment of a deposit and payment of the
241
balance upon delivery from new customers.
17.6.2 Automotive Security Glass
Automotive security glass such as bulletproof glass is mainly used in
armoured vehicles. In contrast to the mass production of normal passenger
or other types of vehicles, armoured vehicles are mostly refitted on a normal
chassis
and
produced
in
limited
numbers.
However,
they
have
a
comparatively shorter life cycle, and therefore, more armoured vehicles are
needed in the same time frame than normal vehicles. This is mainly due to
the heavy armour that adds extra weight and the over-loading during normal
operation, which accelerates the wear and tear of a vehicle.
The
Company
estimates
there
are
about
28
refitting
automobile
manufacturers in China, of which 20 are China Specialty Glass-Group’s
customers. Most of the Group’s past and current customers among refitting
automobile manufacturers continue to purchase automotive security glass
from the Group. The Group’s clients in this market segment include
Chongqing Dima Industry Co., Ltd, Double Star (Shanghai) Co. Inc., Jiangxi
Jiangling Motor Vehicle Group Ltd. and Beijing Johnson Security Ltd. The
credit line to the Group’s specialist transport clients is normally 30 to 60
days.
17.6.3 Construction Glass
Demand for China Specialty Glass-Group’s products in this market segment
is project-related and originates mainly from the general contractors,
installers and occasionally is the result of the recommendation of local design
institutes. Demand in this market tends to be large and placement orders
also tend to be quite sizeable, thus only enterprises with sufficient capacity
can compete successfully. Additionally, construction glass demands are quite
diverse. Demands on capacity and product diversity pose a challenge to the
Group in terms of balancing product mix (low margin vs. selected high
margin products) and overall capacity distribution, but also offer a good
opportunity for product innovation and future growth.
The Group does not sell its products directly to real estate developers;
instead, its products are provided to general contractors or sub-contractors
who are specialized in certain aspects of the construction process and
recruited by the real estate developers on a project-by-project basis. These
general
contractors,
sub-contractors
or
construction
service
providers
specialized in glass are the Group’s direct customers. They include Shenzhen
242
Guochang Metal Manufactory and Guangzhou Changhong Glass Manufactory.
The credit line for the Group’s clients among construction service providers is
normally between 30 to 60 days.
17.7
Sales and Distribution
In China, the Group’s end customers mainly are commercial entities, while
retail sales (to private persons) only contribute insignificantly to the Group’s
total revenue. The Group does not actively export its products to overseas
markets but sells to unaffiliated traders or trading companies which export
them to overseas markets. However, the Company believes its products,
mainly automotive security glass, are used as components of its end
customers’ finished products which are exported abroad.
Sales and service implementation
The Group sells its products directly through its own sales representatives.
Indirect sales through unaffiliated traders or trading companies contributed
merely 2.7%, 2.5% and 3.0% to the total sales for 2008, 2009 and 2010,
respectively. The Group has sales representatives located in different
provinces and regions outside Guangzhou covering 19 provinces and regions
in China. Each sales representative outside of Guangzhou has to organise
himself. Most of them work from home. For the year 2010, the average
number of sales representatives employed by China Specialty Glass-Group in
its marketing and sales department was 64 (see also section 17.12
“Employees”).
China Specialty Glass-Group’s sales representatives who cover 19 different
provinces and regions outside Guangzhou are responsible for all product
categories within their defined regions or territories. The Group’s sales
representatives and regional sales employees maintain direct contacts with
the Group’s regional customers who may need pre- and after-sale advisory
services. In addition to providing technical consultation to the Group’s
customers, these representatives also offer guidance in product installation
and
actively
market the Group’s
products to
existing
and
potential
customers.
Loyalty, motivation and competence of its sales representatives are essential
for the increase of the Group’s product sales. In addition to their normal
salary, the sales representatives participate in product sales by a bonus
scheme. Regular technical and product training and sales briefings are
243
conducted. Sales representatives have the freedom to negotiate the sales
prices for the Group’s products within pre-defined price ranges and product
specifications. The Group holds sales meetings twice a year with attendance
of all its sales representatives to review past performances, identify market
trends and revise sales strategies if necessary.
The Group’s products are available throughout China. The bulk of the sales
occur in coastal provinces and major cities such as Beijing and Shanghai.
Over 60% of the total sales of the Group in 2010 are made in the southern
part of China and in major cities such as Beijing, Shanghai and Chongqing:
Shipment and logistics
Finished products are brought to the Group’s end customers by a preferred
logistics company and to a lesser extent by other local logistics companies.
There are several such companies located within a short distance from the
Group’s production site in Guangzhou. Raw materials are usually delivered by
the suppliers.
244
All liabilities as a result of product damage or loss during transportation are
borne by the logistics partners of the Group. Since 21 December 2008 the
Group engages one preferred logistics company to transport all of its
products. The Group engages other logistics companies in case the preferred
logistics company is not able to fulfil its contractual obligations. Products that
have passed quality control can be packaged and released to the care of
logistics providers. The Group calculates a rate of about 3% (of the total
product volume) to be damaged or unqualified (according to specifications
agreed between the Company and the client) products. The Company
believes that this rate is within the reasonable and acceptable range in the
industry.
17.8
Marketing
China Specialty Glass-Group’s security glass is a special product in a niche
market. It has been sold primarily to banks (their branch offices) and a
limited number of refitting automobile manufacturers. The Group’s marketing
activities are focused on the existing clients who have the need to replace
older glass (due to renovation, repair) or order glass to satisfy new demand
(i.e. for new branches, new vehicles). To acquire new customers, the Group’s
sales representatives identify potential customers and make direct contact to
introduce the Group’s products. As the largest security glass manufacturer in
China, HWG-Ltd. is well known in this market (source: p. 103 – 105 RMR
Report 2010). The Group frequently obtains new customers through
favourable referrals from its existing customers.
HWG-Ltd. attends trade fairs and product exhibitions to present the Group’s
products. The Group is frequently invited to attend the annual “Security
Technology and Product Exhibition and Trade Conference” organized by
central and provincial Ministries of Public Security, “National Invention Fair”
and “China Building and Decoration Fair” organized by China Trade and
Patent Office, and Chinese Building Material Association.
HWG-Ltd. also maintains a close relationship with local architecture design
institutes whose recommendations for glass products are crucial to being
included in the construction project purchase bidding processes.
The marketing expenses of the Group were around RMB 300,000 per annum
for the years 2008, 2009 and 2010.
245
Recognition of products
Since 1994, HWG-Ltd.’s products have been purchased by customers
throughout China. HWG-Ltd. has received the following acknowledgements
and awards:
·
"Gold Prize for New Technical Products" awarded during the National
Invention Fair in September 1997
·
"Prize for Excellent Products" during the China Building & Decoration Fair
in July 1998
·
"Second Prize for Advance in Science and Technology" by Guangzhou city
government in August 1998
·
"Prize
for
Practical
Application
of
Invention"
by
Guangzhou
city
government in October 1998
·
"National Prize for Supplier Most Recommended by its Customers" in
November 1999
·
"Double Top Quality Enterprise" in November 1999,
·
"Top Chinese Brand of the Century" in January 2000
·
"Emerging High-tech Enterprise of City Guangzhou" in December 2003
·
"National Products of Reliable Quality" and "National Enterprise Providing
Quality Service to Satisfied Customers" in May 2003
·
"Third Prize for Advance in Science and Technology in Liwan District" in
2005
•
2010 First-tier supplier, awarded by Industrial and Commercial Bank of
China
·
"Top 100 Brands in Guangdong Province" and "Top 20 Most Respected
Brands by Customers in Guangdong Province" in 2010
17.9
Production
With the normal flat glass as the starting raw material, the Group’s
production process for specialty glass consists of several initial steps that are
commonly used for the production of all of its products. Subsequent steps
246
differ from one another depending on what kind of end products are to be
produced. Initially treated glass is thermally treated to create tempered glass
or laminated and then chemically coated to generate bulletproof glass etc.
These processes are shown in the following graphic with regard to bank
security glass (flat bulletproof glass), automotive security glass (bulletproof
curve
glass)
and
construction
glass
(architecture
tempered
glass,
architecture laminated glass, compound fire-resistant glass and fire-resistant
glass):
Bullet
proof glass
Bullet proof
curved glass
Architecture
tempered glass
Architecture
tempered
laminated glass
Compound fire
resistant glass
Fire resistant
glass
Polycarbonate
coating
Lamination
Heat bending
Lamination
Polycarbonate
coating
Toasting
Cleaning
Resin injection
Edge smoothing
Screen printing
Thermal
tempering
Thermal
tempering
Glass
combination
Chemical
tempering
Lamination
Cleaning
Cleaning
Cleaning
Cleaning
Cleaning
Cleaning
Edge smoothing
Shaping
Shaping
Edge smoothing Edge smoothing Edge smoothing Edge smoothing
Shaping
Shaping
Shaping
Shaping
Normal float glass
Production process
Shaping: Glass is cut by a glass cutting machine in order to modify the raw
normal glass into the required shapes and sizes of the end products.
Edge smoothing: Edges of glass are filed to create a smooth surface.
Cleaning: A cleaning machine removes the glass split, fine glass powder and
dust from the glass surface after the shaping process.
Lamination: Two or more layers of glass sandwich a chemical binding
material such as PVB between them and are pressed together at high
temperature and under high pressure.
Polycarbonate coating: The glass is coated with polycarbonate, a type of
247
polymer characterized by its resistance to high temperature and physical
impact and certain optical properties. After coating, the glass is left to dry for
24 hours.
Screen printing: The edge of the glass is coloured and shaded as specified by
the clients.
Thermal tempering: The glass is placed onto a roller table and passed
through a furnace that heats it above its annealing temperature of about
720°C. The glass is then rapidly cooled with an air stream to create balanced
internal and surface stresses in the glass.
Chemical tempering: The glass is toughened by ion-exchange of thin glass
surface in a molten potassium or caesium bath. The hot glass is then rapidly
cooled. The strength of chemically toughened glass is comparable to that of
thermally-tempered glass.
Heat bending: Flat glass is bent into a curved shape by a bending mould
after the glass was roasted at 580°C to 640°C.
Resin injection: Within the space between glass layers a fire-resistant
chemical resin is injected which then contracts and solidifies to generate a
Compound Fire-resistant Glass.
Glass combination: PVB or other organic resin materials are inserted in the
space between (two or more) layers of clean flat glass under controlled
temperature and humidity.
Capacity
Production output for most of the production processes is limited by the
number of workers available with the exception of the lamination and (both
chemical and thermal) tempering parts of the process where essential
equipment such as high-pressure presses or pressured ovens is used. Size
and number of glass plates that can be processed simultaneously are limited
by the capacity of this equipment. Therefore, the Company believes that the
capacity of “pressured ovens” from the lamination process and “toughening
furnaces” from the tempering process restrict the production output (the
maximum production capacity is based on a production of 24 hours per day,
26 working days per month and 12 months per annum). The Company
intends to use part of the Offering Proceeds to purchase additional equipment
and install new production lines in its current production facility in
Guangzhou, China. Furthermore, the Company intends to use the proceeds
248
to establish a new production facility in Chengdu, Sichuan Province, China.
The new production facility is expected to increase the Group’s total output
substantially.
Quality assurance
The Group is committed to quality and its products are closely monitored and
controlled throughout the entire production process. The Company believes
that this quality control system enables it to reduce unnecessary production
stoppage and minimize the amount of waste products, which contributes
directly to the reduced costs of goods produced. The Group has established
and applied a quality management system for manufacturing and sales in
line with ISO 9001:2008 (ISO being a standard for quality management
systems set by the International Organization for Standardization), which
was certified by TÜV SÜD Management Service GmbH in 2008, valid until
2012 (prior to this, a certification under ISO 9001:2000 was supplied by TÜV
SÜD Management Service GmbH in 2000).
17.10
Procurement and Supply
The Group purchases raw materials, which consist mostly of normal flat glass
and chemical materials, from local suppliers in Guangzhou or imports these
through Chinese trading companies. Although the Group tries to avoid relying
on a single supplier for the supply of its raw material, it has established
reliable long-term relationships with some of its suppliers; in particular four
of the top five suppliers have been among the top five since 2008 (see tables
below; numbers in parenthesis refer to the supplier’s previous year’s
ranking):
249
2008
TEUR
No.
Supplier
1
Supplier A (1)
2
Supplier F (6)
3
Supplier B (2)
4
5
Material Purchased
Amount
% of Total Purchase
5,652
28.5%
4,200
21.2%
Normal Glass
3,606
18.2%
Supplier D (4)
Normal Glass
3,089
15.6%
Supplier E (5)
Armored membrane
Normal Glass
SGP film, PVB film, ink
1,712
8.6%
Top five customers
18,259
92.1%
Total purchase
19,826
100%
2009
TEUR
No.
Supplier
1
Supplier A (1)
2
Supplier F (2)
3
4
5
Material Purchased
Amount
% of Total Purchase
8,898
37.7%
6,225
26.3%
Supplier E (5)
Armored membrane
2,897
12.3%
Supplier I (9)
PC plate
2,876
12.2%
Supplier B (3)
Normal Glass
2,070
8.8%
Top five customers
22,966
97.2%
Total purchase
23,629
100%
Normal Glass
2010
TEUR
No.
Supplier
1
Supplier A (1)
2
Supplier F (2)
3
Supplier I (4)
4
5
Material Purchased
Amount
% of Total Purchase
11,861
29.7%
7,900
19.8%
PC plate
4,035
10.1%
Supplier E (3)
Armored membrane
3,738
9.4%
Supplier B (5)
Normal Glass
2,655
6.7%
Top five customers
30,188
75.7%
Total purchase
39,879
100%
Normal Glass
Normal flat glass
Normal flat glass is the critical raw material for the production of the Group’s
specialty glass products. China is the global leader in production of normal
250
flat glass. China produced 579 million weight boxes of normal flat glass in
2009
(source:
China
Building
Material
Association),
corresponding to
approximately 50% of the global production. About 84% of the normal flat
glass produced in China is float glass (China Building Material Daily, 17 May
2010). For the first 11 months in 2010, China had already produced 577
million
weight
boxes
of
normal
flat
glass
according
to
icandata
(http://www.icandata.com/data/201103/031GM3292011.html). There is an
ample supply of normal flat glass in the regions where the Group’s
production facilities are located.
To assure the quality of normal glass purchased and to minimize the delivery
cost, the Group has selected four major normal glass suppliers in the
Guangdong province. These suppliers collect raw glass materials from the
normal flat glass manufacturers. These glass suppliers and their subsuppliers are qualified through the ISO9000 standard and have also proven
throughout the years to be capable of delivering normal glass with the
various stringent specifications required by the Group. Delivery is normally
fulfilled three to five days after the order.
Purchase costs for normal flat glass made up 57.7%, 48.0% and 49.4% of
the total material costs and 49.7%, 40.5% and 44.4% of the cost of goods
sold for the years 2008, 2009 and 2010, respectively; therefore, the unit
purchase price of flat glass has a direct impact on the Group’s financial
performance. The average purchase price paid by HWG-Ltd. was RMB 46.4,
RMB 53.0 and RMB 61.8 (EUR 4.6, EUR 5.6 and EUR 6.9, respectively) per
square meter in 2008, 2009 and 2010, respectively. Currently, flat glass is
purchased at an average price of RMB 60.9 per square meter, which has
been relatively stable since the beginning of the year. The Group has not
used any hedging arrangements to minimize the price fluctuation in flat glass
purchase costs and does not intend to install such measures in the near
future.
Chemical materials
The Group acquires polyurethane (“PU”, a polymer consisting of a chain of
organic units joined by urethane; polyurethanes are widely used in various
industrial applications; in specialty glass, they are used as high performance
adhesives and sealants), SentryGlas® Plus film (SGP, SentryGlas® is a
trademark of DuPont), polyvinyl butyral (“PVB”, a resin usually used for
applications that require strong binding, optical clarity, adhesion to many
surfaces, toughness and flexibility), chemical resins or additives and
251
Polycarbonate (“PC”, a particular group of thermoplastic polymers with
interesting features such as temperature resistance, impact resistance and
optical properties) plates to transform normal glass into specialty glass
products. Some of these materials (PU, SGP and PVB) are imported via
import agencies or trading companies or directly through the domestic sales
offices of foreign suppliers (for PC).
The average (purchase) unit price for various chemical materials has evolved
differently over the last three years: For example, the average PC plate unit
price in 2008 was at RMB 732 (EUR 72) /square meter, then fell back to a
level in 2009 of RMB 562 (EUR 59) /square meter, finally peaked at RMB 737
(EUR 82) /square meter in 2010. During the same period, the average unit
price for PVB changed from RMB 40 (EUR 3.8) /square meter in 2007 to RMB
53 (EUR 5.9) /square meter in 2010. Chemical material purchase costs
amounted to 35.1%, 43.2% and 49.3% of total material costs for 2008,
2009 and 2010, respectively.
The major vendors of chemical materials include Shenzhen Xinhuali Trading
Co., Limited, Zhejiang Armor Security Technology Co., Limited, Xiamen
Xinhengfa Import Export Co., Limited and Huntsman Chemical Trading
(Shanghai) Co., Limited.
Electricity
HWG-Ltd. has a backup power supply to provide enough electricity for limited
production. In Guangzhou municipality, any electrical power outage is
normally announced ahead of time via the media.
17.11
Research and Development
China Specialty Glass-Group considers production process improvement and
product innovation as essential for its future growth and profitability. Here,
the Group’s Research and Development capability plays a central role. The
Group’s R&D team, which has the task of continuously re-designing and
developing existing and new products, pioneered the bulletproof glass
industry in China in the past and has introduced new and improved products
to the Chinese market.
Expenditure on research and development amounted to EUR 1 million,
EUR 1.4 million and EUR 1.9 million in the financial years 2008, 2009 and
2010, respectively.
The Group’s R&D team currently consists of six employees, not including
252
additional employees involved in the R&D activities of the Group. Four of
them have received engineering training and five of them have university or
college degrees. This team is responsible for the development of the Group’s
new products, improvement of existing products, design and implementation
of the Group’s current and new production technologies and processes.
Product Development Process
The Group’s new products and product improvements are derived from three
sources:
·
New product and design concepts emerge from the discussions between
the Group’s sales representatives and the customers or through market
research. Customers’ specific requests, product concepts or specifications
are translated into product prototypes with materials and production
process known to the Group.
·
The R&D team creates new product designs based on knowledge and
experience with existing materials or hereunto unused materials to
explore new combinations and applications, for example, a combination
of the safety feature of laminated glass with colourful design of cloth
material to create safe decorating glass.
·
The R&D team also designs and develops new products based on
requests or specifications from the governments in China. Bulletproof
glass was the result of such a product design and development process.
The Group’s R&D team designs and develops new products or tries to
improve existing products in close coordination with the Group’s sales,
procurement and finance departments with the intention that the new or
improved products meet the customers’ preferences and price expectations.
On the other hand, the team also develops the products with the production
process suitability in mind so the new products can be produced efficiently
and at lower costs if possible.
Production technology and process improvement
The Group’s R&D team is entrusted with the improvement of the production
process, in particular with increasing its efficiency and lowering production
costs. The team has designed and implemented some automated processes
at HWG-Ltd.’s current production site. The new automated process line is
expected to not only reduce the number of workers required for production
(in light of increasing labour costs, this translates into saving direct labour
253
costs), but also to increase productivity through reduction of waste products.
New products under development
The Group’s R&D team is developing several new products to address market
demands, for instance, the new decoration glass with safety features and
bulletproof glass with a bulletproof steel frame and security glass with an
acoustic
feature
and
automotive
security glass
with
an
anti-surface
condensation feature.
New Research and Development Centre
The Company intends to use parts of the issue proceeds to install a separate
Research and Development Centre at the Group’s production site in
Guangzhou. It is planned to install a small-scale production line in the centre
so that a new product can be entirely developed and tested during the whole
design
and
development
process:
from
product
conception
to
pilot
production. This centre should be equipped with modern testing equipment
and facilities so that the Group’s R&D staff can independently test and
analyze the performance of new products or new production processes. It is
planned that the centre shall have an independent procurement process so
that new or entirely novel materials can be sourced and their innovative and
proprietary applications in security and construction glass products tested.
The Group also intends to develop new products jointly with its current and
future clients in the centre.
The Group’s current R&D team has already collaborated closely with its
academic development partners from local universities and colleges such as
Sun Yat-Sen University and Guangdong University of Technology. Such
research and development activities are organized between the Group and its
academic development partners on a no charge basis; in particular the local
universities and colleges do not receive any compensation from the Group.
Collaborations such as these shall be deepened and expanded to other
research and academic institutions in China. The Group plans to house about
26 researchers, including consultants from universities and the industry, in
this new Research and Development Centre.
17.12
Employees
As of 31 March 2011, China Specialty Glass-Group employed 479 employees.
Since 31 March 2011, there has not been a substantial change in the number
of employees of the Group.
254
With regard to the development of the number of the employees within the
Group in the past, the tables below contain a breakdown of HWG-Ltd.’s
personnel according to category as an average number for the past three
years ended on 31 December as well as a breakdown of the Group’s
personnel as an average number for the period from 1 January until 31
March 2011.
Year ended 31 December
2008
2009
2010
Average number
HWG-Ltd.
of
employees
of
Management and administration
Sales
Production
Total
467
464
441
36
91
340
467
39
83
342
464
46
64
331
441
Time period from 1 January
until 31 March 2011
Average Number of employees of the
China Specialty Glass-Group
456
Sales
Production
Total
52
57
347
456
All of the employees employed by the Group work in Guangzhou, PRC, with
the exception of sales personnel in various other cities in the PRC.
Recruitment
The personnel department of the Group is mainly responsible for employee
recruitment. The employees and managers in the personnel department
approach local governmental or private employment agencies for potential
employees. Additionally, local professional schools and colleges are also
targeted for better qualified and better educated labour force members.
In contrast to other years’ normal practice in recruitment, the Group decided
in 2010 to recruit a large group of technical college students shortly before
their graduation to 1) replace those workers who did not return to work, 2)
train them to take over more challenging technical and management
positions and 3) prepare them for senior level technical and managerial
255
positions in the production site which is under construction in Chengdu,
Sichuan.
Employee training and further education
The Group provides its new employees with pre-employment training which
includes basic information on the Company’s culture, operational safety and
standards, product quality and personnel and career development issues.
Some employees also undergo on-the-job training which includes work flow,
management methodology and technical skills. Selected employees are also
given special training in order to be qualified for special production or
development skills; an official certificate is issued to the employee after the
completion of the training.
To assist career development of promising employees and raise the
educational level of its workforce, the Group provides partial financial support
to selected employees for external training. In return, these employees are
committed contractually to serve the Group for a specified period of
employment.
17.13
Insurance
HWG-Ltd. has concluded a product liability insurance agreement covering
products for two of its brands. However, this policy is limited to a maximum
compensation of RMB 1.2 million (approximately TEUR 134 at 31 March 2011
exchange rate) for a single case with a cap of RMB 300,000 (approximately
TEUR 33 at 31 March 2011 average exchange rate) for a body injury per
person or property damage in each single case, and a maximum of
cumulative compensations of RMB 2.4 million (approximately TEUR 267 at 31
March 2011 average exchange rate). The excess costs of product liability (a
guarantee for the bulletproof performance of ten years is provided to
customers) are covered by HWG-Ltd. Apart from this insurance, the Group
does not maintain any business insurance coverage (see section 3.1.19
“China Specialty Glass-Group may have insufficient insurance to cover its
potential risks”).
17.14
Material Contracts
17.14.1 Lease Agreements
China Specialty Glass-Group has in place a number of lease agreements for
office premises and for a plant (see section 17.15 “Property, Plant and
Equipment”).
256
17.14.2 Loan Agreements
China Specialty Glass-Group has in place the following loan agreements:
HWG-Ltd. entered into a RMB 7,400,000 (approximately TEUR 801 at 31
March 2011 closing exchange rate) loan agreement with the Guangzhou
Tianpingjia sub-branch of the Industry and Commerce Bank of China in
September 2010 for a one-year-term. The purpose of entering into this
agreement is to finance HWG-Ltd’s purchase of raw materials in production.
Interest is payable monthly at an interest rate of 5.841% per annum. The
loan is secured by two separate joint and several guarantees respectively
provided by Mr. Nang Heung Sze, Mr. Chun Li Shi and a mortgage provided
by Guangzhou Property Management Center. In addition, HWG-Ltd. also
entered into a RMB 8,600,000 (approximately TEUR 931 at 31 March 2011
closing exchange rate) loan agreement with the Guangzhou Tianpingjia
sub-branch of the Industry and Commerce Bank of China in September 2010
for a one year term. The purpose of entering into this loan agreement is to
finance HWG-Ltd’s purchase of raw materials for production. Interest is
payable monthly at an interest rate of 5.841% per annum. The loan is
secured by two separate joint and several guarantees respectively provided
by Mr. Nang Heung Sze, Mr. Chun Li Shi and a mortgage provided by
Guangzhou Property Management Center.
17.14.3 Project Investment and Construction Agreement
On 30 May 2010, HWG-Ltd. entered into a project investment and
construction contract with the Management Committee of Guangdong –
Wenchuan Industrial Park (“Management Committee”) for a project in the
Sichuan Province on a piece of land of 300 Mu (Mu is a Chinese unit of
measurement, 300 Mu correspond to around 200,001 square meters) with a
proposed total investment of RMB 300 million (approximately EUR 32.5
million at 31 March 2011 exchange rate). To implement this agreement, the
Group set up HWG-SC with an initial capital contribution of RMB 2 million
(approximately EUR 0.2 million at 31 March 2011 exchange rate) and in
October 2010, contributed another RMB 8 million (approximately EUR 0.9
million at 31 March 2011 exchange rate) into HWG-SC. HWG-SC has made
several
investments
in
connection
with
the
project
investment
and
construction (see section 17.17 “Investments”). Under the contract, HWG-Ltd.
guarantees a certain investment and tax commitment and undertakes to
meet
various
deadlines
for
the
different
plant
construction
phases.
Non-compliance can entitle the Management Committee to repatriate the
257
respective land use right free of any compensation. According to the contract,
the land grant premium for the respective land is to be paid by the
Management Committee on behalf of HWG-Ltd. HWG-Ltd. is neither allowed
to transfer the land use right within 10 years after full repayment of such
land grant premium to the Management Committee nor to mortgage the land
use right within 3 years of this event without consent of the Management
Committee. The Management Committee issued a letter dated 18 October
2010 to HWG-Ltd. stating that the project had been delayed due to the
change of urban planning and the new site had been determined and
HWG-Ltd. should commence the project as soon as possible.
17.14.4 Exclusive Distributorship Agreement
On 27 May 2011, HWG-Ltd. concluded an exclusive distributorship agreement
with the Saint-Gobain Group, an industrial group with its headquarters in
Courbevoie,
France,
which
produces
a
range
of
construction
and
high-performance materials (“Saint-Gobain”), specifically with the group
company Miroiteries du Rhin SAS, Bennwihr, France. According to this
agreement, Saint-Gobain grants China Specialty Glass-Group the right to
exclusively distribute various glass products of Saint-Gobain, which are listed
in an annex to the agreement (the “Exclusive Products”), in China. With
regard to certain other products of Saint-Gobain (the “Non-exclusive
Products”,
together
with
the
Exclusive
Products
the
“Saint-Gobain
Products”), the agreement contains a non-exclusive distribution right.
HWG-Ltd. purchases the Saint-Gobain Products at the respective purchase
prices determined in an annex to the agreement. The purchase prices are to
be renegotiated on a yearly basis. In addition, Saint-Gobain agrees to carry
out and pay for certain marketing measures, e.g. the establishment of
showrooms in China for the Saint-Gobain Products, technical training for
HWG-Ltd. sales personnel and assistance in training of product installation.
The agreement specifies that as consideration for the granted exclusivity,
HWG-Ltd. will pay Saint-Gobain an aggregate amount of EUR 17.0 million, of
which EUR 6.0 million are to be paid upfront if the planned IPO of CSG-AG
takes place by 31 August 2011 and the remaining amount in various
instalments over a period of six years. After certain periods of time, initially
three years, Saint-Gobain is entitled to transform the exclusive distribution
right granted to China Specialty Glass-Group into a non-exclusive one if a
certain minimum purchase volume has not been met by the Group.
The agreement has a term of ten years. Inter alia, it can be terminated by
258
either party if China Specialty Glass-Group and Saint-Gobain-Group fail to
agree on the purchase prices which are renegotiated on a yearly basis.
17.15
Property, Plant and Equipment
17.15.1 Property and Plant
None of the companies of the Group hold real estate title certificates, land
use rights certificates or real estate ownership certificates. At present, the
operating company of the Group, HWG-Ltd., leases land with a total area of
30,114.27 square meters and buildings on this land with a total construction
area of 23,257.53 square meters at West and North of Hougang Street,
Guanghai Road, Chatou, Baiyun District, Guangzhou, PRC. This land and
these buildings are subject to 8 real estate title certificates and one land use
right certificate. One of these real estate title certificates was issued in the
name of Mr. Chun Li Shi by Guangdong Provincial Government on 24 June
2008 (registered under Yuefangdizhengzi No. C6608548), while 7 real estate
title certificates were issued in the name of Guangzhou Property Management
Center, a company wholly owned by Mr. Chun Li Shi, by Guangdong Province
Government on 6 December 2006 (registered under Yuefangdizhengzi
No. C5090341,
Yuefangdizhengzi
No.
C5083868,
Yuefangdizhengzi
No.
C5086336, Yuefangdizhengzi No. C5090343, Yuefangdizhengzi No. C5090342,
Yuefangdizhengzi No. C5090340 and Yuefangdizhengzi No. C5090339) and
the land use right certificate was issued in the name of Guangzhou Property
Management Center by Guangzhou Municiple Government on 20 June 2005
(registered under Huiguoyong (2004) No. 678.), all for the purpose of
industrial factory building and supporting facilities.
During the period of nationwide land reform at the beginning of 2000,
Guangzhou Property Management Center’s predecessor, Guangzhou City
Liwan District Qianjin Glass Factory, was granted a piece of land (including
office and factory buildings on it) on which it had operated since the 1970s.
The official blueprint of the land was provided by the previous owner, a
state-owned enterprise, and was included in the application for the land use
right by Guangzhou City Liwan District Qianjin Glass Factory. After the land
use right was granted to the company by Guangdong Provincial government
in
January
2002,
Guangzhou
Municipal
Land
Resource
and
Building
Administration carried out an independent measurement of the land which
resulted in a difference of 53 square meters from the land area indicated in
the submitted blueprint. These “uncounted” 53 square meters need to be
added to the land use right (now with a total of 7,256 square meters) and a
259
proper application formality has to be executed – this is indicated in the land
use right certificate granted on 19 May 2003. The right to use the land was
for 50 years. This land and all the buildings on it were leased to HGW-Ltd. by
Guangzhou Qianjin City Liwan District Glass Factory on 20 December 2003
and the leases were registered and approved by the relevant government
authorities on 22 April 2010. As the relevant area was relatively small, the
formalities to correct this difference were complex and Guangzhou Property
Management Center intended to acquire the land use right on an adjacent
piece of land, the company plans to use the process of acquiring the new
land use right to solve the 53 square meters issue as suggested by the
However, as of the date of this Prospectus, the necessary legal formalities
with respect to the area of 53 square meters which belongs to the land
where four-story office premises and a plant are located have not been
officially completed by Guangzhou Property Management Center. In addition,
the necessary legal formalities have not been completed with respect to
another piece of land of 9,416 square meters which is allocated to
Guangzhou Property Management Center by the relevant land resource
authority. According to the PRC laws, the land and the buildings on the land
may not be leased if the legal formalities have not been completed. In case
of a violation, a penalty can be imposed on the lessor, the income (i.e. the
rental) can be confiscated by the competent land resource authority and the
lessor can be ordered to cease the illegal leasing activity. Guangzhou
Property Management Center’s sole shareholder Mr. Chun Li Shi has
undertaken to complete the formalities as soon as possible. Further, an
undertaking to bear all administrative and civil liabilities arising from the
failure to go through the formality with respect to the allocated land has been
made by Mr. Chun Li Shi.
In addition, there is a Resolution Letter on the Inspection and Acceptance of
the Construction Project Planning issued by Guangzhou Municipal Urban
Planning Bureau on 28 May 2010, according to which the three-story building
on the allocated land is accepted as a temporary plant and is allowed to be
used for 2 years.
17.15.2 Lease Agreements
The lease of the land and buildings by HWG-Ltd. subject to the certificates
listed in the table below is based on three lease agreements with Guangzhou
Property Management Center, a company wholly owned by Mr. Chun Li Shi,
260
and one lease agreement with Mr. Chun Li Shi. Guangzhou Property
Management Center and Mr. Chun Li Shi are the lessors of the following
buildings, the particulars of which are set out as follows:
Name of Certificate
Location
Usage
of Building
Construction Area
(square
meters)
Sharing
Land
Area
(square
meters)
7,256.03
1
F1, Zibian Building 1,
No. 6, West of Hougang
Street, Guanghai Road,
Chatou, Baiyun District,
Guangzhou
Real
Estate
Title
Certificate issued to
Guangzhou
Property
Management Center
office
399.13
2
Guangzhou
Real
Estate
Title
Guangzhou
Property
Management Center
office
372.15
3
Guangzhou
Real
Estate
Title
Guangzhou
Property
Management Center
office
336.47
4
Guangzhou
Real
Estate
Title
Guangzhou
Property
Management Center
office
328.88
5
Zibian Building 2, No. 6,
West of Hougang Street,
Guanghai Road, Chatou,
Baiyun
District,
Guangzhou
Real
Estate
Title
Guangzhou
Property
Management Center
plant
3,324.26
6
Baiyun
District,
Guangzhou
Real
Estate
Title
Guangzhou
Property
Management Center
plant
1,311.13
7
Baiyun
District,
Guangzhou
Real
Estate
Title
Guangzhou
Property
Management Center
plant
4,345.51
8
Zibian Building 1, No.
80, North of Hougang
Street, Qingcha Road,
Baiyun
District,
Guangzhou
Real
Estate
Title
Certificate issued to Mr.
Chun Li Shi
plant
6,287
6,203.31
9
Guangzhou
Land
Use
Right
Guangzhou
Property
Management Center
plant
and
warehou
se
6,553
9,416
7,238.93
According to the lease agreements between HWG-Ltd. and Guangzhou
Property Management Center with respect to the above No. 1-4 properties,
the rent for the office premises is RMB 9,600.00 (approximately TEUR 1 at 31
March 2011 exchange rate) per month. The term of the lease expires on
31 March 2017.
261
According to the lease agreement between HWG-Ltd. and Guangzhou
Property Management Center with respect to the above No. 5-7 properties,
the rent for the plant is RMB 18,000.00 (approximately TEUR 2 at 31 March
2011 exchange rate) per month. The term of the lease expires on 31 March
2017.
According to the lease agreement with respect to the above No. 8 property,
completed in April 2010, between HWG-Ltd. and Mr. Chun Li Shi, which
replaced the previous lease agreement of July 2009, the rent for the plant is
as follows: RMB 8,000 (approximately EUR 870 at 31 March 2011 exchange
rate) per month from 1 April 2010 to 30 June 2010; RMB 10,000
(approximately TEUR 1 at 31 March 2011 exchange rate) per month from 1
July 2010 to 30 June 2011; RMB 12,000 (approximately TEUR 1 at 31 March
2011 exchange rate) per month from 1 July 2011 to 30 June 2012; RMB
13,000 (approximately TEUR 1 at 31 March 2011 exchange rate) per month
from 1 July 2012 to 30 June 2013; RMB 20,000 (approximately TEUR 2 at 31
March 2011 exchange rate) per month from 1 July 2013 to 30 June 2014;
RMB 25,000 (approximately TEUR 3 at 31 March 2011 exchange rate) per
month from 1 July 2014 to 30 June 2019; RMB 35,000 (approximately TEUR
4 at 31 March 2011 exchange rate) per month from 1 July 2019 to 30 June
2024; RMB 55,000 (approximately TEUR 6 at 31 March 2011 exchange rate)
per month from 1 July 2024 to 30 June 2029; RMB 80,000 (approximately
TEUR 9 at 31 March 2011 exchange rate) per month from 1 July 2029 to 30
June 2034; RMB 104,525 (approximately TEUR 11 at 31 March 2011
exchange rate) per month from 1 July 2034 to 30 June 2039. The term of the
lease expires on 31 March 2039. According to PRC law, the lease term may
not exceed 20 years. If it exceeds twenty years, the period in excess is
invalid. Therefore, the term of the lease with respect to the No. 8 property
expires on 31 March 2030 and the lease is invalid after 1 April 2030.
However, the parties can conclude a new contract for the time after 31 March
2030. The rental payments under this agreement have been paid in advance
until 2039.
According to the lease agreement between HWG-Ltd. and Guangzhou
Property Management Center with respect to the above No. 9 property, the
rent for the plant and warehouse is RMB 5,000.00 (approximately EUR 540 at
31 March 2011 exchange rate) per month. The term of the lease expires on
28 May 2012. This lease agreement is invalid under PRC law because the
leased land is land allocated and not granted by the authorities with the
result that it cannot be subjected to a lease under PRC law. However, the
competent property management authority has accepted the registration of
262
the lease agreement.
According to a rental valuation report issued by an independent third party,
the terms of the lease agreements are not at arm’s length due to the family
relationship of Mr. Chun Li Shi and Mr. Nang Heung Sze, the Controlling
Shareholder of the Company. The agreed rental prices are lower than the
current market price.
17.15.3 Equipment
The Group’s plant, property and equipment also include technical assets and
machinery used in the manufacturing process as well as computers and office
equipment used in the supporting facilities and offices. As of 31 March 2011,
these assets amounted to a net value of TEUR 3,590. These assets are not
encumbered with mortgages and pledges. As of the date of this Prospectus,
no material changes with regard to the Group’s property, plant and
equipment have occurred.
17.16
Intellectual Properties
17.16.1 Patents of HWG-Ltd.
HWG-Ltd. has been granted six utility model patents and applied for the
registration of two invention patents. The registration of the invention
patents with the Chinese Intellectual Property Office (“SIPO”) is still pending
and the applied two invention patents are now under the substance
examination by SIPO. If no due cause is found to reject the application after
the substance examination, SIPO will decide to grant the patent right for the
inventions by issuing the certificate of patent for invention. SIPO will register
and announce the granting at the same time. The patent right for invention
comes into effect as of the date of the announcement. The registered and
applied patents and the relevant information thereon are presented in the
tables below.
263
Patent Certificates of HWG-Ltd.
Patent certificate
Utility Model Patent Certificate for
windows
with
bulletproof,
the
function
burglar
proof
Date of
Application
No.
ZL 200820206059.6
of
Date of
Granting
25 December
21 October
2008
2009
10 October 2008
19 August
and
tamper proof
ZL 200820201663.X
vacuum bag for glass
2009
ZL 200820201743.5
13 October 2008
bulletproof glass for self-defence
2009
safety
door
with
19 August
ZL 200920052078.2
4 March 2009
16 December
electronically
2009
controlled interlock with the function
of bulletproof and anti-tail
201020206582.6
21 May 2008
29 December
bulletproof glass with function of
2010
bullet absorption
201020222951.0
10 June 2010
29 December
intruder-resistant composite glass
2010
Application of Patents of HWG-Ltd.
Name of applied invention
patents
Date of Application
No.
Date of Granting
Glass hot bending techniques
200810219267.4
20 November 2008
Pending
Production
200810218998.7
10 November 2008
Pending
and
equipment
techniques of laminated glass
17.16.2 Trademarks of HWG-Ltd.
HWG-Ltd.
currently
owns
one
registered
trademark
which
previously
belonged to Mr. Nang Heung Sze (registration no. 3553453). It was
transferred to HWG-Ltd together with a second trademark (registration no.
4483251) pursuant to an agreement between HWG-Ltd. and Mr. Nang Heung
Sze of 12 June 2010. The transfer of the first trademark became effective
under PRC law with its registration with the Trademark Bureau of State
Administration of Industry and Commerce on 13 April 2011, whereas the
registration of the transfer of the second trademark is still pending. With
regard to these two trademarks, Mr. Nang Heung Sze and HWG-Ltd. had in
the past concluded trademark licence contracts
264
and
a
supplemental
agreement, according to which HWG-Ltd was entitled to exclusively use the
trademarks (see section 22 “Related Party Transactions”).
The relevant information on the two trademarks is shown below:
Trademark
1)
Registration
No.
Issued by
Validity
Period
Registered by
3553453
Trademark
Bureau of
State AIC
28 June 2005 27 June 2015
Mr. Nang Heung Sze
Class 19
1)
4483251
Trademark
Bureau of
State AIC
14 April 2008 13 April 2018
Mr. Nang Heung Sze
Class 19
2)
Products
Covered
Includes: plate glass for building, glass material, glass steel ceiling, bath cubicles (not of
metal), alabaster glass, building glass, glass granules for road marking, insulating glass,
window glass (except for automotive glass), window glass for building, safety glass.
2)
Includes: plywood, granite, paving asphalt, bath cubicles (not of metal); busts of stone,
concrete or marble, safety glass, insulating glass, alabaster glass, ceramic tile, pottery kiln
tool
HWG-Ltd. has also filed an application for registration of a self-owned
trademark, not used until now, with the Trademark Bureau of State
Administration of Industry and Commerce on 7 March 2008. This application
was accepted by the Trademark Bureau of State Administration of Industry
and Commerce on 24 March 2008, but has not been publicly announced yet.
Further, HWG-Ltd. has mandated a trademark agent to apply for an
additional class of trademark registration for this trademark. Information on
the trademark for which HWG-Ltd. has applied for registration is set out
below:
Trademark
Application
number
6584168
Application
date
7 March
2008
265
Acceptance
of
application
24 March
2008
Application
office
Trademark
Bureau
of
State
Administrati
on
of
Industry and
Commerce
Covered products
Class
19:
alabaster
glass, building glass,
glass granules for road
marking,
insulating
glass, window glass
(except for automotive
glass), window glass
for
building,
safety
glass,
Coated
glass,glass
mosaic,
glass
construction
materials
(not
including
sanitary
facilities)
17.16.3 Domains of China Specialty Glass-Group
The Group has registered the following internet domains:
17.17
·
兴华玻璃.中国 (Chinese characters)
·
http://www.csglass.net
·
http://www.csg-ag.de
·
http://www.csg-ag.com
·
http://www.chinaspecialtyglass.de
·
http://www.chinaspecialtyglass.com
·
http://www.china-specialty-glass.de
·
http://www.china-specialty-glass.com
·
http://www.chinaspecialtyglass-ag.de
·
http://www.chinaspecialtyglass-ag.com
·
http://www.china-specialty-glass-ag.de
·
http://www.china-specialty-glass-ag.com
·
http://www.specialtyglass.de
·
http://www.specialty-glass.de
·
http://www.china-glass.de
·
http://www.china-glass-ag.de
·
http://www.china-glass-ag.com
Investments
Since the Company was founded in 2010, it has not carried out any principal
investments and it is currently not carrying out any principal investments
either. The Company has not made firm commitments on future investments.
HWG-Ltd., as the currently sole operative company of the Group, has made
the following principal investments over the last three financial years:
266
Item
Advance payment for
leasehold land use rights
Advance payment for
leasehold buildings
Leasehold buildings
Plant and machinery
Subsidiary
Total
2008
million
EUR
-
2009
million
EUR
-
2010
million
EUR
-
-
0.1
-
0.7
0.7
0.1
0.2
0.3
0.3
0.6
The investments in 2008 and 2009 relate predominantly to purchases of
plant and machinery.
In 2010 HWG-Ltd. invested in a subsidiary, HWG-SC, incorporated in
Chengdu City, Sichuan Province, China, as well as in construction and
renovation works of the Guangzhou plant. On 30 May 2010 HWG-Ltd.
concluded a contract with the Management Committee of Guangdong –
Wenchuan Industrial Park (the “Management Committee”) to invest and
establish a glass production project and research and development base in
Guangdong – Wenchuan Industrial Park, Sichuan, PRC. In this context,
capital contributions are planned in the amount of the total investment
volume of the project which is RMB 0.3 billion (equivalent to EUR 32.5 million
at 31 March 2011 exchange rates). Of the amount invested RMB 2 million
(approximately EUR 0.2 million at 31 March 2011 exchange rate) were paid
as capital contribution to set up HWG-SC. In addition, HWG-Ltd. made capital
investments of EUR 0.62 million for construction work on leasehold buildings
and plant and machinery in Guangzhou. In October 2010, another RMB 8
million (around EUR 0.92 million) were contributed by HWG-Ltd. into
HWG-SC. In late 2010, HWG-SC invested RMB 25 million (approximately EUR
2.8 million) as an advance payment in the context of a bidding process for
land use rights, RMB 8 million (around EUR 0.92 million) for construction
work and RMB 3 million (approximately EUR 0.34 million) as design/greening
scheme fees. In the first three months of 2011, no significant capital
investments were made by the Group. The Group plans to continue with its
investments
in
its
new
Sichuan
production
facility
and
has
capital
commitments of approximately EUR 33 million in connection with this
project. Neither HWG-Ltd. nor the Group currently have investments that are
in progress.
In 2011 HWG-Ltd. made a firm commitment to conclude an exclusive
distributorship agreement with the industrial group Saint-Gobain with a
267
volume of EUR 17 million (see Section 17.14.4 “Exclusive Distributorship
Agreement”). Apart from this commitment neither HWG-Ltd. nor the Group
have
made
any
other
firm
commitments
to
make
material
future
investments.
17.18
Environment
The manufacturing of specialty glass involves the storage of certain chemical
materials and glass which are hazardous to the environment and the health
of employees if not handled properly. The Group also carries out glass
cleaning and chemical tempering processes which involve discharge of waste
water and to a much lesser extent, toxic chemicals. Although the waste
water is recycled, it is unavoidable that small amounts of waste water have
to be discarded from time to time. Glass particles, broken glass and pieces of
glass that are too small to be used are collected and sold to normal glass
manufacturers to be recycled. Additionally, operating equipment results in
noise.
An operating company is required to hold certain environmental permits, to
obtain approval of an environment impact assessment report (“EIAR”) and
to pass environmental protection inspection acceptance for its activities and
facilities. HWG-Ltd. has to provide an EIAR to the Guangzhou Baiyun
Environmental Protection Bureau (“Guangzhou Baiyun EPB”) to present the
potential environmental impact caused by the operation and the measures it
will take in order to avoid such impact. The operating company has to obtain
approval from Guangzhou Baiyun EPB with respect to the EIAR and based on
this approval it has to pass the inspection and acceptance formalities with
regard to its environmental protection facilities by Guangzhou Baiyun EPB
before its operation. With regard to an intended expansion of its production
scale, HWG-Ltd. is to prepare a further EIAR to the Guangzhou Baiyun EPB
and obtain the approval from the Guangzhou Baiyun EPB. After all the above
procedures, the environmental permits, i.e. wastage discharge permits, are
expected
to
be
issued
by
the
Guangzhou
Environmental
Protection
Supervision Office.
HWG-Ltd. prepared a Construction Project Environmental Impact Report
Form in April 2005 and obtained the approval from Guangzhou Baiyun
Environmental
Protection
Bureau,
based
on
which
the
environmental
protection facilities of HWG-Ltd. passed the examination and were accepted
by Baiyun Environmental Protection Bureau. HWG-Ltd. has obtained the
Pollutant Discharge Permit which is valid until 31 December 2015.
268
The waste discharged by HWG-Ltd. includes hazardous substance. HWG-Ltd.
has concluded a waste disposal contract with Guangzhou Huanhui Technology
Co. Ltd. on 18 May 2010, according to which the hazardous solid waste
produced by HWG-Ltd. will be handled by the qualified professional company.
This contract was renewed in May 2011 with a term of one year until 15 May
2012. Apart from that, based on the confirmation by the management of
HWG-Ltd., all measures required in the EIAR in 2005 have been taken by
HWG-Ltd.
With regard to expansion of production scale in Guangzhou, HWG-Ltd. has
commissioned
a
qualified
institution,
which
has
prepared
a
new
environmental impact assessment report. This report was approved by the
17.19
Legal Proceedings
Neither the Company nor its subsidiaries are currently, nor have they been in
the last twelve months, the subject of any governmental, legal or arbitration
proceedings
(including
any
such
proceedings
which
are
pending
or
threatened of which the Company is aware) which may have, or have had in
the recent past significant effects on the Group’s financial position or
profitability.
269
18.
GENERAL INFORMATION ON THE COMPANY
18.1
Formation, Entry in the Commercial Register, Company Name and Registered
Office
The Company is a stock corporation under German law headquartered in
Gruenwald near Munich, Germany. It is registered with the commercial
register of the local court of Munich under HRB 185783 and under the name
of China Specialty Glass AG. The Company’s business address is An den
Roemerhuegeln 1, 82031 Gruenwald, Germany, phone +49 89 189 42 5227.
The Company was founded on 10 May 2010 as a shelf company by Blitzstart
Holding AG under the name of China Specialty Glass AG headquartered in
Gruenwald near Munich and registered with the commercial register of the
local court of Munich on 18 May 2010. After the acquisition of the shelf
company by Luckyway Global Group Limited, a BVI investment company
incorporated under the laws of the British Virgin Islands, with its business
address at Road Town Tortola, British Virgin Islands, and owned and
controlled
by
Mr.
Nang
Heung Sze,
on
26 May
2010,
the General
Shareholders’ Meeting of the Company on 30 June 2010 decided to increase
the registered share capital from EUR 50,000.00 by EUR 15,000,000.00 to
EUR 15,050,000.00 through the issuance of an aggregate of 15,000,000
shares against contributions in kind.
The acquisition of the shelf company and the subsequent amendment of the
Company’s Articles of Association on 26 May 2010 and 27 May 2010 are
considered as the economic new incorporation (wirtschaftliche Neugründung)
of the Company, due to which Luckyway Global Group Limited is regarded as
the founder of the Company (the “Founding Shareholder”). As a holding
company the Luckyway Global Group Limited has no other function.
Due to the contribution of all shares in HWG HK-Holding into the Company on
22 November 2010, Luckyway Global Group Limited, Quick Reach Group
Limited, Expert Intelligence Global Limited, Sea Dragon Investments Limited
and Hong Kong Investments Group Limited (the latter four companies
together the “HW Investors”) acquired all shares in the Company which
were issued due to the aforementioned capital increase. The capital increase
became legally effective with its entry into the commercial register of the
local court of Munich on 22 November 2010. Following the entry of this
capital increase an IPO of the Company in connection with an additional
capital increase against cash contributions was planned for December 2010.
270
However, the Company decided to postpone the planned IPO to a later stage
in a more favourable capital market and IPO environment.
Upon registration of the capital increase Luckyway Global Group Limited and
the HW Investors held all shares of the Company, of which 11,194,957
shares (74.39%) were held indirectly by Mr. Nang Heung Sze through
Luckyway Global Group Limited, and of which 735,568 shares (4.89%) were
held indirectly by Mr. Ching Hoi Sze through Quick Reach Group Limited,
524,928 shares (3.49%) were held indirectly by Mr. Hung Hui Ke through
Expert Intelligence Global Limited, 1,694,034 shares (11.26%) were held
indirectly by Mr. Yan Kong Wong through Sea Dragon Investments Limited
and 900,513 shares (5.98%) were held indirectly by Mr. Chi Mang Cheung
through Hong Kong Investments Group Limited, who were together with Mr.
Nang Heung Sze the indirect shareholders of HWG HK-Holding prior to the
capital increase.
The Supervisory Board appointed new members of the Management Board on
26 May 2010 (subject to exemption from the prohibition of multiple
representation laid down in sec. 181 BGB). Mr. Nang Heung Sze, Mr. Chun Li
Shi and Mr. Chi Man Wong were appointed members of the Management
Board, while the former member of the Management Board resigned from
office. Mr. Chi Man Wong was replaced by Mr. Chi-Hsiang Michael Lee who
was appointed by the Supervisory Board on 13 October 2010 after Mr. Chi
Man Wong was removed from his office on 13 October 2010. At the same
time, new Supervisory Board members were elected. On 10 June 2010, the
Company applied for the amendment of the Articles of Association to be
entered into the commercial register of the local court of Munich.
18.2
Company Object
Pursuant to sec. 2 of the Company’s Articles of Association, the Company’s
object is the management of companies and the administration of interests in
companies, in particular companies active in the business fields development,
construction, manufacture and distribution of various types of glass and
other glass products as well as of parts and components thereof.
18.3
Financial Year and Term of the Company
The calendar year (i.e. 1 January through 31 December) is also the financial
year (Geschäftsjahr) of the Company. The first financial year 2010 was a
short financial year (Rumpfgeschäftsjahr). There is no limitation on the
duration (Dauer der Gesellschaft) of the Company. It is formed for an
271
indefinite term.
18.4
Group Structure and Recent Corporate Developments of the Group
China Specialty Glass-Group is composed of the ultimate holding company
CSG-AG based in Gruenwald near Munich, Germany, the intermediate holding
company Hing Wah Holdings (Hong Kong) Limited ( “HWG HK-Holding”)
based in Hong Kong, Guangzhou Hing Wah Glass Industry Co., Ltd.
(“HWG-Ltd.”) which is the operating company of the Group and located in
Guangzhou City, PRC, and the currently dormant company Sichuan Hing Wah
Glass Co., Ltd. (“HWG-SC”). CSG-AG is the direct holding company of HWG
HK-Holding which was incorporated under the laws of Hong Kong and
operates as an intermediate holding company. HWG HK-Holding is the direct
holding company of HWG-Ltd. of which HWG HK-Holding holds all shares.
HWG-Ltd. holds all shares in HWG-SC. HWG HK-Holding, HWG-Ltd. and
HWG-SC are collectively referred to as “HWG HK-Group”. HWG HK-Group
and
the
Company are
collectively referred to
as
“China Specialty
Glass-Group” or “the Group”.
The following table provides an overview of the current shareholding
structure of the China Specialty Glass-Group as of the date of the Prospectus.
Ultimate holding
1)
"CSG-AG" or "Company"
Listing entity
"China Specialty Glass-Group"
or "Group"
100%
2)
Intermediate holding
"HWG HK-Holding"
100%
Guangzhou Hing Wah Glass Industry Co. Ltd
Operational entity
3)
"HWG-Ltd"
100%
Subsidiary
"HWG-SC"
Incorporated in 1) Germany, 2) Hong Kong and 3) China (PRC)
272
"HWG HK-Group"
18.4.1 China Specialty Glass AG and Hing Wah Holdings (Hong Kong)
Limited
The China Specialty Glass-Group emerged from HWG HK-Group and the
acquisition of all shares of HWG HK-Holding by CSG-AG in November 2010.
However, historically the business of China Specialty Glass-Group reached
back to the establishment of HWG-Ltd. in 1994, which was incorporated into
HWG HK-Group in 2008 and thus became a wholly foreign owned enterprise
under PRC law.
HWG HK-Holding was incorporated by GNL07 Limited with limited liability in
Hong Kong under the laws of Hong Kong on 26 July 2007. The address of
registered office is Room 1503, 15/F, Office Tower, Convention Plaza, 1
Harbour Road, Wan Chai, Hong Kong. On 3 October 2007, Mr. Nang Heung
Sze acquired one subscriber share from GNL07 Limited for a consideration of
Hong Kong Dollar (“HKD”) 1. On the same date, a total of 9,999 shares of
HKD 1 each were issued and allotted, credited as fully paid to Mr. Nang
Heung Sze and as a result, HWG HK-Holding was owned 100% by Mr. Nang
Heung Sze.
Prior to the establishment of HWG HK-Holding several share purchase
agreements were concluded as follows. On 8 November 2006, an agreement
was entered into among Mr. Nang Heung Sze, HWG-Ltd. and Mr. Chi Mang
Cheung. On the same date, another agreement was entered into among Mr.
Nang Heung Sze, HWG-Ltd. and Mr. Yan Kong Wong. On 20 December 2006,
an agreement was entered into among Mr. Nang Heung Sze, HWG-Ltd. and
Mr. Ching Hoi Sze and on 22 December 2006, an agreement was entered into
among Mr. Nang Heung Sze, HWG-Ltd. and Mr. Hung Hui Ke (together the
“Sale and Purchase Agreements”). Except for the contracting parties, the
terms of the Sale and Purchase Agreements are substantially the same.
Under the terms of the Sale and Purchase Agreements, HWG-Ltd. would
undergo a reorganisation to streamline the group structure in preparation for
an overseas listing. A Hong Kong company would be established and hold
100% equity interest in HWG-Ltd. and an ultimate holding company would be
established outside of China as a listing vehicle for HWG-Ltd. After
establishment of the Hong Kong company, Mr. Nang Heung Sze agreed to
transfer 6.0%, 11.3%, 4.9% and 3.5% equity interest in the proposed Hong
Kong company to Mr. Chi Mang Cheung, Mr. Yan Kong Wong, Mr. Ching Hoi
Sze and Mr. Hung Hui Ke or their respective nominees at the consideration of
273
RMB 9.0 million, RMB 17.0 million, RMB 7.35 million and RMB 5.25 million
respectively, based on the net asset value (including the other assets) of
HWG-Ltd. as of 2005. Such considerations were fully paid by Mr. Chi Mang
Cheung, Mr. Yan Kong Wong, Mr. Ching Hoi Sze and Mr. Hung Hui Ke to Mr.
Nang Heung Sze. It was agreed that Mr. Chi Mang Cheung, Mr. Yan Kong
Wong, Mr. Ching Hoi Sze and Mr. Hung Hui Ke would not be involved in the
operation of HWG-Ltd.
On 30 April 2010, the authorised share capital of HWG HK-Holding was
increased from HKD 10,000 to HKD 1,000,000 by the creation of 990,000
new shares of HKD 1 each. In order to implement the transactions under the
Sale and Purchase Agreements, on the same date, a total of 3,459 shares of
HKD 1 each were issued and allotted at par value as to (i) 808 shares to
Hong Kong Investments Group Limited; (ii) 1,520 shares to Sea Dragon
Investments Limited; (iii) 660 shares to Quick Reach Group Limited; and (iv)
471 shares to Expert Intelligence Global Limited. Upon completion of such
allotment, HWG HK-Holding was held as to 74.3% by Mr. Nang Heung Sze,
6% by Hong Kong Investments Group Limited, 11.3% by Sea Dragon
Investments Limited, 4.9% by Quick Reach Group Limited and 3.5% by
Expert Intelligence Global Limited. Mr. Chi Mang Cheung, Mr. Yan Kong
Wong, Mr. Ching Hoi Sze and Mr. Hung Hui Ke are the beneficial owners of
Hong Kong Investments Group Limited, Sea Dragon Investments Limited,
Quick
Reach
Group
Limited
and
Expert
Intelligence
Global
Limited
respectively (the “HW Investors”).
In November 2010, HWG HK-Group was integrated into China Specialty
Glass-Group. By doing so, CSG-AG acquired all shares in HWG HK-Holding by
means of a capital increase from EUR 50,000.00 by EUR 15,000,000.00 to
EUR 15,050,000.00 through the issuance of an aggregate of 15,000,000
shares against contributions in kind. By the contribution of all shares of HWG
HK-Holding into CSG-AG, Luckyway Global Group Limited and the HW
Investors acquired all shares in CSG-AG which were issued due to the
aforementioned capital increase (see section 18.1 “Formation, Entry in the
Commercial Register, Company Name and Registered Office”). The capital
increase against contributions in kind became legally effective with its
registration with the commercial register of the local court of Munich on 22
November 2010.
274
With the implementation of the capital increase of CSG-AG the shareholder
structure of CSG-AG was as follows:
Shareholding in CSG-AG
Name
(as of 30 September 2010)*
Luckyway Global Group Limited
74.39%
Quick Reach Group Limited
4.89%
Expert Intelligence Global Limited
3.49%
Sea Dragon Investments Limited
11.26%
5.98%
Hong Kong Investments Group
Limited
* For further information on the shareholder structure after the IPO see section 21 “Shareholder
Structure (before and after the Offering)”.
18.4.2 Guangzhou Hing Wah Glass Industry Co., Ltd. and Sichuan Hing Wah
Glass Co., Ltd.
HWG-Ltd. was incorporated on 24 October 1994 as a sino-foreign joint
venture company under the laws of the People’s Republic of China by
Guangzhou Property Management Center (70%) and Hong Kong Chung Hwa
Enterprises Development Co. (“HK Chung Hwa”) (30%). As of the time of
its
establishment,
HWG-Ltd.
was
registered
with
the
Guangzhou
Administration of Industry and Commerce (“AIC”) under the registration
number Gongshangqiheyuesuigzi no. 02536 with a registered capital of
HKD 4,000,000.00 and the business name Guangzhou HingWah Auto Glass
Industry Co., Ltd. with the business address at Nantougang, Chatou, Baiyun
District, Guangzhou City, PRC.
Currently, HWG-Ltd. is registered with Guangzhou AIC under the registration
number 440101400046237 and under the name of Guangzhou Hing Wah
Glass Industry Co., Ltd. and has its registered address in F1, Zibian Building
1, No. 6, West of Hougang Street, Guanghai Road, Chatou, Baiyun District,
Guangzhou City, PRC. After the capital increase from HKD 4,000,000.00
(approximately EUR 0.4 million) by HKD 10,000,000.00 (approximately
EUR 1 million) to HKD 14,000,000.00 (approximately EUR 1.4 million)
through the issuance of new shares to its sole shareholder HWG HK-Holding
against cash contributions became legally effective with approval from Liwan
BOFTEC on 3 March 2010 and registration with the Guangzhou AIC on 8 June
2010, the current registered capital of HWG-Ltd. is HKD 14,000,000.00
275
(approximately EUR 1.4 million) which is fully paid in. Further, until present
date HWG-Ltd. has set aside RMB 6,129,545.07 (approximately EUR 0.7
million) into the statutory reserve fund which shall reach 50% of its
registered capital.
On 15 January 2008, HWG-Ltd. became a wholly foreign owned enterprise by
the share transfers from its initial shareholders Guangzhou
Property
Management Center which held 70% of the shares and HK Chung Hwa which
held 30% of the shares to HWG HK-Holding. The restructuring in the
ownership of HWG-Ltd. was executed by Mr. Nang Heung Sze together with
his son Mr. Chun Li Shi who directly or indirectly controlled Guangzhou
Property Management Center and HK Chung Hwa as well as HWG
HK-Holding. At the time of the share transfer from Guangzhou Property
Management Center and HK Chung Hwa to HWG HK-Holding, Mr. Nang
Heung Sze held all shares in HWG HK-Holding and Mr. Chun Li Shi who is the
son of Mr. Nang Heung Sze held 100% of the shares in Guangzhou Property
Management Center and Mr. Zhefen Li held 100% of the shares in HK Chung
Hwa as trustee for Mr. Nang Heung Sze.
HWG-Ltd. was formed for a certain period of time. Its business term will
expire on 24 December 2017. According to the PRC laws and Articles of
Association of the company, after the business term of the company expires,
the company may be dissolved or continue to exist, if the shareholders'
meeting adopt a resolution with a two-third majority. As of the date of the
Prospectus, China Specialty Glass-Group plans to extend the business term
after expiration.
HWG-SC is registered with Chengdu Jintang AIC under the registration
number
510121000016747
and
located
in
Chengdu-A’ba
Industrial
Development Zone, Huaikou Town, Jintang County, Chengdu City, PRC. The
company was established on 25 May 2010 as a private limited liability
company under PRC law by HWG-Ltd. HWG-SC has no operational trading
business yet, although it has invested in property, plant and equipment, land
use rights and design rights, and has assumed liabilities for its investments
and commitments in respect of its planned investments. Mr. Nang Heung Sze
is appointed as legal representative of HWG-SC. The business scope of
HWG-SC is the production and processing of all kinds of glass product and
sales of its products (excluding the business scope which is prohibited or
limited by the PRC laws, regulations and administrative stipulations and
which is subject to the approval or license).
276
18.4.3 Other Companies of the Controlling Shareholder
Apart from Guangzhou Property Management Center, HK Chung Hwa, HWG
HK-Holding, HWG-Ltd. and HWG-SC, Mr. Nang Heung Sze (“Controlling
Shareholder”) and his son Mr. Chun Li Shi directly or indirectly controlled
the following companies with a business scope similar to HWG-Ltd: Ma Men
Holdings (HK) Limited Guangzhou Xing Wah Glass Products Co., Ltd.,
Guangzhou Xing Yun Industry Co., Ltd., Guangzhou Shiweishi Security
Technology Stock Co., Ltd., Guangzhou Yaoxiang Decoration Co., Ltd. and
Xi’an Mamen Security Technology Co., Ltd.
Ma Men Holdings (HK) Limited (previously “Xing Hua Holdings (HK) Ltd.”)
was incorporated in Hong Kong on 13 October 1999. Subsequently, Mr. Nang
Heung Sze and Mr. Ching Hoi Sze acquired one subscriber share from each of
the company’s two founding shareholders and became its directors. In
October 1999, Mr. Nang Heung Sze was issued and allotted shares so that
his shareholding rose to 99.9%, while 0.01% was held by Mr. Ching Hoi Sze.
In December 2009, Mr. Ching Kwan Li replaced Mr. Nang Heung Sze and Mr.
Ching Hoi Sze as director of Ma Men Holdings (HK) Limited and in February
2010 acquired all of their shares, thus becoming the only shareholder.
Guangzhou Xing Wah Glass Products Co., Ltd. (previously “Guangzhou Xing
Wah Bullet-proof Glass Co., Ltd.”) was established in 2001 by HWG-Ltd. and
Ma Men Holdings (HK) Limited as a sino-foreign joint venture and became a
wholly foreign owned enterprise in 2003 after the transfer of all shares from
HWG-Ltd. to Ma Men Holdings (HK) Limited Mr. Nang Heung Sze directly or
indirectly held from 1994 to 2010 up to 100% shares in HWG-Ltd. and from
October 1999 to February 2010 up to 99.9% shares in Ma Men Holdings (HK)
Limited In addition, Mr. Nang Heung Sze and his son Mr. Chun Li Shi have
been members of the management of the company since its establishment
until present date. In 2010, the company applied for the closure of its
business which was approved in March 2010. The deregistration of the
company was completed in September 2010 with the receipt of the Notice for
Acception of the Deregistration.
Guangzhou Xingyun Industry Co., Ltd. (previously “Guangzhou Xingyun
enterprise Co., Ltd.”) was incorporated in 1992 as a private limited liability
company under PRC law by Mr. Nang Heung Sze who held 90% of the shares
and Li Xianli who held 10% of the shares. On 30 December 2002, the
company’s business licence was revoked for not attending the annual
inspection for the year 2001. Thus, the Company ceased to exist on
277
30 December 2002. Mr. Nang Heung Sze was a member of the management
and the legal representative of the company until the business licence was
revoked.
Guangzhou Shiweishi Security Technology Stock Co., Ltd. (previously
“Guangzhou
Xing
Wah
Industry
Company
Limited
by
Shares”)
was
established by Mr. Nang Heung Sze and other initial shareholders on
21 February 2005 with Mr. Nang Heung Sze holding 48.6% of the shares. Mr.
Nang Heung Sze transferred all his shares to Ms. Shanshan Li in 2007. Until
the
share transfer,
Mr. Nang
Heung
Sze
was
the
chairman
of
the
management board and legal representative of the company. On 26 May
2010, Ms. Shanshan Li transferred her shareholding to a third party and was
removed from her position of legal representative. The above changes were
registered.
Guangzhou Yaoxiang Decoration Co., Ltd. was incorporated in 1998 by
Mr. Chun Li Shi who held 40% and a third party who held 60% of the shares.
Until 2005 Mr. Chun Li Shi was also the company’s director. The company
was deregistered in December 2007. It did not commence operational
business and was dormant until its deregistration.
Xi’an Mamen Security Technology Co., Ltd. was established on 6 August 2001
as a wholly foreign owned enterprise by Ma Men Holdings (HK) Limited, the
sole shareholder until present date. Mr. Nang Heung Sze held from October
1999 to February 2010 up to 99.9% shares in Ma Men Holdings (HK) Limited
In addition, Mr. Nang Heung Sze as chairman and his son Mr. Chun Li Shi as
director were members of the management board until September 2007.
18.5
Development of the Group’s Business
The development of the Group’s business from 1994 until the date of this
Prospectus can be summarised as follows:
·
1994: Formation of HWG-Ltd.
·
1996/1997: Innovation of bulletproof glass for automobiles
·
1998: Innovation of fire-resistant glass
·
1999: Name of HWG-Ltd. changed into present one
·
2003: Recognised as high-tech enterprise in Guangzhou City
·
2004: Premises of HWG-Ltd. relocated to present site
278
·
2008: HWG HK-Holding became the sole shareholder of HWG-Ltd.
Hing Wah was recognised as famous trademark in Guangzhou
Recognised as Top 100 enterprises with strong development
potentiality in China
Recognised as the Designated Provider of Glass with High
Technology for Construction in China
·
2009: Recognised as Top 30 Enterprises in Glass Industry in Guangdong
Rewarded as Top 10 brands for specialized glass in Guangdong
·
2010: Capital increase of HWG-Ltd. from HKD 4 million by HKD 10 million
to HKD 14 million
Acquisition of CSG-AG by Luckyway Global Group Limited and
capital
increase
of
CSG-AG
from
EUR
50,000.00
by
EUR 15,000,000.00 to EUR 15,050,000.00 by contributing all
shares in HWG HK-Holding into CSG-AG.
Establishment of HWG-SC
18.6
Announcements; Paying and Depositary Agent
As
laid
down
in
the
Company’s
Articles
of
Association
(Satzung)
announcements of the Company will be - as long as not otherwise provided
by law - published in the electronic version of the German Federal Gazette.
The publication of the annual financial statements and the interim financial
statements will take place on the website of the Company. Besides the
availability of the accounting documentation in the enterprise register
(Unternehmensregister), the Company will publish notices concerning the
date and the website address at which the accounting will be available to the
public.
Announcements which concern the approval of the Prospectus by the German
Federal
Financial
Supervisory
Authority
(Bundesanstalt
für
Finanzdienstleistungsaufsicht – BaFin) or amendments to the Prospectus will
be published – in accordance with in the provisions of the German Securities
Prospectus Act (Wertpapierprospektgesetz - WpPG) – in the form the
Prospectus
provides
for,
i.e.,
on
the
website
of
the
Company
(www.csg-ag.de). Copies of the Prospectus will be available at the offices of
279
VISCARDI AG, Brienner Str. 1, 80333 Munich, Germany and biw Bank für
Investments und Wertpapiere AG, Hausbroicher Str. 222, 47877 Willich,
Germany. Paying agent and depositary agent in Germany is biw AG.
280
19.
INFORMATION ON THE CAPITAL OF THE COMPANY AND APPLICABLE
PROVISIONS
19.1
Registered Share Capital; Authorised Capital
19.1.1 Registered Share Capital and Shares
The
registered
share
capital
of
the
Company
amounting
to
EUR 15,050,000.00 is comprised of 15,050,000 ordinary no-par value shares
(Stückaktien). Each of the shares has a calculated value of EUR 1.00. The
Company’s share capital has been fully paid in.
To allow biw AG to fulfil its retransfer obligation vis-à-vis Luckyway Global
Group Limited from the securities loan described in section 25.3 “Securities
Loans and Greenshoe Option”, it is intended that an according capital
increase against cash contribution will take place. Up to 6,000,000 shares
shall be issued from the Authorised Capital 2010/I and the issued shares
shall be subscribed by biw AG. The capital increase is expected to be
resolved by the Management Board and approved by the Supervisory Board
on or around 20 June 2011 with the then existing shareholders waiving their
subscription rights. The application for registration of the capital increase is
expected to be submitted with the commercial register of the local court
(Amtsgericht) of Munich on 4 July 2011. It is expected that registration and
effectiveness of the capital increase will take place on 11 July 2011. Upon
registration of the capital increase with the commercial register, the shares
from the capital increase will be transferred to Luckyway Global Group
Limited.
Assuming that the maximum number of shares is issued, the share capital of
the Company after the capital increase will amount to EUR 21,050,000.00
consisting of 21,050,000 no par value shares with a calculated value of
EUR 1.00 per share.
19.1.2 Development of the Registered Share Capital
Between the foundation of the Company and the date of the present
Prospectus, the Company’s share capital has developed as follows:
The Company was established as a shelf company on 10 May 2010 with a
share capital of EUR 50,000.00 and registered with the commercial register
of the local court of Munich on 18 May 2010. In the context of the economic
new incorporation (wirtschaftliche Neugründung) on 27 May 2010, the
281
Articles of Association of the Company were changed but not the amount of
the share capital.
On 30 June 2010, the extraordinary shareholders’ meeting (außerordentliche
Hauptversammlung)
EUR 50,000.00
by
resolved
an
to
aggregate
increase
amount
the
of
share
capital
from
EUR 15,000,000.00
to
EUR 15,050,000.00 in return for contributions in kind. The capital increase
took place through the issuance of an aggregate of 15,000,000 new ordinary
no-par value bearer shares, each with a calculated value of EUR 1.00. The
capital increase was entered in the commercial register of the local court of
Munich on 22 November 2010.
19.1.3 Authorised Capital
In accordance with the Company’s Articles of Association (Satzung), the
Management Board is authorised to increase the share capital of the
Company with the approval of the Supervisory Board for a period of five
years starting with the registration of this authorization in the commercial
register once or several times by up to EUR 7,525,000.00 through the
issuance of up to 7,525,000 new no-par value bearer shares in cash or in
contributions in kind (“Authorised Capital 2010/I”).
The Management Board is further authorised, in each case with the consent
of the Supervisory Board, to provide that the subscription right of the
shareholders is excluded. An exclusion of the subscription right, however, is
only permitted in the following cases:
·
if the new shares are issued to acquire companies, shares in companies
or parts of companies:
·
for fractional amounts.
The Management Board is to decide with the consent of the Supervisory
Board on the content of the rights to and the conditions of the issuance of
the shares.
19.2
General Form, general Representation and general Transferability of Shares
Each share has one vote at the General Shareholders’ Meeting. There are no
voting rights restrictions. The shares are represented by one or more global
certificates without dividend coupons. The shares are deposited with
Clearstream
Banking
AG,
Frankfurt/Main,
as
securities
clearing
and
depository bank. The Company´s Articles of Association constitute that
282
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 the dividend and renewal coupons is carried
out by the Management Board and is subject to the approval of the
Supervisory Board.
The Securities Identification Number (WKN) of the shares is A1EL8Y, the
International Securities Identification Number (ISIN) is DE000A1EL8Y8 and
the Ticker Symbol is 8GS.
The shares are freely transferable in accordance with legal requirements for
bearer shares. Except for the restrictions set forth under section 8.11
“Market Protection Agreements (Lock-Up)”, there are no prohibitions with
respect to the disposal or the transferability of the shares of the Company.
19.3
General Provisions relating to Profit Allocation and Dividend Payments, to a
Liquidation of the Company and to Subscription Rights as well as General
Provisions governing Changes in the Share Capital
19.3.1 Provisions relating to Profit Allocation and Dividend Payments
According to German law, shareholders may participate in the profits of a
stock corporation. This participation is determined on the basis of the
respective interests of the shareholders in the share capital. The articles of
association of a stock corporation may however 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 and Supervisory
Board submit a proposal to the annual General Shareholders’ Meeting held in
the subsequent financial year and such annual General Shareholders’ Meeting
adopts a resolution.
If Luckyway Global Group Limited holds an effective or, depending on the
presence at the General Shareholders’ Meeting, a factual majority of the
voting rights present or represented at the meeting, it may exercise further
influence on the utilisation of the Company’s profits and/or the dividends’
policy.
German law provides that a resolution concerning dividends and distribution
283
thereof may be adopted only if the Company’s unconsolidated financial
statements show net retained profits. 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 the event that the annual financial statements (Jahresabschluss) account
for a balance sheet profit (Bilanzgewinn) in the future, the Management
Board (Vorstand) and Supervisory Board (Aufsichtsrat) intend to propose a
profit distribution among the shareholders. The Company intends to
distribute profits if and to the extent it is covered by the annual net income
(Jahresüberschuss) which is shown in the respective annual financial
statements (Jahresabschluss). The remaining profits, if any, are to be booked
into retained earnings and be used to finance the further development of the
Company’s business and its internal growth.
Future dividend distributions will depend on several factors. Foremost the
results of operations of the Company will be decisive. Besides the financial
situation of the Company, its need for financing and the legal, tax and
regulatory environment will influence the dividend payments as well.
Dividends on shares resolved by the annual General Shareholders’ Meeting
are paid annually, shortly after the annual General Shareholders’ Meeting, in
compliance with the rules of the respective clearing system. Dividend
payment claims by shareholders are subject to a three-year statute of
limitations. Upon expiry of the three-year period the Company is no longer
obliged to make the dividend payment to the respective shareholder. Details
concerning any dividends resolved by the annual General Shareholders’
Meeting and the respective paying agents specified by the Company will be
published in the electronic version of the Federal Gazette (elektronischer
Bundesanzeiger).
19.3.2 Provisions relating to a Liquidation of the Company
The liquidation of the Company unless it is determined by insolvency
proceedings or other reasons as described in the German Stock Corporation
Act (Aktiengesetz) must be decided upon at the General Shareholders’
Meeting (Hauptversammlung). The resolution to liquidate the Company must
be adopted with a majority of at least 75% of the share capital represented.
The assets remaining after satisfying of all of the Company’s liabilities will be
distributed pro rata among its shareholders. The German Stock Corporation
284
Act (Aktiengesetz – AktG) provides certain protections for creditors which
must be observed in the event of liquidation.
19.3.3 Provisions relating to Subscription Rights
According to the German Stock Corporation Act (Aktiengesetz – AktG), every
shareholder is generally entitled to subscription rights to any new shares
issued within the framework of a capital increase, including convertible
bonds, bonds with warrants, profit-sharing rights or income bonds. A
minimum subscription period of two weeks has to be provided for the
exercise of such subscription rights.
Furthermore, such subscription rights are freely transferable and may be
traded on German stock exchanges within a specified period prior to the
expiration of the subscription period. The General Shareholders’ Meeting may
pass a resolution excluding subscription rights, if at least 75% of the share
capital represented adopts the resolution. To exclude subscription rights, the
Management Board must also make a report available to the shareholders
justifying the exclusion and demonstrating that the Company’s interest in
excluding the subscription rights outweighs the shareholders’ interest in
keeping them. The exclusion of subscription rights upon the issuance of new
shares is permitted, in particular, if the Company increases the share capital
against cash contributions, if the amount of the capital increase does not
exceed 10% of the existing share capital and the issue price of the new
shares is not significantly lower than the market price of the Company’s
shares.
19.3.4 Provisions governing Changes in the Share Capital
German law provides that for an increase of the share capital a resolution of
the General Shareholders’ Meeting (Hauptversammlung) which has to be
adopted with a majority of at least 75% of the share capital represented at
the meeting is needed, unless the articles of association require a different
majority.
Also permitted is the creation of authorised share capital. The Management
Board is hereby authorised to increase the share capital of the Company with
the approval of the Supervisory Board (see section 19.1 “Registered Share
Capital; Authorised Capital”).
Besides, the shareholders may create conditional capital for purposes of
issuing (i) shares to holders of convertible bonds or other securities carrying
285
a right to subscribe for shares, (ii) shares serving as consideration in the
case of a merger with another company, or (iii) shares intended to be offered
to executives and employees, provided that in each case a resolution is
adopted by a three-fourths majority of the share capital represented at the
adoption of the resolution. The nominal amount of the conditional capital
created for purposes of issuing shares to executives and employees may not
exceed 10% of the share capital existing at the time the resolution is
adopted. The total nominal amount of conditional capital may not exceed
50% of the share capital (at the time the General Shareholders’ Meeting
adopts the resolution).
Resolutions adopted to reduce the share capital require a 75% majority of
the share capital represented at the adoption of the resolution.
19.4
Takeover Offers, Exclusion of Minority Shareholders (Squeeze-Out) and
Shareholding Notification Requirements
19.4.1 Mandatory Takeover Offers
The Company as a stock corporation (Aktiengesellschaft) which is listed on a
regulated market within the meaning of art. 4, para. 1 no. 14 of the Directive
2004/39/EC is – in accordance with the provisions of the German Securities
Acquisition and Takeover Act (Wertpapiererwerbs- und Übernahmegesetz —
WpÜG ) – 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) is obliged to refrain from any actions that could result in
the frustration of the public takeover bid. In addition, the Management Board
(Vorstand)
has
(Aufsichtsrat)
to
to
work
in
prepare
cooperation
and
with
announce
the
a
Supervisory
detailed
Board
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.
286
19.4.2 Squeeze-out of Minority Shareholders and Integrations
The General Shareholders’ Meeting 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 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 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. 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 generally
be granted in the form of shares of the principal company. The amount of the
settlement
is
calculated
using
287
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.
19.4.3 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, amongst 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 on 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
288
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 or other 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 3%, 5%, 10%, 15%, 20%, 25%, 30%, 50% or 75%.
With regard to this any holder of a financial or other instrument not covered
by the aforementioned option provision (sec. 25 WpHG), who makes an
acquisition of already issued shares crossing the respective notification
thresholds of 5%, 10%, 15%, 20%, 25%, 30%, 50% or 75% possible, is
required to file a notification. To “make possible” covers, in particular, a
transfer of risk to the option holder. In case of options and similar
transactions, even cash settled, the trigger event has to be considered to
have taken place. For calculation of the thresholds all financial and other
instruments are added together.
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 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 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. 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
289
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 (Wertpapiererwerbsund 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.
19.4.4 Disclosure
of
Transactions
by
Persons
Exercising
Executive
Responsibilities at a Listed Company
According
to
the
provisions
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 on a domestic organised
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, amongst others, members of the Management Board of
Supervisory Board or any other Executives who are authorised 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 organisations 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
organisations, (ii) or the Executives or persons who are closely related to the
Executives directly or indirectly control the legal entity or the other
organisations, (iii) or if the legal entities or other organisations 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
organisations are substantially equivalent to those of the Executives or
290
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 company
and BaFin no later than on 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 notification to the business register without
undue delay, following the publication of the notification.
291
20.
INFORMATION ON THE GOVERNING BODIES OF THE COMPANY
20.1
Overview
The
governing
(Vorstand),
the
bodies
of
the
Supervisory
Company
Board
are
the
(Aufsichtsrat)
Management
and
the
Board
General
Shareholders’ Meeting (Hauptversammlung). The powers of the corporate
bodies are governed by the German Stock Corporation Act (Aktiengesetz –
AktG) and the Articles of Association of the Company (Satzung). Additionally,
the rules of procedure of the Management Board (Geschäftsordnung des
Vorstands) apply.
The Management Board and the Supervisory Board shall cooperate trustfully
for the interests of the Company. The Management Board conducts the
company’s business in compliance with the applicable laws, the Articles of
Association of CSG-AG and the rules of procedure of the Management Board.
The rules of procedure may set out a list of matters which require the prior
consent of the Supervisory Board. If the Supervisory Board refuses to declare
its consent, the Management Board can ask the General Shareholders’
Meeting to resolve this matter, but in general the General Shareholders’
Meeting is not authorised to issue any instructions to the Management Board.
The Management Board moreover represents the Company in dealings with
third parties. The Management Board is controlled by the Supervisory Board.
To enable the Supervisory Board to carry out its monitoring functions the
Management Board is obliged to report regularly to the Supervisory Board on
matters of current business operations and future business planning at least
on a quarterly basis. Any matters involving subsidiaries and/or affiliates
which could have a material effect on the Company’s position must be
reported to the Chairman of the Supervisory Board (Vorsitzender des
Aufsichtsrats).
The Management Board and the Supervisory Board work independently from
each other. Membership in both bodies at the same time is not permitted,
i.e. members of the Management Board must not at the same time be
members of the Supervisory Board and vice versa. In addition, a member of
the Supervisory Board must not be in an executive position of any of the
Company’s subsidiaries (also outside Germany).
The Supervisory Board advises the Management Board and is responsible for
appointing and dismissing the members of the Management Board. The
Supervisory Board is not entitled to engage in managing activities, however.
292
In dealings between members of the Management Board and the Company
itself, the Supervisory Board represents the Company. To ensure an effective
control of the Management Board the Supervisory Board is entitled to request
special reports from the Management Board at any time.
The members of the Management Board as well as the Supervisory Board
must apply the due care of a prudent and conscientious manager in
performing their duties. Therefore the members of the governing bodies
must take into account the interests of the Company, its shareholders,
employees and creditors in all their actions. It is moreover required from the
members of the Management Board to consider the concept of equal
treatment and equal information of shareholders. In case of a breach of duty
the members of the Management Board as well as of the Supervisory Board
are jointly and severally liable to the Company for damages. In case of a
breach of duty committed by the members of the Management Board or the
Supervisory Board which leads to damages suffered by the Company only the
Company itself is entitled to raise a claim against the members whereas
shareholders cannot take direct actions against the members of the
governing bodies. Thus given normal circumstances the Company will claim
compensation itself. In specific cases, the Management Board 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 further
contains an exemplary list of acts which directly trigger the Management
Board’s liability, e.g. in case of the repayment of contributions to the
shareholders or the unlawful distribution of the Company’s assets.
In the event of claims against the Supervisory Board the Company will be
represented by the members of the Management Board and in case of claims
against the Management Board the Supervisory Board will take over the
representation. Pursuant to a decision of the German Federal Supreme Court
(Bundesgerichtshof)
the
Supervisory
Board
is
obliged
to
raise
any
enforceable claim for compensation against the Management Board unless
significant reasons relating to the Company’s welfare render the assertion of
such a claim unadvisable. If a compensatory claim is not pursued by the
respective body, the General Shareholders’ Meeting can resolve with a simple
majority to enforce the right for compensation. Shareholders whose capital
collectively represents 10% or more of the Company’s share capital or
EUR 1,000,000.00 may request the appointment of a representative who is
to enforce the claim for compensatory damages. At the time the application
is filed shareholders whose capital constitutes 1% or more of the Company’s
293
share capital or
a notional value of the share capital of
at least
EUR 100,000.00 may ask for the assertion of the compensatory claim in their
own name before the Regional Court (Landgericht) at the Company’s
registered domicile for the enforcement of claims for compensation. Certain
preconditions have to be fulfilled for the admission of such a claim. The
shareholders must have unsuccessfully demanded from the Company to raise
the claim, combined with setting of an appropriate deadline for taking action.
Facts
must
indicate
that the
Company has
suffered
damages
from
impropriety or gross violation of the law or of the articles of association. The
right to take action itself remains with the Company at any time. Thus
pending approval or action proceedings of the shareholders are rendered
inadmissible if the Company takes legal action.
The German Stock Corporation Act stipulates that the Company cannot in
advance limit or fully release the personal liability of the members of the
Management Board for breaches of duty in the performance of their official
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 and a minority of at least 10%
of the shareholders can block such a resolution.
20.2
Management Board
20.2.1 General provisions on the Management Board
The Management Board 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 Company´s Articles of Association
determine that the Management Board consists of one or more members.
The Management Board of the Company currently consists of three members.
Members of the Management Board are appointed by the Supervisory Board.
The maximum period for such a nomination is five years. The Supervisory
Board may nominate a member of the Management Board as chairman and
another member as deputy chairman. The members of the Management
Board 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. The
appointment of a member can be revoked by the Supervisory Board prior to
the expiration of his or her term in office for good cause, such as a gross
breach of fiduciary duties or if the General Shareholders’ Meeting passes a
no-confidence resolution in relation to the respective member. Revocations of
294
appointments are immediately effective until a court issues a ruling on the
missing of the cause for the revocation in question.
According to the Company’s Articles of Association, the Company is legally
represented by the members of the Management Board. In case only one
member exists, the Company is legally represented by the sole member. In
case the Management Board is composed of two or more members, the
Company is legally represented by two members jointly or by one member
together with a commercial attorney-in-fact (Prokurist). The Supervisory
Board may also grant sole power of representation to individual or all
members of the Management Board and exempt them from the obligations
pursuant to sec. 181 alternative 2 of the German Civil Code (Bürgerliches
Gesetzbuch – BGB). Sec. 112 of the German Stock Cooperation Act remains
unaffected. The Supervisory Board has granted Mr. Nang Heung Sze sole
power of representation and has granted Mr. Nang Heung Sze and Mr. Chun
Li Shi exemptions to the restrictions of sec. 181 alternative 2 of the German
Civil Code by means of a resolution dated 26 May 2010. Mr. Chi-Hsiang
Michael Lee was also granted exemptions to the restrictions of sec. 181
alternative 2 of the German Civil Code by means of the resolution of the
Supervisory Board according to which he was appointed member of the
Management Board in October 2010.
The rights and obligations of the Management Board of the Company are
specified in the German Stock Corporation Act, in the Company’s Articles of
Association, the Rules of Procedure of the Management Board and the service
contracts
of
the
members
of
the
Management
Board.
Further,
the
Management Board has to consider the German Corporate Governance Code,
which is mandatory for companies listed in the Regulated Market in
Germany.
Neither the shareholders nor the Supervisory Board members may issue
binding directions to the Management Board regarding the management of
the Company. Thus, the Management Board has a strong independent
position within the Company. However, the powers of the members of the
Management Board may be limited by e.g. the Company’s Articles of
Association or by Rules of Procedure of the Management Board by stipulating
that certain matters require the consent of the Supervisory Board or the
shareholders in General Shareholders’ Meeting. Such limitations do not,
however, affect the validity of the actions of the Management Board vis-à-vis
third parties but the Management Board might be liable internally in relation
to the Company.
295
The internal organization of the Management Board of the Company is
specified in Rules of Procedure. These rules determine the areas of
responsibility of the whole Management Board, of the Chairman of the
Management Board and the individual Management Board members. It also
contains regulations on the meetings of the Management Board as well as
the relationships between the Management Board and the Supervisory Board
and includes a list of activities which require the consent of the Supervisory
Board.
The Management Board passes resolutions by a simple majority provided no
other majorities are stipulated by law, the Company’s Articles of Association
or the Management Board’s rules of procedure.
20.2.2 The Members of the Company’s Management Board
Mr. Nang Heung Sze and Mr. Chun Li Shi were nominated as members of the
Management Board by a resolution of the Supervisory Board of 26 May 2010
taking immediate effect for a term of five years. Mr. Chi Man Wong who was
also nominated as member of the Management Board by resolution of the
Supervisory Board on 26 May 2010 left his office in October 2010 after the
Supervisory Board resolved in October 2010 to revoke the appointment of
Mr. Chi Mang Wong as member of the Management Board with immediate
effect and to appoint Mr. Chi-Hsiang Michael Lee as new member of the
Management Board.
The following table lists the current members of the Management Board and
their current areas of responsibility:
Name
Age
Initially Appointed
in
Term Expires
in
Responsibility
Mr. Nang Heung Sze
51
2010
2015
CEO
30
2010
2015
COO
43
2010
2013
CFO
施能响
Mr. Chun Li Shi
施纯力
Mr. Chi-Hsiang
Michael Lee
296
Mr. Nang Heung Sze
Mr. Nang Heung Sze is the Chief Executive Officer (CEO) of the Company and
he is also the sole director of HWG HK-Holding as well as the indirect founder
of HWG-Ltd. In 1997, HWG-Ltd. produced the first piece of “Made-in-China”
bulletproof glass which was jointly developed with the Guangdong Provincial
Public Security Department. For this product, Mr. Sze was granted the patent
certificate. For this reason, he was awarded an honorary doctorate by Hong
Kong Academy of Sciences. He has extensive experience in bulletproof glass
manufacturing and administration. He is the Chairman of Guangdong
Province Mingnan Chamber of Commerce, the vice-chairman of Guangdong
Province Returned Overseas Association and the Founder Chairman of Shishi
Shilang Research Society.
Over the last five years, Mr. Nang Heung Sze was a member of the
administrative, management and supervisory bodies or partner of the
following
companies
or
partnerships
outside
of
the
China
Specialty
Glass-Group:
·
Luckyway Global Group Limited: Director from May 2010 until present
date
·
Ma Men Holding (HK) Limited: Director from October 1999 to 23
December 2009
·
Xi’an Mamen Security Technology Co., Ltd.: Director from August 2001 to
September 2007
·
Guangzhou Shiweishi Security Technology Stock Co., Ltd.: Director and
chairman from February 2005 to September 2007
·
Guangzhou Hing Wah Glass Products Co., Ltd.: Director from March 2001
to September 2010 (deregistration of this company)
Mr. Chun Li Shi
Mr. Chun Li Shi who is the Chief Operating Officer (COO) of the Company
studied business management at the Management Development Institute,
Singapore, and graduated with a diploma in 2000. Furthermore, Mr. Chun Li
Shi graduated from Hong Kong Open University in 2006 with a MBA degree in
business administration. He joined the Group in 2001 and was responsible for
297
the sales department and the administrative department as head of the
departments. He also worked in the production department and was
appointed as general manager of HWG-Ltd. in 2004. He is a member of the
committee of Chinese People’s Political Consultative Conference, Liwan
District, Guangzhou.
Over the last five years, Mr. Chun Li Shi was a member of the administrative,
management and supervisory bodies or partner of the following companies or
partnerships outside of the China Specialty Glass-Group:
·
Guangzhou Property Management Center: Sole Director from 5 December
2007 until the present date
·
Guangzhou Hing Wah Glass Products Co., Ltd.: Director and chairman
from June 2003 to September 2010 (deregistration of this company)
·
Xi’an Mamen Security Technology Co., Ltd.: Director from August 2001 to
September 2007
·
Guangzhou Shiweishi Security Technology Stock Co., Ltd.: Director from
February 2005 to September 2007
Mr. Chi-Hsiang Michael Lee
Mr. Chi-Hsiang Michael Lee is the Chief Financial Officer (“CFO”) of the
Company and joined the Group in October 2010. He obtained a Bachelor of
Science, Finance and Business Economics degree from the University of
Southern California, Marshall School of Business, Los Angeles, USA, in 1990
and was awarded a Master of Accounting degree from the University of
Southern California, Leventhal School of Accounting, Los Angeles, in 1999.
Mr. Lee is a Certified Public Accountant (California, USA) and member of the
American Institute of Certified Public Accountants (AICPA). Mr. Lee has more
than 19 years’ professional working experience as senior business manager
and auditor. He started his career at American Express Business & Tax
Services in Los Angeles in 1991 before joining the international auditing firm
KPMG, Los Angeles, in 1994 where he worked as a manager until 2002. From
2002 until 2005, Mr. Lee worked as a director at PriceWaterhouseCoopers
(PWC) in the greater China area and from 2005 until September 2010, he
was a managing partner at the international consulting firm Summit
International Capital Advisory in Shanghai, China. He served as a member of
the managing board of the public listed (Frankfurt Stock Exchange) Sino
International Logistic Company NV from 2006 to May 2010.
298
Over the last five years, Mr. Lee has been a member of an administrative,
management and supervisory body or partner of the following companies or
partnerships outside of China Specialty Glass-Group:
·
Summit International Capital Advisory: managing partner from 2005
until September 2010
·
Sino International Logistic Company NV: member of the managing
board from 2006 to May 2010
Apart from Mr. Nang Heung Sze and Mr. Chun Li Shi who is the son of Mr.
Nang Heung Sze there is no family relationship between the members of the
Management Board.
20.2.3 Compensation of the members of the Management Board
The compensation is paid pursuant to the different employment agreements
of the several members of the Management Board with the Company and the
Group, respectively. The members of the Management Board receive salaries
on an annual basis. These salaries consist of monthly payments and certain
additional social benefits.
The tables below provide an overview over the gross remuneration and the
social benefits paid to the current members of the Management Board for the
financial year 2010 and 2011 (expected):
Compensation in 2010
Name
Annual Salary
Social Securities
Others
total
Sze, Nang
Heung
€ 18,182.48
€ 311.26
€ 1,346.85
€ 19,840.59
Shi, Chun Li
€ 16,162.21
€ 527.40
€ 1,346.85
€ 18,036.46
Lee, Chi
Hsiang Michael
€ 13,254.06
€0
€0
€ 13,254.06
For his services in the financial year 2010, Mr. Chi Man Wong who is still
employed by the Group received around EUR 44,000 from the Group which
also includes his compensation as member of the Management Board during
his term of office.
299
Compensation in 2011 (expected)
Name
Annual Salary
Social Securities
Others
total
Sze, Nang
Heung
€ 18,038.68
€0
€0
€ 18,038.68
Shi, Chun Li
€ 16,034.38
€ 580.84
€ 6,680.99
€ 23,296.21
Lee, Chi
Hsiang Michael
€ 80,171.92
€0
€0
€ 80,171.92
The members of the Management Board are insured up to a certain amount
under a directors and officers insurance (D & O insurance) against claims
arising in connection with their conduct as members of the Management
Board. The premiums of this insurance are to be borne by the Company. In
accordance with the German Stock Corporation Act the insurance contains a
deductible of at least 10% of the damage caused that amounts to at least
one and a half times the fixed yearly income of the Management Board
member.
Other remuneration than set out above are not provided by the Company or
the Group to the members of the Management Board.
20.2.4 Shareholding and Options
Apart from Mr. Nang Heung Sze who indirectly holds 11,194,957 shares
(74.39%) of the Company through Luckyway Global Group Limited none of
the members of the Management neither holds directly nor indirectly shares,
stock options or stock appreciation rights in the Company.
20.2.5 Conflicts of Interest
Potential
conflicts
may
arise
from
Mr.
Nang
Heung Sze’s
(indirect)
shareholdings in the Company since he has personal interests in the
development of the value of the shares in the Company. In this respect,
further conflicts may arise from the family relationship between Mr. Nang
Heung Sze and Mr. Chun Li Shi on the one hand and the Company on the
other hand and they may not decide in the Company’s best interests.
Similar conflicts of interests exist and may arise in the future with regard to
other related party transactions involving or affecting Mr. Nang Heung Sze or
Mr. Chun Li Shi (see section 22 “Related Party Transaction”).
300
Otherwise, there are no potential conflicts of interests between any duties of
the members of the Management Board and their private interests or other
duties.
20.3
Supervisory Board
20.3.1 General provisions on the Supervisory Board
As stated in the Company´s Articles of Association, the Supervisory Board
consists of three members. The members are appointed by the General
Shareholders’ Meeting in compliance with the statutory requirements of the
German Stock Corporation Act. The term of each Supervisory Board member
expires at the end of the annual General Shareholders’ Meeting that resolves
on the exoneration of the actions of the Supervisory Board Members
(Entlastung) for the fourth fiscal year following commencement of the
member’s term of office. The fiscal year in which the term commences is not
included. Each member of the Supervisory Board can be re-elected. The
General Shareholders’ Meeting can provide for a shorter term of office. A
successor to any Supervisory Board Member retiring prior to the expiration of
his or her term is appointed for the remainder of the term of the departed
Supervisory Board Member. A substitute member may be appointed together
with a member of the Supervisory Board. The substitute member replaces
the Supervisory Board member in the event of his or her departing before
the end of his/her term. The term of office of the substitute member expires
upon the election of a successor for the departed member, but no later than
the expiry of the term of office of the departed member of the Supervisory
Board.
Pursuant to the Company´s Articles of Association, any member or substitute
member of the Supervisory Board may resign without providing a reason, by
giving one month’s notice to the chairman of the Supervisory Board or to the
Management Board.
The Supervisory Board appoints a chairman and a deputy chairman from
among its members. Should the chairman or the deputy chairman leave
office prior to the expiration of his or her scheduled term of office, the board
must elect a new chairman or deputy chairman for the departing chairman’s
or deputy chairman’s remaining term of office. The chairmen or, if unable to
attend, the deputy chairman, is obligated to convene and conduct the
meetings of the Supervisory Board.
The Supervisory Board is not entrusted with the day-to-day business and
301
therefore cannot set binding directives for the Management Board. However,
according to the Rules of Procedure for the Management Board, certain
transactions are subject to the Supervisory Board’s consent.
The Supervisory Board is responsible for appointment of the members of the
Management Board and can revoke them for good cause such as gross
breach of fiduciary duties.
The most important tasks of the Supervisory Board is the advice, control and
supervision of the business operated by the Management Board. This
advisory and supervisory role covers all the activities of the Management
Board. In assessing the Management Board’s activities, the Supervisory
Board 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 to fulfil its tasks, the Management
Board is obliged to report to the Supervisory Board on a regular basis. The
Supervisory Board (and each of its members) can request a report from the
Management Board to the Supervisory Board 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 is
entitled to review these reports.
The Supervisory Board can also arrange for special audits and investigations
of the work of the Management Board, in particular the examination of
certain transactions and the books of the Company.
The Supervisory Board 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. Furthermore, the Supervisory Board
represents the Company together with the Management Board in the event
of an action to challenge a General Shareholders’ Meeting resolution brought
by a shareholder.
The members of the Supervisory Board are jointly responsible for performing
their duties. Certain tasks can be assigned to a committee or to individual
members of the Supervisory Board. The Supervisory Board has to consider
the German Corporate Governance Code, which is mandatory for companies
listed in the Regulated Market in Germany.
302
The members of the Supervisory Board 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
public. The members of the Supervisory Board act entirely independently and
on their own account.
The Supervisory Board may adopt rules of procedure by way of a resolution.
Such rules may define the rights and obligations of committees that the
Supervisory Board can appoint from among its members and to whom the
board can delegate responsibilities.
The Supervisory Board must hold a meeting twice in each half of the calendar
year. Resolutions of the board are generally passed in meetings. Pursuant to
the Company´s Articles of Association, resolutions may be passed without a
meeting in writing, by telephone, in text form, in electronic or another
comparable form, especially by videoconference or in a combination of all the
abovementioned procedures, provided that the chairman of the Supervisory
Board so determines in an individual case. According to the German Stock
Corporation Act the Supervisory Board is quorate if at least three members of
the Supervisory Board participate in a vote on a resolution. The Supervisory
Board adopts resolutions by a simple majority of the votes cast, unless a
different majority is required by law or the Company´s Articles of
Association.
20.3.2 The Members of the Company’s Supervisory Board
By means of the deed of incorporation (Gründungsurkunde) the founder of
the Company has elected Mr. Matthias Beer, Ms. Randi Mette Selnes and Ms.
Edith Blum as members of the first Supervisory Board of the shelf company.
All of the aforementioned members of the first Supervisory Board who had
been appointed until the end of the General Shareholders’ Meeting deciding
about the formal exoneration of the actions of the Supervisory Board for the
short fiscal year 2010 resigned from their offices on 26 May 2010 by way of a
resignation declaration dated 10 May 2010.
The General Shareholders’ Meeting elected Mr. Helmut Meyer, Mr. Xin Yong
Shi and Mr. Shun Yao Huang as members of the Supervisory Board on
27 May 2010. Mr. Shun Yao Huang resigned from his office as member of the
Supervisory Board by resignation letter in October 2010. The General
303
Shareholders’ Meeting held on 29 October 2010 elected Mr. Volker Schlegel
as member of the Supervisory Board. Mr. Helmut Meyer, Mr. Xin Yong Shi
and Mr. Volker Schlegel were re-elected in the General Shareholders’ Meeting
held in May 2011.
Therefore, the following members of the Supervisory Board are currently in
office:
Age
Initially
Appointed in
Term Expires
in
Mr. Helmut Meyer
62
2010
2016
Chairman
Mr. Xin Yong Shi
50
2010
2016
Deputy Chairman
Mr. Volker Schlegel
69
2010
2016
Member
Name
Responsibility
Mr. Helmut Meyer
Mr. Helmut Meyer is the Chairman of the Supervisory Board.
Mr. Helmut Meyer studied economics at the University of Hamburg,
Germany, and graduated in 1976. He began his career at Allgemeine
Deutsche Philips GmbH, Hamburg, in 1977 as Assistant Controlling. From
1978 until 1989 Mr. Meyer worked for AEG, Hamburg, Division Shipbuilding,
Aircraft and Special Equipment, in various positions, ultimately as CFO
Division Marine Technology. Between 1990 and 1994 Mr. Meyer worked as
CFO and as Personnel Director for STN Systemtechnik Nord GmbH, Bremen,
Germany, a company that developed and produced electronic equipment for
ships, aircraft and military vehicles. In the subsequent years 1995 – 2003
Mr. Meyer served as CFO for one and CEO for another company of the
Siempelkamp Group, an international supplier of equipment in the field of
plant engineering, nuclear technology and foundry markets.
Between 2003 and 2009 Mr. Meyer was CFO and Personnel Director of
DEUTZ AG, Cologne, Germany. Since 2009, he works as a management
consultant and board member in small- and medium-sized industrial
companies.
Over the last five years, Mr. Meyer was a member of the administrative,
304
·
DEUTZ AG: CFO and Personnel Director 2003 – 2009
Mr. Xin Yong Shi
Mr. Xin Yong Shi is the Deputy Chairman of the Supervisory Board.
Mr. Xin Yong Shi graduated from Wuhan Building Material Industry College
with a degree in Inorganic Material Engineering (Glass) in 1982. Since
graduating, Mr. Xin Yong Shi has been occupied continually with scientific
work at the China Building Materials Academy in Beijing and has been a
member of various technical committees.
Over the last five years, Mr. Xin Yong Shi has not been a member of the
administrative, management and supervisory body or partner of a company
or partnership outside China Specialty Glass-Group.
Mr. Volker Schlegel
Mr. Volker Schlegel is a member of the Supervisory Board.
Mr. Volker Schlegel studied law and economics at the Universities in Bonn,
Freiburg and Cologne, Germany. He began his career in Foreign Ministry of
German federal government in 1972 (in the Political and the Economic
department). From 1978 until 1982 Mr. Schlegel worked for KHD Humboldt
Wedag in Cologne and Bochum as the Head of Central Marketing. Between
1982
and
2008
Mr.
Schlegel
had
various
diplomatic
functions
and
responsibilities for the German government as the Head of the Economic
Department in the German embassy in Iran and the USA; in the Foreign
Ministry as the Director for Cabinet and Parliament Affairs; as the German
Ambassador in Singapore; as Head of the German embassies in Senegal,
Mali, Bahamas, Belize and Jamaica; he also was Under-Secretary of State in
the government of the State of Hamburg.
Since 2009, he works as a legal counsel for foreign trade and export control
at Luther Rechtsanwaltsgesellschaft mbH. He offers advice to clients in their
commercial activities in the USA and Asia.
Over the last five years, Mr. Schlegel was a member of the administrative,
·
Management Engineers GmbH + Co. KG: Member of the Advisory Board
from 2000 until present date
305
·
Migosens GmbH: Member of the Advisory Board from 2009 until present
date
20.3.3 Compensation of the Members of the Supervisory Board
As stated in the Company´s Articles of Association, compensation for the
members of the Supervisory Board is to be constituted by the General
Shareholders’ Meeting. For members who only belong to the Supervisory
Board for part of the fiscal year, the compensation is determined for a
proportionate period of time. Fixed compensation is due and payable at the
end of the fiscal year. The members of the Supervisory Board will receive
compensation for the financial year 2010 and the following years. The
amount for the short financial year 2010 was determined by a resolution of
the General Shareholders’ Meeting in May 2011:
Member
Helmut
Meyer
Xin Young
Shi
Shun Yao
Huang
Volker
Schlegel
Appointed on
Compensation
27 May 2010
EUR 35,000.00
27 May 2010
EUR 20,000.00
27 May 2010¹
EUR 10,995.76
29 October 2010
EUR 4,067.80
¹ Term ended on 29 October 2010.
For 2011 the General Shareholders’ Meeting has determined a compensation
of EUR 30,000.00 per Supervisory Board member. The chairman of the
Supervisory Board shall receive an additional EUR 20,000.00, i.e. a total
compensation of EUR 50,000.00.
The members of the Supervisory Board are insured up to a certain amount
under the current directors and officers insurance against claims arising in
connection with their conduct as members of the Supervisory Board. The
premiums of this insurance are borne by the Company. A deductible
regarding a percentage of the damage caused to be borne by the respective
member of the Supervisory Board is not contained in the insurance.
In addition, the members of the Supervisory Board are to be reimbursed for
their expenses and the amount of VAT which may be due on their
remuneration, provided that they are entitled to charge the Company VAT
and that they exercise this right.
306
The Company declares that no additional remuneration or benefits are paid
by the issuer or its subsidiaries.
20.3.4 Shareholding and Options
None of the members of the Supervisory Board has a direct or indirect share
ownership or any options over such shares in the Company.
20.3.5 Conflicts of Interest
As Luther Rechtsanwaltsgesellschaft mbH is acting as legal adviser to the
Underwriters in connection with the Offering, a conflict of interest may arise
between the duties of Mr. Volker Schlegel as member of the Supervisory
Board and his activities as legal counsel of Luther Rechtsanwaltsgesellschaft
mbH.
There are no potential further conflicts of interests between any duties of the
members of the Supervisory Board and their private interests or other duties.
20.4
Certain Information on the Members of the Supervisory Board and the
Management Board
None of the members of the Management Board and the Supervisory Board
has been convicted of criminal fraud or other fraudulent activities during the
five years prior to the date of this Prospectus. The members of the
Management Board and the Supervisory Board, in their capacity as members
of administrative, management or supervisory bodies or members of senior
management of other companies, were not affected by the insolvency or
liquidation of any such company. Moreover, the members of the governing
bodies
have
investigative
not
been
processes
subject
and/or
of
any
penalties
preliminary
or
fines
investigations
imposed
by
or
public
authorities (including any professional organizations or other professional
associations). Nor has any court of law, during the last five years prior to the
date of this Prospectus, held them to be unfit for any activity as a member of
an administrative, management or supervisory body of a company that has
issued
securities
(issuer)
or
as
a
member
of
the
management
or
Management Board of an issuer.
The Company has not granted loans to the members of the governing bodies
or assumed guarantees or warranties in respect of them. Except as otherwise
stated in section 22 “Related Party Transaction” the members of the
Management Board and the Supervisory Board were not and are not involved
in any transactions outside of the normal business operations, or in any other
307
unusual transactions during the time for which financial reports were
provided in this Prospectus.
Apart from Mr. Nang Heung Sze and Mr. Chun Li Shi who is the son of
Mr. Nang Heung Sze none of the members of the Management Board and the
Supervisory Board is a member of the same family. None of the members of
the Supervisory Board has been appointed or employed elsewhere based on
a contract or other such agreement between the relevant member and a
third party. There are no service agreements between the Company, its
subsidiaries and any of the members of the governing bodies under which a
member would receive benefits from the Company or its subsidiaries on the
termination of his or her activity.
Members of the Management Board and the Supervisory Board may be
contacted at the Company’s business address at An den Roemerhuegeln 1,
82031 Gruenwald, Germany.
20.5
General Shareholders’ Meeting
The General Shareholders’ Meeting is held at the Company’s registered
office, in another German city which has a stock exchange or in a German
city with more than 250,000 inhabitants. According to the German Stock
Corporation Act, the meeting must be convened thirty days before the
meeting itself. The invitation to the general shareholder’s meeting 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.
Shortly after the convocation of the General Shareholders’ Meeting 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 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 Shareholders Meeting, not
counting the day of the meeting and the day the registration is received. The
308
registration must be made to the Company under the address announced in
the convocation. The registration has to be issued in text form (sec. 126b
German Civil Code), either in German or English. Shareholders must provide
proof regarding their eligibility to participate in the General Shareholders’
Meeting. 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
(sec. 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 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 and the Company´s Articles of Association 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 of the Company.
Neither German law nor the Company´s Articles of Association 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
adopts
resolutions
regarding,
in
particular:
·
the appointment of members of the Supervisory Board;
·
the appropriation of the retained earnings (Bilanzgewinn);
·
the formal approval of acts of the members of the Management and
Supervisory Board;
·
the appointment of the auditor;
·
amendments to the articles of association;
·
capital procurement and capital reduction measures;
·
the appointment of auditors to control the formation and management of
the Company and
309
·
the liquidation of the Company.
Measures of the Management Board can only be subject to a decision of the
General Shareholders’ Meeting if the Management Board requests such
decision.
Unless otherwise stipulated by mandatory statutory provisions or provisions
of the Company´s Articles of Association, resolutions of the 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 applies to resolutions
amending the Company´s Articles of Association 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.
Resolutions of fundamental importance include the following:
·
amendments to the Company’s Articles of Association;
·
capital increases excluding shareholders’ subscription rights;
·
capital reductions;
·
the creation of authorised 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 transfer 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 agreements) and
·
the dissolution of the Company.
The General Shareholders’ Meeting may be called by the Management Board,
the Supervisory Board or by shareholders holding an aggregate of at least
5% of the registered share capital. The Supervisory Board must call a
310
General Shareholders’ Meeting if the best interests of the Company require
so. The General Shareholders’ Meeting must be held within the first eight
months of each fiscal year.
20.6
Corporate Governance
The German Corporate Governance Code (the “Code”) contains provisions
concerning shareholders and the General Shareholders’ Meeting of German
companies listed on a stock exchange. The regulations of the Code also
relate to the Management Board, the Supervisory Board and to transparency,
accounting policies and auditing.
Although there is no obligation under German law to comply with the
recommendations and suggestions of the Code, sec. 161 of the German
Stock Corporation Act requires the Management Board and the Supervisory
Board of a listed company to make an annual declaration that it follows 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 must include the reasons for not following the Code. 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 is required to annually issue and
publish a declaration in compliance with sec. 161 of the German Stock
Corporation Act. As required the Company will make the declaration
continuously available on its website.
The Management Board and the Supervisory Board of the Company identify
with the goals of the Code to foster responsible and transparent corporate
management and control, oriented to a sustained increase in Company value.
The members of governing bodies declare that they will mainly follow the
recommendations and suggestions of the Code. Details will be subject to an
agreement between the Management Board and the Supervisory Board.
Since all members of the Management Board of the Company are mainly
located outside of Germany it will be difficult for them to act in compliance
with the German standards for corporate governance (see section 3.1.8 “The
Management Board of the Company Is Not Experienced with German Legal
311
Requirements for Listed Companies and Has No German Language Skills and
Only One Member of the Management Board Speaks English Fluently. In
addition, the Group Currently only Has Small Finance and Accounting
Departments with Limited Experience. Furthermore, the Group Currently
Does
Not
Have
a
Comprehensive
Risk
Management
System
or
Comprehensive System of Internal Control”).
The Management Board of the Company will receive training and constant
legal advice on its duties arising from the Corporate Governance Code and of
its duties vis-à-vis the Supervisory Board arising from the German Stock
Corporation Act.
The Supervisory Board is aware that – because of the linguistic differences
and the geographical distance – it may be more difficult to fulfil its
supervisory duties arising from the German Stock Corporation Act, for
example with regard to the duties stated in sec. 111 of the German Stock
Corporation Act.
The Company refrains from the implementation of an audit committee and a
remuneration committee.
312
21.
SHAREHOLDER STRUCTURE (BEFORE AND AFTER THE OFFERING)
The Company was founded on 10 May 2010 as a shelf company by Blitzstart
Holding AG and was acquired by Luckyway Global Group Limited on 26 May
2010 (see section 18.1 “Formation, Entry in the Commercial Register,
Company Name and Registered Office”).
Prior to the IPO, the Company increased the registered share capital from
EUR 50,000.00 by EUR 15,000,000.00 to EUR 15,050,000.00 through the
issuance of an aggregate of 15,000,000 shares against contribution in kind.
Due to the contribution of all shares in HWG HK-Holding into the Company in
November 2010, Luckyway Global Group Limited, Quick Reach Group
Limited, Expert Intelligence Global Limited, Sea Dragon Investments Limited
and Hong Kong Investments Group Limited which are the sole shareholders
of HWG HK-Holding acquired all shares of the Company which were issued
due to the aforementioned capital increase and of which 11,144,957 shares
were issued to Luckyway Global Group Limited (which
as Founding
Shareholder already held 50,000 shares), 735,568 shares were issued to
Quick Reach
Group Limited, 524,928 shares
were issued to Expert
Intelligence Global Limited, 1,694,034 shares were issued to Sea Dragon
Investments Limited and 900,513 shares were issued to Hong Kong
Investments Group Limited (see section 18.4 “Group Structure and Recent
Corporate Developments of the Group”). The capital increase became legally
effective with its entry into the commercial register of the local court of
Munich on 22 November 2010.
The following table presents an overview of the Company’s shareholder
structure before and after the implementation of the Offering based on the
information provided to the Company:
313
Shareholder
Shareholding
Before implementation
of the Offering
After implementation of
the Offering with full
implementation of the
capital increase and
excluding exercise of the
Greenshoe Option
After implementation of
the Offering with full
implementation of the
capital increase and full
exercise of the
Greenshoe Option
Shares
(in %)
Shares
(in %)
Shares
(in %)
11,194,957
74.39
11,194,957
53.18
10,525,491
50.00
Quick Reach
Group Limited
735,568
4.89
735,568
3.49
691,580
3.29
Expert
Intelligence
Global Limited
524,928
3.49
524,928
2.49
493,537
2.34
1,694,034
11.26
1,694,034
8.05
1,592,730
7.57
900,513
5.98
900,513
4.28
846,662
4.02
0
0.00
6,000,000
28.50
6,900,000
32.78
15,050,000
100.00
21,050,000
100.00
21,050,000
100.00
Luckyway
Global Group
Limited
Sea Dragon
Investments
Limited
Hong Kong
Investments
Group Limited
Free Float
Total
314
22.
RELATED PARTY TRANSACTIONS
A party is considered to be related to China Specialty Glass-Group if the
party as at the time of the transaction, directly or indirectly through one or
more intermediaries controls, is controlled by, or is under common control
with China Specialty Glass-Group, has an interest in China Specialty
Glass-Group
that
gives
it
significant
influence
over
China
Specialty
Glass-Group, has joint control over China Specialty Glass-Group, is an
associate of China Specialty Glass-Group, is a joint venture in which China
Specialty Glass-Group is a venturer, is a member of the key management
personnel of China Specialty Glass-Group or of any parent company of China
Specialty Glass-Group, or is a close family member of any such member of
key management personnel or of any individual who directly or indirectly
controls, is controlled by or is under common control with China Specialty
Glass-Group.
China Specialty Glass-Group maintains business relationships with related
parties. The following business or legal relationships exist from 1 January
2008 to the date of this Prospectus or existed in this period between
companies of China Specialty Glass-Group and related parties. In the view of
the Company they were entered on normal market terms and conditions and
concluded at arm’s length, except as expressly stated below.
In addition to the companies of the Group and the members of the
Management Board and the Supervisory Board of the Company, the following
persons and entities are considered to be related parties to the Group within
the period under review.
Related Party
(natural person)
Relation to China Specialty Glass-Group
Mr. Nang Heung Sze
CEO and indirect major shareholder of the Company through Luckyway
Global Group Limited which holds 70.67% of the Company’s shares as at
the date of the Prospectus; director of HWG-Ltd. from 10/1994 until
12/2000 and from 09/2004 until 01/2008 as well as director of HWG
HK-Holding from 07/2007 until present date.
Mr. Chun Li Shi
Member of the Management Board and son of Mr. Nang Heung Sze as well
as director of HWG-Ltd. from 09/2004 until present date.
315
Related party
(legal entity)
Relation to China Specialty Glass-Group
Guangzhou Property
The shares were held by Mr. Nang Heung Sze (100%) and were transferred
Management Center
to Mr. Chun Li Shi on 1 March 2006 who is until present date the sole
shareholder of Guangzhou Property Management.
HK Chung Hwa
The shares are indirectly held by Mr. Nang Heung Sze (100%).
Ma
Mr. Nang Heung Sze held 99.9% of the shares and sold/transferred all his
Men
Holdings
(HK) Limited
shares to a non-related third party on 23 February 2010.
Guangzhou
Hing
Wah Glass Products
Subsidiary which had been wholly owned by Ma Men Holdings (HK) Limited
and was deregistered on 20 September 2010 after voluntary winding-up.
Co.,Ltd.
Xi’an
Mamen
Subsidiary wholly owned by Ma Men Holdings (HK) Limited.
Security Technology
Co., Ltd.
Luckyway
Global
Mr. Nang Heung Sze holds 100% of the shares.
Group Limited
In 2010 and 2011, related party transactions refer to the Company and for
the years 2008 and 2009 related party transactions refer to HWG-Ltd.
22.1
Lease Agreements
On 22 April 2010 Guangzhou Property Management Center, a company
wholly owned by Mr. Chun Li Shi, and HWG-Ltd. concluded two lease
agreements which replaced a lease agreement concluded between these
parties on 20 December 2003. According to the lease agreement of 2003,
HWG-Ltd. rented office premises located at Zibian Building 1, No. 6, West of
Hougang Street, Guanghai Road, Chatou, Baiyun District, Guangzhou with a
total area of 1,436.63 square meters, a plant located at Zibian Building 2,
No. 6, West of Hougang Street, Guanghai Road, Chatou, Baiyun District,
Guangzhou with a total area of 3,324.26 square meters, a plant located at
Zibian Building 3, No. 6, West of Hougang Street, Guanghai Road, Chatou,
Baiyun District, Guangzhou with a total area of 1,131.13 square meters as
well as a plant located at Zibian Building 4, No. 6, West of Hougang Street,
Guanghai Road, Chatou, Baiyun District, Guangzhou with a total area of
4,345.51 square meters. The rent for the plant and the office premises was
RMB 18,000.00 (approximately TEUR 2 at 31 March 2011 exchange rate) and
RMB 9,600.00 (approximately TEUR 1 at 31 March 2011 exchange rate) per
month, respectively. The term of the lease was 10 years from 1 January
316
2004 to 31 December 2013. The two new lease agreements of 2010, which
replaced the lease agreement of 2003, changed the terms and conditions,
inter alia, the term of the lease and the rent for the buildings leased, and a
third lease agreement was concluded in 2010 between Guangzhou Property
Management Center and HWG-Ltd. (for details see section 17.15.2 “Lease
Agreements”). In the view of the company, all the abovementioned lease
agreements were not concluded on an at arm’s length basis but on better
terms for HWG-Ltd. based on a comparison of current rental rates. This
results from the family relationship of Mr. Nang Heung Sze, the Controlling
Shareholder of the Company, and his son Mr. Chun Li Shi.
On 22 April 2010, HWG-Ltd. entered into a lease agreement with Mr. Chun Li
Shi which also replaced a previous lease agreement of 2009, according to
which HWG-Ltd. rented a plant located at Zibian Building 1, No. 80, North of
Hougang Street, Qingcha Road, Baiyun District, Guangzhou with a total area
of 6287 square meters. The lease agreement was concluded for 30 years
from July 2009 to 30 June 2039. The original prepayment in 2007 was RMB
18,751,554
(EUR 1,801,000),
which
was
requalified
in
the
financial
statements in 2009 to a lease prepayment. The lease agreement of 2010,
which replaced the lease agreement of 2009, changed the terms and
conditions, inter alia, the term of the lease and the rent for the buildings
leased (for details see section 17.15.2 “Lease Agreements”). These lease
agreements between HWG-Ltd. and Mr. Chun Li Shi are not on an at arm’s
length basis. According to a rental valuation report issued by an independent
third party, the rental payments to be paid under the lease agreements are
lower than current rental rates, which is due to the family relationship of Mr.
Sze, the Controlling Shareholder of the Company, and his son Mr. Chun Li
Shi.
22.2
Credit Guarantees
Mr. Nang Heung Sze and Mr. Chun Li Shi respectively provided a joint and
several guarantee on 18 August 2009 with a ceiling amount of RMB
20,000,000 (approximately EUR 2.2 million at 31 March 2011 exchange rate)
to secure the loans from 21 August 2009 to 31 December 2014 by HWG-Ltd.
from Tianpingjia Sub-branch, Guangzhou, Industrial and Commerce Bank of
China. In this respect, HWG-Ltd. took two short-term loans (one year) in the
total amount of RMB 16,000,000 (approximately EUR 1.7 million) on 16
August 2009 and 8 September 2009, both of which were secured by the
guarantees of Mr. Nang Heung Sze and Mr. Chun Li Shi as well as additionally
secured by Guangzhou Property Management Center with its 7 real estate
317
title certificates from 21 August 2009 to 31 December 2014 and from 9
September 2009 to 31 December 2014, respectively. Both loans were repaid
in September 2010. In September 2010, HWG-Ltd. has again taken out two
short-term loans (one year) in the total amount of RMB 16,000,000 from
Tianpingja Sub-branch, Guangzhou, Industrial and Commerce Bank of China
both of which are also secured by the guarantees provided by Mr. Nang
Heung Sze and Mr. Chun Li Shi as well as by a mortgage provided by
Guangzhou Property Management Center.
The guarantees by Mr. Nang Heung Sze and Mr. Chun Li Shi as well as the
mortgage by Guangzhou Property Management Center were and have been
provided on an at arm’s length basis, respectively.
22.3
Undertakings
Mr. Nang Heung Sze has undertaken an agreement for no consideration with
HWG-Ltd. according to which he would reimburse HWG-Ltd. for any losses
incurred for any additional social insurance and housing funds payments
which may be levied in respect of prior periods.
Mr. Nang Heung Sze has given an undertaking for no consideration that he
would take all responsibility for any damages or negative influence which
may be caused to HWG-Ltd. by his failure to make a registration under the
“Notice of the State Administration of Foreign Exchange on Relevant Issues
concerning Foreign Exchange Administration for Domestic Residents to
Engage in Financing and in Return Investment via Overseas Special Purpose
Companies”, known as SAFE Notice 75.
Mr. Chun Li Shi has given an undertaking for no consideration to bear any
administrative and civil liabilities in respect of land allocated to Guangzhou
Property Management Center, on which buildings are located that are leased
by HWG-Ltd., for which the necessary legal formalities have not been
completed.
These undertakings were not given on an at arm’s length-basis, due to Mr.
Nang Heung Sze being the Controlling Shareholder of the Company and
Mr. Chun Li Shi being his son.
22.4
Licence Agreements
In 2005, Mr. Nang Heung Sze concluded a trademark licence contract with
HWG-Ltd. According to this contract, one trademark was licensed to
HWG-Ltd. and HWG-Ltd. was entitled to use the licensed trademark for the
318
time period from 1 July 2005 until 27 June 2015. This agreement was
registered with the Trademark Office of the State Administration for Industry
and Commerce, China. In 2008, Mr. Nang Heung Sze concluded another
trademark licence contract with HWG-Ltd. According to this contract, one
trademark was licensed to HWG-Ltd. and HWG-Ltd. was entitled to use the
licensed trademark for the time period from 20 April 2008 until 30 April
2018. The licence for both trademarks is not subject to any royalties or
license fees (for further information see section 17.16.2 “Trademarks of
HWG-Ltd.”).
On 29 March 2010, Mr. Nang Heung Sze concluded a further supplementary
agreement with respect to the above two trademark license contracts with
the Company, according to which the license form was changed from the
general
license
to
the
exclusive
license
and
the
royalties
for
the
abovementioned two license agreements were explicitly exempted. The
supplementary agreement also stipulated that Mr. Nang Heung Sze should
transfer the two trademarks at 50% of the assessed value to HWG-Ltd.
before 2012.
Neither the trademark licence contracts nor the supplementary agreement
were concluded on an at arm’s length basis but on better terms for
HWG-Ltd., due to Mr. Nang Heung Sze being the Controlling Shareholder of
the Company.
22.5
Trademark Transfer Agreement
On 12 June 2010, Mr. Nang Heung Sze concluded two trademark transfer
contracts with regard to the two trademarks mentioned above with HWG-Ltd.,
according to which the two trademarks are transferred to HWG-Ltd. without
any consideration (see section 17.16 “Intellectual Properties”). The transfer
of one of these trademarks (Registration no. 3553453) became effective on
13 April 2011 with its registration with the Trademark Bureau of State
Administration of Industry and Commerce whereas the registration of the
transfer of the other trademark (Registration no. 4483251) is still pending.
The trademark transfer contracts were not concluded on an at arm’s length
basis, but on better terms for HWG-Ltd, due to Mr. Nang Heung Sze being
the Controlling Shareholder of the Company.
22.6
Other Transactions
According to the management of HWG-Ltd., there were unsecured and
interest free loans granted by Mr. Nang Heung Sze to HWG HK-Holding in the
319
amount of HKD 4,000,000 in 2008 in order to pay the purchase price for the
shares in HWG-Ltd. There were no written agreements with regard to the
loans.
On 31 October 2007 and 5 November 2007, HWG HK-Holding respectively
concluded a share transfer agreement with HK Chung Hwa and Guangzhou
Property Management Center according to which HWG HK-Holding acquired
30% and 70% shareholding in HWG-Ltd. respectively held by HK Chung Hwa
and Guangzhou Property Management Center with the consideration of HKD
1,200,000 and HKD 2,800,000. The share transfer was approved by Liwan
BOFTEC on 2 January 2008 and registered with Guangzhou AIC on 15
January 2008 (see section 18.4.2 “Guangzhou Hing Wah Glass Industry Co.,
Ltd. and Sichuan Hing Wah Glass Co., Ltd.”).
The Company issued new shares against contributions in kind by a resolution
of the Shareholders’ Meeting on 30 June 2010. Due to the contribution of all
shares in HWG HK-Holding into the Company in November 2010, Luckyway
Global Group Limited, Quick Reach Group Limited, Expert Intelligence Global
Limited, Sea Dragon Investments Limited and Hong Kong Investments Group
Limited acquired all shares in the Company which were issued due to the
aforementioned capital increase (see section 18.4 “Group Structure and
Recent Corporate Developments of the Group”).
On 1 December 2010 HWG-Ltd., Mr. Nang Heung Sze and HWG-SC
concluded a loan agreement under which HWG-Ltd. agreed to lend to Mr.
Nang Heung Sze the amount of RMB 33 million for the time period from 1
December 2010 to 1 December 2015 for the purpose of a capital transfer by
Mr. Nang Heung Sze. Included in the loan is the amount of RMB 6 million
used by HWG-Ltd. to repay to Mr. Nang Heung Sze RMB 6 million borrowed
previously by HWG-Ltd. All parties agreed to transfer all rights and duties
under this loan of RMB 27 million to HWG-SC. The lent capital together with
all interest due shall be returned to HWG-Ltd. directly by HWG-SC before the
repayment deadline. Mr. Nang Heung Sze has guaranteed that HWG-SC
returns the lent capital plus interest to HWG-Ltd. when due and payable. In
March 2011 HWG-Ltd., Mr. Nang Heung Sze and HWG-SC concluded a similar
loan agreement under which HWG-Ltd. agreed to lend to Mr. Nang Heung
Sze the amount of RMB 20 million for the time period from 23 March 2011 to
25 March 2016. All parties agreed to eventually transfer all rights and duties
under this loan of RMB 20 million to HWG-SC. The lent capital together with
all interest due shall be returned to HWG-Ltd. directly by HWG-SC before the
repayment deadline. Mr. Nang Heung Sze has guaranteed that HWG-SC
320
returns the lent capital plus interest to HWG-Ltd. when due and payable.
These two loan agreements were not concluded on an at arm’s length basis,
due to HWG-Ltd. and HWG-SC acting as companies of the Group and Mr.
Nang Heung Sze being the Controlling Shareholder of the Company.
In April 2011 Luckyway Global Group Limited and the Company concluded an
agreement about advance payments to a third party under which Luckyway
Global Group Limited shall pay on behalf and for the account of the Company
without
exception
all
fees
incurred
by
the
Company’s
fulfilling
the
arrangements and requirements of the IPO to any intermediary, starting
from the day of its establishment and until the Company has successfully
concluded the IPO. All fees covered by Luckyway Global Group Limited shall
be paid back by the Company by means of a single payment within thirty
days after the completion of the IPO. The Company is not required to pay
any interests nor any other additional costs. The agreement was not
concluded on an at arm’s length basis, due to Luckyway Global Group Limited
being one of the Current Major Shareholders of the Company.
321
23.
TAXATION IN GERMANY
The following sections describe some important German tax principles that
may become relevant with respect to the acquisition, holding or the transfer
of shares. This description neither purports to be a comprehensive nor a
concluding description of all conceivable German tax considerations in this
field. The summary is based upon the German tax law in effect as of the date
of the issuance of this Prospectus, including double taxation treaties between
Germany and other countries. It should be taken into account that the legal
provisions may change, possibly also with retroactive effect.
Prospective purchasers of the Shares are advised to consult their tax advisors
as to the tax consequences of the acquisition, holding, transfer, donation and
inheritance of shares. The same applies with respect to the provisions
regarding the refund of German withholding tax (dividend withholding tax,
Kapitalertragsteuer). Only such individual tax advisors will be able to
consider sufficiently the particular tax situation of the individual shareholder.
23.1
Taxation of Corporations
Profits
earned by
(Körperschaftsteuer)
corporations are subject to corporate income tax
at
a
rate
of
15%,
plus
a
solidarity
surcharge
(Solidaritätszuschlag) of 5.5% thereon (resulting in a total tax liability of
15.825%). In addition, corporations are subject to trade tax (Gewerbesteuer)
with respect to profits from trade or business (Gewerbeertrag) generated in a
permanent business establishment in Germany. This tax arises at varying
rate up to 18%, depending on the local tax rate (Hebesatz) of the relevant
municipality. Dividends received by a company from domestic or foreign
corporations are generally tax-exempt. However, 5% of the dividends are
considered non-deductible business expenses and as such are subject to
taxation. The same applies to profits derived from the sale of shares in a
corporation. Losses in connection with the sale of shares are not deductible.
The German company is likely to receive tax losses and have tax loss carry
forwards due to the tax exemption of dividends and capital gains as well the
costs incurred in the first years without possible earnings. For trade tax
purposes, the tax exemption described above depends on whether a
company has held 15% of the registered share capital (Grund- oder
Stammkapital) of the distributing corporation at or since the beginning of the
relevant tax assessment period. In the case of corporations resident in
another EU member state a participation of 10% is sufficient.
322
As the dividend distributions to the Company are received from a holding
company outside the European Union 15% of the registered share capital
need to be held and 95% of this dividend income is exempt from German
trade tax only (i) to that extent that the profit of foreign holding results from
dividend distributions from its subsidiaries in the same business year and (ii)
if the subsidaries qualify as ordinary operating companies in terms of the
trade
tax
participation
exemption
regime
which
includes
inter
alia
manufacturing, processing or assembly of tangible property, trade other than
with related parties who make profits from such trade that is taxable in
Germany and which excludes inter alia raising and lending capital and profit
distributions from other companies and (iii) if the Company is able to prove
these requirements towards the German Tax Authorities when it applies for
such exemption. Otherwise dividend distributions from HWG HK-Holding to
the Company are fully taxable for Trade Tax purposes for the Company.
The deduction of interest expenses may be limited according to the rules of
the so-called interest ceiling (Zinsschranke). Loss carry-forwards may be
carried forward indefinitely, but can be set off with taxable income in full only
up to an amount of EUR 3 million. 40% of the income exceeding this
threshold is taxable at the abovementioned tax rates (so-called minimum
taxation (Mindestbesteuerung)).
Unused tax loss carry-forwards and carried forward interest as well as
current losses and non-deductible interest expenses accrued up to the
transfer will be forfeited entirely if a change of control occurs, i.e., if through
transfers as from 2008 more than 50% of the subscribed capital or the
voting rights of the company are transferred to a single acquirer (including
parties related to the acquirer) within a period of five years. If within a period
of five years more than 25%, but not more than 50%, of the subscribed
capital or of the voting rights of the corporation are transferred to one
acquirer, the existing current tax losses and tax loss carry-forwards will be
forfeited in that proportion which corresponds to the percentage of shares or
voting rights transferred. Only share transfers effected after 2007 will be
taken into account. However, due to recent changes in German tax law the
loss carry-forward might not be forfeited entirely, if the hidden reserves of
the company match the tax losses and tax loss carry-forwards, respectively.
This, however, can only be confirmed for each year retrospectively.
323
23.2
Taxation of Shareholders
23.2.1 Taxation of Dividends
Withholding Tax
When distributing the dividends the Company must generally withhold a
withholding tax in the amount of 25% on the amount of dividends approved
for distribution, plus a solidarity surcharge of 5.5% on the amount of
withholding tax (resulting in a total amount of 26.375% to be withheld). As
far as amounts of the tax deposit account (steuerliches Einlagekonto) are
deemed utilised for the distribution, no withholding tax will have to be levied.
Dividends to a shareholder who is a tax resident of Germany, can be
distributed by the German disbursing agent without deducting withholding
tax if the shareholder has submitted to the disbursing agent a certificate of
non-assessment (Nicht-Veranlagungs-Bescheinigung) issued by the relevant
local tax office or a withholding exemption certificate (Freistellungsauftrag),
to the extent the exemption amount shown on this certificate is not yet used
up.
Where dividends are distributed to a corporation domiciled in another
member state of the European Union subject to the Parent-Subsidiary
Directive dated 23 July 1990 withholding tax may be waived upon application
and provided that additional requirements are met. The same applies with
respect to dividends paid to a permanent establishment situated in another
Member State of the European Union of a German parent company.
The withholding tax rate for distributions to other non-resident shareholders
may be reduced (generally to 15%) provided the shareholder benefits from a
double taxation treaty between its country of residence and Germany. In
such cases the difference between the total amount withheld and the amount
of withholding tax applicable pursuant to the double taxation treaty is
refunded upon application by the Federal Central Office of Taxation
(Bundeszentralamt für Steuern). Forms for the refund procedure may be
obtained from Bundeszentralamt für Steuern, Hauptdienstsitz Bonn-Beuel, An
der Küppe 1, 53225 Bonn, Germany (http://www.bzst.bund.de) as well as
from German embassies and consulates. Irrespective of the application of a
double taxation treaty, two fifths of the total amount withheld and paid to the
tax office is refunded by the Federal Central Office of Taxation to
corporations subject to limited taxation in Germany upon application.
324
Taxation of Shareholders Resident in Germany
Shares as Private Assets of Individuals
If an individual who is a tax resident of Germany holds shares as
non-business (private) assets, the tax liability with respect to the dividend is
generally discharged by the withholding tax and the solidarity surcharge
made by the disbursing agent (located in Germany). Expenses actually
incurred in connection with private investment income are not deductible.
The total private investment income is only decreased by a lump sum
deduction (Sparer-Pauschbetrag) of EUR 801.00 (EUR 1,602.00 for married
couples filing jointly). The shareholder may apply for an individual tax
assessment on the basis of his personal income tax rate instead of flat
taxation, if this results in a lower tax burden for him. Expenses actually
incurred must not be deducted in this case either except for the lump sum
deduction. Church tax (if any) is generally charged by means of assessment.
However, the shareholder may apply for a withholding of church tax already
by the disbursing agent, so that the church tax liability is discharged as well.
Shares as Business Assets of Corporations
Dividends received by corporations tax resident in Germany are generally
exempt from taxation. However, 5% of the dividends are considered
non-deductible business expenses and as such are taxable. Actual business
expenses directly related to dividends are generally deductible. For trade tax
purposes, the wide exemption of dividends from tax described above
depends on whether the corporation receiving the dividend has held 15% of
the registered share capital of the Company at the beginning of the relevant
tax assessment period; otherwise the full dividend is subject to trade tax.
The tax withheld by the Company is credited against the corporate income
tax liability of the corporation receiving the dividend; overpayments of
withholding tax are refunded. The same applies to the solidarity surcharge
which accrues in addition to the corporate income tax. Dividend payments for
which amounts out of the contribution account for tax purposes (steuerliches
Einlagekonto) are deemed utilised are subject to tax only to the extent the
payment exceeds this contributed equity.
Shares as Business Assets of Individuals
If an individual who is a tax resident of Germany holds the shares as
business assets, 60% of the dividends are subject to income tax at the
progressive income tax rate. In addition, solidarity surcharge of 5.5% on the
325
income tax is levied. The tax withheld by the corporation is credited against
the individual income tax liability; overpayments of withholding tax are
refunded. The same applies to the solidarity surcharge. Only 60% of the
business expenses having
an
economic nexus to the
dividends
are
tax-deductible. In addition, the dividends are subject to trade tax which is
credited against the personal income tax liability of the shareholder by
means of a lump-sum method. The dividends are exempt from trade tax if
the shareholder held at least 15% of the share capital of the Company at the
beginning of the relevant tax assessment period. Dividend payments for
which amounts out of the contribution account for tax purposes (steuerliches
Einlagekonto) are deemed utilised are subject to tax only to the extent the
payment exceeds this contributed equity.
Shares as Assets of Partnerships
If the shareholder is a partnership, personal income tax or corporate income
tax (plus solidarity surcharge) is assessed at the level of the respective
partner. The taxation of the dividend is subject to the rules described above
depending on whether the partner is a corporation or an individual and in
each case to the extent such partner participates in the partnership. If the
partnership is subject to trade tax, dividends are also subject to trade tax at
the level of the partnership. If the partner of the partnership is an individual,
the trade tax will be credited pro-rata against the partner’s personal income
tax liability by means of a lump-sum method.
Shares as Assets of Certain Enterprises of the Financial and
Insurance Sector
Subject to fulfilment of the prerequisites of the Parent-Subsidiary Directive of
the European Union, the tax exemptions regarding dividends on shares held
by individuals or corporations do not apply to certain enterprises of the
financial and insurance sector.
Dividends on shares held by banks (Kreditinstitute) or financial services
institutions (Finanzdienstleisungsinstitute) and allocable to the trading book
(Handelsbuch) and dividends on shares acquired by financial enterprises
(Finanzunternehmen) for the purpose of deriving gain from short-term
proprietary trading (Eigenhandel) are subject to corporate income tax (plus
solidarity surcharge) in the full amount. Both cases apply to the respective
institutions and enterprises within the meaning of the German Banking Act
(Kreditwesengesetz), the latter applies as well to banks, financial services
institutions and financial enterprises domiciled in another Member State of
326
the European Union or another Member State of the European Economic Area
Treaty. If the shareholder held at least 15% of the share capital of the
Company the dividends may be exempt from trade tax.
Dividends on shares that are deemed investments held by life insurance or
health insurance companies and shares held by pension funds are subject to
corporate income tax and trade tax in the full amount.
Taxation of Non-Resident Shareholders
Dividends to shareholders who are not resident in Germany (individuals or
corporations) will generally be subject to German taxation.
If the shares are held as business assets in Germany (i.e. via a German
permanent business establishment or fixed base or as business assets for
which a permanent representative has been appointed) the principles
described above in relation to the taxation of shareholders resident in
Germany similarly apply. Withholding tax (and solidarity surcharge) withheld
and paid to the German tax authorities will be credited against the income
tax liability and the solidarity surcharge of the shareholder or refunded in
case of an overpayment.
In all other cases, the withholding of withholding tax (possibly reduced by
double taxation treaties) discharges any tax liability of the shareholder in
Germany with respect to the dividends.
23.2.2 Taxation of Capital Gains
Taxation of Shareholders Resident in Germany
Shares as Private Assets of Individuals
If the shareholder is an individual who holds the shares as non-business
(private) assets, the taxation of capital gains from shares acquired after
31 December 2008 will be subject to personal income tax (plus solidarity
surcharge thereon) irrespective of any holding period.
The domestic disbursing agent (bank, financial services institution, securities
trading enterprise, securities trading bank) conducting the sale of such
shares on account of the shareholder must withhold a withholding tax of 25%
(plus 5.5% solidarity surcharge; resulting in a total withholding of 26.375%)
from the capital gains from the sale of shares acquired after 31 December
2008. The amount withheld generally discharges the personal income tax
327
liability and the solidarity surcharge of the shareholder. However, the
shareholder may apply for an individual tax assessment regarding its income
from capital investments if this results in a lower tax burden for him. Income
from capital investments is only decreased by a lump sum deduction of
EUR 801.00 (EUR 1,602.00 for married couples filing jointly); expenses
actually incurred are not deductible. Church tax (if any) is generally charged
by means of assessment. The shareholder may, however, apply for a
withholding of church tax already by the disbursing agent, so that the church
tax liability is discharged as well.
Shares as Business Assets of Corporations
Capital gains from shares held by a corporation subject to unlimited taxation
in Germany (e.g., limited liability corporations) are generally not subject to a
withholding tax. The capital gains are generally exempt from corporate
income tax and trade tax. However, 5% of capital gains are considered
non-deductible business expenses and as such are subject to corporate
income tax (plus the solidarity surcharge) and trade tax if the shares belong
to a German permanent business establishment. As a result, 95% of such
capital gains are effectively exempt from taxation. Losses from the sale of
shares or any other reductions of profits related to the sold shares generally
do not qualify as deductible business expenses.
Shares as Business Assets of Individuals
Capital gains from shares held by individuals as business assets are generally
not subject to withholding tax if they constitute income of a German business
establishment and the shareholder has declared this towards the disbursing
agent on a form officially prescribed. In case that withholding tax and
solidarity surcharge are withheld, such withholding does not discharge the
tax liability of the shareholder, but will be credited against the personal
income tax liability and the solidarity surcharge of the shareholder or will be
refunded in case of an overpayment. 60% of the capital gains from the sale
of shares are subject to personal income tax (plus solidarity surcharge) and
to trade tax if the shares belong to a German permanent business
establishment. Trade tax is credited against the shareholder’s personal
income tax burden by means of a lump-sum method. Only 60% of the losses
from the sale of shares and 60% of expenses having an economic nexus
thereto may be claimed as tax deductions.
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Shares as Assets of Partnerships
If the shareholder is a partnership, personal income tax or corporate income
tax (plus solidarity surcharge) on the capital gain is assessed at the level of
the respective partner. Capital gains are generally taxed according to the
principles as described above with respect to the taxation of a corporation or
an individual as shareholder which would apply if the shareholder held the
shares in the Company directly.
Capital gains from the sale of shares, if attributed to a German permanent
business establishment of the partnership, are subject to trade tax at the
level of the partnership. To the extent the partners are corporations, 95% of
the capital gains are exempt from trade tax. To the extent the partners are
individuals, 60% of capital gains are subject to trade tax. In such a case,
trade tax is credited against the shareholder’s personal income tax liability by
means of a lump-sum method.
Shares as Assets of Certain Enterprises of the Financial and
Insurance Sector
As in the case of dividends, the partial tax exemptions for individuals and
corporations do not apply to capital gains from shares held by certain
enterprises of the financial and insurance sector (see the cases described
above under section
23.2.1 “Taxation
of Dividends” in the relevant
subsections). This concerns shares allocable to the trading book of banks and
financial services institutions, shares acquired by finance enterprises for the
purpose of deriving gain from short-term proprietary trading and shares held
as investments held by life insurance or health insurance companies and
shares held by pension funds.
Taxation of Non-Resident Shareholders
Capital gains derived by shareholders not resident in Germany from shares
held as business assets in Germany (i.e., via a German permanent business
establishment
or
a
fixed
base
or
business
for
which
a
permanent
representative has been appointed in Germany) are taxed in Germany
according to the principles described above with respect to the taxation of
shareholders resident in Germany.
Besides, capital gains derived by shareholders not resident in Germany are
subject to taxation in Germany only if the shareholder or — in the case of a
gratuitous transfer — his or her legal predecessor held a direct or indirect
329
participation of at least 1% in share capital of the Company at any point in
time during the five years immediately preceding the sale of the shares. In
general, the double taxation treaties between Germany and other countries
provide for exemption from German taxation and assign the right of taxation
to the shareholder’s country of residence. In the case of taxation in
Germany, 5% of the capital gains are subject to corporate income tax and
the solidarity surcharge if the shareholder is a corporation; if the shareholder
is an individual, 60% of the capital gains will be subject to income tax (plus
solidarity surcharge thereon). Losses from the sale of shares and expenses
having an economic nexus thereto are not or only in a limited way deductible
according to the principles described above.
23.2.3 Inheritance and Gift Tax
The transfer of shares by inheritance or gift is subject to German inheritance
and gift tax, only if:
a) the decedent, donor, heir, beneficiary, or any other beneficiary maintains
his or her residence, habitual abode, place of business, or registered
domicile in Germany at the time of the transfer, or is a German citizen
who has spent no more than five consecutive years outside of Germany
without maintaining a residence in Germany;
b) the shares are — irrespective of the personal requirements as listed
under a) — held as business assets for which a permanent business
establishment is maintained in Germany or for which a permanent
representative has been appointed in Germany; or
c)
the decedent, at the time of accrual of the inheritance, or the donor, at
the time of the donation, either individually or collectively with related
parties, holds, directly or indirectly, at least 10% of the registered share
capital of the Company.
Special provisions apply to German citizens (and family members belonging
to their household) without residence and habitual abode in Germany, but
employed by a legal body under public law in Germany.
The few inheritance and gift tax double taxation treaties entered into by
Germany generally provide that German inheritance or gift tax will be
assessed only in case a) and, subject to certain limitations, in case b).
330
23.3
Other Taxes
No other German taxes (value-added tax (Umsatzsteuer), capital transfer tax
(Kapitalverkehrsteuer) or similar taxes) are assessed on the purchase,
acquisition, or sale, or other transfer of shares. However, a taxable person
under the German Value Added Tax Act may waive the exemption from value
added tax for transactions concerning shares if the transaction is entered into
with another taxable person for purposes of his business. No wealth tax
(Vermögensteuer) is currently assessed in Germany.
331
24.
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
(impôt
sur
le
revenu
des
collectivités), municipal business tax (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 (impôt sur la fortune) as well as other
duties, levies or taxes. Corporate income taxes, municipal business tax, net
wealth tax as well as the solidarity surcharge invariably apply to most
corporate taxpayer’s resident of Luxembourg for tax purposes. For the year
2010, the corporate income tax rate is 21.84% (including the 4% solidarity
surcharge). The municipal business tax rate is 6.75% (for a company having
its statutory seat in Luxembourg City). As a result, a Luxembourg
fully-taxable resident company is subject to corporate income tax and
municipal business tax at the current aggregate rate of 28.59% (if the
statutory seat is in Luxembourg City). On the other side individual tax payers
are generally subject to personal income tax (with a top marginal rate of
332
38%) and the solidarity surcharge (2.5%) (the top effective marginal rate
would thus be 38.95%). 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.
24.1
held by Luxembourg Residents
24.1.1 Individual Holders of Shares
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 42.14%). 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 90/435/EEC 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.
Resident individual shareholders who receive capital gains realised 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. Capital
gains are deemed to be speculative gains and are subject to income tax at
ordinary rates (with a top effective marginal rate of 42.14%) 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 realised 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 realised on the substantial
participation). The top effective marginal rate is currently 21.07%. A disposal
may include a sale, an exchange, a contribution or any other kind of
333
alienation of the shares.
Capital gains realised on the disposal of the shares by resident individual
shareholders, who act in the course of their professional / business activity,
are subject to income tax at ordinary rates. 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.
24.1.2 Luxembourg Resident Corporate Holders
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. Precondition is that the dividends are received from
EU resident companies covered by art. 2 of the Parent-Subsidiary Directive
90/435/EEC 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 withholding taxes, 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 1,200,000.00 and (iii) the dividend is put at its disposal within
such period. Liquidation proceeds are assimilated to a received dividend and
may be exempt under the same conditions. 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.
Capital gains realised 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
334
which the shares have been disposed of and the lower of their cost or book
value.
Under the participation exemption regime, capital gains realised 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 realised 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.
A minimal EUR 1,500 taxation would be levied on all unregulated collective
undertakings for which the sum of financial assets, securities and cash at
bank represent more than 90% of total assets.
24.1.3 Tax Exempt Holders of Shares
Holders of Shares who are private asset holding companies governed by the
law of 11 May 2007, undertakings for collective investment subject to the law
of 30 March 1988 and/or the law of 20 December 2002 or specialized
investment funds governed by the law of 13 February 2007 are exempt from
income tax in Luxembourg. Dividends derived from and capital gains realized
on the shares are thus not subject to income tax in their hands.
24.2
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
335
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.
24.3
Other Taxes
24.3.1 Net Wealth Tax
Luxembourg net wealth tax of 0.5% per year will not be levied on the shares
unless (i) the shareholder is a corporate entity resident in Luxembourg other
than an undertaking for collective investment governed by the amended law
of 20 December 2002, a securitisation company governed by the law of
22 March 2004, a company subject to the law of 15 June 2004 on venture
capital vehicles, a specialised investment fund governed by the law of
13 February 2007, or a family wealth management company governed by the
law of 11 May 2007, or (ii) the shares are attributable to an enterprise or
part thereof which is carried on through a permanent establishment or a
permanent representative in Luxembourg of a corporate entity. Furthermore,
in case of a Luxembourg fully taxable resident company or a permanent
establishment of a company covered by art. 2 of the amended EU
Parent/Subsidiary Directive, or of a company resident in a state having a tax
treaty with Luxembourg, or of a company resident in the European Economic
Area other than an EU Member State, the shares may be exempt from net
wealth tax for a given year, if the shares represent at the end of the year
preceding the fixing date a participation of at least 10% in the share capital
of the company or a participation of an acquisition price of at least EUR 1.2
million.
24.3.2 Registration Taxes and Stamp Duties
The issuance of the shares and the disposal of the shares are both not
regulated by a Luxembourg registration tax or stamp duty.
24.3.3 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
inheritance tax purposes.
336
A gift or donation of the shares can be subject to a gift tax; if the gift is
recorded in a Luxembourg notarial deed.
337
25.
UNDERWRITING
25.1
Underwriting Agreement
Shortly after the date of this Prospectus, the Company, the Greenshoe
Shareholders, Mr. Nang Heung Sze and Mr. Chun Li Shi and the Underwriters
will enter into an underwriting agreement (the “Underwriting Agreement”)
regarding the sale and the offer of the Offered Shares in the course of the
Offering.
Subject to the fulfilment of certain terms and conditions set out in the
Underwriting Agreement, the Company agrees to offer for subscription
6,000,000 shares from a capital increase of the Company at the calculated
value of EUR 1.00 per share to biw AG and the Underwriters agree to procure
investors for up to 6,000,000 shares in the Company.
The Underwriting Agreement further relates to the offer of up to 900,000
Greenshoe Shares in connection with a potential over-allotment.
To ensure timely delivery of the shares to the investors, the Founding
Shareholder will provide biw AG with 6,000,000 no-par value ordinary bearer
shares (the “Delivery Shares”) each with a calculated value of EUR 1.00
and with full dividend rights from and including the financial year 2011 by
way of a securities loan free of charge (the “Delivery Shares”). Against
payment of the Offer Price the investors will receive the Delivery Shares. biw
AG will then subscribe for an equivalent number of new shares at the lowest
issue price of EUR 1.00 on or around 4 July 2011 to be issued from the
authorised capital against cash consideration.
After the Delivery Shares have been delivered to the investors against
payment of the Offer Price, biw AG will pay the difference between the Offer
Price received from the investors and the lowest issue price (less agreed
commissions and expenses) to the Company.
If the Greenshoe Option is exercised, the Underwriters will pay the Offer
Price received from the investors for the Greenshoe Shares to the Greenshoe
Shareholders (less agreed commissions and expenses) after expiry of the
Greenshoe Option.
25.2
Commissions
The Company and the Greenshoe Shareholders will pay the Underwriters a
338
commission of 4.5% of the gross proceeds from the Offering (including the
Greenshoe Option), which means the number of Offered Shares finally sold
multiplied by the Offer Price.
Moreover, an additional commission of up to 0.5% of the gross proceeds
from the Offering (including the Greenshoe Option) may be paid to the Sole
Global Coordinator by the Company and the Greenshoe Shareholders if the
Company so decides at its free discretion.
The commission is owed by the Company and the Greenshoe Shareholders
on a pro-rata basis in line with the portion of the gross proceeds attributable
to them.
25.3
Securities Loans and Greenshoe Option
Luckyway Global Group Limited will enter into a securities loan agreement
under which it grants to biw AG a total number of 6,000,000 no-par value
bearer shares (Inhaber-Stückaktien) by way of securities loan free of charge.
The purpose of the securities loan is to facilitate timely delivery of up to
6,000,000 shares in the Company to the investors. With regard to a potential
Over-allotment, up to 900,000 no par value ordinary bearer shares from the
holdings of the Greenshoe Shareholders (the “Greenshoe Shares”) will be
granted to biw AG by way of a securities loan. The Greenshoe Shares will be
provided by the Greenshoe Shareholders in the amount as set out in the
following table:
Greenshoe Shareholders
No.
of
provided
Luckyway Global Group Limited
669,466
Quick Reach Group Limited
43,988
Expert Intelligence Global Limited
31,391
Sea Dragon Investments Limited
101,304
Hong Kong Investment Group Limited
53,851
Total
900,000
339
Greenshoe
Shares
With regard to the Greenshoe Shares, the Greenshoe Shareholders will grant
biw AG the option to acquire up to 900,000 shares of the Company from the
Greenshoe Shareholders against payment of the Offer Price less agreed
commission and other costs (the “Greenshoe Option”). The Greenshoe
Option expires 30 calendar days after the commencement of trading of the
Existing Shares.
25.4
Termination
The Underwriting Agreement provides that the Underwriters may terminate
the Underwriting Agreement under certain circumstances, even after the
shares have been delivered. Such circumstances include in particular a
material adverse change. The following constitutes such a material adverse
change:
·
any 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 since the reference dates (Stichtage) and which have not been
disclosed in the Prospectus;
·
a significant change in the management structure of the Company;
·
a complete or partial suspension of trading on the Frankfurt, London,
New York Stock Exchange or any other major Stock Exchange or a
promulgation of a general moratorium on the commercial banking
activities in Frankfurt, London, New York or any other major market
or not insignificant disruptions in securities settlement, paying or
depository services in Europe;
·
a detrimental change in the national or international financial,
political, industrial, economic or general legal conditions or capital
markets
conditions
or
currency
exchange
rates
or
significant
outbreaks or escalation of militant or terrorist activities;
·
any changes in the share capital of the Company or any of its
affiliates;
·
any material change in the long-term debt of the Company or any of
its affiliates.
340
If the Underwriting Agreement is terminated before the shares have been
delivered, 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.
25.5
Indemnification
The Company, the Greenshoe Shareholders as well as Mr. Nang Heung Sze
and Mr. Chun Li Shi have agreed in the Underwriting Agreement to indemnify
and hold harmless the Underwriters and their directors, officers, partners and
employees, any affiliate of the Underwriters and each person who may be
deemed to control the Underwriters (each an “Indemnified Person”)
against any losses, claims, damages, liabilities, charges, expenses or
demands
(or
actions
in
respect
thereof) (“Losses”)
to
which
such
Indemnified Person may become subject and which arise out of, or in relation
to, or in connection with:
·
any breach by the Company, the Greenshoe Shareholders or Mr. Nang
Heung Sze and Mr. Chun Li Shi of any of their respective
representations
and
warranties
pursuant
to
the
Underwriting
Agreement or any other non compliance with any of their obligations
under the Underwriting Agreement;
·
any untrue statement of a material fact contained in the Prospectus or
any other marketing document or any omission to state therein a
material fact required to be stated therein necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading; or
·
any other Losses in connection with the Offering for which the
Underwriters are not liable.
In each such case, the Company, the Greenshoe Shareholders or Mr. Nang
Heung Sze and Mr. Chun Li Shi will in addition reimburse each Indemnified
Person for any reasonable and properly documented legal or other expenses
incurred by such Indemnified Person in connection with investigation or
defending any such action or claim including with respect to an alleged
341
breach, alleged untrue statements, or an alleged omission as such expenses
are incurred.
25.6
Other Relationships
Occasionally either the Underwriters or their affiliates may be involved in
transactions or the performance of services for the Company in the ordinary
course of business.
342
26.
RECENT DEVELOPMENTS AND OUTLOOK
Since June 2010, the PBC, China’s central bank, has significantly revalued
the Chinese currency Renminbi against the US Dollar. Since the beginning of
2011, the Renminbi has strengthened its position against the US dollar by
1.7% (as of 31 May 2011).
Since
the
successful
completion
of
the
final
test
of
the
Group’s
intruder-resistant glass products for automotive application conducted by the
Chinese Public Security Authority Testing Center last December, the Group
has started to supply the new product to five of the initial six OEMs (out of
12 selected by the Ministry of Public Security of PRC to produce new police
patrol vehicles) whose vehicles were ready to undergo the practical tests.
According to the discussion during an official meeting held on 2 December
2010, 150,000 police patrol cars in China are intended to be equipped with
intruder-resistant glass within the next three to five years. As the sole
supplier of this type of glass in China, the Group hopes to receive the
majority of if not the entire purchase orders from the selected (qualified)
automobile manufacturers. Instead of refitting automotive manufacturers to
whom the Group normally supplies its bulletproof glass, the Group plans to
select large automobile manufacturers (OEM) to supply these police patrol
cars thus becoming the Group’s new customers. This group of new customers
may include Dongfeng Toyota, Dongfeng Nissan, Shenlong Auto, Brilliance
Auto, Zhengzhou Auto, Zhong Xing Auto and Shanghai General Motor.
The
Group
also
expects
the
demand
for
intruder-resistant
glass
in
architectural applications to increase in the near future. In accordance to a
decree issued by the Public Security Department in Changsha (provincial
capital city of Hunan Province, provincial population 57 million in 2008) in
2010, major shopping plaza, supermarket and jewellery stores above certain
size are required to install intruder-resistant glass in their counters in
Changsha city in 2011. The Public Security Department of Guizhou (provincial
capital city of Guizhou Province, provincial population 34 million in 2008) also
issued an official notice which required all financial institutions to promote
and invest in the use of high quality security products. In this notice, the use
of intruder-resistant glass produced by the Group was specifically mentioned
as one of the two sole suppliers of this type of glass. The Group believes that
these currently limited and localized mandatory uses of the Group’s
intruder-resistant glass products are only the beginning of an eventually
nationwide use of its new products as the Ministry of Interior Security of
343
China is closely monitors the progress of application of these products and
the benefits they deliver. Thus the Group expects that the demands for
architectural intruder-resistant glass in China will grow significantly.
In the past, the Group mainly supplied its construction glass products to its
customers as supplements to its security glass products. With the security
glass as the Group’s main focus with large profit margin, the construction
glass products were sold mostly below the market price although the Group
could still extract sufficient profit from their sales. Because the Group will
increasingly supply construction glass products to the market as its Sichuan
production site being constructed, it is strategically important for the Group
to provide its construction glass products at market price or at a premium.
Accordingly, the Group has started to adjust the unit selling price of the
Group’s construction glass products such as tempered glass to the prevailing
market price.
The Group’s subsidiary in Sichuan, HWG-SC, has started the construction of
the new production facility in Chengdu since the opening ceremony in
November 2010. The first phase of the construction and production is
expected to be completed within this year and the second phase of the
construction and production by 2012. Production upon the completion of the
first phase will focus on the selected intruder-resistant glass products to
meet the immediate market demand for these products.
On 27 May 2011, HWG-Ltd. concluded an exclusive distributorship agreement
with the industrial group Saint-Gobain which is headquartered in Courbevoie,
France (see section 17.14.4 “Exclusive Distributorship Agreement”).
Between 31 December 2010 and the date of this Prospectus, no significant
changes with regard to the financial condition and the trading and the market
position of the China Specialty Glass-Group have occurred.
344
GLOSSARY
3C Certification
China Compulsory Certification, a new product compulsory
regulation promulgated by the State Administration of
Quality Supervision, Inspection and Quarantine of the PRC to
protect the life and health of human being and animal, and
the environment
3C Regulation
PRC Regulation Concerning Management of Compulsory
Product Certification
Administration Rules
the Administration Rules of the Settlement, Sale and
Payment of Foreign Exchange (1996)
AIC
Administration for Industry and Commerce
AktG
German Stock Corporation Act (Aktiengesetz)
Arbitration Law
Arbitration Law of the PRC
Authorised Capital
2010/I
The Management Board is authorised to increase the share
capital of the Company with the approval of the Supervisory
Board for a period of five years starting with the registration
of this authorization in the commercial register once or
several times by up to EUR 7,525,000.00 through the
issuance of up to 7,525,000 new no-par value bearer shares
in cash or in contributions in kind.
Automotive security
glass
Security glass for the refitting of vehicles in the automotive
sector
Automotive Security
Glass Market
The market where security glass manufactured by the Group
is used for armoured vehicles which offer security and safety
to their passengers such as cash-in-transit vehicles for
banks, police vehicles, military personnel carriers and
armoured limousines
BaFin
German
Federal
Financial
Supervisory
(Bundesanstalt für Finanzdienstleistungsaufsicht)
Bank security glass
Security glass which improves the security of fixed locations,
e.g. bank branches or jewellery stores
Bank Security Glass
Market
The market where security glass manufactured by the Group
is used; at locations where cash or valuable goods are
traded such as banks, jewellery stores, securities brokerage
houses, postal service and insurance companies
BGB
German Civil Code (Bürgerliches Gesetzbuch)
biw AG
biw Bank für Investments und Wertpapiere AG, Willich,
Germany
Bulletproof glass
Specially laminated glass which can prevent small arm
projectile from penetrating it, thus protecting the person
behind
Caesium
Caesium is a chemical element with the symbol Cs. It is a
soft, silvery-gold alkali metal with physical and chemical
properties similar to those of rubidium and potassium
CAGR
Compounded Annual Growth Rate
CEO
Chief Executive Officer
CEST
Central European Summer Time
345
Authority
CFO
Chief Financial Officer
China Specialty
Glass-Group
China Specialty Glass AG, together with its direct and
indirect subsidiaries
Civil Procedure Law
Civil Procedure Law of the PRC
Code
German Corporate Governance Code
Company
See “CSG-AG”.
Construction glass
Specialty glass for use as windows, doors, curtain walls or
internal decorations in commercial buildings and private
houses
Construction Glass
Market
The market where the glass manufactured by the Group is
used as windows, doors, curtain walls or internal decorations
in commercial buildings and private houses
Controlling
Shareholder
Mr. Nang Heung Sze
COO
Chief Operating Officer
CSG-AG
China Specialty Glass AG, Gruenwald, Germany
CSRC
China Securities Regulatory Commission
CSSF
Commission
de
Surveillance
du
Secteur
Financier
(Luxembourg Commission for the Supervision of the
Financial Sector)
Current Major
Shareholders
Luckyway Global Group Limited, Quick Reach Group Limited,
Expert Intelligence Global Limited, Sea Dragon Investments
Limited and Hong Kong Investments Group Limited
Curtain Wall
A curtain wall is an outer covering of a building of which the
outer walls are non-structural and merely keep out the
weather
Delivery Shares
6,000,000 no-par value bearer shares from a securities
loan free of charge granted by Luckyway Global Group
Limited to biw AG
Design Patent
A type of industrial design right granted on the ornamental
design of a functional item
Double Taxation
Double taxation is the imposition of two or more taxes on
the same income (in the case of income taxes), asset (in the
case of capital taxes), or financial transaction
EEA
European Economic Area
EIAR
Environment Impact Assessment Report
EIT
Enterprise Income Tax
Exchange Rules
The Foreign Currency Administration
amended (1997 and 2008)
Exclusive Products
Various glass products produced by Saint-Gobain for which
the Group has an exclusive distribution right
Executives
Within the meaning of the German Securities Trading Act
any person discharging managerial responsibilities
Existing Shares
The share capital of 15,050,000 no-par value bearer shares
of the Company at the time of the approval of the
Prospectus
External Information
Industry, market and customer data as well as calculations
346
Rules (1996), as
taken from industry reports, market research reports,
publicly available information and commercial publications
FIE
Foreign Invested Enterprise
Founding
Shareholder
Luckyway Global Group Limited as the founder of the
Company
GDP
Gross domestic product
GFA
Gross Floor Area (in square meters) is a term commonly
used in real estate market. It usually indicates the floor area
inside the building and includes the external walls
Grant Thornton
Grant Thornton GmbH Wirtschaftsprüfungsgesellschaft
Greenshoe Option
The option granted by the Greenshoe Shareholders to biw
AG to purchase the Greenshoe Shares from the Greenshoe
Shareholders at the Offer Price less the agreed commission
and other costs
Greenshoe
Shareholders
Luckyway Global Group Limited, Quick Reach Group Limited,
Expert Intelligence Global Limited, Sea Dragon Investments
Limited and Hong Kong Investment Group Limited
Greenshoe Shares
Up to 900,000 no-par value bearer shares from the
holdings of the Greenshoe Shareholders to be provided by
the Greenshoe Shareholders to biw AG, prior to the
allotment of the Offered Shares, for a potential
over-allotment by way of a securities loan free of charge
Group
See “China Specialty Glass-Group”.
Guangzhou Baiyun
EPB
Guangzhou Baiyun Environmental Protection Bureau
Guangzhou Property
Management Center
Guangzhou
City
Liwan
District
Yaoxiang
Property
Management Center (previously Guangzhou City Liwan
District Qianjin Glass Factory)
HGB
German Commercial Code (Handelsgesetzbuch)
HK Chung Hwa
Hong Kong Chung Hwa Enterprises Development Co.
HKD
Hong Kong’s currency, Hong Kong Dollar
HNTE Guidance
The Guidance on Recognition of HNTE
HNTE Measures
Measures for the Recognition of HNTE
HNTEs
High New Technology Enterprises, a category of companies
in the PCR that are engaged in the areas of technology or
product developments encouraged by the government, thus
would be qualified to enjoy special tax and other incentive
treatments from the central or local governments
Hollow Glass
Two or more layers of glass with vacuumed or inert gas filled
space in the middle
HW Investors
Quick Reach Group Limited, Expert Intelligence Global
Limited, Sea Dragon Investments Limited and Hong Kong
Investments Group Limited
HWG HK-Holding
Hing Wah Holdings (Hong Kong) Limited
HWG-Ltd.
Guangzhou HingWah Glass Industry Co. Ltd.
HWG-SC
Sichuan Hing Wah Glass Co., Ltd.
IFRS
International Financial Reporting Standards
347
IMF
International Monetary Fund
Interim Regulations
on Grant and
Transfer
Interim Regulations of the People’s Republic of China on
Grant and Transfer of the Right to Use State-owned Urban
Land
Interlocking Door
A specially designed door system that offers additional
security features over normal doors
Intruder-resistant
Function of withstanding blows from normal sharp objects
thus offering protection against violence or forced entry
IP
Intellectual property
IPO
Initial Public Offering
ISO9001
ISO9001 is a standard for quality management systems set
by the International Organization for Standardization
Joint Bookrunners
VISCARDI AG, biw AG
Joint Lead Managers
VISCARDI AG, biw AG
Labour Contract Law
PRC Labour Contract Law
Land Use Rights
These are the rights to utilize a certain piece of land. Land in
China belongs to the State; only rights to use are issued to
private enterprises or private citizens
Liquid Crystal
Liquid crystal is a chemical substance in a state of matter
that has properties between those of a conventional liquid
and those of a solid crystal. Such chemical substance is
widely used in electronic display
Liwan BOFTEC
The Bureau of Foreign Trade and Economic Cooperation of
Guangzhou Municipal Liwan District
M&A Provisions
PRC Provisions for the Acquisitions of Domestic Enterprises
by Foreign Investors
Management
Committee
Management Committee
Industrial Park
MOF
Ministry of Finance of the PRC
MOFCOM
Ministry of Commerce of the PRC, responsible for
administration of China’s foreign trade, foreign investment
and economic cooperation
MST
Ministry of Science and Technology of the PRC
Mu
Chinese unit of measurement, 300 Mu corresponds to
around 200,001 square meters
NDRC
National Development and Reform Commission of the PRC
New York Convention
Convention on the Recognition and Enforcement of Foreign
Arbitral Award
Non-exclusive
Products
Certain glass products produced by Saint-Gobain for which
the Group has a non-exclusive distribution right
Notice No. 75
Notice on Issues relating to the Administration of Foreign
Exchange in Fund-raising and Reverse Investment Activities
of Domestic Residents Conducted via Offshore Special
Purpose Companies
NPC
National People’s Congress of the PRC
Offer Terms
The number of Offered Shares, the price range and the
offering period, collectively
348
of
Guangdong
–
Wenchuan
Offered Shares
Up
to
6,900,000
no-par
value
bearer
shares
(lnhaber-Stückaktien) of China Specialty Glass AG, each with
a calculated value of EUR 1.00 and carrying full dividend
rights for the financial year 2011; consisting of the Delivery
Shares and the Greenshoe Shares
Offering
Up to 6,900,000 no-par value bearer shares for the purpose
of the public offering in Germany and Luxembourg and
private placement in certain other jurisdictions
Offer Price
Offer price for the Offered Shares
Over-allotment
Investors may be allotted up to 900,000 Shares of the
Company originating from a securities loan free of charge
that was granted by the Greenshoe Shareholders (a
maximum of 15% of the total number of Delivery Shares
being allocated), in addition to the maximum total of
6,000,000 Delivery Shares of the Company being offered, as
a stabilisation measure
PBC
People’s Bank of China, China’s central bank
PC
Polycarbonate is a particular group of thermoplastic
polymers with interesting features such as temperature
resistance, impact resistance and optical properties
PCT
Patent Cooperation Treaty, is an international patent law
treaty providing a unified procedure for filing patent
applications to protect inventions in each of its contracting
states
Photovoltaic
Method to create voltage (thus electric current) in a material
upon exposure to light. A term commonly used in solar
energy sector
Potassium
Potassium is a chemical element with the symbol K.
Elemental potassium is a soft silvery-white metallic alkali
metal that oxidizes rapidly in air and is very reactive with
water
PRC
Principal Shareholder
Within the meaning of the German Stock Corporation Act a
shareholder holding 95% of the share capital
Product List
List of Products Required for China Compulsory Certificate
Prospectus Directive
The prospectus directive 2003/71/EC
Provinces
Province is a translation of sheng (Chinese: 省), which is an
administrative division of Chinese central government. There
are currently 22 Provinces in China plus Taiwan. At the same
level as the Provinces, five (5) Autonomous Regions
(Chinese: 自治区) are populated by Chinese minorities, and
four (4) central government directly-controlled Municipalities
(Chinese: 直辖市): they are Beijing, Shanghai, Tianjing and
Chongqing
Provisional Security
Regulation
Provisional Regulation on the Security of Business Place and
Cashbox of Financial Institutions (Yinfa [1998] No. 588)
PU
Polyurethane is any polymer consisting of a chain of organic
units joined by urethane. Polyurethanes are widely used in
various industrial applications. In specialty glass, they are
used as high performance adhesives and sealants
349
PVB
Polyvinyl butyral is a resin usually used for applications that
require strong binding, optical clarity, adhesion to many
surfaces, toughness and flexibility.
R&D
Research and Development
Refitting Automobile
A normal automobile being modified to have additional
features
Relevant Member
State
Each Member State of the European Economic Area that has
implemented the Prospectus Directive
RMB
China’s currency, Renminbi
RMR Report
Research Report on China Bulletproof Glass Industry” from
Respect Market Research Inc.
SAFE
State Administration of Foreign Exchange, in charge of
governing China’s foreign exchange market activities and
managing the nation’s exchange reserves
Saint-Gobain
The Saint-Gobain Group
Saint-Gobain
Products
Various glass products produced by Saint-Gobain for which
the Group has an exclusive distribution right and certain
other products for which the Group has a non-exclusive
distribution right
Sale and Purchase
Agreements
The Share Purchase Agreements concluded between Mr.
Nang Heung Sze, HWG-Ltd. and Mr. Chi Mang Cheung on 8
November 2006, between Mr. Nang Heung Sze, HWG-Ltd.
and Mr. Yan Kong Wong on the same date, between Mr.
Nang Heung Sze, HWG-Ltd. and Mr. Ching Hoi Sze on 20
December 2006 and between Mr. Nang Heung Sze,
HWG-Ltd. and Mr. Hung Hui Ke on 22 December 2006
SAT
State Administration of Taxation of the PRC
Security Glass
Specialty glass used primarily for personal protection against
physical violence and forced intrusion
SIPO
State Intellectual Property Office of the PRC
Sodium
Sodium is a metallic element with a symbol Na. It is a soft,
silvery-white, highly reactive metal and is a member of the
alkali metals.
Sole Global
Coordinator
VISCARDI AG
Specialty Glass
Normal flat glass that is processed to remove some of the
disadvantages of normal glass and add more desirable
features
SPV
Special Purpose Vehicle
Stabilisation Period
The period during which stabilisation measures may be
taken in order to support the initial exchange price, if
necessary; from the date the Existing Shares list for trading
until no later than 30 calendar days after such date
Tax Arrangement
Arrangement concluded between the Mainland China and the
Hong Kong Special Administrative Region, the purpose of
which is to avoid a double taxation of income
Tempered Glass
Thermally or chemically treated glass that is stronger than
normal glass but also safer to use
TEUR
Thousand Euros
350
Tort Liability Law
PRC Tort Liability Law
Transaction
The Offering and the listing of the Company’s shares
TRE
Tax Residence Enterprise
TRIPs
Trade-related Aspects of Intellectual Property Rights
Underwriters
VISCARDI AG, biw AG
Underwriting
Agreement
Underwriting Agreement regarding the sale and the offer of
the Offered Shares in the course of the Offering concluded
between the Company, the Greenshoe Shareholders, Mr.
Nang Heung Sze and Mr. Chun Li Shi and the Underwriters
Urban Real Estate
Law
PRC Law on Administration of Urban Real Estate
USD
Currency of United States of America, US Dollar
US Securities Act
The U.S. Securities Act of 1933, as amended
Utility Model Patent
A registered right which confers exclusive protection on
technical inventions with respect to the functional aspect of a
product due to the inventive shape, structure or combination
of shape and structure
Utilization Rate
The ratio between actual production output and the available
production capacity in the same year
VAT
Value Added Tax
VISCARDI
VISCARDI AG, Munich, Germany
Weight Box
A unit measure commonly used in China for bulky product
like glass. One weight box of glass equals 50 kg, or 10
square meters of 2 mm thick glass.
Wertpapierprospektgesetz
German Securities Prospectus Law
WFOE
Wholly Foreign Owned Enterprise
WpPG
German
Securities
(Wertpapierprospektgesetz)
WTO
World Trade Organization
351
Prospectus
Act
FINANCIAL SECTION
Table of Contents
Financial statements of GUANGZHOU HING WAH GLASS INDUSTRY CO., LTD.
for the financial years ended 31 December 2008, 2009 and 2010 in accordance
with IFRS as endorsed for application by the EU (audited)....................................... F-2
Interim financial statements of GUANGZHOU HING WAH GLASS INDUSTRY
CO., LTD. for the three months to 31 March 2011 in accordance with IFRS as
endorsed for application by the EU (reviewed) ..................................................... F-58
Consolidated financial statements of CHINA SPECIALTY GLASS AG for the
short financial period 22 November 2010 to 31 December 2010 in accordance
with IFRS as endorsed for application by the EU (audited)..................................... F-73
Interim condensed consolidated financial statements of CHINA SPECIALTY
GLASS AG for the three months to 31 March 2011 in accordance with IFRS as
endorsed for application by the EU (reviewed) ................................................... F-128
Financial statements of CHINA SPECIALTY GLASS AG for the short financial
period 10 May 2010 to 31 December 2010 in accordance with German GAAP
(audited)....................................................................................................... F-144
F-1
Financial statements of
GUANGZHOU HING WAH GLASS INDUSTRY CO., LTD.
for the financial years ended 31 December 2008,
2009 and 2010
in accordance with IFRS as endorsed for application by the
EU (audited)
F-2
Statement of Comprehensive Income
Note
Revenue
Cost of sales
Gross profit
Selling and distribution expenses
Finance income
Finance costs
Research and development costs
Profit before taxation
Taxation
Net profit
Currency translation differences
3
4
5
5
6
7
Profit attributable to: owners of the
parent
attributable to: owners of the parent
2008
2009
2010
TEUR
TEUR
TEUR
40,216
(23,000)
50,910
(28,032)
69,564
(38,111)
17,216
(1,205)
(848)
51
(104)
(965)
14,145
(3,545)
10,600
22,878
(1,704)
(874)
47
(106)
(1,384)
18,857
(4,726)
14,131
31,453
(2,277)
(1,038)
108
(110)
(1,878)
26,258
(4,006)
22,252
2,229
12,829
(1,570)
12,561
3,621
25,873
10,600
14,131
22,252
12,829
12,561
25,873
The comparability is also effected by movements in the relative value of the functional
currency (RMB) compared to the presentational currency (EUR).
The annexed notes form an integral part of and should be read in conjunction with these
financial statements.
F-3
Statement of Financial Position
Note
2008
TEUR
2009
TEUR
2010
TEUR
Assets
Non-current
Other assets
Loan to subsidiary
Deferred tax asset
8
9
10
11
11
12
2,224
753
33
3,010
2,119
687
166
2,972
2,839
751
1,133
3,060
7,783
Current assets
Inventories
Tax receivable
Cash and bank balances
13
14
15
7
16
1,990
5,562
14,330
21,882
24,892
2,356
9,614
16,811
28,781
31,753
1,591
11,967
71
438
37,801
51,868
59,651
17
17
17
17
424
213
1,412
10,239
424
213
(158)
24,370
1,393
724
3,463
43,772
12,288
24,849
49,352
888
2,230
1,383
8,103
12,604
24,892
1,549
3,751
1,604
6,904
31,753
1,311
4,908
1,813
2,267
10,299
59,651
Total assets
Equity and liabilities
Capital and Reserves
Share capital
Statutory reserve
Retained earnings
Current liabilities
Corporate income tax payable
Dividends payable to related parties
7
18
19
20
Total equity and liabilities
The statements of financial position at 31 December 2008 and 31 December 2010 are
materially affected by dividends payable to related parties. This has the effect of
materially increasing total equity
and liabilities
at those
reporting dates.
The
comparability is affected by movements in the relative value of the functional currency
(RMB) compared to the presentational currency (EUR).
F-4
Statement of Changes in Equity
Balance at 1 January 2008
Share
Statutory
Translation
Retained
Total
Capital
Reserve
Reserve
Earnings
Equity
TEUR
TEUR
TEUR
TEUR
TEUR
(Note 17)
(Note 17)
(Note 17)
(Note 17)
424
213
(817)
7,742
7,562
-
-
2,229
10,600
12,829
Dividends (Note 19)
-
-
-
(8,103)
(8,103)
424
213
1,412
10,239
12,288
-
-
(1,570)
14,131
12,561
Balance at 31 December 2009
424
213
(158)
24,370
24,849
Share issue
969
-
-
-
969
-
-
3,621
22,252
25,873
Dividends (Note 19)
-
-
-
(2,339)
(2,339)
Transfer to Statutory Reserve
-
511
-
(511)
-
1,393
724
3,463
43,772
49,352
In 2008 dividends of EUR 8,103,000 were declared. In 2009 no dividends were declared.
In 2010 dividends of EUR 2,339,000 were declared. As the share capital is not divided
up into shares, and is held by one shareholder, no subdivided figure of dividends per
share can be given.
The comparability is affected by movements in the relative value of the functional
F-5
Statement of Cash Flows
Note
Cash flows from operating activities
Adjustments for:
Finance income
Finance costs
Loss on disposal of property, plant and equipment
Depreciation property, plant and equipment
Change in lease prepayment for land-use rights
Decrease/(increase) in inventories
Decrease/(increase) in trade and other
Receivables
(Decrease)/increase in trade and other payables
Increase in receivable from related party
Income tax paid
Net cash from operating activities
Purchase of property, plant and equipment
Advance payment for leasehold buildings
Loan granted to subsidiary
Net cash used in investing activities
5
5
8
10
8
8
8
Bank borrowings obtained
Repayment of bank borrowings
Issue in share capital
Dividends paid
Finance costs paid
Net cash used in financing activities
Net increase in cash and bank balances
Cash and bank balances at beginning
of financial year
Exchange differences on translation of cash
and bank balances at beginning of
financial year
Cash and bank balances at end of
financial year
17
2008
2009
2010
TEUR
TEUR
TEUR
14,145
18,857
26,258
(51)
104
29
14,227
638
(47)
106
127
13
19,056
(300)
(108)
110
-*
181
26
26,467
1,054
1,190
(1,453)
14,602
51
(3,812)
10,841
(4,915)
1,767
15,608
47
(4,107)
11,548
(1,025)
656
(122)
27,030
108
(4,795)
22,343
(710)
(710)
(59)
(126)
(185)
(574)
(44)
(1,133)
(2,955)
(4,706)
1,516
(1,526)
(5,611)
(104)
(5,725)
4,406
1,686
(1,349)
(7,903)
(106)
(7,672)
3,691
1,796
(1,796)
969
(110)
859
18,496
8,199
14,330
16,811
1,725
(1,210)
2,494
14,330
16,811
37,801
* Amount is less than EUR 1,000
F-6
1.
THE COMPANY
The financial statements of the Company have been prepared on a voluntary
basis in accordance with International Financial Reporting Standards (IFRS) as
issued by the International Accounting Standards Board (IASB) in so far as these
have been endorsed by the EU.
The principal activity of the Company is the manufacture and distribution of bullet
proof and toughened glass products. The principal and registered place of
business of the Company is located at No. 6, Hougang Xijie, Guanghai Road,
Guangzhou the People's Republic of China (the “PRC”).
The immediate holding company is Hing Wah Holding Ltd., which is incorporated
in Hong Kong. Via a non-cash capital contribution of all the share capital of Hing
Wah Holding Limited in November 2010 into China Specialty Glass AG, a holding
company incorporated in Grünwald, Munich, Germany, Hing Wah Holding Limited
became a subsidiary of China Specialty Glass AG effective November 2010.
Subsequently China Specialty Glass AG intends to seek a listing on the German
Stock Exchange (Prime Standard Segment).
As at the date of this report, there is only one class of shares in the Company,
being ordinary shares. The rights and privileges of the shares are stated in the
By-laws. There are no founder, management or deferred or unissued shares
reserved for issuance for any purpose.
The figures presented in the financial statements have been rounded to the
nearest EUR thousand.
The financial statements for the years ended 31 December 2008, 2009 and 2010
(including comparatives) are expected to be approved and authorized for issue by
the directors at the end of June 2011.
F-7
2.
SIGNIFICANT ACCOUNTING POLICIES
2.1 Statement of compliance and basis of preparation of Financial
Statements
The stand alone single entity Financial Statements are prepared in accordance
with International Financial Reporting Standards (“IFRS”) including related
interpretations, in so far as these have been endorsed by the EU, and have been
consistently applied throughout the financial years ended 31 December 2008,
2009 and 2010. These Financial Statements are the first set of financial
statements prepared in accordance with IFRS by the Company. The significant
accounting policies that have been applied in the preparation of these Financial
Statements are summarised below. These accounting policies have been used
throughout all periods presented in the Financial Statements. The Financial
Statements are presented in accordance with IAS 1 Presentation of Financial
Statements (Revised 2007). In accordance with IFRS 1, the Company presents
three statements of Financial Position in its first IFRS Financial Statements. The
financial year of the Company is from 1 January to 31 December. The financial
statements have been prepared for the purpose of inclusion in the Prospectus for
the Initial Public Offering of China Specialty Glass AG, which is intended to take
place in 2011. For purpose of comparison the Company added statements of
comprehensive income, statements of changes in equity, and statements of cash
flow as of 31 December 2008. In future periods, the Company presents two
comparative periods for the statement of financial position only when it: (i)
applies
an
accounting
policy
retrospectively,
(ii)
makes
a
retrospective
restatement of items in its Financial Statements, or (iii) reclassifies items in the
Financial Statements.
IFRS 1, First-time Adoption of Financial Reporting Standards, has been applied in
preparing these Financial Statements. The Company maintains its accounting
records in Chinese Renminbi (RMB) and prepares its statutory financial
statements in accordance with People’s Republic of China (PRC) generally
accepted accounting practice. The financial information in these financial
statements is based on the statutory records without any differences between
PRC accounting records and IFRS, except for the separate disclosure of land use
rights as other assets or lease prepayment for land-use rights respectively. This
difference has however no effect on the net assets or on the comprehensive
income of the Company.
F-8
2.
SIGNIFICANT ACCOUNTING POLICIES (continued)
2.1 Statement of compliance and basis of preparation of Financial
Statements (continued)
The transition to IFRS does not materially affect the reported financial position,
financial performance or cash flow. Consequently, the Company does not prepare
reconciliations from PRC GAAP to IFRS.
2.2 Published
Amendments
but
not
yet
applied
Standards,
Interpretations
and
At the time of preparation of the financial statements, the following releases of the
IASB as well as their changes and revisions were not compulsorily applicable in the
2010 financial year, and were not applied by the Company:
1.
IAS 24 and changes to IFRS 8: “Related party disclosures”
(effective 1 January 2011)
2.
Changes to IAS 32: “Financial instruments: presentation” (Classification of
Rights Issues) (effective 1 February 2010)
3.
Changes to IFRS 1 and IFRS 7: “First-time adoption of IFRS” and “Financial
instruments: disclosures” (Limited Exemption from Comparative IFRS 7
Disclosures for First-Time Adoptors) (effective 1 July 2010)
4.
Changes to IFRIC 14: “The Limit on an Defined Benefit Asset, Minimum
Funding Requirements and their Interaction” (Prepayments of a Minimum
Funding Requirement) ” (effective 1 January 2011)
5.
IFRIC 19 and consequential changes to IFRS 1: “Extinguishing Financial
Liabilities with Equity Instruments” and “First-time adoption of IFRS”
(effective 1 July 2011)
Annual Improvements 2010 ” (effective 1 July 2010)
6.
The following accounting standards and amendments to existing standards have
been published but, as at 31 December 2010, are not yet effective and have not
yet been adopted by the European Union:
·
Amendments to IFRS 1: First-time Adoption: Additional Exemptions to
First-time Adopters (effective from 1 July 2011)
·
Amendments to IFRS 7: Financial instruments disclosures
(effective from 1 July 2012)
·
IFRS 9: Financial Instruments (effective from 1 January 2013)
·
Amendments to IAS 12: Deferred Tax Recovery of Underlying Assets
(effective from 1 January 2012)
F-9
2.
2.2 Published but not yet
Amendments (continued)
applied
Standards,
Interpretations
and
The management of the Company assumes that the new and amended standards
and interpretations will likely not have a material effect on the consolidated
financial statements when they are applied by the Company.
The Financial Statements have been prepared in accordance with the significant
accounting policies set out below and these accounting policies are in accordance
with IFRS.
The preparation of the Financial Statements in conformity with IFRS requires the
use of judgments, estimates and assumptions that affect the application of
accounting policies as disclosed below, reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the Financial
statements and the reported amounts of revenue and expenses during the
financial years.
2.3 Overall Considerations
The significant accounting policies that have been used in the preparation of
these financial statements are summarized below. The financial statements have
been prepared using the measurement bases and accounting policies specified by
IFRS for each type of asset, liability, income and expense. These are more fully
described below.
2.4 Presentation of Financial Statements
The financial statements are presented in accordance with IAS 1 Presentation of
Financial Statements. The statement of comprehensive income has been
prepared using the function of expense method. The Company has elected to
adopt IAS 1 (Revised 2007) by presenting the 'Statement of comprehensive
income' in one statement.
F-10
2.
2.5 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 are
believed to be reasonable under the circumstances.
The Company makes estimates and assumptions concerning the future. The
causing a material adjustment to the carrying amounts of assets and liabilities
within the next financial year are discussed below:
2.6 Key sources of estimation uncertainty
Property, plant and equipment are depreciated on a straight-line basis over their
estimated useful lives. Management estimates the useful lives of these assets to
be within 5 to 30 years. The carrying amounts of the Company’s property, plant
and equipment as at 31 December 2008, 2009 and 2010 were EUR 2,224,000,
EUR 2,119,000 and EUR 2,839,000 respectively. Changes in the expected level of
usage and technological developments could impact the economic useful lives
and the residual values of these assets, therefore future depreciation charges
could be revised.
Income tax
The Company has exposure to income taxes 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 Company recognises 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 recognised, such
differences will impact the income tax and deferred tax provisions in the period in
which such determination is made. The carrying amount of the Company’s
income tax payables as at 31 December 2008, 2009 and 2010 amounted to
EUR 888,000, EUR 1,549,000 and EUR 1,311,000 respectively.
F-11
2.
2.6 Key sources of estimation uncertainty (continued)
Inventories
reliable evidence available at the times the estimates are made. Changes in these
estimates could result in revisions to the valuation of inventories. The carrying
value of inventories at 31 December 2010 is TEUR 1,591 (TEUR 2,356 at 31
December 2009 and TEUR 1,990 at 31 December 2008).
Provisions
The respective legislation in the PRC requires the Company to commit itself to
remediate
any
environmental
damages
which
may
have
been
incurred.
Management is of the opinion that no environmental damage has been caused by
the Company and hence has not provided for this.
2.7 Critical judgment made in applying accounting policies
In the process of applying the Company’s accounting policies as described below,
recognised in the financial statements.
Estimation of cost attributable to other assets (land use rights) and to property,
plant and equipment.
In 2007, the Company made an advance payment for land use rights and
building, which it intended to purchase. The advance payment of EUR 1,801,000
was not attributed separately to land use rights and to the building at the time of
making the advance payment. Management obtained a valuation report which
stated the market value of the land use rights and the market value of the
building. The total market value was above the total of the advanced payment
made. Management then allocated the advanced payment pro rata the market
valuation to the land use rights and the building. In 2009, the Company decided
no longer to purchase the land use rights and building but to lease them and a
lease agreement was made for a period of 30 years commencing on 1 July 2009.
This agreement was subsequently replaced by one dated April 2010, also with a
30 year term. The lease agreement can be extended by negotiation by 60 days
before the lease term expires. According to the PRC law, the lease term may not
F-12
2.
2.7 Critical judgment made in applying accounting policies (continued)
Estimation of cost attributable to other assets (land use rights) and to property,
plant and equipment (continued)
exceed 20 years however. If it exceeds twenty years, the period in excess is
invalid. Therefore, the term of the legal lease expires on 31 March 2030 as the
lease is invalid after 1 April 2030. However the Company assumes it will be able
to extend the lease as described above and an extension is legal under the laws
of the PRC.
The Company’s management assesses the collectability of trade receivables. This
estimate is based on the credit history of the Company’s customers and the
current market condition. Management assesses the impairment loss at the date
of the statement of financial position and makes the provision, if any.
2.8
Detailed Accounting Policies
Other assets
Other assets relate exclusively to an advance payment for land use rights. In
2009 an operating lease was concluded in respect of these land use rights and
the advance payment was subsequently treated as a lease prepayment for landuse rights. Other assets are recognized at cost less accumulated impairment
losses and are written off where, in the opinion of the directors, no further future
economic benefits are expected to arise.
Property, plant and equipment are stated at cost less accumulated depreciation
and impairment losses. The cost of property, plant and equipment comprises the
purchase price and any costs directly attributable to bringing the asset to the
working condition and location for its intended use. Expenditure incurred after
property, plant and equipment have been put into operation, such as repairs and
maintenance, is normally recognized in profit or loss in the period in which it is
incurred. In situations where it can be clearly demonstrated that the expenditure
has resulted in an increase in the future economic benefits expected to be
obtained from the use of the property, plant and equipment, and the expenditure
of the item can be measured reliably, the expenditure is capitalised as an
additional cost of that asset.
F-13
2.
2.8 Detailed Accounting Policies (continued)
Property, plant and equipment (continued)
Advance payments for property, plant and equipment acquired are recognised as
an asset when payment for the property, plant and equipment has been made in
advance of the final delivery of the property, plant and equipment.
Depreciation on property, plant and equipment is calculated using the straightline method to write off the cost of property, plant and equipment, less any
estimated residual values, over the following estimated useful lives:
Leasehold building
Plant and machinery
Furniture, fixtures and office equipment
Motor vehicles
30 years
10 years
5 years
10 years
The estimated residual values, estimated useful lives and depreciation method of
the property, plant and equipment are reviewed, and adjusted as appropriate, at
each statement of financial position date.
The gain or loss on disposal or retirement of an item of property, plant and
equipment recognized in profit or loss is the difference between the net disposal
proceeds and the carrying amount of the relevant asset.
Following the conclusion of a lease agreement in 2009, the advance payment for
land use rights was treated as a lease prepayment for land-use rights. The
prepayment is, except for an immaterial portion, non current and is being
expensed to income over the 30 year term of the lease.
Equity Investment in Subsidiary
Equity investment is the investment in the entire share capital of the Company’s
subsidiary, Sichuan Hing Wah Glass Limited. Due to the lack of a readily available
market or a reliably determinable fair value, this investment is carried at cost,
less allowance for impairment if required. The cost of the subsidiary was
determined as the nominal value of its share capital as the transaction occurred
between parties under common control and the controlling individual. The
investment is subject to impairment testing. Subsidiaries are entities controlled
by the Company. Control exists when the Company has the power to govern the
financial and operating policies of an entity so as to obtain benefits from its
activities.
F-14
2.
Equity Investment in Subsidiary (continued)
The existence and effect of potential voting rights that are currently exercisable
or convertible are considered when assessing whether the Company controls
another entity. Details of the subsidiary held are disclosed in note 11. No
consolidated financial statements for the financial year ended 31 December 2010
have been prepared as the ultimate holding company, China Specialty Glass AG,
publishes consolidated financial statements in which the financial statements of
the Company, its subsidiary and its direct parent are included, that are publicly
available in the context of an IPO prospectus. The registered address of the
ultimate holding company is An den Römerhügeln 1, 82031 Grünwald, Munich,
Germany. Prior to 2010 the Company had no subsidiaries and hence was not
required to prepare consolidated financial statements.
Impairment of non-financial assets
Other assets and Property, plant and equipment are tested for impairment
whenever there is any objective evidence or indication that these assets may be
impaired.
For the purpose of impairment testing, the recoverable amount (i.e. the higher of
the fair value less cost to sell and the value-in-use) is determined on an
individual asset basis unless the asset does not generate cash flows that are
largely independent of those from other assets. If this is the case, the
recoverable amount is determined for the cash-generating-unit (“CGU”) to which
the asset belongs.
If the recoverable amount of the asset (or CGU) is estimated to be less than its
carrying amount, the carrying amount of the asset (or CGU) is reduced to its
recoverable amount.
The difference between the carrying amount and recoverable amount is
recognised as an impairment loss in profit or loss, unless the asset is carried at
revalued amount, in which case, such impairment loss is treated as a revaluation
decrease.
F-15
2.
Financial assets
Financial assets are recognized in the statement of financial position when, and
only when, the Company becomes a party to the contractual provisions of the
instrument. Regular purchases and sales of financial assets are accounted for at
trade date, i.e. the date that the Company commits to purchase or sell the asset.
The financial assets of the Company comprise loans and receivables and also the
available for sale equity investment in its subsidiary, accounted for as described
above. The Company does not have any other financial assets.
The Company’s loans and receivables comprise trade and other receivables
(excluding prepayments), receivables from related parties and cash and bank
balances in the statement of financial position. The Company's loans and
receivables are non-derivative financial assets with fixed or determinable
payments that are not quoted in an active market. They arise principally via the
provision of goods and services to distributors (e.g. trade receivables), but also
incorporate other types of contractual monetary assets. They are initially
recognized at fair value plus transaction costs that are directly attributable to
their acquisition or issue if any, and are subsequently carried at amortized cost
using the effective interest rate method, less provision for impairment.
Impairment provisions are recognized when there is objective evidence that the
Company will be unable to collect all of the amounts due under the terms of
receivables, the amount of such a provision being the difference between the net
carrying amount and the present value of the future expected cash flows
associated with the impaired receivables. For trade receivables, which are
reported net of impairment provisions, such provisions are recorded in a separate
allowance account with the loss being recognized within administration expense
in the statement of comprehensive income. On confirmation that the trade
receivables will not be collectable, the gross carrying value of the asset is written
off against the associated provision.
Gains on loans and receivables are primarily from interest and are determined on
the effective interest method. Losses are primarily from impairment and are
determined by management analysis of the ageing of loans and receivables
based on experience of default risk and history.
F-16
2.
Financial assets (continued)
Insofar as loans and receivables mature within 12 months after the statement of
financial position date, they are presented as current assets. Insofar as they
mature after 12 months after the statement of financial position date, they are
presented as non current assets.
Inventories
Inventories are carried at the lower of cost and net realisable value. Cost is
determined using the weighted average method. The cost of finished goods
comprises raw materials, direct labour and other overheads that have been
incurred in bringing the inventories to their present location and condition. Net
realisable value is the estimated selling price in the ordinary course of business,
less the estimated costs of completion and the estimated costs necessary to
make the sale. In valuing inventory, it is assumed that inventory is utilised on a
first in first out basis.
The carrying values of inventories are disclosed under note 13.
Equity reserves and dividend payments
Share capital represents the nominal value of shares that have been issued in the
Company. Share capital is determined using the nominal value of shares that
have been issued.
In accordance with the relevant laws and regulations of PRC, companies
established in PRC are required to transfer 10% of their annual statutory net
profit (after offsetting any prior years’ losses) to the statutory reserve. When the
balance of such reserve reaches 50% of the company’s share capital, any further
transfer of its annual statutory net profit is optional. Such reserve may be used
to offset accumulated losses or to increase the registered capital of the company
subject to the approval of the relevant authorities. However, except for offsetting
prior years’ losses, such statutory reserve must be maintained at a minimum of
25% of the share capital after such usage. The statutory reserves are not
available for dividend distribution to the shareholders.
Retained earnings include all current and prior period results as determined in the
statements of comprehensive income.
F-17
2.
Equity reserves and dividend payments (continued)
Foreign currency translation differences arising on the translation are included in
the translation reserve.
Dividend distributions payable to equity shareholders are included under 'current
liabilities' as “dividends payable” when the dividends have been approved in a
general meeting prior to the reporting date.
Financial liabilities
Financial liabilities are recognised when the Company becomes a party to the
contractual provisions of the financial instrument. Financial liabilities are
recognised initially at fair value, plus in the case of financial liabilities other than
derivatives,
directly
attributable
transaction
costs.
Subsequent
to
initial
recognition, all financial liabilities are measured at amortised cost using the
effective interest method, except for derivatives, which are measured at fair
value. All interest related charges are recognised as an expense in profit or loss.
Financial liabilities are derecognised when the obligation for the liabilities is
discharged or cancelled or expired. For financial liabilities other than derivatives,
gains and losses are recognised in profit or loss when the liabilities are
derecognised or impaired, and through the amortisation process.
The Company’s financial liabilities include dividends payable to related parties,
interest-bearing bank borrowings, trade and other payables.
Trade and other payables interest-bearing bank borrowings and dividends
payable to related parties are initially recognised at fair value, and subsequently
carried at amortised cost using the effective interest method.
F-18
2.
Provisions and contingent liabilities
Provisions are recognized when the Company has a present obligation (legal or
constructive) where, as a result of a past event, it is probable that an outflow of
resources embodying economic benefits will be required to settle the obligation
and a reliable estimate can be made of the amount of the obligation. Provisions
are not recognized for future operating losses. Where the Company expects some
or all of a provision to be reimbursed, the reimbursement is recognized as a
separate asset but only when the reimbursement is virtually certain. However,
this asset may not exceed the amount of the related provision. The expense
relating
to
any
provision
is
presented
in
the
combined
statement
of
comprehensive income net of any reimbursement.
Provisions are measured at the estimated expenditure required to settle the
present obligation, based on the most reliable evidence available at the reporting
date, including the risks and uncertainties associated with the present obligation.
Where there are a number of similar obligations, the likelihood that an outflow
will be required in settlement is determined by considering the class of
obligations as a whole. Provisions are discounted to their present values, where
the time value of money is material.
In those cases where the possible outflow of economic resources as a result of
present obligations is considered improbable or remote, no liability is recognized.
All provisions and contingent liabilities are reviewed at each reporting date and
adjusted to reflect the current best estimate.
Provisions for environmental protection are recorded if future cash outflows are
likely to be necessary to ensure compliance with environmental regulations or to
carry out remediation work, such costs can be reliably estimated and no future
benefits are expected from such measures. Estimating the future costs of
environmental
protection
and
remediation
involves
many
uncertainties,
particularly with regard to the status of laws and regulations. Management
considers that environmental damage has not been caused by the Company and
hence has not provided for environmental protection.
F-19
2.
Revenue and other income
Revenue is measured at the fair value of the consideration received or receivable
and presented net of goods and services taxes and trade discounts.
The Company sells bullet proof and toughened security glass to various
customers in the automotive, banking and construction sectors. Revenue from
the sale of manufactured products is recognised when the Company has
transferred to customers the significant risks and rewards of ownership of the
goods, which generally coincides with the delivery to and acceptance of goods by
the customers; and when the Company can reliably measure the amount of
revenue and the cost incurred and to be incurred in respect of the transaction;
and it is probable that the collectability of the related receivables is reasonably
assured. No revenue is recognised if there are significant uncertainties regarding
recovery of the consideration due, associated costs or the possible return of
goods.
Finance income
Finance income is recognised using the effective interest method.
Employee benefits - Retirement benefits scheme
Pursuant to the relevant regulations of the PRC government, the Company
participates in a local municipal government retirement benefits scheme (the
"Scheme"), whereby it is required to contribute a certain percentage of the basic
salaries of its employees to the Scheme to fund their retirement benefits. The
local municipal government undertakes to assume the retirement benefits
obligations of all existing and future retired employees of the subsidiaries located
in the PRC. The only obligation of the Company with respect to the Scheme is to
pay the ongoing required contributions under the Scheme mentioned above.
Contributions under the Scheme are recognized in profit or loss as incurred.
There are no provisions under the Scheme whereby forfeited contributions may
be used to reduce future contributions. These plans are considered defined
contribution plans. The Company has no legal or constructive obligations to pay
further contributions after its payment of the fixed contributions into the national
pension schemes. Contributions to national pension schemes are recognized as
an expense in the period in which the related service is performed.
F-20
2.
Key management personnel
Key management personnel are those persons having the authority and
responsibility for planning, directing and controlling the activities of the entity.
Directors and certain managers are considered key management personnel of the
Company.
Income tax
Tax expense recognised in profit or loss comprises the sum of current and
deferred tax charges.
Current income tax assets and/or liabilities comprise those obligations to, or
claims from, fiscal authorities relating to the current or prior reporting periods,
that are unpaid at the reporting date. Current tax is payable on taxable profit,
which differs from profit or loss in the financial statements. Calculation of current
tax is based on tax rates and tax laws that have been enacted or substantively
enacted by the end of the reporting period in the country in which the Company
is operating.
Value-added tax (“VAT”)
The Company’s sale of goods in the PRC is subject to VAT at the applicable tax
rate of 17% for the PRC domestic sales. 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
statement of financial position.
Revenue, expenses and assets are recognised net of the amount of VAT except:
Ø
where the VAT incurred on a 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
Ø
receivables and payables that are stated with the amount of VAT
included.
F-21
2.
Foreign currencies
(i)
Functional and presentation currency
Items included in the financial statements are measured using the
currency of the primary economic environment in which the entity
operates (the “functional currency”).
The Company conducts its business predominately in the PRC and hence
its functional currency is the Renminbi (RMB).
The
presentation
currency
of
the
Company
is
EUR,
being
the
presentation currency of its future ultimate German domiciled legal
parent and holding company, and therefore the financial information has
been translated from RMB to EUR at the following rates:
31 December 2008
31 December 2009
31 December 2010
Period end rates
EUR 1.00 = RMB 9.2563
EUR 1.00 = RMB 9.9742
EUR 1.00 = RMB 8.8231
Average rates
EUR 1.00 = RMB 10.1588
EUR 1.00 = RMB 9.4904
EUR 1.00 = RMB 8.9789
The results and financial positions of the Company in its functional
currency RMB are translated into the presentation currency for the
purpose of presentation in the IPO prospectus of its future ultimate legal
parent as follows:
(1)
Assets and liabilities for each statement of financial position
presented are translated at the closing rate at the date of
that statement of financial position;
(2)
Income and expenses for each income statement are
translated at average exchange rates (unless this average is
not a reasonable approximation of the cumulative effect of
the rates prevailing on the transaction dates, in which case
income and expenses are translated at the dates of the
transactions); and
(3)
All resulting exchange differences are recognised in the
foreign currency translation reserve, a separate component
of equity.
F-22
2.
Foreign currencies (continued)
(ii)
Transactions and balances
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
statement of financial position 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 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. Non-monetary items measured at fair
value in a foreign currency are translated using the exchange rates at
the date when the fair value was determined.
Related parties
The Company has the following types of related parties:
(i)
entities or individuals which directly, or indirectly through one or more
intermediaries, (1) control, or are under common control with, the
Company; (2) have an interest in the Company that gives them
significant influence over the Company;
(ii)
the key management personnel of the Company or its direct parent and
its ultimate parent company;
(iii)
close members of the family of any individual referred to in (i) or (ii);
F-23
2.
Leases
Lessee
Leases where substantially all the risks and rewards of ownership of assets
remain with the lessor are accounted for as operating leases. Annual rentals
applicable to such operating leases are recognised in profit or loss on a straightline basis over the lease terms except where an alternative basis is more
representative of the pattern of benefits to be derived from the leased assets.
Leases where substantially all the risks and rewards of ownership are transferred
to the lessee are accounted for as finance leases.
Segment reporting
Operating segments are reported in a manner consistent with the internal
reporting provided to the chief operating decision-maker. The chief operating
decision-maker, who is responsible for allocating resources and assessing
performance of the operating segments, has been identified as the board of
directors of the Company which makes strategic decisions.
The management of the Company bases its decisions on the internal reporting on
sales to car manufacturers, banks and financial institutions and construction
companies, which are the Company’s three business segments.
Segment information is presented in respect of the Company’s business
segments. The accounting policies the Company uses for segment reporting
under IFRS 8 are the same as those used in its financial statements.
Development activities
Expenditure on research (or the research phase of an internal project) is
recognized as an expense in the period in which it is incurred.
Costs that are directly attributable to the development phase of new products
and ranges are also expensed as they do not meet the criteria to be recognized
as an intangible asset in accordance with IAS 38.
The amounts of this expense on product research and development in 2008,
2009 and 2010 were TEUR 965, TEUR 1,384 and TEUR 1,878 respectively.
F-24
3.
REVENUE
An analysis of the Company's revenue is as follows:
2008
2009
2010
TEUR
TEUR
TEUR
40,216
50,910
69,564
Revenue
Sales of goods
Revenue is generated from sales of bullet proof and toughened security glass to
various customers in the automotive, banking and construction sectors within the
PRC. Further details are given in the segment reporting in Note 25.
4.
COST OF SALES
Cost of sales comprise purchasing materials, labour costs for personnel employed
in production, depreciation and amortization of non-current assets used for
production purposes, trading goods and others (mainly tools, packaging materials
and maintenance costs). The following table shows a breakdown of costs of sales
for the period under review for each category:
2008
2009
2010
TEUR
TEUR
TEUR
Materials
Labour
Depreciation of property, plant and
equipment
Operating lease expense
Electricity and water
Others
F-25
19,826
1,220
23,629
1,582
32,504
1,606
28
21
1,056
849
23,000
126
26
1,600
1,069
28,032
167
36
1,818
1,980
38,111
5.
FINANCE INCOME AND FINANCE COSTS
Finance income
2008
2009
2010
TEUR
TEUR
TEUR
Finance income
51
47
108
Finance costs
2008
2009
2010
TEUR
TEUR
TEUR
Finance expense on bank borrowings
6.
(104)
(106)
(110)
PROFIT BEFORE TAXATION
The Company's profit before taxation is arrived at after charging:
2008
2009
2010
TEUR
TEUR
TEUR
equipment
- included in cost of sales
- included in administrative expenses
Cost of inventories sold recognised as
expenses
Research costs expensed
28
1
29
105
22
127
167
14
181
19,826
33
965
23,629
38
1,384
32,504
49
1,878
Costs relating to employees are disclosed in detail in note 26.
F-26
7.
TAXATION
2008
2009
2010
TEUR
TEUR
TEUR
Current income tax on profit arising
from operations in PRC
Deferred tax (credit)/expense
(Note 12)
3,531
4,868
3,822
14
3,545
(142)
4,726
184
4,006
Deferred tax has been provided as the Company has temporary differences which
gave rise to a deferred tax asset at the statement of financial position dates.
These differences are mainly due to differences in the timing of revenue
recognition between the revenue recognition adapted for the Company’s tax
accounts and the revenue recognition adapted in the Company’s financial
statements.
Reconciliation between tax expense and profit before taxation at statutory tax
rates is as follows:
2008
2009
2010
TEUR
TEUR
TEUR
Tax calculated at statutory tax rate
(2008: 25%, 2009: 25% and
2010: 15%)
Tax effect on non-deductible
expense
Effect of reduction in tax rate
14,145
18,857
26,258
3,536
4,714
3,939
6
3
3,545
12
4,726
11
56
4,006
The Company is subject to PRC income tax on profit arising or derived from the
tax jurisdiction in which the Company operates and is domiciled. Business
operations set up in the special economic zones by foreign enterprises are
subject to a reduced enterprise income tax rate. The provision for PRC income
tax on profits arising from operations in the PRC is calculated based on enterprise
income tax rates of 25%, 25% and 15% for the financial year ended 31
December 2008, 2009 and 2010 respectively, in accordance with the relevant
PRC income tax rules and regulations.
F-27
7.
TAXATION (continued)
Movements in corporate income tax payable are as follows:
2008
TEUR
Beginning of financial year
Current year tax expenses on profit
Income tax paid
Tax recoverable (Note 16)
Withholding tax on dividend
Exchange difference on translation
End of financial year
1,032
3,531
(3,812)
137
888
2009
2010
TEUR
TEUR
888
4,868
(4,107)
(100)
1,549
1,549
3,822
(4,795)
430
114
192
1,312
The tax receivable results from the fact that the Company paid tax at 25% in the
first quarter of 2010 and was however subsequently granted status as a high
tech enterprise, which afforded it the benefit of a lower preferential rate of 15%
for 2010. The Company expects to be able to claim back the overpaid tax.
F-28
8.
PROPERTY, PLANT AND EQUIPMENT
Advance
Payments
for leasehold
buildings
Leasehold
buildings
Plant and
Machinery
Furniture
Fixtures
and office
equipment
Motor
Vehicles
Construction
in
progress
Total
TEUR
TEUR
TEUR
TEUR
TEUR
TEUR
TEUR
Cost
At 1 January 2008
Additions
Translation adjustment
At 31 December 2008
Additions
Reclassification
1,099
-
432
31
-
-
1,562
-
-
710
-
-
-
710
174
-
138
5
-
-
317
1,273
-
1,280
36
-
-
2,589
57
2
-
-
185
-
-
-
-
-
126
(1,273)
1,273
Translation
adjustment
(6)
(91)
(95)
(3)
-
-
(195)
120
1,182
1,242
35
-
-
2,579
Additions
-
292
257
3
22
44
618
Written off
-
-
(5)
-
-
-
(5)
(134)
134
-
-
-
-
-
14
161
166
5
-*
-*
346
-
1,769
1,660
43
22
44
3,538
At 1 January 2008
-
-
258
30
-
-
288
Depreciation charge
-
-
28
1
-
-
29
-
-
44
4
-
-
48
At 31 December 2009
Reclassification
Translation adjustment
At 31 December 2010
Accumulated depreciation
Translation
adjustment
At 31 December 2008
-
-
330
35
-
-
365
Depreciation charge
-
21
105
1
-
-
127
-
(1)
(29)
(2)
-
-
(32)
Translation
adjustment
At 31 December 2009
-
20
406
34
-
-
460
Depreciation charge
-
54
126
1
-
-
181
Written off
-
-
(5)
-
-
-
(5)
-
3
56
4
-
-
63
-
77
583
39
-
-
699
-
950
1
-
-
2,224
Translation
adjustment
At 31 December 2010
Net Book Value
At 31 December 2008
1,273
At 31 December 2009
120
1,162
836
1
-
-
2,119
At 31 December 2010
-
1,692
1,077
4
22
44
2,839
* Amount less than EUR 1,000
F-29
8.
PROPERTY, PLANT AND EQUIPMENT (continued)
During 2007 an interest free deposit of RMB 18,751,554 (equivalent EUR
1,801,000) was made to acquire land use rights and buildings from a related
party. However, during 2009 the Company decided to lease the land and
buildings instead. Accordingly, a tenancy agreement was signed for a period of
30 years commencing on 1 July 2009. This agreement was subsequently replaced
by one dated April 2010, also with a 30 year term. Based on a valuation report
the acquisition costs were split pro rata between land use rights (TEUR 670) and
buildings (TEUR 1,131). Due to the relatively long-term nature of the lease in
relation to the buildings, this agreement is treated as a finance lease, hence the
recognition of the buildings in the statement of financial position under property
plant and equipment as leasehold buildings from the signing of the lease
agreement in 2009. The related lease agreement is between HWG-Ltd. and its
related party Mr. Chun Li Shi and its terms include staged rent increases over the
term of the lease. Until the signing of the lease agreement, the buildings were
not used by the Company and the advance payment was disclosed as advance
payment for leasehold buildings. The lease agreement can be extended by
negotiation by 60 days before the lease term expires. According to the PRC law,
the lease term may not exceed 20 years however. If it exceeds twenty years, the
period in excess is invalid. Therefore, the term of the legal lease expires on 31
March 2030 as the lease is invalid after 1 April 2030. However the Company
assumes it will be able to extend the lease as described above and an extension
is legal under the laws of the PRC. The rental payments under this agreement
have been paid in advance until 2039; hence there are no future lease payments
to be made under the current lease agreement.
During 2009 and 2010 the Company paid land levelling costs in connection with
the construction of a new building as well as the construction of the building at
the Company’s main operational premises on behalf of a related party who will
retain title to the building. It was intended that the Company would lease the
building from the related party, who will waive lease payments in consideration
for the land levelling costs and construction paid by the Company. Hence the
amount has been treated as advance payment for leasehold buildings, as due to
the likely long term nature of the lease, the arrangement would be considered to
be a finance lease. The advance payment has since been re-classified as
leasehold building.
All property, plant and equipment held by the Company are located in the PRC.
F-30
9.
LEASE PREPAYMENT FOR LAND-USE RIGHTS
This relates to the land use rights for which an advance payment was made in
2007 as described in note 8. Following the conclusion of the lease agreement
described in note 8, which the Company determined to be an operating lease in
respect of the land, as the term is relatively short compared to the useful life of
the land, the advance payment was reclassified as a lease prepayment for landuse rights. It is being expensed to income over the 30 years term of the lease.
The terms of the lease are as described in note 8.
10.
OTHER ASSETS
Other assets relate to advance payments made for land use rights. In 2009 the
Company decided not to go ahead with the intended acquisition of these land use
rights but to enter into a leasing agreement. Changes in the carrying value of the
other assets over the period 2007 to 2009 relate solely to translation
adjustments. Following the conclusion of the lease agreement in 2009, the other
assets are being disclosed as lease prepayment for land-use rights.
11.
INVESTMENT IN A SUBSIDIARY AND LOAN TO SUBSIDIARY
2008
TEUR
Unquoted equity investment,
at cost
Loan to subsidiary
2009
2010
TEUR
TEUR
-
-
1,133
-
-
3,060
On 17 May 2010, the Company incorporated a wholly owned subsidiary, Sichuan
Hing Wah Glass Limited, with a paid-in capital of RMB 2,000,000 (equivalent to
EUR 226,700 at 31 December, 2010 exchange rate). On 20 October 2010, the
Company increased the paid-in capital by RMB 8,000,000 (equivalent to EUR
906,700 at 31 December, 2010 exchange rate). As at 31 December 2010, the
subsidiary is dormant. The Company intends to explore business opportunities in
mid-west PRC via this subsidiary. In the process of the incorporation and
subsequent capital increase, the Company injected cash and cash equivalents of
RMB 10,000,000 into this subsidiary.
The loan to the subsidiary is unsecured, and is charged an interest of 5.56% p.a.
It is expected to be repaid by December 2015.
F-31
12.
DEFERRED TAX ASSET
2008
2009
2010
TEUR
TEUR
TEUR
Balance at beginning
Transfer from income statement
(Note 7)
End of financial year
40
33
(14)
7
33
142
(9)
166
166
(184)
18
-
The deferred tax asset is explained under note 7.
13.
INVENTORIES
2008
2009
2010
TEUR
TEUR
TEUR
Raw materials
Finished goods
1,078
912
1,990
1,113
1,243
2,356
694
897
1,591
The amount of inventories recognized as an expense during 2008, 2009 and 2010
was TEUR 19,826, TEUR 23,629 and TEUR 32,504 respectively included in cost of
sales.
F-32
14.
TRADE AND OTHER RECEIVABLES
2008
2009
2010
TEUR
TEUR
TEUR
Trade receivables
Other receivables
5,320
242
5,562
9,614
9,614
11,219
748
11,967
Trade receivables are non-interest-bearing and generally have credit terms of 30
to 60 days. Management aims to deal only with customers of good to high credit
quality.
Other receivables at 31 December 2008 relate to payments in advance to
suppliers and at 31 December 2010 relate solely to security deposits given to
suppliers in the context of a supplier contracts to ensure delivery of raw materials
on a timely basis. In the ageing analysis, the advance payment has been
included in the category “Within 30 days” and the security deposit amount has
been included in the category “More than 60 days”.
The aging of trade receivables and other receivables is as follows:
2008
2009
2010
TEUR
TEUR
TEUR
Within 30 days
31 to 60 days
More than 60 days
3,830
1,732
5,562
All trade and other receivables are denominated in Renminbi.
F-33
4,937
3,499
1,178
9,614
7,319
3,684
964
11,967
14.
TRADE AND OTHER RECEIVABLES (continued)
2008
2009
2010
TEUR
TEUR
TEUR
Financial Assets
Loans and receivables
Total financial assets classified as
loans and receivables
5,320
14,330
-
9,614
16,811
-
11,967
37,801
71
19,650
26,425
49,839
All financial assets classified as loans and receivables are current and noninterest bearing. Management considers the carrying amounts recognized in the
statement of financial position to be a reasonable approximation of their fair
value due to the short duration. Finance income of TEUR 51, TEUR 47 and TEUR
108 was earned on cash and cash equivalents in 2008, 2009 and 2010
respectively. Apart from this no net gains or losses on loans and receivables
occurred in 2008, 2009 or 2010. The maximum credit risk is assessed by
management to be the amounts shown in the above table as at the respective
reporting dates.
15.
RELATED PARTY RECEIVABLES
Related party receivables related to: 1) rental deposit paid to Guangzhou City
Liwan District Yaoxiang Property Management Center, for renewal of rental
agreement; and 2) salary paid on behalf for Hing Wah Holdings (Hong Kong) Ltd.
The amounts are unsecured, not interest bearing and without fixed terms of
repayment.
F-34
16.
CASH AND BANK BALANCES
2008
2009
2010
TEUR
TEUR
TEUR
Cash at banks
Cash on hand
14,309
21
14,330
16,798
13
16,811
37,788
13
37,801
The cash at banks bear effective interest rates of 0.722%, 0.361% and 0.361%
per annum as at years ended 31 December 2008, 2009 and 2010 respectively.
17.
SHARE CAPITAL AND RESERVES
The Company was incorporated on 24 October 1994 with share capital of HKD
4,000,000 (Equivalent of EUR 424,000). These shares were issued at par on
incorporation. In April 2010, the immediate holding company, Hing Wah Holdings
(Hong Kong) Ltd. injected a further HKD 10,000,000 (equivalent to EUR 969,000)
of share capital as additional working capital. The share capital is fully paid up.
The shares all have equal rights pertaining to voting and dividends. Currency
restrictions may have a negative effect on both the timing and the amount of
future dividends.
The registered capital of the Company is fully paid up. The share capital is not
divided up into shares as there is only one shareholder. The shares have voting
rights pro rata the proportion of nominal capital owned. The share capital has
remained unchanged during the reporting periods.
The holders of ordinary shares are entitled to receive dividends as declared from
time to time and are entitled to one vote per share at shareholders’ meetings. All
shares will rank pari passu with respect to the Company’s residual assets.
Dividends from Chinese companies generally require government approval and
can only be distributed if the statutory reserves comply with relevant legislation.
Transfer of dividends outside of the PRC may be affected by regulations of State
Administration of Foreign Exchange (SAFE) on transfers.
F-35
17.
SHARE CAPITAL AND RESERVES (continued)
Statutory reserve
In accordance with the relevant laws and regulations of the PRC, a Company
established in the PRC is required to transfer 10% of its profit after taxation
prepared in accordance with the accounting regulation of the PRC to the statutory
reserve until the reserve balance reaches 50% of the Company’s share capital,
any further transfer of its annual statutory net profit is optional.
Such reserve may be used to offset accumulated losses or increase the registered
capital of these subsidiaries, subject to the approval from the PRC authorities,
and are not available for dividend distribution to the shareholders.
The statutory reserve of the Company amounts to EUR 724,000 at 31 December
2010 (2009: EUR 213,000 and 2008: EUR 213,000).
Foreign currency translation reserve represents the foreign currency translation
difference arising from the translation of the financial statements from RMB to
EUR.
Retained earnings
The retained earnings reserve comprises the cumulative net gains and losses
recognized in the Company’s income statement.
F-36
18.
TRADE AND OTHER PAYABLES
2008
2009
2010
TEUR
TEUR
TEUR
Trade payables
Other payables and accruals
1,676
554
2,230
3,102
649
3,751
3,887
1,021
4,908
Trade payables generally have credit terms of 30 to 60 days. All trade and other
payables are denominated in Renminbi.
Financial Liabilities at Amortized Cost
2008
2009
2010
TEUR
TEUR
TEUR
Dividends payable to related parties
Trade payables
8,103
1,383
1,676
11,162
1,604
3,102
4,706
2,267
1,813
3,887
7,967
All financial liabilities recorded at amortized cost fall due within one year. Due to
the short-term nature of these, management considers the carrying amounts of
financial liabilities measured at amortized cost in the statement of financial
position to be reasonable approximation of their fair value.
19.
INTEREST-BEARING BANK BORROWINGS
2008
2009
2010
TEUR
TEUR
TEUR
Short-term bank loans
1,383
1,604
1,813
The Company's interest-bearing bank loans are secured by guarantee from
related parties and bear effective interest rates of 8.89%, 5.44% and 5.72% per
annum as at years ended 31 December 2008, 2009 and 2010 respectively.
Finance costs related to these loans amounted to TEUR 104, TEUR 106 and TEUR
110 in the years 2008, 2009 and 2010 respectively.
F-37
20.
DIVIDENDS PAYABLE
According to PRC laws, any dividends declared out of profits earned from 1
January 2008 onwards to foreign investors would attract withholding tax. The
amount of withholding tax payable is dependent on the country of residence of
the investor. In the case of Hong Kong, the applicable tax rate is 5%.
Withholding tax payable of TEUR 114 has been disclosed under income tax
payable.
21.
COMMITMENTS
Operating Lease Commitments
The Company leases its production facilities and office premises under noncancellable operating lease arrangements from a related party. The leases have
varying terms and the total future minimum lease payments of the Company
under non-cancellable operating leases are as follows:
2008
2009
2010
TEUR
TEUR
TEUR
Not later than one year
Later than one year and not
later than five years
Later than five years
33
38
43
130
163
105
143
150
47
240
The leases on the Company’s production facilities and office premises on which
rentals are payable will expire between 31 March 2011 and 31 March 2017, and
the current rent payable on the leases range between RMB 5,000 and RMB
18,000 per month which are subject to revision on expiry. The lease agreements
can be extended by negotiation by 60 days before the lease term expires. The
operating lease for land described in note 8 has been prepaid and hence does not
give rise to any commitments. The terms of this agreement are as described in
note 8.
F-38
21.
COMMITMENTS (continued)
Capital Commitments
On 30 May 2010, the Company concluded an Investment and Construction
Project Contract with the Management Committee of Guangdong – Wenchuan
Industrial Park (the “Management Committee”) to invest and establish a glass
production project and research and development base in Guangdong –
Wenchuan Industrial Park, Sichuan. The total investment commitments of the
project is RMB 0.3 billion (equivalent to approximately EUR 34 million at 31
December 2010 exchange rates). As well as the investment commitment the
Company is expected but not committed to pay annual taxes of more than RMB
18 million. However the Company will benefit under the contract from tax
advantages and subsidies. Under the contract, the Management Committee will
transfer usage rights for land to be used for the construction of the base to the
Company at a preferential price and the Company shall pay a deposit of RMB 50
million (equivalent to EUR 5.6 million) as a down payment for the land use rights.
The land use rights have a term of 50 years. This contract gives rise to various
contingencies which are set out under Note 27. The Company is using its Sichuan
based subsidiary to carry out the investments required under the contract and
has internally agreed with the subsidiary to transfer rights and obligations from
the Investment Contract to the subsidiary, whilst remaining as guarantor and
financing party for the investments.
F-39
22.
FINANCIAL RISK MANAGEMENT
The Company’s activities expose it to credit risk, liquidity risk, and interest rate
risk. The Company’s overall risk management strategy seeks to minimize adverse
effects from the unpredictability of financial markets on the Company’s financial
performance.
The board of directors provides guidance for overall risk management as well as
policies covering specific areas. Management analyses and formulates measures
to manage the Company’s exposure to financial risk in accordance with the
objectives and underlying principles approved by the board of directors.
Generally, the Company’s employs a conservative strategy regarding its risk
management. As the Company’s exposures to market risk are kept at minimum
level, the Company has not used any derivatives or other financial instruments
for hedging purposes. The Company does not hold or issue derivative financial
instruments for trading purposes.
As at 31 December 2008, 2009 and 2010, the Company's financial instruments
mainly consisted of trade receivables, cash and bank balances, trade and other
payables, interest-bearing bank borrowings and dividends payable to related
parties.
(i)
Credit risk
Credit risk is the risk of financial loss to the Company if a customer fails to
meet its contractual obligations, and arises principally from the Company’s
trade and other receivables.
Trade receivables
The Company’s exposure to credit risk is influenced mainly by the
individual characteristics of each customer. The Company typically gives
existing customers credit terms from 30 days to 60 days. In deciding
whether credit shall be extended, the Company will take into consideration
factors such as the relationship with the customer, payment history and
credit worthiness. The Company’s top ten customers in aggregate formed
approximately 41%, 38% and 39% of the trade receivables balances as at
31 December 2008, 2009 and 2010 respectively.
F-40
22.
FINANCIAL RISK MANAGEMENT (continued)
(ii)
Credit risk (Continued)
The Company performs ongoing credit evaluation of its customers’
financial condition and requires no collateral from its customers.
There is no impairment loss recognized in the income statements as all
the receivables were subsequently received.
(iii) Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in
raising funds to meet commitments associated with financial instruments.
The Company’s policy is to regularly monitor current and expected
liquidity requirements to ensure that it maintains sufficient reserve for
cash to meet its liquidity requirement in the short and long term. The
bank borrowings for the years ended 31 December 2008, 2009 and 2010
have maturity period of less than 1 year from the respective statement of
financial position dates.
The maturity profile of the Company’s financial liabilities as at balance
sheet date, based on the contracted undiscounted amounts, is as follows:
Total carrying
amountall current
TEUR
At 31 December 2008
Trade payables
Dividend payable
At 31 December 2009
At 31 December 2010
Dividend payable
F-41
1,676
8,103
1,383
11,162
3,102
1,604
4,706
3,887
2,267
1,813
7,967
22.
(iv) Market risk
Market risk is the risk that changes in market prices, such as foreign
exchange rates and interest rates will affect the Company’s income or the
value of its holdings of financial instruments. The objective of market risk
management is to manage and control market risk exposure within
acceptable parameters.
(v)
Currency risk
Currency risk is the risk that the value of a financial instrument will
fluctuate due to changes in foreign exchange rates. Currency risk arises
when transactions are denominated in foreign currencies.
The Company carries out its business in the PRC and most of its
transactions are denominated in Renminbi. Accordingly, the Company’s
exposure to risk resulting from changes in foreign currency exchange
rates is minimal. However, the Company is exposed to currency risk
resulting from the translation of its financial statements from Renminbi to
the presentation currency.
During the reporting periods the effect on net profit if the exchange rate
between Renminbi and Euro changed by 5%, with all other variables held
constant is estimated to be +/- EUR 0.5 million in 2008, +/- EUR 0.7
million in 2009 and +/- EUR 1.1 million in 2010.
At the following financial position dates, if the exchange rate between
Renminbi and Euro changed by 5%, with all other variables held constant,
the effect on the Company’s equity is estimated to be +/- EUR 0.6 million
in 2008, +/- EUR 1.2 million in 2009 and +/- EUR 2.5 million in 2010.
(vi) Interest rate risk
The Company is exposed to interest rate risk to the extent that annually it
renews its interest-bearing financing, which is however fixed rate.
F-42
23.
CAPITAL MANAGEMENT
The Company’s objectives when managing capital are:
(i)
To safeguard the Company’s ability to continue as a going concern, so that
it continues to provide returns to shareholders and benefits for other
stakeholders;
(ii)
To support the Company’s stability and growth; and
(iii)
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, prevailing and projected profitability, projected operating cash flows,
projected capital expenditures and projected investment opportunities. The
Company currently does not adopt any formal dividend policy.
Estimates are continually evaluated and are based on historical experiences and
other factors, including expectations of future events that are believed to be
reasonable under the circumstances.
F-43
24.
RELATED PARTY
TRANSACTIONS
DISCLOSURES
-
SIGNIFICANT
RELATED
PARTY
An entity or individual is considered a related party of the Company for the
purposes of the financial statements 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.
Related party information
The following persons and entities are considered to be related parties:
a)
Entities / individuals with common control or significant influence over the
Company.
Related Party
Mr. SZE Nang
Heung
Type of business
N.A.
China Specialty
Glass AG
Luckyway Global
Group Limited
Investment holding
company, Germany
Investment holding
company
Hing Wah
Holdings (Hong
Kong) Limited
(“HWG HKHolding”)
Sichuan Hing
Wah Glass
Limited
Guangzhou City
Liwan District
Yaoxiang
Property
Management
Center (formerly
known as
Guangzhou City
Liwan District
Glass Factory)
Investment holding
company, Hong Kong
Manufacturing of
specialty glass, Sichuan
Province, PRC
Property management,
Guangzhou City,
Guangdong Province,
PRC
F-44
Relationship with the Company
Indirect holder of the entire share
capital of the Company, ultimate
controlling shareholder, CEO;
director of the Company from
October 1994 until December 2000
and from September 2004 until
January 2008 as well as director of
HWG HK-Holding since July 2007
Ultimate holding company of the
Company
Major shareholder of the ultimate
holding company and 100% owned
by Mr. SZE Nang Heung
Present sole shareholder of the
Company
Present sole subsidiary of the
Company
Company owned by Mr. SHI Chunli,
former majority shareholder of the
Company, member of key
management and son of Mr. SZE
24.
RELATED PARTY DISCLOSURES
TRANSACTIONS (continued)
HK Chung Hwa
Enterprises
Development
Company
Ma Men
Holdings (HK)
Limited
Guangzhou
Xinghua Glass
Products Co.,
Ltd.
Xi’an Mamen
Security
Technology Co.,
Ltd.
b)
-
SIGNIFICANT
Manufacture, subcontracting and sales of
glasses for motor
vehicles and other uses
in Guangzhou City,
Guangdong Province,
PRC
Holding company
Glass production and
sales
Security glass
production and sales
RELATED
PARTY
Mr. SZE indirectly owns 100%
of this company.
Mr. SZE holds 99.9% of the
shares until selling them to a
non related third party on 23
February 2010.
Subsidiary wholly owned by
Ma Men Holdings (HK)
Limited.
Subsidiary wholly owned by
Ma Men Holdings (HK)
Limited.
Key management and close family of key management or of controlling
shareholder
Related Party
Relationship with the Company
Mr. SZE Nang
Heung
Indirect holder of the entire share capital of the
Company, ultimate controlling shareholder, CEO;
director of the Company from October 1994 until
December 2000 and from September 2004 until January
2008 as well as director of HWG HK-Holding since July
2007
Director of the Company since January 2008
Member of the Management Board and son of Mr. SZE
Nang Heung as well as director of the Company since
September 2004
Director of the Company from January 2008 until June
2009.
Supervisor of the Company since January 2008
Mr. ZHOU Chao
Mr. SHI Chunli
Mr. CHEN Zong
Mr. LI Qiaorong
F-45
24.
-
SIGNIFICANT
RELATED
PARTY
Transactions and amounts due to related parties
In addition to the balances disclosed elsewhere in the Financial Statements, such
as dividends payable to related parties, the Company had the following
transactions with related parties at agreed terms:
2008
TEUR
2009
TEUR
2010
TEUR
(i)
33
35
42
Rental deposit due to rental
agreement
(ii)
-
-
4
Salary paid on behalf
(iii)
-
-
67
Loan to subsidiary
for project investment
(iv)
-
-
3,060
Note
Rental charged on factory and
office building
(i)
Rental of factory and office building
The Company leases several buildings and land use rights under operating
leases from Guangzhou City Liwan District Yaoxiang Property Management
Center and under a finance lease from Mr. SHI Chunli. The terms of the
lease agreements are disclosed in notes 8 and 21.
(ii) Deposit for land use rights and building/finance lease
During 2007, a deposit of RMB 18,751,554 (equivalent EUR 1,801,000) was
paid to acquire land use rights and a building from Mr. SHI Chunli. However,
during 2009 the Company decided to lease the land use rights and building
instead, to avoid the seller having to pay tax of approximately EUR 200,000.
Accordingly, a tenancy agreement was signed for a period of 30 years
commencing on 1 July 2009 and the deposit paid was then converted into
rental prepayment. This agreement was subsequently replaced by a similar
one dated April 2010. Although the lease agreement under the laws of the
PRC is only valid until 2030, the Company’s management is of the opinion
that they can continue to use the buildings until the end of the 30 year term
by extending or renewing the lease.
F-46
24.
-
SIGNIFICANT
RELATED
PARTY
(iii) Salary paid on behalf of Hing Wah Holdings (Hong Kong) Ltd.
The Company pays salary for management staff on behalf of Hing Wah
Holdings (Hong Kong) Ltd. since 2010.
(iv) Project investment paid on behalf of subsidiary
Sichuan Hing Wah Glass Limited was granted a loan for project investment
financing. The terms of the loan are disclosed in note 11.
(v)
Sale and purchase of goods
There were no sales or purchases of goods or services or other transactions
between the Company and related companies.
(vi) Sale of shares to Hing Wah Holdings (Hong Kong) Limited
On 15 January 2008, 100% of the shares of the Company were transferred
at
nominal
value
from
its
initial
shareholders
Guangzhou
Property
Management which held 70% of the shares and HK Chung Hwa which held
30% of the shares to Hing Wah Holdings (Hong Kong) Limited. This transfer
was financed by an unsecured interest free loan granted by Mr. SZE to HWG
HK Holding. No written agreement exists to document this loan.
(vii) Trademark Licence and Transfer Agreements
Mr. SZE concluded trademark license contracts with the Company in 2005,
according to which the Company is entitled to use two trademarks without
royalty fee or licence fee. In 2010 Mr. SZE concluded an agreement
transferring the trademarks to the Company without consideration.
F-47
24.
-
SIGNIFICANT
RELATED
PARTY
Director’s and key management personnel remuneration
2008
TEUR
Director's remuneration
- salaries and related cost
- retirement scheme contribution
(other than director)
As at 31 December
2009
TEUR
2010
TEUR
27
1
28
36
2
38
46
2
48
17
1
18
13
1
14
5
1
6
Credit guarantees and mortgages
Related parties have provided guarantees and mortgages for no consideration for
the Company’s bank loans:
(i)
Mortgages and a guarantee for a credit facility in the amount of RMB
7,400,000 (TEUR 839) have been provided by Guangzhou City Liwan
District Yaoxiang Property Management Center from 8 September 2010
to 7 September 2011 for a short-term loan for the provision of working
capital.
(ii)
8,600,000 (TEUR 975) have been provided by Guangzhou City Liwan
District Yaoxiang Property Management Center from 6 September 2010
to 5 September 2011 for a short-term loan for the provision of working
capital.
(iii)
Mr. SHI Chunli has provided a guarantee for a maximum facility of RMB
20 million (EUR 2.27 million).
(iv)
Mr. SZE Nang Heung has provided a guarantee for a maximum facility
of RMB 20 million (EUR 2.27 million).
F-48
24.
-
SIGNIFICANT
RELATED
PARTY
Credit guarantees and mortgages (continued)
(v)
Mr. SZE Nang Heung has provided a guarantee for the loan from the
Company to HWG-SC in the amount of RMB 33 million (EUR 3.74
million).
Undertakings
Mr. SZE has given an undertaking for no consideration with the Company
according to which he would reimburse the Company for any losses incurred for
any additional social insurance and housing funds payments which may be levied
in respect of prior periods.
Mr. SZE Nang Heung has given an undertaking for no consideration that he would
take all responsibility for any damages or negative influence which may be
caused to the Company by his failure to make a registration under the “Notice of
the State Administration of Foreign Exchange on Relevant Issues concerning
Foreign Exchange Administration for Domestic Residents to Engage in Financing
and in Return Investment via Overseas Special Purpose Companies” (“SAFE
Notice 75”).
Mr. SHI Chunli has given an undertaking for no consideration to bear any
Property Management Center, on which buildings are located that are leased by
the Company, for which the necessary legal formalities have not been completed.
F-49
25.
SEGMENT INFORMATION
a.
Business segment
Management determines the operating segments, which represents
product category, based on reports reviewed and used for strategic
decisions. The Company’s business segments are organized into three
main business segments:
·
·
Bank Security Glass
·
Construction Glass
The accounting policies used for segment reporting are the same as in these
During the periods under audit there were no inter-segment sales and all sales
were made within the PRC. During 2008, 2009 and 2010, sales with the top ten
customers accounted for approximately 30% of total sales. No customer
accounted for more than 10% of sales.
The subsidiary founded in Sichuan in 2010 was not operationally trading in 2010,
and as such earned no sales and contributed neither sales nor profits to the
business segment.
Relevant items of income and expenditure and other financial data such as capital
expenditure have been allocated to the segments as far as this was possible.
Where this was not possible, they have been disclosed in total.
F-50
25.
SEGMENT INFORMATION (continued)
Year ended 31 December 2008
External sales
Cost of sales
Results
Segment gross margin
Finance income
Unallocated corporate
expenses
Finance costs
Income tax expenses
Net profit
Other information
Segment assets
assets
Consolidated total
assets
Automotive
Security
Glass
TEUR
Bank
Security
Glass
TEUR
Construction
Glass
TEUR
Total
TEUR
15,448
(6,964)
17,530
(10,354)
7,238
(5,682)
40,216
(23,000)
8,484
7,176
1,556
17,216
51
(3,018)
(104)
14,145
(3,545)
10,600
3,019
2,382
832
24,892
Segment liabilities
liabilities
Consolidated total
liabilities
Capital expenditure
Depreciation of
property, plant
and machinery
6,233
18,659
12,604
12,604
710
9
F-51
12
7
28
25.
External sales
Cost of sales
Results
Segment gross margin
Finance income
expenses
Finance costs
Income tax expenses
Net profit
Other information
Segment assets
assets
Consolidated total
assets
Automotive
Security
Glass
TEUR
Bank
Security
Glass
TEUR
Construction
Glass
TEUR
Total
TEUR
22,354
(10,350)
23,039
(13,313)
5,517
(4,369)
50,910
(28,032)
12,004
9,726
1,148
22,878
47
(3,962)
(106)
18,857
(4,726)
14,131
5,828
3,600
1,428
31,753
Segment liabilities
liabilities
Consolidated total
liabilities
Capital expenditure
Depreciation of
property, plant
and machinery
10,856
20,897
6,904
6,904
185
27
39
F-52
60
126
25.
External sales
Cost of sales
Results
Segment gross
margin
Finance income
Unallocated
corporate expenses
Finance costs
Profit before
taxation
Income tax
expenses
Net profit
Automotive
Security
Glass
TEUR
Bank
Security
Glass
TEUR
Construction
Glass
TEUR
Total
TEUR
29,971
13,456
32,083
19,274
7,510
5,381
69,564
38,111
16,515
12,809
2,129
31,453
108
(5,193)
Other
information
Segment assets
Unallocated
corporate assets
Consolidated total
assets
(110)
26,258
(4,006)
22,252
6,508
4,067
1,540
59,651
Segment liabilities
Unallocated
corporate liabilities
Consolidated total
liabilities
Capital expenditure
Depreciation of
property, plant
and machinery
b.
12,115
47,536
10,299
10,299
618
18
39
107
Geographical segment
As the business of the Company is engaged entirely in the PRC, no
reporting by geographical location of operations is presented.
F-53
164
26.
EMPLOYEES BENEFITS
The average number of employees was as follows:
Average for the year
2008
2009
2010
36
91
340
467
Sales
Production
Total
39
83
342
464
46
64
341
451
The aggregate payroll costs of these employees were as follows:
2008
2009
2010
TEUR
TEUR
TEUR
Wages and salaries
Social security cost
1,610
195
1,805
2,002
209
2,211
2,280
144
2,424
Retirement Benefit Plans
The eligible employees of the Company who are citizens of the PRC are members
of a state-managed retirement benefit scheme operated by the local government.
The Company is required to contribute a certain percentage of their payroll costs
to the retirement benefit scheme to fund the benefits. The only obligation of the
Company with respect to the retirement benefit scheme is to make the specified
contributions. The cost of retirement benefit contributions charged to the profit or
loss in the years 2008, 2009 and 2010 amount to approximately EUR 195,000,
EUR 209,000 and EUR 144,000 respectively.
F-54
27.
CONTINGENCIES
Investment and Construction Project Contract for planned Sichuan facility
As explained in Note 21, on 30 May 2010, the Company concluded an Investment
and
Construction
Project
Contract
with
the
Management
Committee
of
Guangdong – Wenchuan Industrial Park (the “Management Committee”) to invest
and establish a glass production project and research and development base in
Guangdong – Wenchuan Industrial Park, Sichuan. With the Management
Committee’s approval of the project construction plan, the Company will be
responsible for the project construction and production processes in accordance
with the rules and regulations in the People’s Republic of China. In the event of
non-compliance of construction speed and production of the various phases, or if
the Company fails to satisfy the expected level of investment or the expected
level of tax payments as required for the first stage within 5 years, the
Management Committee has the right to take back all the land use rights of the
project free of charge. The Company may also be liable for compensatory
damages if it is responsible for a breach of contract with adverse effects for the
Management Committee. Without the consent of the Management Committee, the
Company is not allowed to (i) transfer the land use rights to a third party within
10 years and (ii) pledge the land use rights for any credit facility within 3 years.
The Company is using its Sichuan based subsidiary to carry out the investments
required under the contract and has internally agreed with the subsidiary to
transfer rights and obligations from the Investment Contract to the subsidiary,
whilst remaining as guarantor and financing party for the investments and
contingencies.
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 its employees. The Company has in the
past not paid the full amount which should have been paid in respect of these
contributions, but considers the risk for additional payments for prior periods to
be not probable. The Company estimates that such a claim for additional
payments would not exceed TEUR 264. Mr. SZE has undertaken an agreement
with the Company according to which he would reimburse the Company for any
losses incurred for such additional social insurance and housing funds payments.
F-55
27.
CONTINGENCIES (continued)
Tax risks
Various uncertainties exist relating to the following matters which could result in
additional tax liabilities for HWG-Ltd. or the Group:
i.
Depreciation was over claimed by HWG-Ltd. in relation to residual values of
property, plant and equipment in 2007. The additional tax payments, if any,
which could arise from this matter, are estimated to be in the region of TEUR 7.
ii. Entertainment expenses claimed by HWG-Ltd. had exceeded the cap under
the Old and New Enterprise Income Tax Law. The additional tax payments, if any,
which could arise from this matter, are estimated to be in the region of TEUR 47.
28.
SUBSEQUENT EVENTS
No items, transaction or event of a material or unusual nature has arisen in the
interval between 31 December 2010 and the date of the report from the
Reporting Accountants.
29.
APPROVAL OF FINANCIAL STATEMENTS
These financial statements have been approved for issuance.
June
, 2011
The directors.
F-56
AUDIT OPINION
To Guangzhou Hing Wah Glass Industry Co., Ltd., Guangzhou, People's Republic of China
We have audited the financial statements converted from Renminbi (Chinese currency)
to Euro - comprising the statements of comprehensive income, the statements of
financial position, the statements of changes in equity, the statements of cash flow and
the notes to the financial statements - for the financial years ended 31 December 2008,
2009 and 2010 of Guangzhou Hing Wah Glass Industry Co., Ltd., Guangzhou, People's
Republic of China. The preparation of the financial statements in accordance with the
International Financial Reporting Standards (IFRS), as endorsed for application in the
European Union and as set forth in the notes to the financial statements is the
responsibility of the management of the Company and of the Board of Management of
China Specialty Glass AG, Grünwald, near Munich. Our responsibility is to express an
opinion on the financial statements based on our audit.
We conducted our audit of the annual financial statements in accordance with § [Article]
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 materially affecting
the presentation of the net assets, financial position and results of operations in the
annual financial statements in accordance with International Financial Reporting
Standards 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.
Our audit has not led to any reservations.
In our opinion based on the findings of our audit, the financial statements comply, as set
forth in the notes to the financial statements, with the IFRS, as endorsed for application
in the European Union, and give a true and fair view of the net assets, financial position
and results of operations of the Company in accordance with these requirements.
Hamburg, 11 April 2011
Grant Thornton GmbH
(German certified audit firm)
Graf von Kanitz
Wirtschaftsprüfer
(German certified auditor)
F-57
Robinson
Wirtschaftsprüfer
Interim financial statements of
GUANGZHOU HING WAH GLASS INDUSTRY CO., LTD.
for the three months to 31 March 2011
EU (reviewed)
F-58
Condensed Interim Statement of Comprehensive Income
Three
months
ended
31 March
2011
TEUR
Three months
ended
31 March
2010
TEUR
Revenue
Cost of sales
16,441
(8,850)
11,454
(6,451)
Gross profit
7,591
5,003
Finance income
Finance costs
(609)
(326)
79
(30)
(391)
6,314
Taxation
(950)
Net profit
Currency translation reserve
movement
Total Comprehensive Income
Profit attributable to owners of the
parent
attributable to owners to the parent
(441)
(190)
18
(22)
(338)
4,030
(685)
5,364
3,345
(2,345)
3,019
2,325
5,670
5,364
3,345
3,019
5,670
F-59
Condensed Interim Statement of Financial Position
Assets
Non-current
Lease prepayment for land-use
rights
Related party loans
Current
Inventories
Amount due from related parties
Tax receivables
Total assets
Equity and Liabilities
Share capital
Statutory reserve
Foreign currency translation
reserve
Retained earnings
Current liabilities
Corporate income tax payables
Interest-bearing bank
borrowings
Dividend payable to related
party
31 March
2011
TEUR
31 December
2010
TEUR
2,689
2,839
712
5,090
1,083
9,574
751
3,060
1,133
7,783
2,238
12,935
133
418
36,700
52,424
61,998
1,591
11,967
71
438
37,801
51,868
59,651
1,393
724
1,393
724
1,118
49,136
52,371
3,463
43,772
49,352
1,032
4,805
1,311
4,908
1,624
1,813
2,166
9,627
61,998
2,267
10,299
59,651
F-60
Condensed Interim Statement of Changes in Equity
Share
capital
TEUR
Balance at 1 January 2010
Total comprehensive
income
Transfer to statutory
reserve
Balance at 31 March
2010
Share issue
Total comprehensive
income
Transfer to statutory
reserve
Balance at 31 December
2010
Total comprehensive
income
Balance at 31 March 2011
Statutory Translation
reserve
reserve
TEUR
TEUR
Retained
earnings
TEUR
Total
Equity
TEUR
424
213
(158)
24,370
24,849
-
-
2,325
3,345
5,670
-
193
-
(193)
424
406
2,167
27,522
969
-
-
-
-
-
1,296
16,568
-
318
-
724
3,463
43,772
49,352
-
(2,345)
5,364
3,019
724
1,118
49,136
52,371
1,393
1,393
(318)
30,519
969
17,864
-
The comparability is affected by movements in the relative value of the functional currency
(RMB) compared to the presentational currency (EUR).
F-61
Condensed Interim Statement of Cash Flows
Adjustments for:
Finance income
Finance costs
Movement in lease prepayment for land use
rights
Operating profit before working
capital
changes
Increase in inventories
(Increase)/decrease in trade, other and related
party current receivables
Increase in trade and other payables
Income tax paid
Three
months
ended
31 March
2011
TEUR
Three
months
ended
31 March
2010
TEUR
6,314
4,030
104
(79)
30
6
37
(18)
22
6
6,375
(738)
4,077
(156)
(1,549)
119
4,207
79
(1,177)
3,109
4,450
(568)
7,803
18
(1,707)
6,114
(80)
(2)
(2,288)
(2,368)
(2)
Repayment of bank loan
Finance costs paid
(112)
(30)
(22)
(142)
(22)
Purchase of property, plant and equipment
Granting of loan to related party
Cash and bank balances at beginning of
the period
Effects of currency translation
Cash and bank balances at end
of the period
599
6,090
37,801
(1,700)
16,811
1,767
36,700
24,668
F-62
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS
1.
Nature of operations
The principal activity of Guangzhou Hing Wah Glass Industry Co., Limited (hereafter “the
Company”) is the manufacture and distribution of bullet proof and toughened glass
products. The principal place of business is located at No. 6, Hougang Xijie, Guanghai
Road, Guangzhou the People's Republic of China (the “PRC”). The Company sells its
products to customers in the PRC.
The immediate holding company is Hing Wah Holdings (Hong Kong) Limited which is
incorporated in Hong Kong. On 22 November 2010, all shares in Hing Wah Holdings
(Hong Kong) Limited were transferred into China Specialty Glass AG, Grünwald, Munich,
Germany. China Specialty Glass AG then intends seek a listing on the Prime Standard
segment of the German Stock Exchange.
In May 2010 the Company itself incorporated a subsidiary, Sichuan Hing Wah Glass
Limited. The financial statements of the Company, its subsidiary, Sichuan Hing Wah
Glass Limited, its immediate parent, Hing Wah Holdings (Hong Kong) Limited, and its
ultimate parent, China Specialty Glass AG, are included in the consolidated financial
statements of China Specialty Glass AG, so that the Company itself does not have to
prepare consolidated financial statements.
2.
General Information and Statement of compliance with IFRS
These condensed single entity interim financial statements of the Company are prepared
for the three months period ended 31 March 2011 with comparatives. They have been
prepared for the purpose of inclusion in the IPO prospectus of the Company’s future
ultimate parent, China Specialty Glass AG.
The condensed interim financial statements have been prepared in accordance with the
International Financial Reporting Standards (IFRS) adopted by the International
Accounting Standards Board (IASB) and its interpretations of the International Financial
Reporting Interpretations Committee (IFRIC) for interim financial information effective
within the European Union. Accordingly, these condensed interim financial statements do
not include all of the information required in annual financial statements by IFRS.
The condensed interim financial statements have been reviewed. In the opinion of the
Company’s Management, the condensed interim financial statements include all
adjustments of a normal and recurring nature considered necessary for a fair
presentation of results for interim periods. Results of the period ended 31 March 2011
are not necessarily indicative of future results.
The preparation of interim financial statements in conformity with IAS 34 “Interim
Financial Reporting” requires the Management Board to make judgments, estimates and
assumptions that affect the application of policies and reported amounts of assets and
liabilities, income and expenses. Actual results may differ from these estimates.
The accounting principles and practices as applied in the condensed interim financial
statements correspond to those pertaining to the most recent annual financial
statements. A detailed description of the accounting policies is published in the notes to
the financial statements of the Company’s financial statements as of December 31,
2010.
The condensed interim financial statements of the Company have been rounded to the
nearest thousand Euro. Amounts are stated in thousands of Euros (TEUR) except where
otherwise indicated. The condensed interim financial statements of the Company for the
period from January 1 to March 31, 2011 are expected to be authorized for issue in
accordance with a resolution of the Management Board in June 2011.
F-63
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS (Continued)
3.
Significant accounting policies and changes in estimates
These condensed stand alone single entity interim financial statements have been
prepared using accounting policies specified by those IFRS that are in effect at the end
of the reporting period (31 March 2011). The three months financial statements have
been prepared in accordance with the accounting policies adopted in the financial
statements for the year ended 31 December 2010. The accounting policies have been
applied consistently throughout the Company for the purpose of preparation of these
condensed three months financial statements.
The material principles on recognition and measurement are corresponding to the
principles on recognition of the financial statements as of 31 December 2010 and
outlined in those financial statements. The Company had to apply the following new
standards, amendments to existing standards or new interpretations for the first time:
· Improvements of IFRS 2010 (amendments), are to be applied for annual
periods beginning on or after 1 July 2010 and 1 January 2011.
· IFRS 1 (amendments) – Limited exemption from comparative IFRS 7
disclosures for first-time adopters, to the extent to which they may be
applicable on financial statements for annual periods beginning on or after
1 July 2010
· IAS 24 (revised) – Related Party Disclosures - , to the extent to which
they may be applicable for financial statements for annual periods
beginning on or after 1 January 2011
· IFRS 32 (amendments)- Classification of Right Issues, to the extent to
which they may be applicable for financial statements for annual periods
beginning on or after 1 January 2010
· IFRIC 14 (amendments) – Prepayments of a Minimum Funding
Requirements, to the extent to which they may be applicable for financial
statements for annual periods beginning on or after 1 January 2011
· IFRIC 19 (amendments) – Extinguishing Financial Liabilities with Equity
Instruments, to the extent to which they may be applicable for financial
statements for annual periods beginning on or after 1 July 2010
The first-time application of these standards and interpretations is expected to have no
significant impact on the net-assets, financial position and results of operations of the
Company.
The Company has not early applied the following new and amended standards and
interpretations, which have been issued but are not yet effective or as well as partly not
yet adopted by the European Union:
IFRS 7 (amendments), Disclosures – Transfer of Financial assets - to the
extent to which they may be applicable on financial statements for annual
periods beginning on or after 1 July 2010
· IFRS 9 – Financial Instruments - to the extent to which they may be
applicable for financial statements for annual periods beginning on or after
1 January 2013 (not yet adopted by the European Union).
· IFRS 1 (amendments) – “Severe hyperinflation” and “Removal of fixed
dates for first-time adopters” – to the extent to which they may be
applicable for financial statements for annual periods beginning on or after
1 July 2011 (not yet adopted by the European Union).
· IAS 12 (amendments) – Deferred taxes: Recovery of underlying assets –
This amendment is applicable for periods beginning on 1 January 2012
(not yet adopted by the European Union).
·
F-64
3.
Significant accounting policies and changes in estimates (continued)
The management board anticipates that the application of these standards and
interpretations will have no significant impact on the net-assets, financial position and
results of operations of the Company.
There have been no significant changes in estimates compared to the financial
statements of the Company for the year ended 31 December 2010.
4.
Currency translation
Items included in the condensed interim financial statements are measured using the
currency of the primary economic environment in which the Company operates (the
“functional currency”).
The Company conducts its business predominately in the PRC and hence its functional
currency is the Renminbi (RMB).
The presentation currency of the Company is EURO (EUR), being the presentation
currency of its future ultimate German domiciled legal parent and holding Company, and
therefore the financial information has been translated from RMB to EURO at the
following rates:
31 March 2010
31 December 2010
31 March 2011
5.
Period end rates
EUR 1.00 = RMB
EUR 1.00 = RMB
EUR 1.00 = RMB
9.1561
8.8231
9.2343
Average rates
EUR 1.00 = RMB 9.4436
EUR 1.00 = RMB 8.9789
EUR 1.00 = RMB 8.9807
Significant events and transactions
With the exception of the continued measures to prepare for the expected Initial Public
Offering of the Company’s German parent company CSG AG in 2011, no significant
event or transaction has taken place between 31 December 2010 and 31 March 2011.
F-65
6.
Segment reporting
Management determines the operating segments, which represents product categories,
based on reports reviewed and used for strategic decisions. The Company’s business
segments are organized into three main operating segments:
·
·
·
Bank Security Glass
Construction Glass
All of these segments are managed by the Company.
All operating segments are monitored and strategic decisions are made on the basis of
the segmental gross margins. Items of expense and income below the gross profit
margin are not analysed by management on a segmental basis, as these are not
considered relevant for the operational and strategic analysis of the business.
During the period under review, there were no inter-segment transfers.
The accounting policies the Company uses for segment reporting under IFRS 8 are the
same as those used in its financial statements for the year ended 31 December 2010.
The segment information provided to the management for the reportable segments for
the comparative financial period from 1 January 2011 to 31 March 2011 is as follows:
Automotive
Security
Glass
TEUR
Bank
Security
Glass
TEUR
Construction
Glass
TEUR
Revenue
Cost of sales
Gross profit
7,940
3,629
4,311
6,514
3,836
2,678
1,987
1,385
602
Segment assets
31 March 2011
6,733
3,233
3,557
Unallocated
Total
TEUR
TEUR
-
48,475
16,441
8,850
7,591
61,998
Unallocated assets for both financial periods are assets which cannot be reasonably
allocated to the operating segments and included property, plant & equipment,
intangible assets, deferred tax assets, related party loans and investment in subsidiary,
other receivables and cash and bank balances.
F-66
6.
Segment reporting (continued)
The segment information provided to the management for the reportable segments for
the financial period from 1 January 2010 to 31 March 2010 is as follows:
Automotive
Security
Glass
Bank
Security
Glass
Construction Unallocated
Glass
TEUR
Total
TEUR
TEUR
TEUR
TEUR
Revenue
Cost of sales
Gross profit
5,222
2,394
2,828
4,768
2,915
1,853
1,464
1,142
322
-
11,454
6,451
5,003
Segment
assets
31 March 2010
5,512
2,842
964
27,503
36,821
During the interim period, the top 10 customers, which are all distributors, contributed
29% (31 March 2010: 30%) of the Company’s revenue. The Company did not make
export sales.
The totals presented for the Company’s operating segments can be derived directly from
the Company’s key financial figures for sales, cost of sales and total assets as presented
in the financial statements without reconciliation.
F-67
7.
Analysis of selected items of the condensed interim financial statements
Sales increased approximately 44% as compared to the same period of 2010 mainly due
to increases in sales volume and average selling prices.
Selling and distribution expenses increased on an absolute basis due to the increase in
sales.
The absolute increase in administrative expenses mainly relates to salary increments of
employees, increase in entertainment, local tax dike and other expenses which
comprised mainly gift pay made to employees during the Chinese New Year of 2011.
The increase of R&D expenses in the first three months of 2011 when compared with the
first three months of 2010 was mainly attributable to the innovation of a new product,
intruder resistant glass, as well as the associated quality control and design costs for the
improvement of various products during the first three months of 2011.
The composition and amounts of non-current assets at 31 March 2011 remained broadly
comparable to the composition and amounts of non-current assets at 31 December
2010, except for loans to related parties which increased significantly by EUR 2.2 million,
due to an unsecured, interest-bearing loan granted by the Company to Mr. Sze to assist
with funding the investments in Sichuan in the future. The loan is detailed under note 9.
Inventory and trade and other receivables fluctuated with the trading cycle.
The tax receivable results from the fact that the Company paid tax at 25% in the first
quarter of 2010, however was subsequently granted status for three years initially as a
high tech enterprise, which afforded it the benefit of a lower preferential rate of 15% for
2010. The Company expects to be able to claim back the overpaid tax. The preferential
status is renewable as long as the Company maintains its high-tech status.
Capital and reserves increased compared with capital and reserves at 31 December
2010, due to the profitable operations of the Company in the first three months of 2011.
The composition and amounts of current liabilities at 31 March 2011 remained broadly
comparable to the composition and amounts of current liabilities at 31 December 2010.
8.
Commitments and contingencies
Between the financial statements of the Company for the year ended 31 December 2010
and the accounting period of the interim financial statements as at 31 March 2011, no
material changes in commitments and contingencies have occurred.
F-68
9.
Related party disclosures – Significant related party transactions
a) Entities/individuals with common control or significant influence over the Company or
under common control.
- Mr. SZE Nang Heung: Indirect holder of the entire share capital of the Company,
ultimate controlling shareholder, CEO; director of the Company from October 1994 until
December 2000 and from September 2004 until January 2008 as well as director of Hing
Wah Holdings (Hong Kong) Ltd. since July 2007.
- Hing Wah Holdings (Hong Kong) Ltd.: Mr. SZE Nang Heung holds 74.3% of shares
while 25.7% of shares were transferred to four investors.
- Luckyway Global Group Limited, Tortola, British Virgin Islands (incorporated on 10
March 2010). Mr. SZE holds 100% of the shares in Luckyway Global Group Limited
- China Specialty Glass AG, Grünwald near Munich, Germany (incorporated on 10 May
2010). Luckyway Global Group Limited holds 100% of the shares in China Specialty
Glass AG.
- Sichuan Hing Wah Glass Limited, Chengdu City, Sichuan Province, PRC. 100%
subsidiary of the Company.
- Guangzhou City Liwan District Yaoxiang Property Management Center (formerly known
as Guangzhou City Liwan District Glass Factory): Company owned by Mr. SHI Chunli,
former majority shareholder of the Company, member of key management and son of
Mr. SZE.
- HK Chung Hwa Enterprises Development Company: Mr SZE indirectly owns 100% of
this Company.
- Ma Men Holdings (HK) Limited: Mr. SZE holds 99.9% of the shares until selling them to
a non related third party on 23 February 2010.
- Guangzhou Xinghua Glass Products Co., Ltd.: Subsidiary wholly owned by Ma Men
Holdings (HK) Limited.
- Xi’an Mamen Security Technology Co., Ltd.: Subsidiary wholly owned by Ma Men
Holdings (HK) Limited.
b) Key management/directors of the Company and subsidiary
- Mr. ZHOU Chao
- Mr. SHI Chunli
- Mr. WANG Xue Yan
F-69
9.
Related party
(continued)
disclosures
–
Significant
party
transactions
Three
months
ended
31 March
2011
TEUR
Three
months
ended
31 March
2010
TEUR
36
-
11
9
Hing Wah Holdings (Hong Kong) Ltd.
Salaries and allowance paid on behalf by
Guangzhou Hing Wah Glass Industrial Co.,
Ltd.
15
-
Key management personnel compensation
(Loan to Mr. Sze described below)
15
-*
17
1
Income statement items.
Sichuan Hing Wah Glass Limited
Interest on loan (loan described below)
Guangzhou City Liwan District Yaoxiang
Property Management Center
Rental charged on factory and office
building
related
* - less than one thousand
Included in “salaries and related cost” are amounts of director’s remuneration totaling
TEUR 11 for the three months ended 31 March 2011 (three months ended 2010: TEUR
17).
Loans to related parties in the statement of financial position relate to a loan granted to
Mr. SZE of RMB 20 million (EUR 2.2 million at 31 March 2011 exchange rates) as well as
a loan to the Company’s 100% subsidiary in the amount of RMB 27 million (EUR 2.9
million at 31 March 2011 exchange rates). Both loans are unsecured, bear interest at the
rate of 5.56% per annum and have to be repaid five years after granting of the loan. The
loan granted to Mr. SZE is intended for financing of the planned development work in
connections with the Company’s Sichuan subsidiary and the funds loaned to Mr. SZE are
expected to be transferred to the Company’s Sichuan subsidiary in the near future.
Receivables from related parties relate to interest on the loan from the Company’s
Sichuan subsidiary in the amount of TEUR 36 receivables for salary paid on behalf of
Hingwah Holdings (Hong Kong) Ltd. including prior year amounts of TEUR 93 and the
rental deposit on the rental agreement owed by Guangzhou City Liwan District Yaoxiang
Property Management Center of TEUR 4.
There were no sales or purchases of goods or services or other transactions between the
Company and related parties.
F-70
9.
Related party
(continued)
disclosures
–
Significant
related
party
transactions
Leasing
The Company leases several buildings and land use rights under operating leases from
Guangzhou City Liwan District Yaoxiang Property Management Center and under a
finance lease from Mr. SHI Chunli.
Related parties have provided guarantees and mortgages for certain of the Company’s
bank loans:
Guarantees and mortgages for the following credit facilities have been provided by
Guangzhou City Liwan District Yaoxiang Property Management Center for the below
stated periods for a short-term loan for the provision of working capital:
As at 31 March
2011
As at 31 December 2010
RMB 7,350,000
(EUR 0.8 million)
8 September 2010
to
7 September 2011
8 September 2010 to
7 September 2011
RMB 8,550,000
EUR 0.9 million)
5 September 2010
to
5 September 2011
6 September 2010 to
5 September 2011
Loan amount
During the first quarter ended 31 March 2011, the Company had repaid RMB1 million of
the loan
(c. EUR 0.1 million).
Mr. SHI has provided a guarantee for a maximum facility of RMB 20 million
(EUR 2.2 million) at no cost.
Mr. SZE has provided a guarantee for a maximum facility of RMB 20 million
(EUR 2.2 million) at no cost.
10.
Events after the reporting date
The Company expects its ultimate holding company, China Specialty Glass AG, to issue
its prospectus for its listing on the Prime Standard segment of the German Stock
Exchange in 2011.
There are no significant non-adjusting events or any significant adjusting events to
report between the reporting date and the date of preparation of these financial
statements.
F-71
REVIEW OPINION
To Guangzhou Hing Wah Glass Industry Co. Ltd., Guangzhou, PRC
We have reviewed the condensed interim financial statements – comprising the
statement of comprehensive income, statement of financial position, cash flow
statement, statement of changes in equity and selected explanatory notes – of
Guangzhou Hing Wah Glass Industry Co. Ltd., for the period from 1 January
2011 to 31 March 2011. The preparation of the condensed interim financial
statements in accordance with those IFRS applicable to interim financial
reporting as adopted by the EU, is the responsibility of the Company's
management. Our responsibility is to issue a report on the condensed interim
financial statements based on our review.
We conducted our review of the condensed interim financial statements in
accordance with the German generally accepted standards for the review of
financial statements promulgated by the Institut der Wirtschaftsprüfer (IDW).
Those standards require that we plan and perform the review so that we can
preclude through critical evaluation, with a certain level of assurance, that the
condensed interim financial statements have not been prepared, in material
aspects, in accordance with the IFRS applicable to interim financial reporting as
adopted by the EU. A review is limited primarily to inquiries of company
employees and analytical assessments and therefore does not provide the
assurance attainable in a financial statement audit. Since, in accordance with
our engagement, we have not performed a financial statement audit, we cannot
issue an auditor's report.
Based on our review, no matters have come to our attention that cause us to
believe that the condensed interim financial statements have not been prepared,
in material respects, in accordance with the IFRS applicable to interim financial
reporting as adopted by the EU.
Hamburg, 2 May 2011
Grant Thornton GmbH
Friedrich Graf von Kanitz
Wirtschaftsprüfer
F-72
Timothy Robinson
Wirtschaftsprüfer
Consolidated financial statements of
CHINA SPECIALTY GLASS AG
for the short financial period
22 November 2010 to 31 December 2010
EU (audited)
F-73
Consolidated Statement of Comprehensive Income
Period from
22 November 2010
to
31 December 2010
Notes
TEUR
Revenue
4
9,066
Cost of sales
5
(4,900)
Gross profit
4,166
Finance income
Finance costs
(398)
(214)
34
(9)
(173)
Taxation
6
6
7
8
3,406
(643)
Net profit
Other Comprehensive Income:
movement
2,763
Profit attributable to owners of the parent
Total comprehensive income attributable
to owners to the parent
2,763
1,365
4,128
4,128
currency (RMB) of the Chinese operating subsidiary compared to the presentational
currency (EUR). Due to the fact that the Group only came into existence on 22
November 2010, as described in note 1 below, there are no comparative figures.
F-74
Consolidated Statement of Financial Position
31
December
2010
TEUR
22 November
2010
TEUR
9
3,764
2,741
Other assets
Intangible assets
10
11
9
751
3,173
13
7,701
731
330
13
3,815
Current assets
Inventories
Tax receivable
12
13
8
14
15
1,591
12,727
438
5
37,912
52,673
60,374
2,480
12,656
427
4
36,666
52,233
56,048
Share capital
Statutory reserve
Retained earnings
16
16
16
16
15,050
724
3,521
30,516
49,811
15,050
724
2,156
27,753
45,683
Current liabilities
Related party payables
8
17
18
14
1,311
4,996
1,813
2,443
10,563
656
5,665
1,759
2,285
10,365
60,374
56,048
Note
Assets
Non-current assets
Total assets
currency (RMB) of the Chinese operating subsidiary compared to the presentational
currency (EUR).
F-75
Consolidated Statement of Changes in Equity
Note
Balance at 22
November 2010
Total
comprehensive
income
Balance at 31
December
2010
Share
capital
TEUR
16
Statutory
reserve
TEUR
16
Translation
reserve
TEUR
16
Retained
earnings
TEUR
16
Total
Equity
TEUR
16
15,050
724
2,156
27,753
45,683
-
-
1,365
2,763
4,128
15,050
724
3,521
30,516
49,811
*Amount is less than EUR 1,000
currency (RMB) of the Chinese operating company compared to the presentational
currency (EUR).
In recording the reverse acquisition of CSG AG by the Group as described in note 3,
consolidated equity at the commencement of the legal group in Germany, i.e. when the
capital increase was recorded in the trade registry in Germany on November 22, 2010,
has been disclosed to show the share capital of the legal parent CSG AG, taking into
account the capital increase made in the reverse acquisition. Costs of this capital
increase were not material.
Statutory reserves, retained earnings and the foreign currency translation reserve are
shown as a continuation of the consolidated statement of changes in equity of HWG HKHolding.
F-76
Consolidated Statement of Cash Flows
Note
Adjustments for:
Loss on disposal of property, plant and equipment
Finance income
Finance costs
Decrease in lease prepayment for land-use rights
Decrease in inventories
Decrease in trade and other receivables
Decrease in trade and other payables
Cash from operations
Finance income
Income tax paid
Net cash from operating activities
Deposit for land use rights and design rights
Net cash from investing activities
Period from
22 November 2010 to
31 December 2010
TEUR
3,406
9
6
6
10
9
9
-*
18
(34)
9
2
3,401
950
432
(749)
4,034
34
(136)
3,932
(3)
(939)
(2,843)
(3,785)
Amount due to related parties
Finance costs
9
(9)
-
147
Cash and bank balances at beginning of the period
36,666
1,099
Cash and bank balances at end of the period
37,912
currency (RMB) of the Chinese operating company compared to the presentational
currency (EUR). Due to the fact that the Group only came into existence on 22
November 2010, as described in note 1 below, there are no comparative figures.
financial statements. Approximately EUR 870,000 of IPO related expenses were paid
directly by the Group’s immediate shareholder without cash inflows or outflows for the
Group.
F-77
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.
THE GROUP
The principal activity of the China Specialty Glass Group which comprises China
Specialty Glass AG, Grünwald, Germany ("CSG AG") , Hing Wah Holdings (Hong
Kong) Limited (“HWG HK-Holding”), its 100% subsidiaries Guangzhou Hing Wah
Glass Industry Co., Limited ("HWG-Ltd."), and Sichuan Hing Wah Glass Co., Ltd.
("HWG-SC"), (hereafter “Group”), is the manufacture and distribution of bullet
proof and toughened glass products.
The Group's principal place of business is located at No. 6, Hougang Xijie,
Guanghai Road, Guangzhou the People's Republic of China (the “PRC”). Its
registered place of business is the registered office of its ultimate parent
company CSG AG in An den Römerhügeln 1, 82031 Grünwald, Munich, Germany.
The Group sells its products to customers in the PRC.
The Group was formed on 22 November 2010 when the transfer of the entire
share capital in HWG HK-Holding into CSG AG, Grünwald, Munich, Germany, took
legal effect. Hence the Group has no historical financial data. The operating
business of the Group was and is carried out by HWG-Ltd. It is intended that
China Specialty Glass AG will seek a listing on the German Stock Exchange
(Prime Standard Segment) in 2011.
As the formation of the Group had legal effect on 22 November 2010, the first
consolidated financial data of the Group is derived from the consolidated financial
statements for the short financial year from 22 November to 31 December 2010
prepared in accordance with IFRS, as endorsed for application in the EU, as at 31
December 2010. As the 22 November 2010 is the initial moment of the legal
existence of the Group, there are no comparative figures for the consolidated
statement of comprehensive income, the consolidated statement of changes in
equity or the consolidated statement of cash flow, and the comparatives for the
consolidated statement of financial position are those of the opening consolidated
statement of financial position dated 22 November 2010.
As at the date of this report, there is only one class of shares in CSG AG, being
ordinary shares. The rights and privileges of the shares are stated in the Articles
of Association. There is no founder, management or deferred or unissued shares
reserved for issuance for any purpose.
F-78
2.
SIGNIFICANT ACCOUNTING POLICIES
2.1 Statement of compliance and basis of preparation
These consolidated financial statements of the Group are prepared for the period
from 22 November 2010 to 31 December 2010.
The consolidated financial statements of the Group have been prepared in
accordance with International Financial Reporting Standards (IFRS) as issued by
the International Accounting Standards Board (IASB) in so far as these have
been endorsed by the EU. They are the first consolidated financial statements
prepared by the Group which are compliant with International Financial Reporting
Standards, as adopted for use in the EU.
The consolidated interim financial statements of the Group have been rounded to
the nearest thousand Euro. Amounts are stated in thousands of Euros (TEUR)
except where otherwise indicated.
The consolidated financial statements of the Group for the period from 22
November to 31 December 2010 are expected to be authorized for issue by the
Supervisory Board of CSG AG at the end of June 2011.
F-79
2.
2.2. Published
Amendments
but
not
yet
applied
Standards,
Interpretations
and
At the time of preparation of the group financial statements, the following releases
of the IASB as well as their changes and revisions were not compulsorily applicable
in the 2010 financial year, and were not applied by the CSG AG Group:
·
IAS 24 and changes to IFRS 8: “Related party disclosures” (effective 1
January 2011)
·
Changes to IAS 32: “Financial instruments: presentation” (Classification of
Rights Issues) (effective 1 February 2010)
·
Changes to IFRS 1 and IFRS 7: “First-time adoption of IFRS” and “Financial
instruments: disclosures” (Limited Exemption from Comparative IFRS 7
Disclosures for First-Time Adoptors) (effective 1 July 2010)
·
Changes to IFRIC 14: “The Limit on an Defined Benefit Asset, Minimum
Funding Requirements and their Interaction” (Prepayments of a Minimum
Funding Requirement) ” (effective 1 January 2011)
·
IFRIC 19 and consequential changes to IFRS 1: “Extinguishing Financial
Liabilities with Equity Instruments” and “First-time adoption of IFRS”
(effective 1 July 2011)
·
Annual Improvements 2010 ” (effective 1 July 2010)
The following accounting standards and amendments to existing standards have
been published but, as at 31 December 2010, are not yet effective and have not
yet been adopted by the European Union:
·
Amendments to IFRS 1: First-time Adoption: Additional Exemptions to
First-time Adopters (effective from 1 July 2011)
·
Amendments to IFRS 7: Financial instruments disclosures (effective from 1
July 2012)
·
IFRS 9: Financial Instruments (effective from 1 January 2013)
·
Amendments to IAS 12: Deferred Tax Recovery of Underlying Assets
(effective from 1 January 2012)
The Management Board of CSG AG assumes that the new and amended
standards and interpretations will likely not have a material effect on the
consolidated financial statements when they are applied by the Group.
F-80
2.
2.3 Overall Considerations
The Financial Statements have been prepared in accordance with the significant
accounting policies set out below and these accounting policies are in accordance
with IFRS.
The preparation of the Financial Statements in conformity with IFRS requires the
use of judgments, estimates and assumptions that affect the application of
accounting policies as disclosed below, reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the Financial
statements and the reported amounts of revenue and expenses during the
financial years.
The significant accounting policies that have been used in the preparation of
these financial statements are summarized below. The financial statements have
been prepared using the measurement bases and accounting policies specified by
IFRS for each type of asset, liability, income and expense. These are more fully
described below.
2.4 Presentation of Financial Statements
The consolidated financial statements are presented in accordance with IAS 1
Presentation of Financial Statements. The statement of comprehensive income
has been prepared using the function of expense method. The Group has elected
to adopt IAS 1 (Revised 2007) by presenting the 'Statement of Comprehensive
Income' in one statement.
F-81
2.
2.5 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 are
believed to be reasonable under the circumstances.
The Group makes estimates and assumptions concerning the future. The
causing a material adjustment to the carrying amounts of assets and liabilities
within the next period are discussed below:
2.6 Key sources of estimation uncertainty
Property, plant and equipment are depreciated on a straight-line basis over their
estimated useful lives. Management estimates the useful lives of these assets to
be within 3 to 30 years. Changes in the expected level of usage and technological
developments could impact the economic useful lives and the residual values of
these assets, therefore future depreciation charges could be revised. The net
book value of property, plant and equipment subject to this estimation
uncertainty is TEUR 3,764 at 31 December 2010 (TEUR 2,741 at 22 November
2010).
Income tax
The Group has exposure to income taxes primarily 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 recognises 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
recognised, such differences will impact the income tax and deferred tax
provisions in the period in which such determination is made. The value of tax
assets subject to this estimation uncertainty is TEUR 438 at 31 December 2010
(TEUR 427 at 22 November 2010) and the value of tax liabilities subject to
estimation uncertainty is TEUR 1,311 at 31 December 2010 (TEUR 656 at
22 November 2010).
F-82
2.
2.6 Key sources of estimation uncertainty (continued)
Inventories
reliable evidence available at the times the estimates are made. Changes in these
estimates could result in revisions to the valuation of inventories. The carrying
value of inventories at 31 December 2010 is TEUR 1,591 (TEUR 2,480 at 22
November 2010).
Provisions
The respective legislation of the Group’s primary operating environment in the
PRC requires the Group to commit itself to remediate any environmental
damages which may have been incurred. Management is of the opinion that no
environmental damage has been caused by the Group and hence has not
provided for this.
F-83
2.
2.7 Critical judgment made in applying accounting policies
In the process of applying the Group’s accounting policies as described below, the
recognised in the financial statements.
Allocation of cost attributable to other assets (land use rights) and to property
plant and equipment
In 2007, the Group made an advance payment for land use rights and building,
which it intended to purchase. The advance payment of EUR 1,801,000 was not
attributed separately to land use rights and to the building at the time of making
the advance payment. Management obtained a valuation report which stated the
market value of the land use rights and the market value of the building. The
total market value was above the total of the advanced payment made.
Management then allocated the advanced payment pro rata the market valuation
to the land use rights and the building. In 2009, the Group decided no longer to
purchase the land use rights and building but to lease them and a lease
agreement was made for a period of 30 years commencing on 1 July 2009. This
agreement was subsequently replaced by one dated April 2010, also with a 30
year term. The lease agreement can be extended by negotiation by 60 days
before the lease term expires. According to the PRC law, the lease term may not
exceed 20 years however. If it exceeds twenty years, the period in excess is
invalid. Therefore, the term of the legal lease expires on 31 March 2030 as the
lease is invalid after 1 April 2030. However the Company assumes it will be able
to extend the lease as described above and an extension is legal under the laws
of the PRC.
The Group’s management assesses the collectability of trade receivables. This
estimate is based on the credit history of the Group’s customers and the current
market condition. Management assesses the impairment loss at the date of the
statement of financial position and makes the provision, if any.
F-84
2.
2.8 Detailed accounting policies
The lease prepayment for land-use rights relates exclusively to land use rights,
which the Group is leasing under a lease, which it has determined to be an
operating lease and for which it has paid the leased payments due over the entire
initial lease term in advance. The prepayment is being expensed to income over
the term of the lease.
Other assets
Other assets relate to an advance payment for land use rights and design rights
in connection with the construction work for the Group's planned facility in
Sichuan.
Other assets are recognized at cost less accumulated impairment losses and are
written off where, in the opinion of the directors, no further future economic
benefits are expected to arise.
Property, plant and equipment are stated at cost less accumulated depreciation
and impairment losses. The cost of property, plant and equipment comprises the
purchase price and any costs directly attributable to bringing the asset to the
working condition and location for its intended use. Expenditure incurred after
property, plant and equipment have been put into operation, such as repairs and
maintenance, is normally recognized in profit or loss in the period in which it is
incurred. In situations where it can be clearly demonstrated that the expenditure
has resulted in an increase in the future economic benefits expected to be
obtained from the use of the property, plant and equipment, and the expenditure
of the item can be measured reliably, the expenditure is capitalised as an
additional cost of that asset.
Advance payments for property, plant and equipment acquired are recognised as
an asset when payment for the property, plant and equipment has been made in
advance of the final delivery of the property, plant and equipment.
F-85
2.
2.8 Detailed accounting policies (continued)
Property, plant and equipment (continued)
Depreciation on property, plant and equipment is calculated using the straightline method to write off the cost of property, plant and equipment, less any
estimated residual values, over the following estimated useful lives:
Leasehold building
Plant and machinery
Furniture, fixtures and office equipment
Motor vehicles
30
10
5
10
years
years
years
years
The estimated residual values, estimated useful lives and depreciation method of
the property, plant and equipment are reviewed, and adjusted as appropriate, at
each statement of financial position date.
The gain or loss on disposal or retirement of an item of property, plant and
equipment recognized in profit or loss is the difference between the net disposal
proceeds and the carrying amount of the relevant asset.
Intangible assets
Intangible assets relate primarily to software licences and are stated at cost less
accumulated amortization. The cost of intangible assets comprises the purchase
price and any costs directly attributable to bringing the asset to the working
condition and location for intended use. Software is amortized on a straight-line
basis over 3 years.
Impairment of non-financial assets
Other assets and property, plant and equipment, lease prepayment for land-use
rights and intangible assets are tested for impairment whenever there is any
objective evidence or indication that these assets may be impaired.
For the purpose of impairment testing, the recoverable amount (i.e. the higher of
the fair value less cost to sell and the value-in-use) is determined on an
individual asset basis unless the asset does not generate cash flows that are
largely independent of those from other assets. If this is the case, the
recoverable amount is determined for the cash-generating-unit (“CGU”) to which
the asset belongs.
F-86
2.
Impairment of non-financial assets (continued)
If the recoverable amount of the asset (or CGU) is estimated to be less than its
carrying amount, the carrying amount of the asset (or CGU) is reduced to its
recoverable
amount.
The
difference
between
the
carrying
amount
and
recoverable amount is recognised as an impairment loss in profit or loss, unless
the asset is carried at revalued amount, in which case, such impairment loss is
treated as a revaluation decrease.
Financial assets
The financial assets of the Group are categorised as loans and receivables. The
Group does not have any other financial assets. The Group’s loans and
receivables comprise trade receivables, related party receivables and cash and
cash equivalents in the statement of financial position.
Regular purchases and sales of financial assets are accounted for at trade date.
The Group's loans and receivables are non-derivative financial assets with fixed
or determinable payments that are not quoted in an active market. They arise
principally via the provision of goods and services to distributors (e.g. trade
receivables), but also incorporate other types of contractual monetary assets.
They are initially recognized at fair value plus transaction costs that are directly
attributable to their acquisition or issue if any, and are subsequently carried at
amortized cost using the effective interest rate method, less provision for
impairment.
Impairment provisions are recognized when there is objective evidence that the
Group will be unable to collect all of the amounts due under the terms of
receivables, the amount of such a provision being the difference between the net
carrying amount and the present value of the future expected cash flows
associated with the impaired receivables. For trade receivables and related party
receivables, which are reported net of impairment provisions, such provisions are
recorded in a separate allowance account with the loss being recognized within
administrative
expense
in
the
statement
of
comprehensive
income.
On
confirmation that the trade receivables or related party receivables will not be
collectable, the gross carrying value of the asset is written off against the
F-87
2.
Financial assets (continued)
associated provision. Gains on loans and receivables are primarily from interest
and are determined on the effective interest method. Losses are primarily from
Impairment and are determined by management analysis of the ageing of loans
and receivables based on experience of default risk and history.
Loans and receivables are presented as current assets, as all mature within 12
months after the end of the reporting period. Loans and receivables are
measured
on
initial
recognition
at fair value plus transaction
cost
and
subsequently carried at amortised cost using the effective interest method.
Allowances for impairment are recognised in profit or loss when there is objective
evidence that the asset is impaired. The allowance recognised is calculated as the
difference between the asset's carrying amount and the present value of
estimated future cash flows, discounted at the effective interest rate computed at
initial recognition.
Inventories
Inventories are carried at the lower of cost and net realisable value. Cost is
determined using the weighted average method. The cost of finished goods
comprises raw materials, direct labour and other overheads that have been
incurred in bringing the inventories to their present location and condition. Net
realisable value is the estimated selling price in the ordinary course of business,
less the estimated costs of completion and the estimated costs necessary to
make the sale. In valuing inventory, it is assumed that inventory is utilised on a
first in first out basis.
Equity reserves and dividend payments
Share capital represents the nominal value of shares that have been issued in the
Group. Share capital is determined using the nominal value of shares that have
been issued.
Retained earnings include all current and prior period results as determined in the
statement of comprehensive income.
Foreign currency translation differences arising on the translation are included in
the translation reserve.
F-88
2.
Equity reserves and dividend payments (continued)
Dividend distributions payable to equity shareholders are included in 'other
liabilities' when the dividends have been approved in a general meeting prior to
the reporting date.
In accordance with the relevant laws and regulations of PRC, the subsidiaries of
the Group established in PRC are required to transfer 10% of its annual statutory
net profit (after offsetting any prior years’ losses) to the statutory reserve. When
the balance of such reserve reaches 50% of the subsidiary’s share capital, any
further transfer of its annual statutory net profit is optional. Such reserve may be
used to offset accumulated losses or to increase the registered capital of the
subsidiaries subject to the approval of the relevant authorities. However, except
for offsetting prior years’ losses, such statutory reserve must be maintained at a
minimum of 25% of the share capital after such usage. The statutory reserves
are not available for dividend distribution to the shareholders.
Financial liabilities
Financial liabilities are recognised when the Group becomes a party to the
contractual provisions of the financial instrument. Financial liabilities are
recognised initially at fair value, plus in the case of financial liabilities other than
derivatives,
directly
attributable
transaction
costs.
Subsequent
to
initial
recognition, all financial liabilities are measured at amortised cost using the
effective interest method, except for derivatives, which are measured at fair
value. All interest related charges are recognised as an expense in profit or loss.
Financial liabilities are derecognised when the obligation for the liabilities is
discharged or cancelled or expired. For financial liabilities other than derivatives,
gains and losses are recognised in profit or loss when the liabilities are
derecognised or impaired, and through the amortisation process.
The Group’s financial liabilities include trade and other payables, interest-bearing
bank borrowings and related party payables.
F-89
2.
Trade and other payables, interest-bearing bank borrowings and related party
payables are initially recognised at fair value, and subsequently carried at
amortised cost using the effective interest method.
Provisions and contingent liabilities
Provisions are recognized when the Group has a present obligation (legal or
constructive) where, as a result of a past event, it is probable that an outflow of
resources embodying economic benefits will be required to settle the obligation
and a reliable estimate can be made of the amount of the obligation. Provisions
are not recognized for future operating losses. Where the Group expects some or
all of a provision to be reimbursed, the reimbursement is recognized as a
separate asset but only when the reimbursement is virtually certain. However,
this asset may not exceed the amount of the related provision. The expense
relating to any provision is presented in the consolidated statement of
comprehensive income net of any reimbursement.
Provisions are measured at the estimated expenditure required to settle the
present obligation, based on the most reliable evidence available at the reporting
date, including the risks and uncertainties associated with the present obligation.
Where there are a number of similar obligations, the likelihood that an outflow
will be required in settlement is determined by considering the class of
obligations as a whole. Provisions are discounted to their present values, where
the time value of money is material.
In those cases where the possible outflow of economic resources as a result of
present obligations is considered improbable or remote, no liability is recognized.
All provisions and contingent liabilities are reviewed at each reporting date and
adjusted to reflect the current best estimate.
F-90
2.
Provisions and contingent liabilities (continued)
Provisions for environmental protection are recorded if future cash outflows are
likely to be necessary to ensure compliance with environmental regulations or to
carry out remediation work, such costs can be reliably estimated and no future
benefits are expected from such measures. Estimating the future costs of
environmental
protection
and
remediation
involves
many
uncertainties,
particularly with regard to the status of laws and regulations. Management
considers that environmental damage has not been caused by the Group and
hence has not provided for environmental protection.
Revenue and other income
Revenue is measured at the fair value of the consideration received or receivable
and presented net of goods and services taxes and trade discounts.
The Group sells bullet proof and toughened security glass to various customers in
the automotive, banking and construction sectors. Revenue from the sale of
manufactured products are recognised when the Group has transferred to
customers the significant risks and rewards of ownership of the goods, which
generally coincides with the delivery to and acceptance of goods by the
customers; and when the Group can reliably measure the amount of revenue and
the cost incurred and to be incurred in respect of the transaction; and it is
probable that the collectability of the related receivables is reasonably assured.
No revenue is recognised if there are significant uncertainties regarding recovery
of the consideration due, associated costs or the possible return of goods.
Finance income
Finance income is recognised using the effective interest method.
F-91
2.
Employee benefits - Retirement benefits scheme
Pursuant to the relevant regulations of the PRC government, the Group
participates in a local municipal government retirement benefits scheme (the
"Scheme"), whereby the subsidiaries located in the PRC are required to
contribute a certain percentage of the basic salaries of its employees to the
Scheme to fund their retirement benefits. The local municipal government
undertakes to assume the retirement benefits obligations of all existing and
future retired employees of the subsidiaries located in the PRC. The only
obligation of the Group with respect to the Scheme is to pay the ongoing required
contributions under the Scheme mentioned above. Contributions under the
Scheme are recognized in profit or loss as incurred.
There are no provisions under the Scheme whereby forfeited contributions may
be used to reduce future contributions. These plans are considered defined
contribution plans. The Group has no legal or constructive obligations to pay
further contributions after its payment of the fixed contributions into the national
pension schemes. Contributions to national pension schemes are recognized as
an expense in the period in which the related service is performed.
Key management personnel are those persons having the authority and
responsibility for planning, directing and controlling the activities of the entity.
Directors and certain managers are considered key management personnel of the
Group.
Income tax
Tax expense recognised in profit or loss comprises the sum of current and
deferred tax charges.
Current income tax assets and/or liabilities comprise those obligations to, or
claims from, fiscal authorities relating to the current or prior reporting periods,
that are unpaid at the reporting date. Current tax is payable on taxable profit,
which differs from profit or loss in the financial statements. Calculation of current
tax is based on tax rates and tax laws that have been enacted or substantively
enacted by the end of the reporting period in the country in which the Group is
operating.
F-92
2.
Value-added tax (“VAT”)
The Group’s sale of goods in the PRC is subject to VAT at the applicable tax rate
of 17% for the PRC domestic sales. 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
statement of financial position.
Revenue, expenses and assets are recognised net of the amount of VAT except:
(i)
where the VAT incurred on a 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
(ii)
receivables and payables that are stated with the amount of VAT
included.
Foreign currencies
(iii)
Functional and presentation currency
Items included in the financial statements are measured using the
currency of the primary economic environment in which the entity
operates (the “functional currency”). The Group conducts its business
predominately in the PRC and the functional currency of the sole main
operating subsidiary HWG Ltd. is the Renminbi (RMB). HWG HK-Holding
prepared its financial statements in its functional currency of Hong Kong
Dollar and CSG AG prepared its financial statements in its functional
currency EUR.
The presentation currency of the Group is EUR, being the presentation
currency of its ultimate German domiciled legal parent, and therefore
the financial information has been translated from RMB to EUR and HKD
to EUR before consolidation in EUR at the following rates:
F-93
2.
Foreign currencies (continued)
22 November 2010
Rate applicable to opening
balance sheet at
22 November 2010
EUR 1.00 = HKD 10.6574
EUR 1.00 = RMB 9.0964
Period end rates
31 December 2010
EUR 1.00 = HKD 10.3247
EUR 1.00 = RMB 8.8231
Average rates
EUR 1.00 = HKD 10.2342
EUR 1.00 = RMB 8.9789
The results and financial positions of the Group entities in their
respective functional currencies are translated into the presentation
currency for the purpose of presentation in the IPO prospectus of its
ultimate legal parent as follows:
(iv)
(1)
Assets and liabilities for each statement of financial position
presented are translated at the closing rate at the date of that
statement of financial position;
(2)
Income and expenses for each statement of comprehensive
income are translated at average exchange rates (unless this
average is not a reasonable approximation of the cumulative
effect of the rates prevailing on the transaction dates, in which
case income and expenses are translated at the dates of the
transactions); and
(3)
All resulting exchange differences are recognised in the foreign
currency translation reserve, a separate component of equity.
Transactions and balances
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
statement of financial position 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 profit or
loss.
F-94
2.
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. Non-monetary items measured at fair value in a foreign currency
are translated using the exchange rates at the date when the fair value was
determined.
Related parties
The Group has the following types of related parties:
(i)
entities or individuals which directly, or indirectly through one or more
intermediaries, (1) control, or are under common control with, the
Group; (2) have an interest in the Group that gives them significant
influence over the Group;
(ii)
the key management personnel of the Group or its ultimate parent;
(iii)
close members of the family of any individual referred to in (i) or (ii)
Leases
Leases where substantially all the risks and rewards of ownership of assets
remain with the lessor are accounted for as operating leases. Annual rentals
applicable to such operating leases are recognised in profit or loss on a straightline basis over the lease terms except where an alternative basis is more
representative of the pattern of benefits to be derived from the leased assets.
Leases where substantially all the risks ands rewards of ownership are
transferred to the lessee are accounted for as finance leases.
Segment reporting
Operating segments are reported in a manner consistent with the internal
reporting provided to the chief operating decision-maker. The chief operating
decision-maker, who is responsible for allocating resources and assessing
performance of the operating segments, has been identified as the board of
directors of the Group which makes strategic decisions.
F-95
2.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The management of the Group bases its decisions on the internal reporting on
sales to car manufacturers, banks and financial institutions and construction
companies, which are the Group’s three business segments.
Segment information is presented in respect of the Group’s business segments.
The accounting policies the Group uses for segment reporting under IFRS 8 are
the same as those used in its financial statements for the period from 22
November 2010 to 31 December 2010.
Development activities
Expenditure on research (or the research phase of an internal project) is
recognized as an expense in the period in which it is incurred.
Costs that are directly attributable to the development phase of new products are
also expensed, as they do not meet the criteria of IAS 38 for recognition as an
intangible asset.
F-96
3.
FORMATION OF THE GROUP AND BASIS OF CONSOLDIATION
share capital in HWG HK-Holding into CSG AG, Grünwald, Munich, Germany took
legal effect.
At the time of this transaction, CSG AG was essentially a shell company, without
its own business. The purpose of the transaction was to enable the operating
group of HWG HK-Holding to obtain a listing on the Prime Standard segment of
the German Stock Exchange. Hence this transaction has been accounted for
similarly to a reverse acquisition, without the recognition of goodwill.
HWG HK-Holding is itself the sole shareholder of HWG-Ltd. which in turn is the
sole shareholder of HWG-SC.
HWG HK-Holding was incorporated by GNL07 Limited under the laws of Hong
Kong on 26 July 2007. On 3 October 2007, Mr. SZE Nang Heung acquired one
subscriber share from GNL07 Limited for a consideration of HKD 1. On the same
date, a total of 9,999 shares of HKD 1 each were issued and allotted, credited as
fully paid to Mr. SZE Nang Heung and as a result, HWG HK-Holding was owned
100% by Mr. SZE Nang Heung.
Prior to the establishment of HWG
HK-Holding,
several share
purchase
agreements were concluded as follows. On 8 November 2006, an agreement was
entered into among Mr. SZE Nang Heung, Guangzhou Hing Wah Glass Industry
Co. Ltd. (“HWG-Ltd.”) and Mr. CHI Mang Cheung. On the same date, another
agreement was entered into among Mr. SZE Nang Heung, HWG-Ltd. and Mr. YAN
Kong Wong. On 20 September 2006, an agreement was entered into among Mr.
SZE Nang Heung, HWG-Ltd. and Mr. CHING Hoi Sze and on 22 September 2006,
an agreement was entered into among Mr. SZE Nang Heung, HWG-Ltd. and Mr.
HUNG Hui Ke (together the “Sale and Purchase Agreements”). Except for the
contracting parties, the terms of the Sale and Purchase Agreements are
substantially the same. Under the terms of the Sale and Purchase Agreements,
HWG-Ltd. underwent a reorganisation to streamline the group structure in
preparation for an overseas listing. HWG HK-Holding was established to hold
100% equity interest in HWG-Ltd. and an ultimate holding company was to be
established outside of China as a listing vehicle for HWG-Ltd. After establishment
of HWG HK-Holding, Mr. SZE Nang Heung agreed to transfer 25.7% of his shares
to four minority investors. Mr. SZE Nang Heung remained controlling shareholder
with 74.3% of shares.
F-97
3.
FORMATION OF THE GROUP AND BASIS OF CONSOLDIATION (continued)
On 30 April 2010, the authorised share capital of HWG HK-Holding, was increased
from HKD 10,000 to HKD 1,000,000 by the creation of 990,000 new shares of
HKD 1 each. On the same date, 3,459 new shares were allotted to four minority
investors and the paid up capital was increased from HKD 10,000 to HKD 13,459.
Mr. SZE Nang Heung remained controlling shareholder with 74.3% of shares
following this capital increase.
HWG HK-Holding holds all shares of HWG-Ltd., which is the only operationally
trading company of the Group.
HWG-Ltd. was incorporated on 24 October 1994 as a sino-foreign joint venture
company under the laws of the People’s Republic of China by Guangzhou Property
Management Center (70%) and Hong Kong Chung Hwa Enterprises Development
Co. (“HK Chung Hwa”) (30%). As of the time of its establishment, HWG-Ltd. had
a registered capital of HKD 4,000,000.00 and the business name Guangzhou
HingWah Auto Glass Industry Co., Ltd. with the business address at Nantougang,
Chatou, Baiyun District, Guangzhou City, PRC.
On 15 January 2008, HWG-Ltd. became a wholly foreign owned enterprise by the
share transfers from its initial shareholders Guangzhou Property Management
Center which held 70% of the shares and HK Chung Hwa which held 30% of the
shares to HWG HK-Holding. The restructuring in the ownership of HWG-Ltd. was
executed by Mr. SZE Nang Heung together with his son Mr. SHI Chun Li who
directly or indirectly controlled Guangzhou Property Management Center and HK
Chung Hwa as well as the HWG HK-Holding. At the time of the share transfer
from Guangzhou Property Management Center and HK Chung Hwa to the HWG
HK-Holding, Mr. SZE Nang Heung held all shares in the HWG HK-Holding and Mr.
SHI Chun Li who is the son of Mr. SZE Nang Heung held 100% of the shares in
Guangzhou Property Management Center and Mr. Zhefen Li held 100% of the
shares in HK Chung Hwa as trustee for Mr. SZE Nang Heung.
In 2010, HWG-Ltd.’s share capital was increased from HKD 4,000,000.00 by HKD
10,000,000.00 to HKD 14,000,000.00 through the issuance of new shares to its
sole shareholder HWG HK-Holding against cash contributions. This capital
increase became legally effective with approval from the Guangzhou Liwan
BOFTEC on 3 March 2010 and registration with the Guangzhou AIC on 8
September 2010.
F-98
3.
FORMATION OF THE GROUP AND BASIS OF CONSOLDIATION (continued)
On May 25, 2010, HWG-Ltd. incorporated a wholly owned subsidiary, HWG-SC in
Chengdu City, Sichuan Province, China. HWG-SC has not been operationally
trading at the date of these consolidated interim financial statements, although it
has made significant investments and assumed liabilities in respect of these
investments and entered into commitments in respect of planned investments in
connection with the Group's planned facility in Sichuan. The business scope of
HWG-SC is the production and processing of all kinds of glass product and sales
of its products.
With the exception of the reverse acquisition, the transactions described above
did not represent business combinations as defined in IFRS 3 ‘Business
Combinations’, but are deemed to be transactions under common control, as
there was one ultimate controlling party involved. There is no guidance elsewhere
in IFRS which covers the accounting for such transactions under common control.
In the absence of an international standard or interpretation that specifically
applies to such a transaction, paragraphs 10 to 12 of IAS 8 ‘Accounting Policies,
Changes in Accounting Estimates and Errors’ set out the approach to be followed.
This requires, inter alia, that where IFRS does not include guidance for a
particular
issue,
the
Directors
may
also
consider
the
most
recent
pronouncements of other standard setting bodies that use a similar conceptual
framework to develop accounting standards.
4.
REVENUE
An analysis of the Group's revenue, which is generated on sales of bullet proof
and toughened security glass within the PRC, is as follows:
Period from
22 November 2010 to
31 December 2010
TEUR
Revenue
Sales of goods
9,066
Further details are given in the segment analysis in Note 23.
F-99
5.
COST OF SALES
Cost of sales comprises purchasing materials, labour costs for personnel
employed in production, depreciation and amortization of non-current assets
used for production purposes, trading goods and others (mainly tools, packaging
materials and maintenance costs). The following table shows a breakdown of
costs of sales for the period under review for each category:
Period from
22 November 2010 to
31 December 2010
TEUR
Materials
Labour
Electricity and water
Others
6.
3,795
180
18
8
204
695
4,900
FINANCE INCOME AND FINANCE COSTS
Period from
22 November 2010 to
Finance income
31 December 2010
TEUR
Finance income on bank balance
34
Finance costs
Finance expense on bank borrowings
9
F-100
7.
PROFIT BEFORE TAXATION
The Group's profit before taxation is arrived at after charging:
Period from
22 November 2010 to
31 December 2010
TEUR
equipment
- included in cost of sales
- included in administrative expenses
18
-*
Cost of inventories sold recognised as
Expenses
Research costs expensed
3,795
-*
173
Costs relating to employees are disclosed in detail in note 25.
8.
TAXATION
Period from
22 November 2010 to
31 December 2010
TEUR
Current income tax on profit arising from
Operations
529
114
643
Non-refundable withholding tax
According to PRC laws, any dividends declared out of profits earned from
1 January 2008 onwards to foreign investors attract withholding tax. The
amount of withholding tax payable is dependent on the country of residence of
the investor. In the case of Hong Kong, the applicable tax rate is 5%. HWG HKHolding received a dividend from HWG-Ltd. on which withholding tax of TEUR
114 was levied and which was a definitive expense of HWG-HK Holding as it was
not refundable.
F-101
8.
TAXATION (continued)
Reconciliation between current income tax on profit arising form operations and
profit before taxation at statutory tax rates is as follows:
Period from
22 November 2010 to
31 December 2010
TEUR
3,337
Tax calculated at tax rate applicable in PRC for
major operating subsidiary
(2010: 15%)
501
27
528
The Group’s subsidiary (“Guangzhou Hing Wah Glass Industry Co., Ltd.) is
subject to PRC income tax on profit arising or derived from the tax jurisdiction in
which it operates and is domiciled. Business operations set up in the special
economic zones by foreign enterprises are subject to a reduced enterprise income
tax rate. The provision for PRC income tax on profits arising from operations in
the PRC is calculated based on enterprise income tax rates of 15% for the period
from 22 November 2010 to 31 December 2010, in accordance with the relevant
PRC income tax rules and regulations. The Group was granted status as a high
tech enterprise in 2010 and as such gained the benefit of the lower 15% tax rate.
The German parent company generated losses in the short financial year 22
November to 31 December 2010, such that no tax charge arises. A deferred tax
asset was not recognised for these tax losses for reasons of immateriality.
Movements in corporate income tax payable are as follows:
As at
31 December 2010
TEUR
As at 22 November 2010
Current period tax expenses on profit
Withholding tax
Income tax paid
End of period
656
528
114
13
1,311
A tax receivable of TEUR 438 at 31 December 2010 (TEUR 427 at 22 November
2010 exchange rates) results from the fact that the Group’s subsidiary
(“Guangzhou Hing Wah Glass Industry Co., Ltd.”) paid tax at 25% in the first
quarter of 2010 and was however subsequently granted status as a high tech
enterprise, which afforded it the benefit of a lower preferential rate of 15% for
2010. The Group expects to be able to claim back the overpaid tax.
F-102
9.
PROPERTY,
PLANT
AND
EQUIPMENT
AND
INTANGIBLE
ASSETS
The following table shows property plant and equipment during the reporting period.
Furniture
fixtures and
Construction
Motor
Leasehold
Plant and
office
In
vehicles
buildings
machinery
equipment
Progress
Total
TEUR
TEUR
TEUR
TEUR
TEUR
TEUR
2010
35
1,715
1,615
42
-
3,407
Additions
-*
1
2
-*
939
942
Disposals
-
-
(5)
-
-
(5)
Transfers
-
1
-
-
(1)
-
1
51
49
2
17
120
36
1,768
1,661
44
955
4,464
-*
75
553
38
-
666
Depreciation
1
-*
17
-*
-
18
Written back
-
-
(4)
-
-
(4)
-*
2
17
1
-
20
1
77
583
39
-
700
2010
35
1,691
1,078
5
955
3,764
At 22 November
35
1,640
1,062
4
-
2,741
Cost
At 22 November
Translation
adjustment
At 31 December
2010
Accumulated
depreciation
At 22 November
2010
Translation
adjustment
At 31 December
2010
Net book value
At 31 December
2010
F-103
9.
PROPERTY,
(continued)
PLANT
AND
EQUIPMENT
AND
INTANGIBLE
The following table shows intangible assets during the reporting period.
Software
Licences
TEUR
Cost
At 22 November 2010
13
At 31 December 2010
13
Accumulated depreciation
At 22 November 2010*
0
At 31 December 2010*
0
Net book value
At 31 December 2010
13
At 22 November 2010
13
F-104
ASSETS
9.
PROPERTY,
(continued)
PLANT
AND
EQUIPMENT
AND
INTANGIBLE
ASSETS
During 2007, an interest free deposit of RMB 18,751,554 (equivalent EUR
1,801,000) was made by HWG Ltd. to acquire land use rights and buildings from
a related party. However, during 2009 the subsidiary decided to lease the land
and buildings instead. Accordingly, a tenancy agreement was signed for a period
of 30 years commencing on 1 July 2009. This agreement was subsequently
replaced by one dated April 2010, also with a 30 year term. Based on a valuation
report the acquisition costs were split pro rata between land use rights (TEUR
670) and buildings (TEUR 1,131). Due to the relatively long-term nature of the
lease in relation to the buildings, this agreement is treated as a finance lease,
hence the recognition of the buildings in the statement of financial position under
property plant and equipment as leasehold buildings from the signing of the lease
agreement in 2009. The related lease agreement is between Guangzhou Hing
Wah Glass Industry Co., Limited and its related party Mr. Chun Li Shi and its
terms include staged rent increases over the term of the lease. Until the signing
of the lease agreement, the buildings were not used by the subsidiary and the
advance payment was disclosed as advance payment for leasehold buildings. The
lease agreement can be extended by negotiation by 60 days before the lease
term expires. According to the PRC law, the lease term may not exceed 20 years
however. If it exceeds twenty years, the period in excess is invalid. Therefore,
the term of the legal lease expires on 31 March 2030 as the lease is invalid after
1 April 2030. However the subsidiary assumes it will be able to extend the lease
as described above and an extension is legal under the laws of the PRC. The
rental payments under this agreement have been paid in advance until 2039;
hence there are no future lease payments to be made under the current lease
agreement.
During 2009 and 2010 the Group paid land levelling costs in connection with the
construction of a new building as well as the construction of the building at the
Company’s main operational premises on behalf of a related party who will retain
title to the building. It was intended that the Group would lease the building from
the related party, who will waive lease payments in consideration for the land
levelling costs and construction paid by the Group. Hence the amount has been
treated as advance payment for leasehold buildings, as due to the likely long
term nature of the lease, the arrangement would be considered to be a finance
lease. The advance payment has since been re-classified as leasehold building.
All property, plant and equipment held by the Group are located in the PRC.
F-105
10.
LEASE PREPAYMENT FOR LAND-USE RIGHTS
This relates to the land use rights for which an advance payment was made in
2007 as described in note 9. Following the conclusion of the lease agreement
described in note 9, which the Group determined to be an operating lease in
respect of the land, as the term is relatively short compared to the useful life of
the land, the advance payment was reclassified as a lease prepayment for landuse rights. It is being expensed to income over the 30 years term of the lease.
The terms of the lease are as described in note 9.
With regard to the leasehold buildings, please refer to note 9.
11.
OTHER ASSETS
Other assets comprise advance payments which the Group has made for land-use
rights and design/greening scheme fees in respect of the Group's planned facility
in Sichuan. In respect of the advance payments for land-use rights, the Group
made the advance payment in the context of a bidding process which has not yet
been formally completed. The Management Board expect that the process will be
formally completed in 2011 and that the title to the land-use rights will
successfully pass to the Group.
12.
INVENTORIES
As at
31 December 2010
TEUR
As at
22 November 2010
TEUR
694
897
1,591
1,070
1,410
2,480
Raw materials
Finished goods
The amount of inventories recognized as an expense during the period from
22 November 2010 to 31 December 2010 was TEUR 3,795 included in cost of
sales.
F-106
13.
TRADE AND OTHER RECEIVABLES
As at
31 December 2010
TEUR
As at
22 November 2010
TEUR
11,219
760
11,979
748
12,727
11,967
26
11,993
663
12,656
Trade receivables
Other receivables
Sub total
Payments in advance
Total
Trade receivables are non-interest bearing and generally have credit terms of 30
to 60 days (2009: 30 to 60 days).
Other receivables at 31 December 2010 relate mainly to security deposits given
to suppliers in the context of a supplier contracts to ensure delivery of raw
materials on a timely basis. In the ageing analysis the amount has been included
in the category "More than 60 days".
Payments in advance relate to costs of the capital increase and costs of the listing
of the shares of CSG AG planned for 2011, which have been already paid on
account in 2010. The costs of the capital increase will be deducted directly from
equity at the time of the capital increase.
The aging of trade and other receivables is as follows:
As at
31 December 2010
TEUR
Within 30 days
31 to 60 days
More than 60 days
7,319
3,684
976
11,979
F-107
As at
22 November 2010
TEUR
4,453
6,702
838
11,993
13.
TRADE AND OTHER RECEIVABLES (continued)
All trade receivables are denominated in Renminbi.
As at
31 December
2010
TEUR
Financial Assets
Loans and receivables
11,979
37,912
5
Total financial assets classified as
loans and receivables
49,896
As at
22 November 2010
TEUR
11,993
36,666
4
48,663
All financial assets classified as loans and receivables are current and noninterest bearing. Management considers the carrying amounts recognized in the
statement of financial position to be a reasonable approximation of their fair
value due to the short duration. Finance income of TEUR 34 was earned on cash
and cash equivalents in the period from 22 November 2010 to 31 December
2010. Apart from this no net gains or losses on loans and receivables occurred in
the period from 22 November 2010 to 31 December 2010. The maximum credit
risk is assessed by Management to be the amounts shown in the above table as
at the respective reporting dates. Management aims to deal only with customers
of good to high credit quality.
F-108
14.
RELATED PARTY RECEIVABLES/PAYABLES
Related party receivables relate to a rental deposit paid to Guangzhou City Liwan
District Yaoxiang Property Management Center, for the renewal of a rental
agreement.
Related party payables relate both to a financing agreement made between
Luckyway Global Group Limited and CSG AG, whereby Luckyway Global Group
Limited finances the IPO costs on an interest free and short-term basis, and is to
be refunded after the IPO and also to payments paid on behalf by a controlling
shareholder and director of the Company, Mr. SZE Nang Heung, to fund the
Group’s investment in Guangzhou Hing Wah Glass Industry Co., Ltd. and for
other expenses.
Amounts of related party liabilities at the respective reporting dates are as
follows:
As at
31 December 2010
TEUR
As at
22 November 2010
TEUR
865
749
1,578
2,443
1,536
2,285
Luckyway Global
Group Limited
Mr. SZE Nang Heung
The amounts are unsecured, not interest bearing and without fixed terms of
repayment.
F-109
15.
CASH AND BANK BALANCES
As at
31 December 2010
TEUR
As at
22 November 2010
TEUR
37,898
14
37,912
36,647
19
36,666
Cash at banks
Cash on hand
The cash at banks in Renminbi bear effective interest rates of 0.361% per annum
for the period from 22 November 2010 to 31 December 2010.
Cash and bank balances are denominated in the following currencies:
As at
31 December 2010
TEUR
As at
22 November 2010
TEUR
37,878
34
-*
37,912
36,631
35
-*
36,666
Renminbi
Euro
Hong Kong dollar
Renminbi is not freely remissible for use by the Group because of currency
exchange restrictions.
F-110
16.
SHARE CAPITAL AND RESERVES
CSG AG was incorporated on 10 May 2010 with share capital of EUR 50,000
divided into 50,000 non par value bearer shares of EUR 1.00 each. These shares
were issued at par on incorporation. Subsequently the share capital was
increased on 22 November 2010 to EUR 15,050,000 via non cash contribution
by 15,000,000 non par-value bearer shares. The share capital is fully paid up.
The shares all have equal rights pertaining to voting and dividends. Future
dividend payments will probably depend on the Hong Kong holding company
making a distribution to CSG AG, and this in turn will probably depend on HWGLtd. located in the PRC making a distribution to the Hong Kong holding
company. Dividends from Chinese companies generally require government
approval and can only be distributed if the statutory reserves comply with
relevant legislation. Transfer of dividends outside of the PRC may be affected by
regulations of State Administration of Foreign Exchange (SAFE) on transfers.
Pursuant to section 5 of the Articles of Association the Management Board - with
the consent of the Supervisory Board - is authorized to increase the capital of
CSG AG by up to EUR 7,525,000 by way of issuance of up to 7,525,000 new
bearer shares in exchange for contributions in cash or in kind (authorized
capital). The Management Board
is authorized to exclude the pre-emptive
rights of shareholders with permission of the Supervisory Board in certain cases.
The authorization is valid until 22 November 2015. The authorized capital as at
31 December 2010 amounts to EUR 7,525,000. In 2010 no capital increases
were resolved from this authorized capital.
Statutory reserve
CSG AG is required to transfer 5% of the profit after tax as reported in its
German statutory financial statements to statutory reserves (section 150
paragraph 2 of the German Stock Corporation Law), until this reserve together
with the capital reserve attain at least 10% of the share capital. Under certain
circumstances this reserve may be used to make up losses incurred or be
converted into paid up capital, as long as the reserves amount to at least 10%
of the share capital. The statutory reserve of CSG AG amounts to EUR NIL at 31
December 2010, as no profits have been earned in the short financial period
ended 31 December 2010.
F-111
16.
SHARE CAPITAL AND RESERVES (continued)
Statutory reserve (continued)
In accordance with the relevant laws and regulations of the PRC, the Group’s
subsidiaries which are established in the PRC are required to transfer 10% of
profit after taxation prepared in accordance with the accounting regulation of the
PRC to a statutory reserve until the reserve balance reaches 50% of each
subsidiary’s respective share capital, any further transfer of its annual statutory
net profit is optional. Such reserve may be used to offset accumulated losses or
increase the registered capital of these subsidiaries, subject to the approval from
the PRC authorities, and are not available for dividend distribution to the
shareholders. The statutory reserve of the PRC subsidiaries and hence also of the
Group amounts to EUR 724,000 at 31 December 2010 (22 November 2010: EUR
724,000).
Foreign currency translation reserve represents the foreign currency translation
difference arising from the translation of the financial statements from RMB to
EUR.
Retained earnings
The retained earnings reserve comprises the cumulative net gains and losses
recognised in the Group’s income statement.
F-112
17.
TRADE AND OTHER PAYABLES
As at
31 December
2010
TEUR
Trade payables
Other payables and accrued
operating expenses
As at
22 November 2010
TEUR
3,907
5,082
1,089
4,996
583
5,665
Trade payables generally have credit terms of 30 to 60 days (2010: 30 to 60
days). All trade and other payables are denominated in Renminbi.
Financial Liabilities at Amortized Cost
As at
31 December 2010
TEUR
As at
22 November 2010
TEUR
1,813
1,759
3,907
2,443
8,163
5,082
2,285
9,126
borrowings
Trade payables
All financial liabilities recorded at amortized cost fall due within one year. Due to
the short-term nature of these, management considers the carrying amounts of
financial liabilities measured at amortized cost in the statement of financial
position to be reasonable approximation of their fair value.
18.
INTEREST-BEARING BANK BORROWINGS
As at
31 December 2010
TEUR
Short-term bank loans
1,813
As at
22 November 2010
TEUR
1,759
The Group's interest-bearing bank loans are secured by guarantee from related
parties and bear effective interest rates of 5.841% per annum for the period from
22 November 2010 to 31 December 2010. The loans are repayable in 4
instalments of principal every three months and settle in full within one year.
Finance costs related to these interest-bearing bank loans amounted to TEUR 9 in
the period from 22 November 2010 to 31 December 2010.
F-113
19.
COMMITMENTS
The Group leases its production facilities and office premises under noncancellable operating lease arrangements from a related party. The leases have
varying terms and the total future minimum lease payments of the Group under
non-cancellable operating leases are as follows:
As at
31 December 2010
Not later than one year
Later than one year and not later
than five years
Later than five years
As at
22 November 2010
TEUR
TEUR
43
42
150
47
240
146
49
237
The leases on the Group’s production facilities and office premises on which
rentals are payable will expire between 31 March 2011 and 31 March 2017, and
the current rent payable on the leases range between RMB 5,000 and RMB
18,000 per month which are subject to revision on expiry. The lease agreements
can be extended by negotiation by 60 days before the lease term expires.
Capital Commitments for planned Sichuan facility
On 30 May 2010 the Group concluded an Investment and Construction Project
Contract with the Management Committee of Guangdong – Wenchuan Industrial
Park (the “Management Committee”) to invest and establish a glass production
project and research and development base in Guangdong – Wenchuan Industrial
Park, Sichuan. The total investment commitments of the project are RMB 300
million (equivalent to approximately EUR 34 million at 31 December 2010
exchange rates). As well as the investment commitment the Group is expected
but not committed to pay annual taxes of more than RMB 18 million. However the
Group will benefit under the contract from tax advantages and subsidies. Under
the contract, the Management Committee will transfer usage rights for land to be
used for the construction of the base to the Group at a preferential price and the
Group shall pay a deposit of RMB 50 million (equivalent to EUR 5.6 million) as a
down payment for the land use rights. The land use rights have a term of 50
years. This contract gives rise to various contingencies which are set out under
Note 25.
F-114
20.
FINANCIAL RISK MANAGEMENT
The Group’s activities expose it to credit risk, liquidity risk, and interest rate risk.
The Group’s overall risk management strategy seeks to minimize adverse effects
from
the
unpredictability
of
financial
markets
on
the
Group’s
financial
performance.
The board of directors provides guidance for overall risk management as well as
policies covering specific areas. Management analyses and formulates measures
to manage the Group’s exposure to financial risk in accordance with the
objectives and underlying principles approved by the board of directors.
Generally, the Group’s employs a conservative strategy regarding its risk
management. As the Group’s exposures to market risk are kept at minimum level,
the Group has not used any derivatives or other financial instruments for hedging
purposes. The Group does not hold or issue derivative financial instruments for
trading purposes.
As at 31 December 2010, the Group's financial instruments mainly consisted of
cash and bank balances, trade receivables, related party balances, trade
payables, accrued liabilities, other payables and bank borrowings.
(i)
Credit risk
Credit risk is the risk of financial loss to the Group if a customer fails to
meet its contractual obligations, and arises principally from the Group’s
trade receivables.
Trade receivables
The Group’s exposure to credit risk is influenced mainly by the
individual characteristics of each customer. The Group typically gives
the existing customers credit terms from 30 days to 60 days. In
deciding whether credit shall be extended, the Group will take into
consideration factors such as the relationship with the customer, its
payment history and credit worthiness. The Group’s top ten customers
in aggregate formed approximately 30% of the trade receivables
balances during the short financial year 22 November to 31 December
2010.
The Group performs ongoing credit evaluation of its customers’ financial
condition and requires no collateral from its customers.
There is no impairment loss recognized in the income statements as all
the receivables were subsequently received.
F-115
20.
(ii)
Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in raising
funds to meet commitments associated with financial instruments. The
Group’s policy is to regularly monitor current and expected liquidity
requirements to ensure that it maintains sufficient reserve for cash to
meet its liquidity requirement in the short and long term. The bank
borrowings for the period ended 31 December 2010 have maturity
period of less than 1 year from the statement of financial position date.
The maturity profile of the Group’s financial liabilities as at reporting
date, based on the contracted undiscounted amounts, is as follows:
At 31 December 2010
Trade payables and other payables
Related party liabilities
At 22 November 2010
Trade payables and other payables
Related party liabilities
(iii)
Total carrying
amount
TEUR
(all current)
3,907
1,813
2,443
8,163
5,082
1,759
2,285
9,126
Market risk
Market risk is the risk that changes in market prices, such as foreign
exchange rates and interest rates will affect the Group’s income or the
value of its holdings of financial instruments. The objective of market
risk management is to manage and control market risk exposure within
acceptable parameters.
F-116
20.
(iv)
Currency risk
Currency risk is the risk that the value of a financial instrument will
fluctuate due to changes in foreign exchange rates. Currency risk arises
when transactions are denominated in foreign currencies.
The Group carries out its business in the PRC and most of its
transactions are denominated in Renminbi. Accordingly, the Group’s
exposure to currency risk resulting from transactions in foreign
currency is minimal. However, the Group is exposed to currency risk
resulting from the translation of its financial statements from Renminbi
to the presentation currency.
The effect on the Group’s net profit for the short financial period if the
exchange rate between Renminbi and Euro and Hong Kong Dollar and
Euro changed by 5%, with all other variables held constant, is
estimated to be approximately EUR 170,000.
At the following financial position dates, if the exchange rate between
Renminbi and Euro and Hong Kong Dollar and Euro changed by 5%,
with all other variables held constant, the effect on the Group’s equity
is estimated as shown below:
Increase or (decrease) in
Equity
5% increase
5% decrease
TEUR
TEUR
(v)
(2,633)
2,633
Period ended
22 November 2010
(2,454)
2,454
Interest rate risk
The Group is exposed to interest rate risk to the extent that annually it
renews its interest-bearing financing, which is however fixed rate.
F-117
21.
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 to shareholders and benefits for 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,
prevailing and projected profitability, projected operating cash flows, projected
capital expenditures and projected investment opportunities. The Group currently
does not adopt any formal dividend policy. Despite having surplus cash and bank
balances the Group renewed its bank loans in order to maintain business
relationships with financing banks.
Estimates are continually evaluated and are based on historical experiences and
other factors, including expectations of future events that are believed to be
reasonable under the circumstances.
F-118
22.
RELATED PARTY
TRANSACTIONS
DISCLOSURES
–
SIGNIFICANT
RELATED
PARTY
a) Entities/individuals with common control or significant influence over the Group
or under common control.
- Mr. SZE Nang Heung: Indirect holder via Luckyway Global Group Limited of the
entire share capital of the Group, ultimate controlling shareholder, CEO; director
of the Group from October 1994 until September 2000 and from September 2004
until January 2008 as well as director since July 2007.
- Luckyway Global Group Limited is incorporated on 10 March 2010 and Mr. SZE
holds 100% of the shares
- Guangzhou City Liwan District Yaoxiang Property Management Center (formerly
known as Guangzhou City Liwan District Glass Factory): Group owned by Mr. SHI
Chunli, former majority shareholder of the Group, member of key management
and son of Mr. SZE.
- HK Chung Hwa Enterprises Development Group: Mr. SZE indirectly owns 100%
of this group.
- Ma Men Holdings (HK) Limited: Mr. SZE holds 99.9% of the shares until selling
them to a non related third party on 23 February 2010.
- Guangzhou Xinghua Glass Products Co., Ltd.: Subsidiary wholly owned by Ma
Men Holdings (HK) Limited.
- Xi’an Mamen Security Technology Co., Ltd.: Subsidiary wholly owned by Ma
Men Holdings (HK) Limited.
b) Key management/directors of the Group and subsidiaries
- Mr. SZE Nang Heung
- Mr. ZHOU Chao
- Mr. SHI Chunli
- Mr. LEE Chi Hsiang
- Ms. WANG Xue Yan
- Mr. WONG Chi Man
F-119
22.
TRANSACTIONS (CONTINUED)
–
SIGNIFICANT
RELATED
PARTY
Period from
22 November 2010 to
31 December 2010
TEUR
Guangzhou City Liwan District Yaoxiang
Property Management Center
Rental charged on factory and office building
4
18
-*
Included in “key management personnel compensation” is Management Board
remuneration amounting to EUR 17,700 granted for the period from 22
The members of the Supervisory Board of CSG AG were granted no remuneration
in the period from 22 November 2010 to 31 December 2010. They expect to be
granted remuneration for the short financial year 2010 in 2011.
Related party receivables and payables.
The Group's related party receivables and payables are as explained and set out
in note 14.
between the Group and related parties.
Leasing
The Group leases several buildings and land use rights under operating leases
from Guangzhou City Liwan District Yaoxiang Property Management Center and
under a finance lease from Mr. SHI Chunli. The terms of this finance lease are
disclosed under note 9.
Trademarks
On 12 June 2010, Mr. SZE Nang Heung transferred two trademarks to
Guangzhou Hing Wah Glass Industry Co., Ltd. without any consideration.
F-120
22.
TRANSACTIONS (CONTINUED)
–
SIGNIFICANT
RELATED
PARTY
Related parties have provided guarantees and mortgages for no consideration for
the Group’s bank loans:
·
7,400,000 (TEUR 839) have been provided by Guangzhou City Liwan District
Yaoxiang Property Management Center from 8 September 2010 to 7 September
2011 for a short-term loan for the provision of working capital.
·
8,600,000 (TEUR 975) have been provided by Guangzhou City Liwan District
Yaoxiang Property Management Center from 6 September 2010 to 5 September
2011 for a short-term loan for the provision of working capital.
•
Mr. SHI Chunli has provided a guarantee for a maximum facility of RMB 20
million (EUR 2.2 million).
•
Mr. SZE Nang Heung has provided a guarantee for a maximum facility of RMB
20 million (EUR 2.2 million).
Undertakings
Mr. SZE has given an undertaking for no consideration with the Group according
to which he would reimburse the Group for any losses incurred for any additional
social insurance and housing funds payments which may be levied in respect of
prior periods.
Mr. SZE Nang Heung has given an undertaking for no consideration that he would
take all responsibility for any damages or negative influence which may be
caused to the Group by his failure to make a registration under the “Notice of the
State Administration of Foreign Exchange on Relevant Issues concerning Foreign
Exchange Administration for Domestic Residents to Engage in Financing and in
Return Investment via Overseas Special Purpose Companies” (“SAFE Notice 75”).
Mr. SHI Chunli has given an undertaking for no consideration to bear any
Property Management Center, on which buildings are located that are leased by
the Company, for which the necessary legal formalities have not been completed.
F-121
23.
SEGMENT INFORMATION
The Management Board as Chief Decision Maker determines the operating
segments, which represents product categories, based on reports reviewed and
used for strategic decisions. The Group’s business segments are organized into
three main operating segments:
a.
b.
Bank Security Glass
c.
Construction Glass
All of these segments are managed by the Group.
All operating segments are monitored and strategic decisions are made on the
basis of the segmental gross margins. Items of expense and income below the
gross profit margin are not analysed on a segmental basis, as these are not
considered relevant for the operational and strategic analysis of the business.
The Group’s revenues for financial period from 22 November 2010 to 31
December 2010 are derived solely from within the PRC and substantially all of its
business assets are located there hence a further geographical segment analysis
is not meaningful to the management of the Group. There were no inter-segment
sales.
During the period, the top 10 customers contributed 30% of the Group’s revenue.
These sales were to external distributors. No customer accounted for more than
10% of sales.
Relevant items of income and expenditure and other financial data such as capital
expenditure have been allocated to the segments as far as this was possible.
Where this was not possible, they have been disclosed in total.
the same as those used in its financial statements for the period from 22
The segment information provided to the Management Board for the reportable
segments for the financial period from 22 November 2010 to 31 December 2010
is as follows:
F-122
23.
SEGMENT INFORMATION (CONTINUED)
Automotive
Security Glass
TEUR
Bank
Security
Glass
TEUR
Construction
Glass
TEUR
4,349
1,975
2,374
3,804
2,282
1,522
913
643
270
Revenue
Cost of sales
Gross profit
Finance income
expenses
Finance costs
Income tax expenses
Net profit
Other information
Segment assets
assets
Consolidated total assets
Total
TEUR
9,066
4,900
4,166
34
(785)
(9)
3,406
(643)
2,763
6,508
4,067
1,540
12,115
48,259
60,374
Segment liabilities
liabilities
Consolidated total
liabilities
10,563
10,563
Capital expenditure
Depreciation of
property, plant and
machinery
942
4
5
9
Unallocated assets for the period are assets that cannot be reasonably allocated to the
operating segment and included property, plant & equipment, intangible assets, lease
prepayment for land-use rights, other receivables, tax receivable, related party
receivables and cash and bank balances.
F-123
18
24.
EMPLOYEES BENEFITS
Period from
22 November 2010 to
31 December 2010
Average number of employees of the Group
442
Sales
Production
53
57
332
442
The aggregate payroll costs of these employees were as follows:
Period from
22 November 2010 to
31 December 2010
TEUR
Wages and salaries
Social security cost
260
11
271
Retirement Benefit Plans
The eligible employees of the Group who are citizens of the PRC are members of
a state-managed retirement benefit scheme operated by the local government.
The Group is required to contribute a certain percentage of their payroll costs to
the retirement benefit scheme to fund the benefits. The only obligation of the
Group with respect to the retirement benefit scheme is to make the specified
contributions. The cost of retirement benefit contributions charged to the profit or
loss in the period from 22 November 2010 to 31 December 2010 amount to
approximately EUR 11,000.
F-124
25.
CONTINGENCIES
Investment and Construction Project Contract for planned Sichuan facility
As explained in Note 19, on 30 May 2010, the Group concluded an Investment
and
Construction
Project
Contract
with
the
Management
Committee
of
Guangdong – Wenchuan Industrial Park (the “Management Committee”) to
invest and establish a glass production project and research and development
base in Guangdong – Wenchuan Industrial Park, Sichuan. With the Management
Committee’s approval of the project construction plan, the Company will be
responsible for the project construction and production processes in accordance
with the rules and regulations in the People’s Republic of China. In the event of
non-compliance of construction speed and production of the various phases, or if
the Company fails to satisfy the expected level of investment or the expected
level of tax payments as required for the first stage within 5 years, the
Management Committee has the right to take back all the land use rights of the
project free of charge. The Company may also be liable for compensatory
damages if it is responsible for a breach of contract with adverse affects for the
Management Committee. Without the consent of the Management Committee,
the Company is not allowed to (i) transfer the land use rights to a third party
within 10 years and (ii) pledge the land use rights for any credit facility within 3
years.
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 its employees. The Company has in the
past not paid the full amount which should have been paid in respect of these
contributions, but considers the risk for additional payments for prior periods to
be not probable. The Company estimates that such a claim for additional
payments would not exceed TEUR 264. Mr. SZE has undertaken an agreement
with the Company according to which he would reimburse the Company for any
losses incurred for such additional social insurance and housing funds payments.
F-125
25.
CONTINGENCIES (continued)
Tax risks
Various uncertainties exist relating to the following matters which could result in
additional tax liabilities for HWG-Ltd. or the Group:
i.
Depreciation was over claimed by HWG-Ltd. in relation to residual values of
property, plant and equipment in 2007. The additional tax payments, if any,
which could arise from this matter are estimated to be in the region of TEUR 7.
ii. Entertainment expenses claimed by HWG-Ltd. had exceeded the cap under
the Old and New Enterprise Income Tax Law. The additional tax payments, if any,
which could arise from this matter are estimated to be in the region of TEUR 47.
26.
AUDIT FEE
Fees for the short financial year 22 November to 31 December 2010 to the Group
auditor amounted to TEUR 18. This all relates to audit.
27.
SUBSEQUENT EVENTS
There are no significant non-adjusting events or any significant adjusting events
to report between the reporting date and the date of preparation of these
consolidated financial statements.
Grünwald, in June 2011
Nang Heung Sze
Chun Li Shi
Chairman of the Management Board
Management Board Member
Management Board Member
F-126
AUDIT OPINION
We have audited the consolidated financial statements prepared by China Specialty
Glass AG, Grünwald, comprising the statement of comprehensive income, statement of
financial position, statement of cash flows, statement of changes in equity and the notes
to the consolidated financial statements, together with the group management report for
the short business year from 22 November 2010 to 31 December 2010. The preparation
of the consolidated financial statements and the group management report in
accordance with the IFRS, as adopted by the EU, and the additional requirements of
German commercial law pursuant to § (Article) 315a Abs. (paragraph) 1 HGB
(“Handelsgesetzbuch”: German Commercial Code) are the responsibility of the parent
Group’s Board of Management. Our responsibility is to express an opinion on the
consolidated financial statements and on the group management report based on our
audit.
We conducted our audit of the consolidated financial statements in accordance with
§ 317 HGB 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 way that misstatements materially affecting the presentation of the net
assets, financial position and results of operations in the consolidated financial
statements in accordance with the applicable financial reporting standards and in the
group management report are detected with reasonable assurance. Knowledge of the
business activities and the economic and legal environment of the Group 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 consolidated financial statements and
in the group management report are examined primarily on a test basis within the
framework of the audit. The audit includes assessing the financial statements of those
entities included in consolidation, the determination of the entities to be included in
consolidation, the accounting and consolidation principles used and significant estimates
made by the Group’s Board of Management, as well as evaluating the overall
presentation of the consolidated financial statements and of the group management
report. We believe that our audit provides a reasonable basis for our opinion.
In our opinion based on the findings of our audit, the consolidated financial statements
comply with the IFRS as adopted by the EU, the additional requirements of German
commercial law pursuant to § 315a Abs. (paragraph) 1 HGB and give a true and fair
view of the net assets, financial position and results of operations of the Group in
accordance with these requirements. The group management report is consistent with
the consolidated financial statements and as a whole provides a suitable view of the
Group’s position and suitably presents the opportunities and risks of future development.
Hamburg, May 2, 2011
Grant Thornton GmbH
Timothy Robinson
Wirtschaftsprüfer
Wirtschaftsprüfer
F-127
Interim condensed consolidated financial statements of
for the three months to 31 March 2011
EU (reviewed)
F-128
Condensed Consolidated Interim Statement of Comprehensive Income
Three months
ended
31 March 2011
TEUR
Revenue
Cost of sales
16,441
(8,850)
Gross profit
7,591
Finance income
Finance costs
(609)
(440)
37
(26)
(391)
6,162
Taxation
(950)
Net profit
Other Comprehensive Income:
movement
5,212
(2,346)
2,866
Profit attributable to: owners of the
parent
Total Comprehensive income attributable
to: owners to the parent:
5,212
2,866
Due to the fact that the Group only came into existence on 22 November 2010, as
described in note 1 below, there are no comparative figures for the first three months of
2010. The sub group at the level of the Group’s Hong Kong holding company, did
however exist throughout 2010 and made revenues of EUR 11.5 million and a net profit
of EUR 3.3 million in the first three months of 2010.
F-129
Condensed Consolidated Interim Statement of Financial Position
31 March
2011
TEUR
Assets
Non-current
Lease prepayment for land use
rights
Other assets
Loan to related party
Intangible assets
Current
Inventories
Related party receivable
Tax receivable
Total assets
Share capital
Statutory reserve
Foreign currency translation
reserve
Retained earnings
Current Liabilities
borrowings
31 December
2010
TEUR
3,590
3,764
712
3,032
2,166
12
9,512
751
3,173
0
13
7,701
2,238
13,815
6
418
36,739
53,216
62,728
1,591
12,727
5
438
37,912
52,673
60,374
15,050
724
15,050
724
1,175
35,728
52,677
3,521
30,516
49,811
1,032
4,915
1,311
4,996
1,624
2,480
10,051
1,813
2,443
10,563
62,728
60,374
F-130
Condensed Consolidated Interim Statement of Changes in Equity
Attributable to equity holders of the Group
Share
capital
TEUR
Balance at 31
December 2010
Total comprehensive
income
Balance at 31
March 2011
Statutory
reserve
TEUR
Translation
reserve
TEUR
15,050
724
3,521
30,516
49,811
-
-
(2,346)
5,212
2,866
15,050
724
1,175
35,728
52,677
Retained
earnings
TEUR
Total
Equity
TEUR
2010.
F-131
Condensed Consolidated Interim Statement of Cash Flows
Three months ended
31 March 2011
TEUR
Adjustments for:
Interest income
Interest expense
Movement in lease prepayment for land-use rights
(Increase) in inventories
(Increase) in trade and other receivables
Increase in trade and other payables
Interest income
Income tax paid
(37)
26
106
6
6,263
(738)
(2,141)
272
3,656
37
(1,177)
2,516
Loan granted to related party
(98)
(2,288)
(2,386)
6,162
Repayment of bank loans
Interest expense
(112)
(26)
(138)
Net decrease in cash and bank
balances
Cash and bank balances at beginning of
the period
Cash and bank balances at end
of the period
(8)
37,912
(1,165)
36,739
2010.
F-132
Selected notes to the condensed consolidated interim financial statements of
China Specialty Glass AG.
1.
NATURE OF OPERATIONS AND FORMATION OF GROUP
The principal activity of the China Specialty Glass Group (hereafter “Group”)
which comprises China Specialty Glass AG, Grünwald, near Munich in Germany
("CSG AG"), Hing Wah Holdings (Hong Kong) Limited (“HWG HK-Holding”), its
100% subsidiaries Guangzhou Hing Wah Glass Industry Co., Limited ("HWGLtd."), and Sichuan Hing Wah Glass Co., Ltd. ("HWG-SC"), (hereafter “Group”), is
the manufacture and distribution of bullet proof and toughened glass products.
share capital in HWG HK-Holding into CSG AG took legal effect. As the formation
of the Group had legal effect on 22 November 2010, the first consolidated
financial data of the Group was derived from the consolidated financial
statements for the short financial year from 22 November to 31 December 2010
prepared in accordance with IFRS, as endorsed for application in the EU, as at 31
December 2010. Consequently, there are no comparative figures for the
consolidated statement of comprehensive income, the consolidated statement of
changes in equity or the consolidated statement of cash flow for the first three
months of 2010.
Before the transfer of the entire share capital of HWG HK-Holding, CSG AG was
essentially a shell company, without its own business. The purpose of the
transaction was to enable the operating sub-group of HWG HK-Holding to obtain
a listing on the Prime Standard segment of the German Stock Exchange. Hence
this transaction has been accounted for similarly to a reverse acquisition, without
the recognition of goodwill.
The operating business of the Group is carried out by HWG-Ltd.
It is intended that China Specialty Glass AG will seek a listing on the German
Stock Exchange (Prime Standard Segment) in 2011.
F-133
2.
General Information and Statement of compliance with IFRS
These condensed consolidated interim financial statements of the Group are
prepared for the three months period ended 31 March 2011. Due to the Group
only having come into existence in November 2010, limited comparative data is
available as explained above. These condensed consolidated interim financial
statements have been prepared for the purpose of inclusion in the IPO prospectus
of the Group’s ultimate parent, China Specialty Glass AG.
The condensed consolidated interim financial statements have been prepared in
accordance with the International Financial Reporting Standards (IFRS) adopted
by the International Accounting Standards Board (IASB) and its interpretations of
the International Financial Reporting Interpretations Committee (IFRIC) for
interim financial information effective within the European Union. Accordingly,
these condensed interim financial statements do not include all of the information
required in annual financial statements by IFRS.
The condensed consolidated interim financial statements have been reviewed. In
the opinion of the Group’s Management Board, the condensed interim financial
statements include all adjustments of a normal and recurring nature considered
necessary for a fair presentation of results for interim periods. Results of the
period ended 31 March 2011 are not necessarily indicative of future results.
The preparation of interim financial statements in conformity with IAS 34
“Interim
Financial
Reporting”
requires
the
Management
Board
to
make
judgments, estimates and assumptions that affect the application of policies and
reported amounts of assets and liabilities, income and expenses. Actual results
may differ from these estimates.
The accounting principles and practices as applied in the condensed interim
financial statements correspond to those pertaining to the most recent annual
financial statements. A detailed description of the accounting policies is published
in the notes to the financial statements of the Group’s financial statements for
the short financial year 22 November to 31 December 2010.
The condensed consolidated interim financial statements of the Group have been
rounded to the nearest thousand Euro. Amounts are stated in thousands of Euros
(TEUR) except where otherwise indicated.
The condensed consolidated interim financial statements of the Group for the
period from 1 January to 31 March 2011 are expected to be authorized for issue
in accordance with a resolution of the Management Board in June 2011.
F-134
3.
Significant accounting policies and changes in estimates
These condensed consolidated interim financial statements have been prepared
using accounting policies specified by those IFRSs that are in effect at the end of
the reporting
period (31
March
2011).
The condensed interim financial
statements have been prepared in accordance with the accounting policies
adopted in the financial statements for the short financial year 22 November to
31 December 2010. The accounting policies have been applied consistently
throughout the Group for the purpose of preparation of these condensed interim
consolidated financial statements.
The material principles on recognition and measurement are corresponding to the
principles on recognition of the consolidated financial statements for the short
financial year 22 November to 31 December 2010 and outlined in those financial
statements. The Group had to apply the following new standards, amendments to
existing standards or new interpretations for the first time:
·
Improvements of IFRS 2010 (amendments), are to be applied for annual
periods beginning on or after 1 July 2010 and 1 January 2011.
·
IFRS 1 (amendments) – Limited exemption from comparative IFRS 7
disclosures for first-time adopters, to the extent to which they may be
applicable on financial statements for annual periods beginning on or
after 1 July 2010.
·
IAS 24 (revised) – Related Party Disclosures - , to the extent to which
they may be applicable for financial statements for annual periods
beginning on or after 1 January 2011.
·
IFRS 32 (amendments) – Classification of Right Issues, to the extent to
which they may be applicable for financial statements for annual periods
beginning on or after 1 January 2010.
·
IFRIC 14 (amendments) –
Prepayments
of
a
Minimum
Funding
Requirements, to the extent to which they may be applicable for
financial statements for annual periods beginning on or after 1 January
2011.
·
IFRIC 19 (amendments) – Extinguishing Financial Liabilities with Equity
Instruments, to the extent to which they may be applicable for financial
statements for annual periods beginning on or after 1 July 2010.
The first-time application of these standards and interpretations is expected to
have no significant impact on the net-assets, financial position and results of
operations of the Group.
F-135
3.
Significant accounting policies and changes in estimates (continued)
The Group has not early applied the following new and amended standards and
interpretations, which have been issued but are not yet effective or as well as
partly not yet adopted by the European Union:
·
IFRS 7 (amendments), Disclosures – Transfer of Financial assets - to the
extent to which they may be applicable on financial statements for
annual periods beginning on or after 1 July 2010
·
IFRS 9 – Financial Instruments- to the extent to which they may be
applicable for financial statements for annual periods beginning on or
after 1 January 2013 (not yet adopted by the European Union).
·
IFRS 1 (amendments) – “Severe hyperinflation” and “Removal of fixed
dates for first-time adopters” – to the extent to which they may be
applicable for financial statements for annual periods beginning on or
after 1 July 2011 not yet adopted by the European Union).
·
IAS 12 (amendments) – Deferred taxes: Recovery of underlying assets
– This amendment is applicable for periods beginning on 1 January 2012
(not yet adopted by the European Union).
The management board anticipates that the application of these standards and
interpretations will have no significant impact on the net-assets, financial position
and results of operations of the Group.
There have been no significant changes in estimates compared to the financial
statements of the Group for the short financial year 22 November to 31
December 2010.
4.
Currency translation
Items included in the condensed consolidated interim financial statements are
measured using the currency of the primary economic environment in which the
Group operates (the “functional currency”).
The Group conducts its business predominately in the PRC and hence its
functional currency is the Renminbi (RMB).
The presentation currency of the Group is EURO (EUR), being the presentation
currency of its ultimate German domiciled legal parent and holding Group, and
therefore the financial information has been translated from RMB to EUR at the
following rates:
F-136
4.
Currency translation (continued)
Period end rates
5.
Average rates
31 December 2010
EUR 1.00 = RMB
8.8231
EUR 1.00 = RMB 8.9789
31 March 2011
EUR 1.00 = RMB
9.2343
EUR 1.00 = RMB 8.9807
Significant events and transactions
With the exception of the Group’s continued measures to prepare for its expected
Initial Public Offering in 2011, no significant event or transaction has taken place
between 31 December 2010 and 31 March 2011.
6.
Segment reporting
Management determines the operating segments, which represents product
category, based on reports reviewed and used for strategic decisions. The
Group’s business segments are organized into three main operating segments:
·
·
Bank Security Glass
·
Construction Glass
All of these segments are managed by the Group.
All operating segments are monitored and strategic decisions are made on the
basis of the segmental gross margins. Items of expense and income below the
gross profit margin are not analysed by management on a segmental basis, as
these are not considered relevant for the operational and strategic analysis of the
business. Management considers the Group’s total assets, comprising property,
plant and equipment, inventory, trade and other receivables and cash and bank
balances as reasonable allocable to the three operating segments on a pro rata
basis determined by segment revenues.
During the period under review, there were no inter-segment transfers.
the same as those used in its financial statements for the short financial year 22
The segment information provided to the management for the reportable
segments for the comparative financial period from 1 January 2011 to 31 March
2011 is as follows:
F-137
6.
Segment reporting (continued)
Automotive
Security
Glass
Bank
Security
Glass
Construction
Glass
Unallocated
Total
TEUR
TEUR
TEUR
TEUR
TEUR
Revenue
7,940
6,514
1,987
-
16,441
Cost of sales
3,629
3,836
1,385
-
8,850
Gross profit
4,311
2,678
602
-
7,591
Segment
assets
31 March
2011
6,733
3,233
3,557
49,205
62,728
Due to the fact that the Group only came into existence on 22 November 2010,
as described above, there are no comparative figures for the first three months of
2010.
Unallocated assets for both financial periods are assets which cannot be
reasonably allocated to the operating segments and included property, plant &
equipment, intangible assets, deferred tax assets, related party loans, other
receivables and cash and bank balances.
The Group’s revenues for financial period from 1 January 2011 to 31 March 2011
and its comparatives were derived wholly from the PRC and its business assets
were substantially located there, hence a further geographical segment analysis
is not meaningful to the management of the Group.
During the interim period, there are no sales over 10% of the Group’s revenues
which is dependent on a single customer. All sales were to external distributors.
The totals presented for the Group’s operating segments can be derived directly
from the Group’s key financial figures for sales, cost of sales and total assets as
presented in the financial statements without reconciliation.
F-138
7.
Analysis of selected items of the condensed consolidated interim
financial statements
Sales increased approximately 44% as compared to the sales made by the
Group’s sole operating subsidiary in the same period of 2010 mainly due to
increases in sales quantity and average selling prices.
Selling and distribution expenses increased in line with the increase in sales when
compared to the sales of the Group’s sole operating subsidiary in the first three
months of 2010.
R&D expenses in the first three months of 2011 were mainly attributable to the
innovation of a new product, intruder resistant glass, as well as the associated
quality control and design costs for the improvement of various products.
The composition and amounts of non-current assets at 31 March 2011 remained
broadly comparable to the composition and amounts of non-current assets at 31
December 2010, except for loans to related parties which increased significantly
by EUR 2.2 million, due to an unsecured, interest-bearing loan granted by the
Group to Mr. SZE to assist with funding the investments in Sichuan in the future.
The loan is detailed under note 9.
Inventory and trade and other receivables fluctuated with the trading cycle.
The tax receivable results from the fact that the Group paid tax at 25% in the
first quarter of 2010, however was subsequently granted status as a high tech
enterprise, which afforded it the benefit of a lower preferential rate of 15% for
2010. The Group expects to be able to claim back the overpaid tax.
Capital and reserves increased compared with capital and reserves at 31
December 2010, due to the profitable operations of the Group in the first three
months of 2011.
The composition and amounts of current liabilities at 31 March 2011 remained
broadly comparable to the composition and amounts of current liabilities at 31
December 2010.
F-139
8.
Commitments and contingencies
Between the financial statements of the Group for the year ended 31 December
2010 and the accounting period of the interim financial statements as at 31
March 2011, no material changes in commitments and contingencies have
occurred.
9.
Related party disclosures – Significant related party transactions
An entity or individual is considered a related party of the Group for the purposes
of the financial statements if: (i) it possesses the ability, directly or indirectly, to
control or exercise significant influence over the operating and financial decision
of the Group or vice versa; or (ii) it is subject to common control or common
significant influence.
a) Entities/individuals with common control or significant influence over the Group.
-
Mr. SZE Nang Heung: Indirect holder of the entire share capital of the
Group, ultimate controlling shareholder, CEO; director of the Group from
October 1994 until December 2000 and from September 2004 until
January 2008 as well as director of the Company since July 2007
-
Luckyway Global Group Limited is incorporated on 10 March 2010 and Mr.
SZE holds 100% of the shares
-
Guangzhou City Liwan District Yaoxiang Property Management Center
(formerly known as Guangzhou City Liwan District Glass Factory): Group
owned by Mr. SHI Chunli, former majority shareholder of the Group,
member of key management and son of Mr. SZE
-
HK Chung Hwa Enterprises Development Group: Mr SZE indirectly owns
100% of this Group.
-
Guangzhou Xinghua Glass Products Co., Ltd.: Subsidiary wholly owned by
Ma Men Holdings (HK) Limited.
-
Xi’an Mamen Security Technology Co., Ltd.: Subsidiary wholly owned by
Ma Men Holdings (HK) Limited.
F-140
9.
Related
party
disclosures
–
Significant
related
party
transactions
(continued)
Three months
ended
31 March 2011
TEUR
Guangzhou Hing Wah Glass Industry Co.,
Ltd.
Rental charged on factory and office building
(expense)
Rental deposit due to rental agreement
renewal (receivable)
- salaries and related cost (expense)
11
6
53
-*
* - less than one thousand EUR
b) Key management/directors of the Group and its subsidiaries
-
Mr. SZE Nang Heung
-
Mr. SHI Chunli;
-
Mr. LEE Chi Hsiang Michael
-
Mr. ZHOU Chao;
-
Mr. CHEN Zong;
-
Mr. QIU Yiguan
-
Mr. LI Qiaorong
-
Mr. WONG Chi Man
Included in “salaries and related cost” are amounts of directors’ remuneration
totaling EUR 35,242 for the three months ended 31 March 2011.
Loan to related parties in the statement of financial position relate to a loan
granted to Mr. SZE of RMB 20 million (EUR 2.2 million at 31 March 2011
exchange rates) on 25 March 2011. The loan granted to Mr. SZE is intended for
financing of the planned development work in connections with the Group’s
Sichuan entity and the funds loaned to Mr. SZE are expected to be transferred to
the Group’s Sichuan entity in the near future. This loan is unsecured, bears
interest at the rate of 5.56% per annum and has to be repaid five years after
granting of the loan.
F-141
9.
Related
party
disclosures
–
Significant
related
party
transactions
(continued)
Related party payables relate both to a financing agreement made between
Luckyway Global Group Limited and CSG AG, whereby Luckyway Global Group
Limited finances the IPO costs on an interest free and short-term basis, and is to
be refunded after the IPO and also to payments made by a controlling
shareholder and director of the Company, Mr SZE, to fund the Group’s
investment in Guangzhou Hing Wah Glass Industry Co., Ltd. and for other
expenses.
between the Group and related parties.
Leasing
The Group leases several buildings and land use rights under operating leases
from Guangzhou City Liwan District Yaoxiang Property Management Center and
under a finance lease from Mr. SHI Chunli.
10.
Events after the reporting date
The Group expects its ultimate holding company, China Specialty Glass AG, to
issue its prospectus for its listing on the Prime Standard segment of the German
Stock Exchange in 2011.
There were no other significant non-adjusting events or any significant adjusting
events to report between the reporting date and the date of preparation of these
F-142
REVIEW OPINION
To China Specialty Glass AG
We have reviewed the consolidated condensed interim financial statements –
comprising the consolidated statement of comprehensive income, consolidated
statement of financial position, consolidated cash flow statement, consolidated
statement of changes in equity and selected condensed explanatory notes – of
China Specialty Glass AG for the period from 1 January 2011 to 31 March 2011.
The preparation of the consolidated condensed interim financial statements in
accordance with those IFRS applicable to interim financial reporting as adopted
by the EU, is the responsibility of the Group's management. Our responsibility is
to issue a report on the consolidated condensed interim financial statements
based on our review.
We conducted our review of the consolidated condensed interim financial
statements in accordance with the German generally accepted standards for the
review of financial statements promulgated by the Institut der Wirtschaftsprüfer
(IDW). Those standards require that we plan and perform the review so that we
can preclude through critical evaluation, with a certain level of assurance, that
the consolidated interim financial statements have not been prepared, in material
aspects, in accordance with the IFRS applicable to interim financial reporting as
adopted by the EU. A review is limited primarily to inquiries of company
employees and analytical assessments and therefore does not provide the
assurance attainable in a financial statement audit. Since, in accordance with
our engagement, we have not performed a financial statement audit, we cannot
issue an auditor's report.
Based on our review, no matters have come to our attention that cause us to
believe that the consolidated condensed interim financial statements have not
been prepared, in material respects, in accordance with the IFRS applicable to
interim financial reporting as adopted by the EU.
Hamburg, 2 May 2011
Grant Thornton GmbH
Wirtschaftsprüfer
F-143
Timothy Robinson
Wirtschaftsprüfer
Financial statements of
for the short financial period
10 May 2010 to 31 December 2010
in accordance with German GAAP (audited)
F-144
China Specialty Glass AG, Grünwald
Income statement for short
financial year
May 10 to December 31 2010
€
1. Amortisation of intangible assets
918.00
2. Other operating expenses
191,716.45
3. Result from ordinary activities
-192,634.45
4. Net loss for the short financial year
192,634.45
F-145
China Specialty Glass AG, Grünwald
BALANCE SHEET as at 31 December 2010
ASSETS
31 Dec 2010
EUR
10 May
2010
TEUR
EQUITY AND LIABILITIES
31 Dec 2010
EUR
31 Dec 2010
EUR
10 May
2010
TEUR
A. Long term assets
A. Equity
I. Intangible fixed assets
I. Subscribed capital
not called up share capital
15,050,000.00
0,00
50
-37
II. Capital reserves
85,050,000.00
0
Software licenses
12,852.00
0
II. Financial assets
Investment in subsidiary
III. Net loss for the short
financial year
100,050,000.00
II. Bank balances
C. Prepaid expenses
99,907,365.55
0
13
62,100.00
0
885,656.69
0
100,855,122.24
13
B. Provisions
B. Current assets
I. Other assets
- of which due after more
than one year:
EUR 3,000.00
-192,634.45
0
Other provisions
751,730.57
0
34,166.16
13
6,373.51
0
100,855,122.24
13
C. Liabilities
1. Trade payables
- of which due within one year:
EUR 20,414.38
2. Other liabilities
- of which to shareholders:
EUR 865,242.31
- of which due within one year:
EUR 865,242.31
F-146
20,414.38
865,242.31
Grünwald
Notes to the financial statements for the short financial year
10 May 2010 to 31 December 2010
I.
General Notes
China Specialty Glass AG, Grünwald (hereafter also called "CSG AG" or
"Company") was incorporated on 10 May 2010. These financial statements are
therefore the first financial statements of the Company and are for the short
financial year 10 May 2010 to 31 December 2010. Consequently, there are no
prior year comparatives.
The financial statements for the short financial year are prepared in accordance
with the accounting regulations of the third book of the German Commercial
Code (HGB) and the supplemental regulations for capital corporations (sections
264 et seqq. HGB) as updated by the German Accounting Modernization Act
(BilMoG) and in accordance with the German Stock Corporation Act. The
Company has utilized exemptions available to small capital corporations as the
Company is a small capital corporation in accordance with section 267
paragraph 1 HGB and is not a capital market orientated company as defined by
section 264d HGB.
The presentation and format of balance sheet items is in accordance with
section 266 HGB. The income statement was prepared in accordance with
section 275 paragraph 2 HGB under the type of expenditure method.
II.
Accounting policies
Intangible assets are recorded at cost less amortization, determined on a
straight-line basis.
Financial assets are recorded at cost or if they are impaired, not just
temporarily, at the lower carrying value and relate exclusively to 100% of the
shares in Hing Wah Holdings (Hong Kong) Limited, Hong Kong.
Receivables and other assets and bank balances are recorded at nominal
value.
F-147
Prepayments have been recorded in accordance with section 250 HGB for
payments in the reporting period, which relate to expenses of the following
period.
The share capital corresponds to the Company’s share capital in accordance
with its Articles of Association and in the amount which is entered in the Trade
Registry. The share capital is fully paid up.
Other accruals have been set up for known risks and uncertain commitments
in the amount determined reasonably likely to be required to settle them using
prudent business judgment.
All liabilities are disclosed at settlement value and are due within one year.
Liabilities denominated in foreign currencies have been revalued at the
appropriate mid-rate in accordance with section 256a HBG at year end.
III.
Notes regarding specific Balance sheet items
Investment in subsidiary
China Specialty Glass AG, Grünwald, holds 100% of the shares in Hing Wah
Holdings (Hong Kong) Ltd., Hong Kong. The investment was contributed by
contribution agreement dated 30 June 2010 in the context of the non-cash
contribution capital increase effected in 2010. In its 2010 financial statements,
Hing Wah Holdings (Hong Kong) Ltd., Hong Kong discloses equity of HKD
22,619,589 or EUR 2,190,823.00 (Exchange rate HKD 10.325 HKD = EUR 1.00)
and profit for the year of HKD 22,626,942.31 or EUR 2,210,918.53 (Average
rate of HKD 10.234 = EUR 1.00).
Equity
The share capital of CSG AG amounts to EUR 15,050,000.00 at 31 December
2010 (EUR 50,000.00 as at 10 May 2010) after the registration of the non-cash
contribution capital increase in the trade registry on 22 November 2010, and is
divided into 15,050,000 bearer shares without a nominal value with an
arithmetic value of EUR 1.00 per share. All shares are fully paid up.
According to section 5 of the Articles of Association, the Management Board is
authorized to increase the Company’s share capital in the period until 22
November 2015 with the approval of the Supervisory Board by up to a total of
EUR 7,525,000.00 by the issuance of up to 7,525,000 new bearer shares for
F-148
cash or non-cash contribution (authorized capital). The Management Board is
authorized to exclude pre-emptive shareholder rights in certain circumstances
with the approval of the Supervisory Board.
At 31 December 2010, the authorized capital amounts to EUR 7,525,000.00. No
capital increases were resolved in 2010 from this authorized capital.
Capital reserve
The capital reserve contains the difference between the value of the shares in
Hing Wah Holdings (Hong Kong) Limited, Hong Kong contributed into the
company and the nominal value of the new shares issued in exchange.
EUR
Capital Reserve on 10 May 2010
0.00
Increase due to contribution of the shares in Hing Wah
Holdings (Hong Kong) Limited
85,050,000.00
Capital Reserve on 31 December 2010
85,050,000.00
Liabilities
Other Liabilities include a liability to shareholder of EUR 865,242.31.
All liabilities fall due within one year and are not secured.
IV.
Further notes
The members of the Management Board in the reporting period were:
From 10 May 2010 to 27 May 2010:
Mrs. Katja Gogalla, Munich, Germany
Since 27 May 2010:
Mr. Nang Heung Sze (Chairman of the Management Board, CEO), Canton,
Mr. Chun Li Shi, COO, Canton, People’s Republic of China
Mr. Chi Man Wong (until 12 November 2010), CFO, Hongkong
Since 13 November 2010
Mr. Chi-Hsiang Michael Lee, CFO, Rancho Palos Verdes, CA, USA
F-149
In 2010 the Company did not employ any staff.
The members of the Supervisory Board in the reporting period were:
From 10 May 2010 to 26 May 2010:
Mr. Matthias Beer (Chairman), Attorney, Poing, Germany
Mrs. Randi Mette Selnes, Employee, Munich, Germany
Mrs. Edith Blum, Legal secretary, Zorneding, Germany
Since 27 May 2010:
Mr. Helmut Meyer (Chairman), Management Consultant, Grünwald, Germany
Mr. Shi Xin Yong, Vice Director of China Building Materials Test and Certification
Centre, Beijing, PR China
Mr. ShunYao Huang (until 29 October 2010), Economist, Halifax N.S., Canada
Since 29 October 2010
Mr. Volker Schlegel, Attorney, Cologne, Germany
V.
Loss
The
Management
Board
proposes
to
transfer
the
loss
for
2010
of
EUR 192,634.45 to reserves.
VI. Other Notes
Group
CSG AG, Grünwald, is also the CSG group parent company and prepares
consolidated financial statements in accordance with section 315a HGB and
International Financial Reporting Standards (IFRS), which are published in the
electronic Federal Gazette. The financial statements of the Company are
included in these consolidated financial statements.
Notifications according to section 20 of the German Stock Corporation
Law (AktG)
On 10 May 2010 the Company was informed by Blitzstart Holding AG, Munich, in
accordance with section 20 paras. 1 and 4 AktG, that Blitz start Holding AG
owned more than 25% and also a controlling holding in the Company. Via sale
agreement dated 26 May 2010 to Luckyway Global Group Ltd. the Company was
informed by Blitzstart Holding AG in accordance with section 20 para. 5 AktG
F-150
that it now no longer either holds more than 25% or a controlling holding in the
Company.
On 26 May 2010 the Company was informed by Luckyway Global Group Ltd.,
Road Town, B.V.I., and Mr. Nang Heung Sze in accordance with section 20
paras. 1 und 4 AktG, that Luckyway Global Group Ltd. and indirectly Mr. Nang
Heung Sze owned more than 25% and also a controlling holding in the
Company.
F-151
Concluding statement from dependency report
The Management Board of CSG AG prepared a dependency report for the
Supervisory Board in accordance with section 312 para. 1 AktG, which ends with
the following statement:
“Our Company received for each transaction listed in the dependency report
reasonable consideration. Measures which put our Company at a disadvantage
were not taken by or in the interest of the controlling entity or its related parties
and the controlling entity or its relating parties did not fail to carry necessary
measures out.“
Grünwald, 5 April 2011
Signed by
Nang Heung Sze
Management Board chairman
Chun Li Shi
Management Board member
Management Board member
F-152
AUDIT OPINION
To China Specialty Glass AG, Grünwald
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 China Specialty Glass AG, Grünwald, for the short financial year
from May 10 to December 31, 2010. The maintenance of the books and records and the
preparation of the annual financial statements in accordance with German commercial
law and supplementary provisions of the articles of incorporation 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 § [Article]
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 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.
In our opinion, based on the findings of our audit, the annual financial statements comply
with the legal requirements and supplementary provisions of the articles of incorporation
and give a true and fair view of the net assets, financial position and results of operations
of the Company in accordance with [German] principles of proper accounting.
Hamburg, April 11, 2011
Grant Thornton GmbH
(German certified audit firm)
Graf von Kanitz
Wirtschaftsprüfer
F-153
Robinson
Wirtschaftsprüfer
SIGNATURES
Sig.
Sig.
Sig.
China Specialty
China Specialty
China Specialty
Glass AG
Glass AG
Glass AG
Nang Heung Sze
Chun Li Shi
Chi Hsiang Michael Lee
Sig.
Sig.
VISCARDI AG
VISCARDI AG
Wilhelm Göbel
Barbara Thätig
Sig.
Sig.
biw Bank für Investments
biw Bank für Investments
und Wertpapiere AG
und Wertpapiere AG
Dirk Franzmeyer
Michael Heinks
S-1

Prospectus for the public offering in Germany and Luxembourg of

Transcription

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