China Golden Phoenix International (Holdings) Limited 中國金鳳凰

Transcription

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China Golden Phoenix International (Holdings) Limited
中國金鳳凰國際（控股）有限公司
(incorporated in the Cayman Islands with limited liability)
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CONTENTS
Page
Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
i
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
B
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12
C
Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16
D
Forward-looking Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17
E
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18
F
Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
38
H
Corporate Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
39
I
Industry Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
40
J
History and Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
57
K
Reorganisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
61
L
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
67
M
Controlling Shareholders and Substantial Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . .
120
N
Directors, Senior Management and Staff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
123
O
Share Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
129
R
Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
130
S
Future Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
172
T
X
Appendix I
Accountants’ Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
I-1
Appendix III
Property Valuation Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
III-1
AA
Appendix IV
Summary of Principal Legal and Regulatory Provisions . . . . . . . . . . . . . . . .
IV-1
BB
Appendix V
Summary of the Constitution of our Company and
Cayman Islands Company Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
V-1
CC
Statutory and General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
VI-1
DD
Appendix VI
-i -
SUMMARY
OVERVIEW
Co III (3)
B1
We are a manufacturer of non-porous crystalised stone in the PRC. Crystalised stone, being a
relatively new decoration and building material, is a type of synthetic stone material formed from inorganic
materials melted in high temperature. According to the ZhongAn Report, crystalised stone can generally be
classified into porous crystalised stone (有孔微晶石), composite crystalised stone (複合微晶石) and nonporous crystalised stone (無孔微晶石). We captured approximately [46.2]%, [48.7]% and [40.0]% of the
PRC non-porous crystalised stone market for the three years ended 31 December 2012 in terms of total sales
volume and approximately 4.2% of the market share in terms of sales volume in the overall crystalised stone
market in 2012, according to the ZhongAn Report. Non-porous crystalised stone accounted for approximately
10.6% of the domestic crystalised stone market in terms of market demand in 2012.
We manufacture non-porous crystalised stone at our Hengfeng Production Facilities and Yunshan
Production Facilities, both located in Jiujiang City, Jiangxi Province, the PRC. We manufactured
approximately [1.46] million square metres of non-porous crystalised stone in 2012. Our production
process is highly automated and we apply our own patented technologies in our production process. We
believe that our product development capabilities enable us to develop new products with features such as
zero water absorption and enhanced compression and bending strengths. As of the Latest Practicable Date, we
had a dedicated team of [47] research and development employees focusing on product development and
improvement of our production technologies and process.
App1A-28(5)
Our revenue increased from approximately RMB[282.7] million for the year ended 31 December 2010,
to approximately RMB[402.1] million for the year ended 31 December 2011, to approximately RMB[458.7]
million for the year ended 31 December 2012.
We will continue to expand our production facilities to cater for our further development, satisfy the
increasing demand from our customers and capture the potential market share.
OUR PRODUCTS
B2
As of the Latest Practicable Date, we offered three series of non-porous crystalised stone, namely 1G
Phoenix Stone, 2G Phoenix Stone and 3G Phoenix Stone. Our three series of non-porous crystalised stone are
marketed under our “ ” and “KING BIRD” brands. The non-porous crystalised stone products we currently
offer are white in colour, which we believe to have sufficient market demand currently. The three series of
our products have different functional performances and characteristics, such as bulk density, compression
strength and impact toughness and can be applied in a wide variety of settings and applications. Please refer
to page [•••] of this document for a quantitative comparison of the functional performances and characteristics
of our products.
1G Phoenix Stone
1G Phoenix Stone was launched by us in 2005 and is generally used for sanitary ware and
kitchenware. 1G Phoenix Stone is ideal for undergoing further processing by our customers into sanitary ware
and kitchenware such as washbasins, bidets and countertops. Due to its lower compression strength and
impact toughness when compared with 2G Phoenix Stone and 3G Phoenix Stone, 1G Phoenix stone is
-1 -
SUMMARY
relatively more brittle and is suited for undergoing additional processing as additional processing would
generally yield products that are more resilient. The average production time for 1G Phoenix Stone is
approximately 6.8 hours.
2G Phoenix Stone
2G Phoenix Stone was launched by us in 2007. 2G Phoenix Stone was developed by us to provide the
market with non-porous crystalised stone that has increased durability and can be applied as flooring material.
Due to its higher compression strength and resilience when compared with 1G Phoenix stone, 2G Phoenix
Stone can be used as flooring material, interior and exterior building walls and table tops. The average
production time for 2G Phoenix Stone is approximately 7.9 hours.
3G Phoenix Stone
3G Phoenix Stone was launched to the market in 2011 and is an advancement of the 2G Phoenix
Stone. 3G Phoenix Stone has the highest bending strength amongst our three series of products and can
ideally be used as flooring material, interior and exterior building walls as it allows for easy installation. With
the best functional performances among our three generations of productions, our 3G Phoenix Stone can
generally be applied in all usages and applications of 1G Phoenix Stone and 2G Phoenix Stone. The average
production time for 3G Phoenix Stone is approximately 8.4 hours.
The following table sets forth the sales volume and breakdown of the sales of our three series of nonporous crystalised stone during the Track Record Period:–
2010
square
metre RMB’000
1G Phoenix Stone
2G Phoenix Stone
3G Phoenix Stone
378,690
637,093
–
86,452
196,219
–
1,015,783
282,671
For the year ended 31 December
2011
square
(%)
metre RMB’000
(%)
30.6
69.4
–
386,547
704,403
268,520
87,344
216,983
97,783
100.0 1,359,470
402,110
-2 -
21.7
54.0
24.3
2012
square
metre RMB’000
(%)
224,210 [51,858]
797,833 [281,327]
338,028 [125,531]
[11.3]
[61.3]
[27.4]
100.0 1,360,071
458,716
100.0
SUMMARY
The following table sets forth the average selling price per square metre of our products during the
Track Record Period:–
2010
RMB
1G Phoenix Stone
2G Phoenix Stone
3G Phoenix Stone
Overall
228
308
–
278
2011
2012
RMB
RMB
226
308
364
296
231
353
372
337
Please refer to pages [•••] to [•••] of this document for the analysis of the trend of the average selling
price of our products.
SALES AND DISTRIBUTION
B3
Our customers include trading companies, wholesalers and processing companies in the PRC and
overseas markets. Our products are sold to our customers on an order-by-order basis and, to the best
knowledge of our Directors, are then further sold to their own customers. We are not involved in any sales
and marketing of our products sold by our customers. Our customers are not our distributors as we do not
have any control or influence as to (i) how the customers re-sell our products onward to their own customers;
(ii) their credit and pricing policy of our products; and (iii) their modes of operation and their management of
their own sales networks. We generally offer uniform selling prices to most of our customers. We will review
and adjust our selling price from time to time taking into account factors such as market price. Our domestic
sales are widely spread to cover customers in Beijing, Shanghai, Fujian Province, Guangdong Province,
Zhejiang Province, Jiangsu Province, Jiangxi Province, Shangdong Province, Liaoning Province, Anhui
Province and Sichuan Province. We also directly export our products to our overseas customers such as those
in Hong Kong, Brazil and the UAE.
The following table sets forth the breakdown of our revenue by geographical location of customers
during the Track Record Period:–
Year ended 31 December
2010
2011
RMB’000
RMB’000
Domestic
Overseas
-3 -
2012
RMB’000
278,704
3,967
388,809
13,301
407,330
51,386
282,671
402,110
458,716
SUMMARY
Trading companies
Our products are sold to trading companies overseas and in the PRC and they further sell our products
to their own customers. Trading companies include companies which are in the business of trading various
products including decoration and building materials. We have had an average of approximately two years of
business relationship with our trading company customers. Due to the nature of the trading business which
depends on the orders from their customers, the number of new and customers that did not place recurring
sales orders is relatively larger compared to our other types of customers.
Wholesalers
We sell our products to wholesale customers, which are in the business of wholesaling, and they sell
our products at their own stores to their customers. Our wholesale customers operate their own stores located
both in the PRC and the overseas. We have had an average of more than five years of business relationship
with our wholesaler customers.
Processing companies
Our products are sold to processing companies in the PRC and overseas and they have the capabilities
to further process our products into sanitary ware, kitchenware and other products. We have had an average
of approximately four years of business relationship with our processing company customers. After
processing our products into sanitary ware, kitchenware or other products, to the best knowledge of our
Directors, the processing companies sell the processed products to their own customers.
The following table sets forth the breakdown of our revenue by sales channels during the Track
Record Period:–
2010
RMB’000
Trading companies
Wholesalers
2011
(%)
RMB’000
(%)
2012
RMB’000
(%)
147,073
83,779
51,819
52.0
29.7
18.3
239,905
95,975
66,230
59.7
23.8
16.5
218,080
142,298
98,338
47.5
31.1
21.4
282,671
100.0
402,110
100.0
458,716
100.0
In view of the expansion of our production capacity as a result of establishment of our Yushan
Production Facilities, in 2013, we entered into framework agreements with some of our key customers. Our
framework agreements specify the minimum purchase amounts of non-porous crystalised stone during the
term of the agreements and the customers are required to pay a compensation of 10% on shortfall of the
minimum purchase amount if they fail to meet the minimum purchase amount. The unit selling price of our
products was not fixed in the framework agreements and will be based on the uniform selling price at the
time of placing sales orders. Our PRC legal adviser, Beijing Tian Yuan Law Firm, has confirmed that these
-4 -
SUMMARY
framework agreements are valid and legally binding on the parties to the agreements, and are enforceable
under the PRC laws within the term of validity. Please refer to page [•••] in this document for further details
on the framework agreements.
PROCUREMENT AND SUPPLIERS
B4
Our principal raw materials include quartz sand (石英砂), lithium feldspar powder (鋰長石粉), soda
ash (純鹼), potassium carbonate (碳酸鉀) and sodium fluorosilicate (氟硅酸鈉). Our principal parts and
components include metal accessories (五金配件), packaging materials (�裝材料), abrasive tools (磨具) and
saw blades (鋸片). Coal is also procured by us as fuel for the furnaces in our production process. Our
suppliers generally grant us a credit period of 30 to 60 days. We place purchase orders with our suppliers on
a case-by-case basis and the purchase price is usually determined based on the market price when we place a
particular order. During the Track Record Period, the prices of the major raw materials and coal used by us
have been volatile. Please refer to page [•••] of this document for the average prices of our major raw
materials and coal purchased during the Track Record Period.
To secure supply of raw materials, coal and electricity for production and to avoid any negative effects
of price fluctuation for the commencement of operation of our Yunshan Production Facilities, we entered into
supply agreements with 11 suppliers and made certain prepayments pursuant to the supply agreements. Please
refer to page [•••] of this document for further details on the prepayments made to the 11 suppliers.
OUR PRODUCTION CAPACITY AND EXPANSION PLAN
Further information on our production facilities and our production capacity is set forth in the section
headed “Business – Production facilities” on pages [•••] to [•••] in this document.
We will apply [•••] and internal funds generated from our operations to continue to expand our
production capacity to cater for our further development as well as to satisfy the increasing demand from our
customers. Our Yunshan Production Facilities is our new production facilities and is expected to have four
production lines. The construction of the first production line has been completed and has commenced
operation in February 2013. The construction of the second production line of our Yunshan Production
Facilities has started in June 2013 and is expected to commence operation in September 2013. We plan to
begin the construction of the third and fourth production lines at our Yunshan Production Facilities in the
first half of 2014 and we expect both production lines to commence operation in the second half of 2014. Our
Directors believe our expansion plans are reasonable and we are well-positioned to capture the market
growth.
As our expansion plans are at a preliminary stage and our expansion plans are subject to inherent risks
and uncertainties, we cannot assure you that our production capacity expansion plans will be successfully
implemented. Any failure or delay in implementing any part of these expansion plans may materially affect
our business, financial condition and results of operations.
-5 -
B5
SUMMARY
The table below shows the key information on our existing operations, market position and expansion
plans:
2012
2013
(estimated)
2014
(estimated)
Market demand for crystalised stone in
the PRC (note 1)
32.1 million
square metres
37.8 million
square metres
43.5 million
square metres
Market demand of non-porous
crystalised stone in the PRC (note 1)
3.40 million
square metres
4.10 million
square metres
4.76 million
square metres
Our actual production volume
1.46 million
square metres
not available
not available
Our maximum designed annual
production capacity (note 2)
1.95 million
square metres
3.21 million
square metres
4.33 million
square metres
74.6%
70.0% -75.0%
70.0% -75.0%
Our utilisation rate (note 3)
Our total indicated minimum sales
volume based on the framework
agreements (note 4)
not applicable
(note 5)
1.02 million
square metres
2.03 million
square metres
Capital expenditure required for our
expansion plan (note 6)
RMB[262.7]
million
RMB[124.5]
million
RMB[312.8]
million
Notes:
1.
Based on the ZhongAn Report.
2.
The estimated maximum production capacity for 2013 and 2014 has taken into account the projected
commencement dates of operation of our production lines at the Yunshan Production Facilities and the estimated
overhaul period as disclosed on page [•••] of this document. Our maximum designed annual production capacity
for 2013 and 2014 is 3.88 million square metres and 5.48 million square metres, respectively.
3.
The basis of calculations of our utilisation rate is set out on page [•••] of this document.
4.
The indicated total sales volumes are based on the minimum purchase amounts in the framework agreements.
5.
No framework agreements were signed in 2012.
According to the ZhongAn Report, the market demand for non-porous crystalised stone in the PRC is
expected to reach 4.76 million square metres in 2014, an increase from 2.26 million square metres in 2010,
representing a CAGR of [20.5%] over the period.
Our estimated maximum designed annual production capacity of 4.33 million square metres for 2014
is close to the market demand for non-porous crystalised stone in the PRC of 4.76 million square metres in
2014. The estimated market demand only refers to the non-porous crystalised stone segment in the PRC. Our
expansion plan is not limited to the PRC market. We have to take into account the potential growth in our
export sales, substitution as decoration and building materials for crystalised stone and our ability to capture
the market share of other types of crystalised stone. In addition, we compete with our competitors in various
aspects such as production capacity in order to maintain our market share and sustain continuous growth. We
will need to plan our expansion plan in advance to capture the potential market growth (including as
substitutes for other crystalised stone) and overseas markets, or otherwise, we may lose our market share as a
result of decrease in our production volume due to our failure to expand in a timely manner.
-6 -
SUMMARY
According to the ZhongAn Report, due to similar usages, the three types of crystalised stone may be
used as substitutes for one another. The sales volume of crystalised stone in the PRC is expected to grow
from 32.09 million square metres in 2012 to 43.50 million square metres in 2014, representing a CAGR of
16.4% over the period, and the export volume of domestic crystalised stone is expected to increase from 3.80
million square metres in 2012 to 5.60 million square metres in 2014, representing a CAGR of 21.4% over the
period.
During the Track Record Period, our utilisation rate was approximately 81.0%, 78.0% and 74.6%,
respectively, which, according to the ZhongAn Report, is in line with the utilisation rate of the non-porous
crystalised stone industry in the PRC of about 75% by reference to research conducted by ZhongAn of other
PRC non-porous crystalised stone manufacturers. [We expect that our utilisation rate from 2013 to 2014 will
remain in the range of 70.0% to 75.0% with the view to maintain our current level of production and
production quality.] Based on our past experience and taking into account the latest development of our
Yunshan Production Facilities, our Directors believe that to maintain our utilisation rate of 70% to 75% is
reasonable and beneficial of our Group. Please refer to the section headed “Business – Production facilities”
on page [•••] in this document for detailed analysis of our utilisation rate. If there is any decrease in the level
of utilisation of our production facilities or if we fail to maintain an adequate utilisation rate, our revenue
would be adversely affected. Our gross profit would also decrease, but not necessarily in proportion with the
level of decrease in utilisation rate. In such event, we may need to reduce our production volumes,
temporarily suspend the operation of our production lines or postpone the expansion of our production
facilities.
Through the understanding from our customers and the market, there is continuous demand for our
products by our customers. In view of the expansion of our production capacity as a result of establishment
of our Yunshan Production Facilities, in 2013, we entered into framework agreements with some of our key
customers. Based on the framework agreements we have signed so far, the total indicative minimum sales
volume under the framework agreements for 2014 is 2.03 million square metres, representing approximately
46.9% of our estimated maximum designed annual production capacity in 2014 and 42.6% of the forecasted
market demand of non-porous crystalised stone in the PRC in 2014 reference to ZhongAn Report.
OUR COMPETITIVE STRENGTHS
B6
Our Directors believe that we have the following competitive advantages:–
•
•
•
•
We have approximately [46.2]%, [48.7]% and [40.0]% market share in terms of sales volume in
the non-porous crystalised stone industry in the PRC for the three years ended 31 December
2012
Our product development capabilities enable us to improve and enhance our products
Our highly automated production facilities enable us to manufacture non-porous crystalised
stone efficiently and cost-effectively
We have an experienced and cohesive senior management team with a proven track record of
success
-7 -
SUMMARY
OUR BUSINESS STRATEGIES
B7
Our Directors intend to implement the following business strategies to achieve our business
objectives:–
•
•
•
Expand our production capacities, improve our production technologies and increase production
efficiency
Optimise our product offerings and continue to leverage on our own patented technologies to
enhance our products
Expand our existing market share by developing new customers and exploring new markets
KEY FINANCIAL INFORMATION
B8
The following tables sets forth certain historical financial information for the periods indicated. This
financial information was extracted from, and should be read in conjunction with the financial information of
our Group set forth in the Accountants’ Report set forth in Appendix I from page I-1 to this document.
Selected combined income statements and balance sheets data
2010
2011
2012
RMB’000
RMB’000
RMB’000
Revenue
Gross profit
Gross profit margin
Profit before tax
Profit and total comprehensive income
for the year attributable to owners of
the Company
Net profit margin
282,671
108,810
38.5%
83,371
402,110
175,192
43.6%
140,447
458,716
216,058
47.1%
161,764
72,528
25.7%
104,736
26.0%
118,382
25.8%
The table below sets forth the gross profit and gross profit margin by product during the Track Record
Period:–
2010
RMB’000
1G Phoenix Stone
2G Phoenix Stone
3G Phoenix Stone
2011
(%)
RMB’000
(%)
2012
RMB’000
(%)
25,755
83,055
–
29.8
42.3
–
29,591
100,609
44,992
33.9
46.4
46.0
17,887
138,962
59,209
34.5
49.4
47.2
108,810
38.5
175,192
43.6
216,058
47.1
-8 -
SUMMARY
Our gross profit margin increased from 38.5% in 2010 to 43.6% in 2011 and further to 47.1% in the
2012 principally because of the (i) increase in the average selling price of our products; (ii) increase in the
sales volume of our products; and (iii) increased economies of scale after our increase in production capacity,
in particular realised in the manufacturing overhead incurred. Please refer to page [•••] of this document for a
detailed analysis of our gross profit margin during the Track Record Period.
2010
RMB’000
Current assets
Current liabilities
Net current liabilities
Net assets
126,804
178,679
51,875
225,604
As of 31 December
2011
RMB’000
175,738
216,752
41,014
340,548
2012
RMB’000
[191,420]
[231,148]
[39,728]
[458,930]
Selected combined statements of cash flows
2010
2011
2012
RMB’000
RMB’000
RMB’000
Net cash from operating activities
Net cash used in investing activities
Net cash from financing activities
70,400
(124,627)
53,237
184,979
(173,089)
33,310
136,906
[(182,375)]
35,337
Financial ratios
2010
2011
Current ratio
Gearing ratio (%)
0.71
38
0.81
33
2012
[0.83]
44
NET CURRENT LIABILITIES AND WORKING CAPITAL SUFFICIENCY
As of 31 December 2010, 2011 and 2012, we had net current liabilities of approximately RMB[51.9]
million, RMB[41.0] million and RMB[39.7] million, respectively. Our net current liabilities positions during
the Track Record Period were mainly attributable to purchases of property, plant and equipment which were
financed with various bank borrowings and working capital. Please refer to pages [•••] to [•••] of this
document for further details of our net current liabilities positions. [Taking into account the financial
resources available to us, including the available credit facility and our internally generated funds, our
Directors are of the view that we have available sufficient working capital for our present requirements for at
least the next 12 months from the date of this document.]
-9 -
B9
App1A-36
SUMMARY
LATEST DEVELOPMENTS RELATING TO OUR GROUP SUBSEQUENT TO THE TRACK
RECORD PERIOD
The financial information for the period from 1 January 2013 to 30 April 2013 as shown below was
extracted from the unaudited condensed consolidated financial statements for the four months ended 30 April
2013 prepared by the Directors in accordance with Hong Kong Accounting Standard 34 “Interim Financial
Reporting” issued by the HKICPA), [which were reviewed by Deloitte Touche Tohmatsu], the reporting
accountants of the Company, in accordance with Hong Kong Standard on Review Engagements (“HKSRE”)
2410 “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” issued
by the HKICPA. The comparative financial information for the period from 1 January 2012 to 30 April 2012
has not been reviewed.
Four months ended
30 April 2013
(unaudited, RMB’000,
except percentage)
Revenue
Gross profit
Gross profit margin
[199,383]
[104,054]
[52.2]%
We have shown steady development in our business after the Track Record Period. [There has been no
material change to our business model, cost and revenue structure subsequent to [31 December 2012] and up
to the Latest Practicable Date.] We continued to focus on the development of new and existing products. In
the end of 2012, we have successfully developed non-porous crystalised stone that are black and ivory in
colour and we will launch these new products to the market when there is sufficient market acceptance and
demand and when there is sufficient production capacity. With the expansion plan of our production plants,
we intend to launch the non-porous crystalised stone in black and ivory colour to the market in 2014. The
first production line at our Yunshan Production Facilities has already commenced in February 2013 adding an
additional 0.8 million square metres to our maximum designed annual production capacity. The Yunshan
Production Facilities expect to have four production lines with an estimated maximum designed annual
production capacity of approximately 3.2 million square metres in accordance with our expansion plan.
[We experienced a growth in the sales of our products by securing over [22] new customers in 2013 as
of the Latest Practicable Date. Our unaudited sales amount reached approximately RMB[199.4] million for
the four months ended 30 April 2013 as compared with approximately RMB[143.7] million for the four
months ended 30 April 2012. Our gross profit margin also increased in the four months ended 30 April 2013
as compared with the corresponding period in 2012, which is in line with our increase in revenue. The total
sales volume of our non-porous crystalised stone reached approximately 0.6 million square metres for the
[four] months ended 30 April 2013. Our average selling price per square metre of 1G Phoenix Stone, 2G
Phoenix Stone and 3G Phoenix Stone for the four months ended 30 April 2013 was RMB[216], RMB[355]
and RMB[380] respectively. Subsequent to 31 December 2012 and up to the Latest Practicable Date, we did
not experience a significant change of pricing policy for orders secured after 31 December 2012 and our
Directors did not identify any significant cancellation of orders from our customers.] There was [no] material
change in the cost of our raw materials subsequent to 31 December 2012. As of 30 April 2013, we had
RMB[208.6] million in outstanding short-term and long-term bank borrowings. As of 30 April 2013, all of
- 10 -
B10
App1A-34(1)
(a),(b),(c)
SUMMARY
the total trade receivables as of 31 December 2012 have been subsequently settled. [We confirm that, up to
the date of this document, there has been no material adverse change in the financial or trading position or
our prospects since 31 December 2012, and there has been no event since 31 December 2012 which would
materially affect the financial information as shown in the Accountants’ Report set forth in Appendix I from
page I-1 to this document.]
The Directors confirm that we did not have any material non-recurring income or expenses for the
three years ended 31 December 2012 save for the above prepayments made for raw materials, coal and
electricity and certain expenses incurred.
SHAREHOLDER INFORMATION
B11
Hong Kong Golden Phoenix and Hong Kong Dragon Yu will be directly interested in [•••]% and
[•••]%, respectively, of the issued share capital of our Company.
[Our Directors are of the view that as of the Latest Practicable Date, none of our Controlling
Shareholders or any of their respective associates had any interests in any business, apart from the business
operated by members of our Group, that competes or is likely to compete, directly or indirectly, with the
business of our Group.]
LR8.10(1)(a)
DIVIDEND POLICY
B13
No dividends have been declared or paid by our Company since its incorporation. Subject to the above
factors and the factors discussed in the section headed “Financial Information – Dividend Policy” on pages
[•••] to [•••] in this document, our expected dividend policy is that not less than approximately [20]% of our
profits available for distribution will be recommended for distribution in each financial year. The amount of
dividend actually distributed to our Shareholders will depend upon our earnings and financial condition,
operating requirements, capital requirements and any other conditions that our Directors may deem relevant
and will be subject to approval of our Shareholders.
RISK FACTORS
B15
There are risks associated with our business. Some of the particular risks are set forth in the section
headed “Risk Factors” from page [23] of this document. You should read that entire section carefully.
- 11 -
DEFINITIONS
“Board”
our board of Directors
C4
“business day”
any day (other than a Saturday, Sunday or public holiday) on which
banks in Hong Kong are generally open for business
C5
“BVI”
the British Virgin Islands
C6
“China” or “PRC”
the People’s Republic of China and, except where the context
otherwise requires and only for the purpose of this document,
references in this document to China or the PRC exclude Hong
Kong, Macau and Taiwan
“China Galaxy”
China Galaxy Limited (創興盛有限公司), a company incorporated
in Hong Kong on 11 January 2011 and a direct wholly-owned
subsidiary of our Company
“Chinese Government” or
“PRC Government”
the central government of the PRC, including all governmental
subdivisions (including provincial, municipal and other regional or
local government entities) and instrumentalities thereof or, where the
context requires, any of them
“City Expert”
City Expert Investments Limited (佳績投資有限公司), a company
incorporated in the BVI on 28 July 2010 and wholly-owned by
Hung Wing Koi, an Independent Third Party
“Companies Law”
“Companies Ordinance”
“Controlling Shareholder(s)”
the Companies Law (as revised) of the Cayman Islands, as
amended, supplemented and/or otherwise modified from time to
time
the Companies Ordinance (Chapter 32 of the Laws of Hong Kong)
as amended, supplemented and/or otherwise modified from time to
time
C13
C14
C15
C16
C17
C18
has the meaning ascribed thereto under [•••], and in the context of
our Company, means Mr. Sui and Hong Kong Golden Phoenix
C20
“Director(s)” or “our Director(s)”
the director(s) of our Company as of the date of this document
C24
“Global Ally”
Global Ally Investments Limited, a company incorporated in the
BVI on 11 January 2011 and wholly-owned by Mr. Sui
C25
Goldyield Group Limited (金瑤集團有限公司), a company
incorporated in the BVI on 5 January 2010 and wholly-owned by
Sze Man Yiu, an Independent Third Party
C27
“Goldyield”
- 12 -
DEFINITIONS
“Grand City”
“Hengfeng Production Facilities”
Grand City Capital Limited, a company incorporated in the BVI on
7 October 2010 and wholly-owned by Chang Cheng Kit, an
Independent Third Party
our Hengfeng Production Facilities as set out in the paragraph
headed “Business – Production Facilities – Hengfeng Production
Facilities” in this document
C28
C30
“HK$” or ”Hong Kong dollars”
Hong Kong dollars, the lawful currency of Hong Kong
C31
“HKAS”
Hong Kong Accounting Standards
C32
“HKFRS”
Hong Kong Financial Reporting Standards
C33
“HKICPA”
Hong Kong Institute of Certified Public Accountants
C34
“Hong Kong”
the Hong Kong Special Administrative Region of the PRC
C37
“Hong Kong Dragon Yu”
Hong Kong Dragon Yu New Material Co., Limited (香�龍鈺新材
料有限公司), a company incorporated in Hong Kong on 16
November 2010 and wholly-owned by Mr. Zhu
C38
“Hong Kong Golden Phoenix”
“Independent Third Party(ies)”
Golden Phoenix Nanotechnology Holding Limited (金鳳凰納米科
技控股有限公司), a company incorporated in Hong Kong on 3
January 2011 and wholly-owned by Mr. Sui. Hong Kong Golden
Phoenix is one of our Controlling Shareholders
an individual(s) or a company(ies) who or which is/are independent
of and not connected with any directors, chief executive or
substantial shareholders of our Company, our subsidiaries or any
of their respective associates
C39
C45
“Jiangxi Golden Phoenix”
江西金鳳凰納米微晶有限公司 (Jiangxi Golden Phoenix Nanocrystalised Stone Co., Ltd.), an enterprise incorporated in the PRC
on 25 September 2009 and an indirect wholly-owned subsidiary of
our Company
“Jiujiang Golden Phoenix”
九江金鳳凰裝飾材料有限公司 (Jiujiang Golden Phoenix
Decoration Material Co., Ltd.), a wholly foreign-owned enterprise
incorporated in the PRC on 2 December 2003 and an indirect
wholly-owned subsidiary of our Company
“Latest Practicable Date”
[•••] 2013, being the latest practicable date prior to the printing of
this document for ascertaining certain information in this document
C53
“Macau”
the Macau Special Administrative Region of the PRC
C57
- 13 -
C51
C52
DEFINITIONS
“Memorandum” or “Memorandum
of Association”
the memorandum of association of our Company, adopted on [22
June] 2013, as supplemented, amended or otherwise modified from
time to time
C59
“Ministry of Finance”
the PRC Ministry of Finance (中華人民共和國財政部)
C60
“Mr. Sui”
Sui He Zuo (施合作), a Controlling Shareholder of our Company
and an executive Director
C62
“Mr. Zhu”
Zhu Xin Ming (朱新明), the substantial shareholder of our
Company and an executive Director
C63
“NPC” or “National People’s
Congress”
the National People’s Congress of the PRC (中華人民共和國全國
人民代表大會) and its Standing Committee
C65
“Reorganisation”
the reorganisation arrangements we have undergone in preparation
for [•••] which are more particularly described in the section headed
“Reorganisation” in this document
C72
“RMB” or “Renminbi”
Renminbi, the lawful currency of the PRC
C74
“SAFE”
the State Administration of Foreign Exchange of the PRC (中華人
民共和國國家外匯管理局)
C75
“SAT”
the State Administration of Taxation of the PRC (中華人民共和國
國家稅務總局)
“Shareholders”
holders of Shares
C81
“Shares”
ordinary shares in the share capital of our Company with a nominal
value of HK$[0.1] each
C82
App1A-23(1)
Co III (2)
“State Council”
the State Council of the PRC (中華人民共和國國務院)
C86
“Track Record Period”
the period comprising the three financial years ended 31 December
2012
C88
“UAE”
the United Arab Emirates
C89
“United States” or “U.S.”
the United States of America
C92
“U.S. dollars” or “US$”
United States dollars, the lawful currency of the United States
C93
- 14 -
DEFINITIONS
“we,” “us,” “our,” “our Company,”
and “our Group”
China Golden Phoenix International (Holdings) Limited (formerly
known as Strong Elite Limited), an exempted company with limited
liability incorporated in the Cayman Islands on 4 January 2011 and,
unless the context otherwise requires, all of its subsidiaries, or
where the context refers to any time prior to its incorporation, the
business in which the predecessors of its present subsidiaries were
engaged and which were subsequently assumed by such subsidiaries
pursuant to the Reorganisation
C94
“Yunshan Production Facilities”
our Yunshan Production Facilities as set forth in the paragraph
headed “Business – Production Facilities – Yunshan Production
Facilities” in this document
C99
“ZhongAn”
ZhongAn Shengye Investment Consultant (Beijing) Co., Ltd. (中安
盛業投資顧問（北京）有限公司), a market research company and an
Independent Third Party
C100
“ZhongAn Report”
the industry report titled Market Research Report of Mid-to-highend Decoration Materials and Crystalised Stone Market in the PRC
from 2005 to 2015 (2005 – 2015年中國中高檔裝飾裝修材料及微
晶石行業市場研究報告) issued by ZhongAn on [25 June] 2013
C101
Unless expressly stated or the context otherwise requires, all data in this document is as of the date of
this document.
C102
If there is any inconsistency between the official Chinese name of the PRC laws or regulations or the
PRC Government authorities or the PRC entities mentioned in this document and their English translation,
the Chinese version shall prevail. English translations of official Chinese names are for identification
purposes only.
- 15 -
C104
GLOSSARY
D
This glossary contains an explanation of certain technical terms used in this document in
connection with our Company and our business. Such terminology and meanings may not correspond
to standard industry meanings or usages of those terms.
“1G Phoenix Stone”
the first generation crystalised stone developed and launched by our
Group
D1
the second generation crystalised stone developed and launched by
our Group
D2
the third generation crystalised stone developed and launched by our
Group
D3
“CAGR”
compound annual growth rate
D4
“cm”
centimetre, a unit of length
D5
“composite crystalised stone”
crystalised stone formed from a combination of inorganic materials,
usually from combining glass with ceramic materials
D6
“GDP”
gross domestic product
D7
“GFA”
gross floor area
D8
“J”
joule, a derived unit of energy, work or amount of heat
D9
“kWh”
kilowatt hour, a unit of energy
D9.1
“m”
metre, a unit of length
D10
“mm”
millimetre, a unit of length
D11
“MPa”
megapascal, a common multiple unit of pascal (Pa) and a derived
unit of pressure
D13
“non-porous crystalised stone”
crystalised stone formed from a combination of inorganic materials
by a manufacturing process that eliminates pores
D14
“porous crystalised stone”
crystalised stone formed from a combination of inorganic materials
and after heating during the manufacturing process, air is ventilated
at the surfaces causing pores
D15
- 16 -
FORWARD-LOOKING STATEMENTS
This document contains forward-looking statements, including, without limitation, words and
expressions such as “expect,” “believe,” “plan,” “intend,” “estimate,” “project,” “potential”, “anticipate,”
“seek,” “may,” “will,” “would”, “should” and “could” or similar words or statements, in particular, in the
sections entitled “Business” and “Financial Information” in this document in relation to future events, our
future financial, business or other performance and development, the future development of our industry and
the future development of the general economy of our key markets.
These statements are based on numerous assumptions regarding our present and future business
strategy and the environment in which we will operate in the future. These forward-looking statements
reflecting our current views with respect to future events are not a guarantee of future performance and are
subject to certain risks, uncertainties and assumptions, including the risk factors described in this document,
and the following:
•
our business and operating strategies and our various measures to implement such strategies;
•
our dividend distribution plans;
•
our capital commitment plans;
•
our operations and business prospects, including development plans for our existing and new
businesses;
•
the future competitive environment for the crystalised stone industry;
•
the regulatory environment as well as the general industry outlook for the PRC crystalised stone
industry;
•
future developments in the PRC crystalised stone industry;
•
the general economic trend of China;
•
exchange rate fluctuations and restrictions; and
•
factors beyond our control such as catastrophic losses from fires, floods, windstorms,
earthquakes, diseases or other adverse weather conditions or natural disasters.
We caution you that, subject to the requirements of applicable laws, rules and regulations, we do not
have any obligation to update or otherwise revise the forward-looking statements in this document, whether
as a result of new information, future events or otherwise. As a result of these and other risks, uncertainties
and assumptions, the forward-looking events and circumstances discussed in this document might not occur
in the way we expect, or at all. Accordingly, you should not place undue reliance on any forward-looking
information. All forward-looking statements contained in this document are qualified by reference to the
cautionary statements set out in this section and should not be taken as representations by us that our plans
and objectives will be achieved.
In this document, statements of or references to the intentions of our Company or any of our Directors
are made as at the date of this document. Any such intentions may potentially change in light of future
developments.
- 17 -
E
E1
E2
E3
E4
RISK FACTORS
RISKS RELATED TO OUR BUSINESS
Our success depends on the market recognition of our brand and we could be adversely affected by
negative publicity
F1
We rely heavily on the market recognition of our brand. We have a well-established operating history,
strong brand recognition and a range of non-porous crystalised stone products. In 2010, our “
” brand was
recognised as a Famous Brand of Jiangxi Province (江西省著名商標). Our Directors believe that our
business growth in our production and sales of our products depend heavily on the public perception of our
brand and we anticipate that we will continue to rely on our brand in our future business. If we fail to
promote our brand or to maintain or enhance the brand recognition and awareness amongst our customers, or
if we are subject to events or negative allegations affecting our brand image or publicly perceived position of
our brand, our business, operating results and financial conditions could be adversely affected.
F2
F3
F4
We may not be successful in maintaining our current market position or implementing our market
expansion plan
F7
We captured approximately [46.2]%, [48.7]% and [40.0]% of the PRC non-porous crystalised stone
market for the three years ended 31 December 2012 in terms of total sales volume, according to the ZhongAn
Report. We expect to capture the non-porous crystalised stone market in the PRC in a range of [50]% to
[60]% in both 2013 and 2014 in terms of total sales volume based on our expected maximum designed
annual production capacity, our expected market demand and the ZhongAn Report. We intend to maintain
our current market position and continue to increase our market share and expand into new markets,
particularly overseas markets, through extending our sales and marketing network, establishing our Yunshan
Production Facilities and improving our production technologies. We also intend to capture market
opportunities from porous crystalised stone, composite crystalised stone and other stone materials markets. As
a result, we are subject to all of the risks that are specific to the domestic crystalised stone and other stone
materials industry and the risks inherent in the unforeseen costs and expenses, challenges, complications, and
delays encountered in connection with market expansion.
Our operations and market expansion may be hindered by risks including but not limited to cultural
differences, instability or changes in the political, regulatory or economic environment, lack of understanding
of the local business environment, financial and management system or legal system, differences in legal
burdens in complying with local laws and regulations, stringent product liability and warranty requirements,
potentially adverse tax consequences, competition within the local market and volatility in currency exchange
rates.
Maintaining our current market position and implementing our market expansion plan has resulted in,
and will continue to result in, substantial demands on our resources. Managing our expansion will require,
among other things:
•
continued enhancement of our research and development capabilities;
•
successful hiring and training of personnel;
•
increased marketing and service activities;
- 18 -
F5
F6
F8
F9
F10
F11
F12
RISK FACTORS
•
sufficient liquidity;
•
effective and efficient financial and management control;
•
effective quality control;
•
effective cost control;
•
management of our suppliers to leverage on our purchasing power;
•
ability to maintain and strengthen market recognition; and
•
adjustment to the evolving needs and demands of customers.
There is no assurance that we will be able to successfully maintain or expand our market coverage or
grow our business successfully after deploying our management and financial resources, particularly in the
overseas markets. Any failure in maintaining our current market position or implementing our market
expansion plan could materially and adversely affect our business, financial condition and results of
operations.
F13
F14
We may not be able to keep up with the trends and develop products which are acceptable by our
customers
F15
Our ability to develop new products is important to us. Our competitiveness in the crystalised stone
market depends in large part on our ability to develop new products and techniques so that we are able to
continuously tailor our products to meet our customers’ needs. Our non-porous crystalised stone is mainly
engineered and manufactured to be white in colour, which we believe have sufficient market demand
currently. We launched our 3G Phoenix Stone to the market in 2011 and we have recently successfully
developed non-porous crystalised stone that are black and [ivory] in colour. Our sales are subject to changing
consumers’ preference, development of the crystalised stone technology and the crystalised stone market
trends which we may or may not be able to predict accurately. Our ability to understand the PRC and
overseas crystalised stone industry and its trends, our ability to foresee market opportunities and direct our
resources to product development projects, financial resources and the experience of our team members could
all affect the result of our product development.
F16
New products or techniques are subject to continuous evolution and changes and we cannot assure you
that our products or techniques developed will be well accepted by the market, or such products or techniques
can be developed and put into market in a timely manner or at all. In the event that we are unable to develop
new products and techniques that meet the needs of our customers or that our competitors have developed
new and more advanced products and techniques which are well-received by the market, our business,
financial condition and results of operations may be materially and adversely affected.
F23
- 19 -
F17
F18
F19
F24
F25
RISK FACTORS
Any failure to maintain an adequate utilisation rate could have a material and adverse effect on our
financial condition and operating results
During the Track Record Period, our utilisation rate was approximately 81.0%, 78.0% and 74.6%,
respectively. The level of utilisation of our production facilities is one of the various factors affecting our
revenue and our gross profit margin. If there is any decrease in the level of utilisation of our production
facilities or if we fail to maintain an adequate utilisation rate, our revenue would be adversely affected. Our
gross profit would also decrease, but not necessarily in proportion with the level of decrease in utilisation
rate. In such event, we may need to reduce our production volumes, temporarily suspend the operation of our
production lines or postpone the expansion of our production facilities. In addition, if there is any unexpected
significant fluctuation in the demand for our products, the planned expansion of our production facilities
could result in excessive production capacity, decrease utilisation rates and excessive supply of our products.
We may be unable to successfully expand our production facilities as we have planned, or such
expansion may result in excess production capacity
To support our growing operations, we intend to expand our production facilities. Our Hengfeng
Production Facilities are located at Jiujiang City, Jiangxi Province, the PRC and its four production lines are
in full operation. Our Yunshan Production Facilities are also located at Jiujiang City, Jiangxi Province, the
PRC and will have four production lines. The construction of the first production line has been completed
and it has commenced operation in February 2013. We expect the second production line to commence
operation in September 2013 and both the third and fourth production lines to commence operation in the
second half of 2014. Further details of our production facilities are set forth in the paragraph headed
“Business – Production Facilities” in this document.
Our production capacity expansion plans involve the construction of production facilities, the
installation of new equipment and assembly of new production lines. We cannot assure you that our
production capacity expansion plans will be successfully implemented without delay. Any failure or delay in
implementing any part of these plans may result in a lack of production capacity to support our growth and
market expansion, which in turn could materially and adversely affect our business, financial condition and
results of operations.
On the other hand, we cannot assure you that our expanded production capacity will meet our
anticipated production objectives due to factors beyond our control, such as natural disasters, inadequate
infrastructures and changes in demand. Our sales may not grow at the same rate as the increase in our
production capacity, which may result in excess production capacity in our production facilities. Any such
excess production capacity could increase our cost of operation and also materially and adversely affect our
business, financial condition and results of operations.
F25.1
F25.2
F25.3
F30
F31
F32
F32.1
F33
F34
F35
F36
F37
F38
F39
F40
We may be unable to successfully expand our business into overseas markets
To support our growing operations, we intend to expand our business into the overseas market. We
plan to continue to develop and explore the overseas markets such as South Africa, Europe and the Middle
East by attending and participating in overseas trade shows and industry trade exhibitions in order to promote
our products overseas and seek out overseas customers. Our sales staff will also take the initiations to
communicate with our overseas customers regularly.
- 20 -
F40.1
F40.2
RISK FACTORS
We will explore other means to expand our overseas sales, including possible cooperation with
building materials chain stores but in the near future, we will follow our existing marketing and promotion
policies in relation to overseas customers. We will continue to focus on direct communication with our
overseas customers and placing resources in participating in overseas trade shows and exhibitions in the
future as our Directors consider this as the most effective way to approach new customers directly and raise
awareness and recognition of our Group and products among potential customers and overseas markets.
Our plan to expand our business into the overseas market is preliminary in nature as the
implementation of our plans will continue to require substantial amount of capital investments, significant
amount of managerial and technical resources and efforts, our ability to understand overseas crystalised stone
industry and its trend, our ability of foresee market opportunities and direct our resources to product
development projects, financial resources and the experience of our team members could all affect the result
of our expansion plan.
Any of the above or other similar risks or uncertainties could significantly delay or otherwise restrict
our ability to implement our overseas expansion plans, which could in turn adversely affect our ability to
continue improving our operational efficiency and achieve desirable utilisation rates or otherwise improve our
business prospects and profitability.
Since some of our products are processed by our customers before re-selling the same to their own
customers, the demand for our products may be affected by the preferences of those other customers
and we may not be able to accurately predict the trend of our products
Some of our products are further processed by our customers into other products, such as sanitary ware
and kitchenwares before they re-sell the same to their own customers. We may not be able to timely gather
sufficient information and data regarding the market acceptance of our products and customers’ preferences.
Failure to accurately track and gather market information in a timely manner in respect of the demand for our
products and preferences of the customers other than our own may cause us to incorrectly predict sales trends
and this may impede our ability to quickly align our marketing and product strategies to market changes.
We rely heavily on our senior management team and key personnel and the loss of any of their services
could severely disrupt our business
Our future success is highly dependent on the ongoing efforts of our senior management and key
personnel. Mr. Sui is responsible for our business strategy and overall development of our Group and has
almost 18 years of experience in the decoration and building materials industry. The success of our Group is
also dependent on the core members of our research and development team, namely Mr. Zhu, for his
contribution in developing our patented technologies in the manufacturing process of our products. We rely
on such key management for their capabilities in developing new products and production techniques, their
extensive knowledge of and experience in the PRC non-porous crystalised stone industry, market, business
environment and regulatory regime. Only a few members of our management team have knowledge of the
formulas for the manufacturing of our non-porous crystalised stone. We may not be able to retain the services
of our senior management or key personnel, or attract and retain senior executives or key personnel in the
future. If we fail to retain our senior management, our business and results of operations could be materially
and adversely affected. In addition, if any member of our senior management or any of our key personnel
- 21 -
F40.3
F40.4
F40.5
F40.6
F40.7
F40.8
F40.9
F40.10
F41
F41.1
F41.2
F42
F43
F44
F45
RISK FACTORS
joins a competitor or forms a competing company, we may not be able to replace them easily and we may
lose our technical know-how, research and development capability, customers, business partners and other
key staff members.
F46
We rely on a few major suppliers for our key raw materials and coal
F46.4
For the three years ended 31 December 2012, the amount of purchase from our five largest suppliers
accounted for approximately [77.5]%, [56.1]% and [75.2]%, respectively, of our total purchases, and the
amount of purchase from our largest supplier accounted for [35.3]%, [14.7]% and [21.4]%, respectively, of
our total purchases. We have not entered into long-term agreements with our suppliers. We procure the raw
materials necessary based on the monthly production plans and projections formulated by our production
team. Our procurement team may occasionally also make purchases to satisfy unexpected or urgent sales
orders. If any of our major suppliers is not able to supply the required raw materials to us in a timely manner
or significantly increases the prices at the time of our purchase, our business and operating results could be
adversely affected. In addition, we may not be able to secure alternative supplies of raw materials of similar
quality from other suppliers at prices and terms acceptable to us or at all.
F46.5
F46.6
F46.7
F46.8
Fluctuation of raw material and coal costs may adversely affect our profitability
F47
We use coal and numerous raw materials in our production, including, lithium feldspar powder, soda
ash, potassium carbonate and sodium fluorosilicate. The prices of the major raw materials and coal used by
us during the Track Record Period have been volatile.
F48
F49
The table below sets forth the purchase of our major raw materials and coal as a percentage of our
total purchase during the Track Record Period:–
2010
2011
2012
%
%
%
Coal
Soda ash (純鹼)
Sodium fluorosilicate (氟硅酸鈉)
Potassium carbonate (碳酸鉀)
Lithium feldspar powder (鋰長石粉)
35.3
9.1
9.5
11.7
8.7
- 22 -
22.5
16.9
11.6
10.7
9.1
21.4
15.7
11.6
9.1
8.1
F52
RISK FACTORS
The table below sets forth the average prices of our major raw materials and coal purchased during the
2010
RMB/tonne
Average price
2011
RMB/tonne
2012
RMB/tonne
1,143
1,117
2,124
5,656
272
1,011
1,794
2,113
7,394
464
997
1,589
1,975
6,786
413
Coal
Soda ash (純鹼)
The sensitivity analysis on the price fluctuations of coal and soda ash, which were our largest
purchases in 2011 and 2012, during the Track Record Period is set forth below, which illustrates the
hypothetical effects on our net profit with specified increase or decrease of coal and soda ash prices,
representing the maximum fluctuation of coal and soda ash prices:–
F53
F54
Changes in our net profit for change in
coal price of
+/-5%
+/-10%
+/-15%
RMB’000
RMB’000
RMB’000
Year ended 31 December 2010
-/+1,416
-/+1,290
-/+1,291
-/+2,831
-/+2,580
-/+2,582
-/+4,247
-/+3,871
-/+3,874
Change in our net profit for change in soda ash
price of
+/-20%
+/-40%
+/-60%
RMB’000
RMB’000
RMB’000
-/+1,577
-/+3,628
-/+3,793
-/+3,154
-/+7,257
-/+7,585
-/+4,731
-/+10,885
-/+11,378
As of the Latest Practicable Date, we did not have any hedging arrangements protecting us from price
fluctuations in raw materials, coal or product components nor do we have any cost control measures to
mitigate fluctuation of raw material prices. If we cannot pass on the increase in our costs to our customers or
absorb an increase in such costs through improving our manufacturing and operating efficiency, adjusting our
pricing strategy or other measures, our business, financial condition and results of operations may be
materially and adversely affected.
- 23 -
F54.1
RISK FACTORS
We experienced net current liabilities during the Track Record Period
As of 31 December 2010, 2011 and 2012, we had net current liabilities of approximately RMB[51.9]
million, RMB[41.0] million and RMB39.7 million, respectively. Our net current liabilities positions during
the Track Record Period were mainly attributable to purchases of property, plant and equipment which were
financed with various bank borrowings. Details of our net current liabilities during the Track Record Period
are set forth in the paragraph headed “Financial Information – Net current liabilities” in this document.
In addition, we have production capacity expansion plans with capital expenditure totalling
RMB[437.3] million and are required to make capital injection of US$2.5 million (approximately
RMB15.5 million) by 31 December 2013.
There can be no assurance that we can secure sufficient funds by borrowings from financial
institutions to finance our business, operations and capital expenditure. In the event that financial institutions
providing existing banking facilities do not continue to extend similar or more favourable facilities to us and
we fail to obtain alternative banking facilities on reasonable terms acceptable to us, our business, financial
condition and results of operations may be adversely affected.
We may not be able to enjoy the various benefits including preferential income tax treatment
associated with the accreditation as a High and New Technology enterprise
We are accredited as a High and New Technology enterprise and obtain the High and New
Technology Enterprise Certificate in November 2010 for an initial period of three years from November 2010
to November 2013, and we may enjoy the preferential income tax rate in the years of 2010, 2011 and 2012
subject to the fulfillment of relevant requirements. Under the PRC Enterprise Income Tax Law (中華人民共
和國企業所得稅法) (the “PRC EIT Law”) and its relevant regulations, High and New Technology
enterprises are conferred with a preferential income tax rate of 15% (reduced from the unified enterprise
income tax rate of 25% under the PRC EIT Law). Following the accreditation as a High and New
Technology enterprise, we are required to submit our financial statements together with details of our
research and development activities and other technological innovation activities to the local tax authority and
other relevant authorities for annual review to continue to enjoy the 15% preferential tax treatment. The
application for extension review of our accreditation as High and New Technology enterprise shall be
submitted within three months before the expiry in November 2013. If we successfully pass the extension
review, our accreditation will be renewed on a three year basis. In 2011 and 2012, we were unable to pass the
annual review as our research and development activities namely, the number of our research and
development employees and capital expenditures, did not meet the specified criteria. As such, the additional
amount paid by us for the two years ended 31 December 2012 as tax payable was approximately RMB[14.6]
million and RMB[19.1] million, respectively. The enterprise income tax rate applied by us was 25% as
compared with the preferential tax rate of 15%. [As advised by our PRC Legal Adviser, if we fail the annual
review or the extension review and cannot obtain approval from the local tax authority to renew our
accreditation as a High and New Technology enterprise, we will not be entitled to enjoy the preferential tax
treatment, as well as other benefits conferred under the accreditation.]
- 24 -
F55
F56
F57
F58
F58.1
F59
F60
F61
F62
F63
F64
F64.1
F65
RISK FACTORS
We may not be able to prevent others from unauthorised use of our intellectual property, which could
harm our business and competitive position
F68
Our future success depends in part upon our proprietary intellectual property. As of the Latest
Practicable Date, we had a total of three registered patents granted by the State Intellectual Property Office of
the PRC, including one invention patent and two utility model patents. In addition, we had 36 registered
trademarks in the PRC and one registered trademark in Hong Kong. We also had 10 trademark applications
pending approval by the relevant PRC regulatory authorities. We seek to protect our patents and other
intellectual property rights through a combination of patents, registered trademarks, trade and confidentiality
agreements. It is possible that any patents held by us may be invalidated, circumvented, or challenged. There
can be no assurance that such patents or registered trademarks will provide us with competitive advantages or
adequately safeguard our proprietary rights. Existing patents are granted for prescribed time periods and will
expire at various times in the future. Registered trademarks are valid for ten years according to China
intellectual property laws and must be renewed within certain prescribed period. Confidentiality agreements
may be breached, and we may not have adequate remedies for any breach.
F69
It is often difficult to create and enforce intellectual property rights in China. Even where adequate
laws exist, it may not be possible to obtain swift and equitable enforcement of such laws, or to obtain
enforcement of a judgment or an arbitration award by a court of another jurisdiction, and accordingly, we
may not be able to effectively protect our intellectual property rights or enforce agreements in China. Policing
any unauthorised use of our intellectual property is difficult and costly and the steps we have taken may be
inadequate to prevent the misappropriation of our intellectual property.
F78
We outsource the delivery of our products to logistics services providers and our customers may not be
able to claim for loss or damage to our products during delivery
During the Track Record Period, we outsourced the delivery of our products to logistics service
providers, all of which are Independent Third Parties. The logistics service providers are responsible for any
loss or damage to our products during delivery and are responsible for the insurance coverage in respect of
our products delivered by them. There is no assurance that the logistics service providers have sufficient
insurance coverage for our products delivered by them, if at all. As such, our customers may have liability
claims against us if there is loss or damage to our products during delivery and the logistics service providers
do not have any or sufficient insurance coverage. Any such claims, regardless of whether they are ultimately
successful, could cause us to incur litigation costs, harm our business reputation and disrupt our operations. If
any such claims are ultimately successful, we could be required to pay substantial damages, which could
materially and adversely affect our business, financial condition and results of operation.
Third parties may claim that we are infringing their intellectual property, and we could suffer
significant litigation expenses or licensing expenses or be prevented from selling certain of our products
if these claims are successful
We may from time to time receive claims of infringement or otherwise become aware of potentially
relevant patents or other intellectual property rights held by other parties. Third parties may claim that we are
infringing or contributing to the infringement of their intellectual property rights.
- 25 -
F70
F71
F72
F73
F74
F75
F76
F77
F79
F80
F80
F80.1
F80.2
F80.3
F80.4
F80.5
F80.6
F81
F82
F83
RISK FACTORS
Any litigation regarding patents or other intellectual property could be costly and time consuming and
could divert our management and key personnel from our business operations. In addition, any intellectual
property litigation involves significant risks. If there is a successful claim of intellectual property
infringement against us, we might be required to pay substantial damages to the party claiming infringement,
refrain from further sale of our products, develop non-infringing technology or enter into costly license
agreements on an on-going basis. However, we may not be able to obtain royalty or license agreements on
terms acceptable to us or at all. Any intellectual property litigation or successful claim could have a material
adverse effect on our business, results of operations or financial condition.
We are exposed to environmental liabilities and may have to incur significant capital expenditure if
additional or stricter laws and regulations are passed in relation to environmental protection
Under the relevant PRC environmental laws and regulations, the construction, expansion and operation
of our production facilities are subject to certain environmental permits and other relevant PRC government
environmental approvals. The failure to obtain such permits or approvals may subject us to fines and
penalties imposed by the relevant PRC government authorities and we may be required to suspend the use of
production facilities or vacate the premises. In addition, as our production processes generate waste water and
air pollutants, we are also required to comply with applicable national and local environmental regulations.
We have established a waste water treatment and recycle station in our manufacturing facilities to process,
purify and recycle the waste water discharged. The air pollutants discharged during our production process
undergo [sulphur elimination and dust removal] before its emissions. We are also subject to environmental
assessment and inspection by the environmental protection authorities from time to time. If we fail to comply
with present or future applicable environmental regulations, we may be required to pay substantial fines,
suspend production or cease operations. Any failure by us to control the use or to restrict adequately the
discharge of hazardous substances could subject us to potentially significant monetary damages and fines or
suspensions in our business operations, which would have a material adverse effect on our business and
results of operations.
In addition, we cannot assure you that future changes in PRC environmental protection laws and
regulations will not impose costly compliance requirements on us or otherwise subject us to future liabilities.
As China is experiencing substantial issues with environmental pollution, it is likely that the national,
provincial and local governmental agencies will adopt regulations setting forth stricter pollution controls and
requirements in the future. Any such regulation applicable to the manufacture of our products may require us
to incur significant capital expenditure and increase our operating costs.
Product liability claims may be brought against us and may materially and adversely harm our
business, financial condition, and results of operations
We are exposed to risks associated with product liability claims if the use of our products results in
damage or injury. Further information on regulatory requirements of the crystalised stone industry is set forth
in the section headed “Summary of Principal Legal and Regulatory Provisions” in Appendix IV of this
document. We also cannot assure you that future changes of the rules and regulations in the PRC in relation
to crystalised stone products will not impose costly compliance requirements on us or otherwise subject us to
future liabilities. We cannot assure you that product liability claims against us will not arise in the future,
whether due to product quality, defects or other causes. We do not maintain product liability insurance, which
our Directors confirm is consistent with general industry practice. As a result, any dispute regarding the
- 26 -
F84
F85
F86
F87
F88
F89
F90
F91
F92
F93
F94
F95
F96
F97
F98
F99
F100
F100.1
F100.2
F100.3
F101
F102
F103
F104
RISK FACTORS
F128.2
F129
quality of our products may give rise to claims against us for losses and damages. Any such claims,
regardless of whether they are ultimately successful, could cause us to incur litigation costs, harm our
business reputation and disrupt our operations. If any such claims were ultimately successful, we could be
required to pay substantial damages, which could materially and adversely affect our business, financial
condition and results of operations.
We may not be able to implement our business strategies and manage our growth
Our business strategies as set forth in this document are based on our existing plans in light of the
prevailing market conditions. Therefore, these plans are subject to inherent risks and uncertainties at different
development stages. Our plans are formulated based on the assumptions as to the occurrence of future events
which include, but are not limited to, no material change in the existing political, legal, fiscal, foreign trade or
economic conditions in China. These assumptions may not be correct, which may affect the commercial
viability of our strategies. In such event, we may need to adjust our strategies in response to the changing
market conditions. Even if we can implement our growth strategies, our growth could place a significant
strain on our managerial, operational and financial systems, procedures and controls. We may not succeed
despite making efforts and failure to effectively manage our expansion could increase our expenses and slow
down the growth of our revenues, and our business prospects, operating results and financial condition could
be adversely affected.
Any failure to maintain an effective quality control system and any breakdown at our production
facilities could have a material and adverse effect on our business, financial condition and results of
operations
We focus on the consistency of the quality of our crystalised stone products as the product quality is
essential to the success of our business. The quality of our products is dependent on the effectiveness of our
quality control system, which in turn depends on a number of factors, including the design of the system, the
quality control training program, and our ability to ensure that our employees adhere to our quality control
policies and guidelines. Any failure of our quality control system could result in the production of defective
or substandard products, which in turn may impair our reputation, result in delays in the delivery of our
products and the need to replace defective or substandard products, which could have a material and adverse
impact on our business, financial condition and results of operations.
Furthermore, smooth and consistent daily operations of our production facilities are highly crucial to
our business. Regular repair and maintenance programs for our production facilities are scheduled by our
production team. Our production lines currently require a complete overhaul once every three years primarily
to repair the furnace and replace various other ancillary parts. Each complete overhaul requires us to cease
production on the particular production line for an average period of three months. For the three years ended
31 December 2012, the scheduled downtime for maintenance, repairs and overhaul ranged was 52, 25 and 99
days, respectively. We cannot assure you that the regular repair and maintenance programs implemented will
discover all the faults and defects whenever they exist or occur so as to execute repair works or take
appropriate measures before any harm be caused to our plant, staff or production. Mechanical malfunction,
stoppages, interruptions, damage or loss to our production facilities caused by fire, severe weather,
earthquakes or other acts of God, government intervention or other events which are beyond our control
could harm our business, results of operations and prospects. In addition, our manufacturing processes require
a stable source of electricity. If at any time we do not have adequate electricity or fuel to sustain normal
- 27 -
F113
F114
F115
F116
F117
F118
F119
F120
F121
F122
F123
F124
F125
F125.1
F125.2
F125.3
F126
F127
F128
F128.1
RISK FACTORS
production to sustain normal production due to blackouts or shortage of electricity, we may need to limit,
delay or halt production, which could adversely affect our business and operating results. We cannot assure
you that there will be no sudden malfunction or stoppage of our production facilities during our daily
operations and if any breakdown or malfunctions of machinery occur, our business, financial condition and
results of operations could be adversely impacted.
[If we fail to maintain high utilisation rates at our production facilities, our profit margins would be
materially and adversely affected
Higher utilisation rates of our production facilities allow us to allocate fixed costs over our products
produced and lower our average production costs, thus increasing our profit margin. Historically, our
Hengfeng Production Facilities achieved production utilisation rates of approximately [81.0]%, [78.0]% and
[74.6]%, for the three years ended 31 December 2012, respectively. The utilisation rates of our production
facilities depend primarily on the demand for our products. The utilisation rates may also be affected by
various other factors, such as skills of our employees, natural disasters and breakdown of production
equipment. There is no assurance that we will be able to maintain a comparable level of output and utilisation
rates for our production facilities in the future and in such event, our business, prospects, financial condition
and results of operations may be materially and adversely affected.
We may not be able to recover deposits or prepayments paid to our suppliers
During 2012, we obtained bank acceptance bills and these bank acceptance bills were delivered to
suppliers for purchase of raw materials, coal and electricity. As of 31 December 2012, such bank acceptance
bills amounted to approximately RMB[21.5] million and were disclosed under other commitments in our
financial information. We anticipated that the addition of the first production line at the Yunshan Production
Facilities in February 2013 would require us to secure more raw materials, coal and electricity for our
production. As such, we have issued bills to the suppliers in advance in order to secure adequate supply of
our raw materials, coal and electricity. We expect that such arrangement is non-recurring and made on a oneoff basis.
The future relationship between our Group and [the suppliers] and the willingness and capability of the
suppliers to supply [raw materials, coal and electricity] to us will be critical to our business and operations. If
there is any material adverse change in [the suppliers’] business, financial condition and results of operation,
or it is unwilling or unable to provide us with raw materials, coal and electricity in required quantities and at
commercially acceptable prices, our business, financial condition and results of operations would be
materially and adversely affected. [As the above prepayments were made by bank bills, there is no assurance
that our suppliers will refund the prepayments if they are unable to supply us with the relevant raw materials,
coal and electricity as bank bills are transferable.] There is also no assurance that the prepayment can be
recovered in the event of a breach of contract by the suppliers despite necessary legal actions having been
taken by our Group.
- 28 -
F130
F131
F132
F133
F134
F135
F136
F137
F138
F139
F139.1
F139.2
F139.3
F140
F140.1
F141
F142
RISK FACTORS
[We may not be able to maintain the increasing trend of our gross profit margins or to maintain our
net profit margins at the levels we recorded during the Track Record Period
The gross profit margin increased from [38.5]% for the year ended 31 December 2010 to [43.6]% for
the year ended 31 December 2011 and further to [47.1]% for the year ended 31 December 2012. However,
we cannot assure you that we will be able to maintain the increasing trend of our gross profit margin or to
maintain our gross profit margin at or higher than its historical level during the Track Record Period as there
is no significant barrier for new market entrants and the average unit selling price of our products and our
raw material prices may be affected by a variety of factors, including changes in the general market supply of
and demand for [crystalised stone] and other decoration and building materials, the changes in taxation and
export policies, and various other factors that are beyond our control.]
Our ability to borrow funds may be adversely affected by the recent global economic developments
As of 31 December 2012, we had RMB121.1 million of outstanding borrowings which were due and
payable within one year. Our ability to borrow additional funds will depend on many factors, some of which
are beyond our control, including levels of investor confidence in the markets we operate in and any factors
that may impact market conditions and market confidence in general. The recent challenging global economic
and market conditions have resulted in reduced liquidity, widening of credit spreads, lack of price
transparency in credit markets, a reduction in available financing and a tightening of credit terms. If we are
unable to borrow funds from our current or other funding sources or the access to funds becomes more
expensive, it may materially and adversely impact on our business, prospects, financial condition and results
of operations.
We intend to use bank borrowings but we may not be able to comply with the covenants under these
borrowings or refinance such borrowings when they mature
As of [31 December 2012], we had RMB204.1 million in outstanding short-term and long-term bank
borrowings. [Further information is set forth in the paragraph headed “Financial Information – Indebtedness”
in this document.] There can be no assurance that we will be able to obtain extensions of our credit facilities
in the future as they mature. In the event that we are unable to obtain extensions of these facilities, or if we
are unable to obtain sufficient alternative funding at reasonable terms, we will have to repay these borrowings
with cash generated by our operating activities. There can be no assurance that our business will generate
sufficient cash flow from operations to repay these borrowings. In addition, repaying these borrowings with
cash generated by our operating activities will divert our financial resources from the requirements of our
ongoing operations and growth and may have a material adverse effect on our business, prospects, financial
condition and results of operations. Further, we are subject to interest rate fluctuations on our financial
indebtedness which may adversely impact our cash flow if prevailing interest rate increases. Further
information is set forth in the paragraph headed “Financial Information – Financial risks – Interest rate risk”
in this document.
Any acceleration of indebtedness may cause defaults and cross defaults under our current and future
financing agreements, and as well as significant reductions in our liquidity and may have a material adverse
effect on our business, prospects, financial condition and results of operation. As of 31 December 2012, we
had RMB204.1 million of outstanding bank borrowings, all of which contained cross-default provisions.
Pursuant to these agreements, we pledged the land, buildings, structures, machinery and equipment of the
- 29 -
F143
F144
F145
F146
F146.1
F147
F148
F149
F150
F158
F159
F160
F161
F162
F163
F164
F165
F165.1
F166
RISK FACTORS
Hengfeng Production Facilities and Yunshan Production Facilities as security. We may lose part or all of
these pledged property and assets if we default on these secured borrowings, which would have a material
adverse effect on our business, prospects, financial condition and results of operations.
F167
Our failure of housing provident fund and social insurance fund contributions for all employees may be
subject to fines and penalties under the relevant PRC laws and regulations
F169
Under the relevant laws and regulations of the PRC, if an employer fails to register and make
contribution of housing provident fund for its employees, the relevant housing provident fund authority is
entitled to order the employer to pay such outstanding housing provident fund contributions within a
prescribed time limit. If the employer fails to do so within such prescribed time limit, a fine in the range of
RMB10,000 to RMB50,000 will be imposed. The housing provident fund authority may also order the
employer to pay the outstanding housing fund within a prescribed time limit. If it fails to do so within such
prescribed time limit, the housing fund authority may sort an order for payment from the relevant PRC court.
Prior to August 2012, Jiujiang Golden Phoenix and Jiangxi Golden Phoenix did not register with the
relevant authority or maintain accounts with a designated bank in respect of the housing provident fund, or
make any contributions to the housing provident fund. However, the Housing Provident Fund Management
Centre of Jiujiang, the competent and responsible authority in respect of our housing provident fund issued a
letter of confirmation on 28 January 2013 to confirm that since the effective date of the Regulations on
Management of the Housing Provident Fund （《住房公積金管理條例》）, it has been progressively
implementing the regulations on private enterprises, foreign-invested enterprises and other non state-owned
enterprises in Jiujiang municipality and are currently taking steps to set up and contribute towards the
housing provident funds. The Housing Provident Fund Management Centre of Jiujiang further confirmed that
it will not require Jiujiang Golden Phoenix and Jiangxi Golden Phoenix to make any contribution payment in
respect of the unpaid contributions from date of incorporation of Jiujiang Golden Phoenix and Jiangxi Golden
Phoenix to August 2012 nor will any penalty or other form of administrative penalties be imposed on Jiujiang
Golden Phoenix and Jiangxi Golden Phoenix for the unpaid contributions to the housing provident fund.
Prior to the implementation of the Social Insurance Law of the PRC, which came into force on 1 July
2011, under the PRC laws, a fine ranging from RMB1,000 to RMB5,000 or in case of material breach, a fine
ranging from RMB5,000 to RMB10,000, will be imposed on the management and other persons with direct
responsibilities of the employer for non-compliances happened prior to 1 July 2011. The social insurance
authorities are also entitled to order the employer to pay the outstanding social insurance within or without a
time limit and impose a late charge of 0.05% and a fine ranging from one to three times of the outstanding
amount for work-related injury insurance and the late charge of 0.2% for the other four types of social
insurance if the employer fails to rectify the breach of social insurance contribution. Since 1 July 2011, for
non-compliances occurred after 1 July 2011, according to Social Insurance Law of the People’s Republic of
China, the social insurance authorities are entitled to order the employer to pay the outstanding social
insurance (including pension, medical, work injury, unemployment and maternity insurance), and impose a
late charge of 0.05% and a fine ranging from one to three times of the outstanding social insurance.
Prior to August 2012, Jiangxi Golden Phoenix did not register with the relevant authority or
maintained accounts with a designated bank in respect of the social insurance fund, or made any contributions
to the social insurance fund. As such, Jiangxi Golden Phoenix has breached the Provisional Regulations on
Collection and Payment of Social Insurance Premiums 《社會保險費徵繳暫行條例》
(
) and the Social
- 30 -
F168
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Insurance Law of the PRC 《中華人民共和國社會保險法》
(
). On 28 January 2013, Jiangxi Golden Phoenix
obtained a written confirmation from the Social Insurance Bureau of Yongxiu, the competent and responsible
authority regarding the unpaid contributions from date of incorporation of Jiangxi Golden Phoenix to August
2012. According to such written confirmation, the Social Insurance Bureau of Yongxiu will not require
Jiangxi Golden Phoenix to make any contribution payment in respect of the above unpaid contributions nor
will any penalty or other form of administrative penalties be imposed on Jiangxi Golden Phoenix for the
unpaid contributions to the social insurance fund.
For the three years ended 31 December 2012, the amount of outstanding housing provident fund
contribution was approximately RMB[617,000], RMB[941,000] and RMB[991,000], respectively, and the
amount of outstanding social insurance contribution was approximately RMB[8,000], RMB[14,000] and
RMB[8,000], respectively. No provision for these amounts was made during the Track Record Period. Both
Jiujiang Golden Phoenix and Jiangxi Golden Phoenix have made housing provident funds registration and
commenced to make contribution for the staff from [August] 2012. Jiangxi Golden Phoenix has made social
insurance registration and commercial to make contribution for the staff from August 2012.
Based on the foregoing, our PRC legal adviser, Beijing Tian Yuan Law Firm, are of the opinion that,
although our contributions of housing provident fund and social insurance fund prior to August 2012 are noncompliances with the relevant PRC laws and regulations, the possibility that we will be ordered by relevant
authorities to make payments for the outstanding housing provident fund and social insurance contributions is
remote as the competent and responsible authorities, namely the Housing Provident Fund Management Centre
of Jiujiang and Social Insurance Bureau of Yongxiu, have issued the aforesaid confirmations. However, we
cannot assure you that such confirmations will not be rebutted or invalidated by the competent and
responsible authorities or other government authorities in the future and subsequently we would be required
to pay the outstanding housing provident fund and social insurance contributions and any related fines
adversely affecting our financial condition and results of operation.
Certain properties that we own in the PRC may be subject to legal irregularities
Our production facilities are located at Jiujiang City, Jiangxi Province, the PRC. We currently own the
land on which our production facilities are situated on and [we have obtained the land use rights certificate
from the PRC Government relating to the land.] However, we had not obtained the construction project
planning permits and the building ownership certificates for [18] buildings or structures which are situated on
our land which have a total gross floor area of approximately [1,882.8] square metres. Thus, our PRC Legal
Advisers advised that our failure to obtain the requisite PRC government approvals, permits and the
ownership certificate may result in such building or structures being considered illegal and unauthorised
structures.
According to the Urban and Rural Planning Law of the People's Republic of China (中華人民共和國
城鄉規劃法), if a construction project proceeded without obtaining the relevant planning permit or the
construction project violated the provisions of the planning permit, the competent department of the local
people's government urban and rural planning at or above the county level shall order the construction to
cease. If measures can be taken to eliminate the impact on the implementation of urban and rural planning,
the governmental department shall order the offender to rectify the situation within a certain time limit and
impose a penalty of 5% to 10% of the construction cost. If it is impossible to take measures to eliminate the
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RISK FACTORS
impact, the department shall order the offender to demolish the building or structure within a certain time
limit or forfeit the building or structure and confiscate any illegal gain, and may also impose a penalty not
more than 10% of the construction cost.
Our failure to obtain the requisite PRC government approvals, permits and the ownership certificates
may result in such buildings being considered illegal and unauthorised structures. Pursuant to the relevant
PRC laws, the competent authorities may order the demolition, forfeiture of such buildings and/or require us
to pay a penalty of up to RMB[82,670.4]. Please refer to the section headed “Business – Material noncompliance incidents” of this document for further details on the above.
F198.1.1
F198.2
F198.3
RISKS RELATED TO DOING BUSINESS IN THE PRC
Adverse changes in political, economic and other policies of the Chinese government could have a
material adverse effect on the overall economic growth of China, which could materially and adversely
affect the growth of our business and our competitive position
The majority of our business operations are conducted in China. Accordingly, our business, financial
condition, results of operations and prospects are affected significantly by economic, political and legal
developments in China. Although the PRC economy has been transitioning from a planned economy to a
more market-oriented economy since the late 1970s, the PRC government continues to exercise significant
control over China’s economic growth through direct allocation of resources, monetary and tax policies, and
a host of other government policies such as those that encourage or restrict investment in certain industries by
foreign investors, control the exchange between the Renminbi and foreign currencies, and regulate the growth
of the general or specific market. While the Chinese economy has experienced significant growth in the past
30 years, growth has been uneven, both geographically and among various sectors of the economy.
Furthermore, the global capital and credit markets have been experiencing extreme volatility and
disruption in recent periods. Declining residential real estate market in the United States and elsewhere,
volatile oil prices and increased unemployment may contribute to global economic slowdown and/or a
possible prolonged global recession, which may impair consumer confidence. The PRC, the economic
condition of which is highly interdependent with the developments of the global economy, may be exposed to
an increasingly volatile and fragile business environment. The various economic and policy measures enacted
by the PRC government to forestall economic downturns or bolster China’s economic growth could
materially affect our business. Any adverse change in the economic conditions in China, in policies of the
PRC government or in laws and regulations in China could have a material adverse effect on the overall
economic growth of China and market demand for our products. Any economic slowdown and/or global
recession may materially affect our business, financial condition and results of operations.
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It may be difficult to effect service of process upon us or our Directors or senior management who
reside in mainland China or to enforce against them in mainland China any judgments obtained from
non-PRC courts
F210
We are incorporated in the Cayman Islands. Almost all of our executive Directors and senior
management reside within mainland China, and substantially all of our assets and substantially all of the
assets of those persons are located within mainland China. Therefore, it may be difficult for investors to
effect service of process upon us or those persons residing in mainland China or to enforce against us or them
in mainland China any judgments obtained from non-PRC courts.
F211
China does not have treaties providing for the reciprocal recognition and enforcement of judgments of
courts with the Cayman Islands and many other countries and regions. Therefore, recognition and
enforcement in China of judgments of a court in any of these non-PRC jurisdictions in relation to any matter
not subject to a binding arbitration provision may be difficult or impossible.
Our labour costs may increase with the enforcement of the Labor Contract Law and other laborrelated regulations in China
The PRC Labor Contract Law 《中華人民共和國勞動合同法》
(
) became effective and was
implemented on 1 January 2008. This new labor law and its implementing rules have reinforced the
protection for employees, who, under the existing PRC Labor Law, have certain rights, such as the right to
have written labor contracts, the right to enter into labor contracts with no fixed terms under specific
circumstances, the right to receive overtime wages when working overtime and the right to terminate or alter
terms in the labor contracts. In addition, the Labor Contract Law and its implementing rules have amended
the existing PRC Labor Law and added some clauses that could increase labor costs. As a result of the
requirements imposed by the Labor Contract Law, our historical labor costs may not be indicative of our
labor costs going forward.
As the Labor Contract Law and its implementing rules are relatively new, there remains certain
uncertainty as to their interpretation and application by the PRC government. However, with the enforcement
of the Labor Contract Law and other labor-related regulations in China, our labor costs may increase, which
may materially and adversely affect our business and results of operations.
Uncertainties with respect to the PRC legal system could have a material adverse effect on us
The PRC legal system is a civil law system based on written statutes. Prior court decisions may be
cited for reference but have limited precedential value. Since the late 1970s, the PRC government has been
building a comprehensive system of laws and regulations governing economic matters in general. The overall
effect has been to significantly enhance the protections afforded to various forms of foreign investments in
China. We conduct our business primarily through our subsidiaries established in China. These subsidiaries
are generally subject to laws and regulations in China. However, since these laws and regulations are
relatively new and the PRC legal system continues to rapidly evolve, the interpretations of many laws,
regulations and rules are not always uniform and enforcement of these laws, regulations and rules involves
uncertainties, which may limit legal protections available to us. In addition, some regulatory requirements
issued by certain PRC government authorities may not be consistently applied by other government
authorities (including local government authorities), thus making strict compliance with all regulatory
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requirements impractical, or in some circumstances impossible. For example, we may have to resort to
administrative and court proceedings to enforce the legal protection that we enjoy either by law or contract.
However, since PRC administrative and court authorities have discretion in interpreting and implementing
statutory and contractual terms, it may be more difficult to predict the outcome of administrative and court
proceedings and the level of legal protection we enjoy than in more developed legal systems. These
uncertainties may impede our ability to enforce the contracts we have entered into with our business partners,
clients and suppliers. In addition, such uncertainties, including any inability to enforce our contracts, together
with any development or interpretation of PRC law that is adverse to us, could materially and adversely affect
our business and operations. Furthermore, intellectual property rights and confidentiality protections in China
may not be as effective as in other more developed countries. We cannot predict the effect of future
developments in the PRC legal system, including the promulgation of new laws, changes to existing laws or
the interpretation or enforcement thereof, or the preemption of local regulations by national laws. These
uncertainties could limit the legal protections available to us and other foreign investors, including you. In
addition, any litigation in China may be protracted and result in substantial costs and diversion of our
resources and management attention.
Governmental control of currency conversion may limit our ability to use our revenues effectively and
the ability of our PRC subsidiaries to obtain financing
The PRC government imposes control on the convertibility of the Renminbi into foreign currencies
and, in certain cases, the remittance of currency out of China. We receive a majority of our revenues in
Renminbi, which as of the Latest Practicable Date was not a freely convertible currency. Restrictions on
currency conversion imposed by the PRC government may limit our ability to use revenues generated in
Renminbi to fund our expenditures denominated in foreign currencies or our business activities outside
China. Under China’s existing foreign exchange regulations, Renminbi may be freely converted into foreign
currency for payments relating to current account transactions, which include, among other things, dividend
payments and payments for the import of goods and services, by complying with certain procedural
requirements. Our PRC subsidiaries may also retain foreign currency in their respective current account bank
accounts for use in payment of international current account transactions. However, we cannot assure you that
the PRC government will not take measures in the future to restrict access to foreign currencies for current
account transactions.
We may be classified as a “resident enterprise” for PRC enterprise income tax purposes; such
classification could result in unfavourable tax consequences to us and our non-PRC shareholders
We are a Cayman Islands holding company with a majority of our operations conducted through our
operating subsidiaries in China. Under the PRC Corporate Income Tax Law that took effect on 1 January
2008, enterprises established outside China whose “de facto management bodies” are located in China are
considered “resident enterprises” for PRC tax law purposes and will generally be subject to the uniform 25%
enterprise income tax rate as to their global income. Under the implementation regulations issued by the State
Council relating to the new PRC Corporate Income Tax Law, a “de facto management body” is defined as the
body that has the significant and overall management control over the business, personnel, accounts and
properties of an enterprise. In April 2009, the State Administration of Taxation promulgated the Circular of
the State Administration of Taxation on Determination of Tax Resident Enterprises of Chinese-controlled
Offshore Incorporated Enterprises in accordance with Their De Facto Management Bodies 《國家稅務總局
(
關於境外註冊中資控股企業依據實際管理機構標準認定為居民企業有關問題的通知》) to clarify the
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RISK FACTORS
definition of “de facto management bodies” for enterprises incorporated overseas with controlling
shareholders being PRC enterprises. It, however, remains unclear how the tax authorities will treat an
overseas enterprise invested or controlled by another overseas enterprise and ultimately controlled by a PRC
individual resident as is in our case. As a result, we may be treated as a PRC resident enterprise for PRC
enterprise income tax purposes and subject to the uniform 25% enterprise income tax as to our global income
in the future. You should also read the risk factor headed “Dividends payable by us to our foreign investors
and gain on the sale of our Shares may become subject to withholding taxes under PRC tax laws” below. If
we are treated as such a PRC resident enterprise under the PRC tax law, we could face adverse tax
consequences.
We are a holding company and we rely on dividend payments from our subsidiaries for funding, which
are subject to restrictions under PRC laws
We are a holding company incorporated in the Cayman Islands, and we operate our core businesses
through our subsidiaries in the PRC. Therefore, the availability of funds for us to pay dividends to our
Shareholders and to service our indebtedness depends upon dividends received from our PRC subsidiaries. If
our subsidiaries incur debt or losses, their ability to pay dividends or other distributions to us may be
impaired. As a result, our ability to pay dividends and to repay our indebtedness will be restricted. PRC laws
require that dividends be paid only out of the after-tax profit of our PRC subsidiaries calculated according to
PRC accounting principles, which differ in many aspects from generally accepted accounting principles in
other jurisdictions. PRC laws also require enterprises established in the PRC to set aside part of their after-tax
profits as statutory reserves. These statutory reserves are not available for distribution as cash dividends. In
addition, restrictive covenants in bank credit facilities or other agreements that we or our subsidiaries may
enter into in the future may also restrict the ability of our subsidiaries to pay dividends to us. These
restrictions on the availability of our funding may impact our ability to pay dividends to our Shareholders and
to service our indebtedness.
Dividends payable by us to our foreign investors and gain on the sale of our Shares may become
subject to withholding taxes under PRC tax laws
Under the new PRC Corporate Income Tax Law and its implementation regulations issued by the State
Council, to the extent such dividends for earnings derived since 1 January 2008 are sourced within China and
we are considered a “resident enterprise” for PRC tax law purposes, then PRC income tax at the rate of 10%
is applicable to dividends payable by us to investors that are “non-resident enterprises” so long as any such
“non-resident enterprise” investor does not have an establishment or place of business in China or, despite the
existence of such establishment or place of business in China, the relevant income is not effectively
connected with such establishment or place of business in China. A lower withholding tax rate may apply if
such “non-resident enterprise” is incorporated in a jurisdiction that has entered into an income tax treaty or
agreement with China that allows a lower withholding. Similarly, any gain realised on the transfer of the
Shares by such “non-resident enterprise” investors is also subject to a 10% PRC income tax if such gain is
regarded as income derived from sources within China and we are considered a “resident enterprise” in
China. If we are required under the new tax law to withhold PRC income tax on our dividends payable to our
foreign shareholders who are “non-resident enterprises,” or if you are required to pay PRC income tax on the
transfer of our Shares, the value of your investment in our Shares may be materially adversely affected. It is
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RISK FACTORS
unclear whether, if we are considered a PRC “resident enterprise,” holders of our Shares might be able to
claim the benefit of income tax treaties or agreements entered into between China and other countries or
regions.
[Dividends paid to our Hong Kong subsidiary might not qualify for the reduced PRC withholding tax
rate under the special arrangement between Hong Kong and the PRC
Under the Enterprise Income Tax Law, the profits of a foreign-invested enterprise that are distributed
to its immediate holding company outside the PRC are subject to a withholding tax rate of 10%. Pursuant to a
special arrangement between Hong Kong and the PRC, this rate is lowered to 5% if a Hong Kong resident
enterprise owns more than 25% of the PRC company distributing the dividends. However, according to the
Circular of the State Administration of Taxation on Printing and Issuing the Administrative Measures for
Non-resident Individuals and Enterprises Regarding Favourable Treatment Under Taxation Treaties (國家稅
務總局關於印發《非居民享受稅收協議待遇管理辦法（試行）》的通知), which was issued by the State
Administration of Taxation on 24 August 2009 and became effective on 1 October 2009, the 5%
withholding tax rate does not automatically apply and approvals from competent local tax authorities are
required before an enterprise can enjoy any benefits under the relevant taxation agreements or treaties.
Moreover, according to the Notice of the State Administration of Taxation on the Issues Concerning the
Application of the Dividend Clauses of Tax Agreements (國家稅務總局關於執行稅收協定股息條款有關問
題的通知) issued by the State Administration of Taxation in February 2009, if the main purpose of an
offshore arrangement is to obtain preferential tax treatment, the PRC tax authorities have the discretion to
adjust the preferential tax rate for which an offshore entity would otherwise be eligible. There is no assurance
that the PRC tax authorities will grant approvals on the 5% withholding tax rate on dividends paid by our
PRC subsidiaries and received by our subsidiaries in Hong Kong.]
An outbreak of any severe communicable disease in the PRC may adversely affect our results of
operations
The outbreak of any severe communicable disease in the PRC could have a material adverse effect on
the overall business sentiment and environment in the PRC, which in turn may have a material adverse effect
on domestic consumption and overall GDP growth. As all of our revenue is currently derived from our PRC
operations, any contraction or slowdown in the growth of domestic consumption or slowdown in the GDP
growth of the PRC may materially and adversely affect our business, prospects, financial condition and
results of operations. In addition, if our employees are affected by any severe communicable disease, we may
be required to close our facilities or institute other measures to prevent the spread of the disease, which may
disrupt our operations. The spread of any severe communicable disease in the PRC may also affect the
operations of our customers and suppliers, which may lead to reduced orders or scarcity of raw materials.
Certain industry statistics contained in this document are derived from various publicly available
government or official sources and may not be accurate or reliable
Certain facts and statistics in this document related to the PRC, its economy and the industries in
which we operate within the PRC are derived from official government publications generally believed to be
reliable. We believe that the sources of these facts and statistics are appropriate sources for such information
and have taken reasonable care in extracting and reproducing such information. We have no reason to believe
that such information is false or misleading in any material respect or that any fact has been omitted that
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would render such information false or misleading in any material respect. These facts and statistics have not
been independently verified by us, [•••] any of our or their respective directors, officers or representatives or
any other person and therefore we make no representation as to the accuracy of such facts and statistics,
which may not be consistent with other information compiled within or outside the PRC and may not be
complete or up-to-date. Due to possibly flawed or ineffective collection methods or discrepancies between
published information and market practice and other problems, the statistics herein may be inaccurate or may
not be comparable from period to period or to statistics produced for other economies and should not be
unduly replied upon. Further, we cannot assure you that they are stated with the same degree of accuracy as
may exist elsewhere. In all cases, investors should give consideration as to how much weight or importance
they should place on all such facts and statistics.
- 37 -
DIRECTORS
DIRECTORS
Name
Address
Nationality
COIII(6)
App1A-41
LR8.12
Sui He Zuo (施合作)
[Flat D, 15th Floor, Tower 11
Laguna Verde Costa Del Sol
8 Laguna Verde
Kowloon, Hong Kong]
[Chinese]
H1
Zhu Xin Ming (朱新明)
Jiujiang Golden Phoenix Decoration
Material Co., Ltd.
Hengfeng Town
Yongxiu County
Jiujiang Shi
Jiangxi Province
China
[Chinese]
H2
Zeng Xiao Ying (曾小英)
[No. 107, Kaifa Dadao
Tubu Town
Yongxiu County
Jiujiang Shi
Jiangxi Province
PRC]
[Chinese]
H3
Lin Ren Ze (林仁澤)
Jiujiang Golden Phoenix Decoration
Material Co., Ltd.
Hengfeng Town
Yongxiu County
Jiujiang Shi
Jiangxi Province
China
[Chinese]
H4
Sze Shun Pan (施純彬)
[Flat D, 15th Floor, Tower 11
Laguna Verde Costa Del Sol
8 Laguna Verde
Kowloon, Hong Kong]
[Chinese]
H5
Chan Choi Hi (陳財喜)
[Flat A, 19th Floor, Block 2
455-485 Queen’s Road West
Dragonfair Garden, Kennedy Town,
Hong Kong]
[Chinese]
H6
Li Yik Sang (李奕生)
[Flat E, 60th Floor, Tower 7
Lake Silver, 599 Sai Sha Road
Ma On Shan, New Territories
Hong Kong]
[Chinese]
H7
Lin Chun Sheng (林春升)
Room 301, Lift 9
1014 87 Road Shishi City
Fujian Province
PRC
[Chinese]
H8
Executive Directors
Independent non-executive Directors
- 38 -
CORPORATE INFORMATION
I
Registered office
Scotia Centre
4th Floor
P.O. Box 2804
George Town
Grand Cayman
KY1-1112
Cayman Islands
App1A-43
I1
Headquarters in China
Hengfeng Town
Yongxiu County
Jiujiang City
Jiangxi Province
PRC
I2
Company website:
www.jfh.hk
(the contents of the website do not form part of this
document)
I2.1
Place of business in Hong Kong
Unit 1703-1704, 17th Floor
Block 3, Tins Centre
3 Hung Cheung Road
New Territories, Hong Kong
App1A-6
I3
Company secretary
Chan Kam Fuk (陳錦福)
I4
Principal bankers
Agricultural Bank of China
Xincheng Road
Yongxiu County
Jiujiang City
Jiangxi Province
PRC
App1A-3
I12
Shanghai Pudong Development Bank
45 Yang Ming Road
Nanchang City
Jiangxi Province
PRC
I13
- 39 -
INDUSTRY OVERVIEW
J
We have extracted and derived the information and statistics in the section below, in part, from
various official government publications and the ZhongAn Report. We believe that the sources of the
information and statistics in this section are appropriate sources for such information and statistics
and have taken reasonable care in the extraction and reproduction of such information and statistics.
We have no reason to believe that such information is false or misleading or that any fact has been
omitted that would render such information false or misleading. None of our Company, any of our or
their respective affiliates, directors or advisers have independently verified such information and
statistics directly or indirectly derived from official government publications or the ZhongAn Report,
or make any representation as to the accuracy of such information or statistics, which may not be
consistent with other information and statistics compiled within or outside China. Accordingly, the
official and non-official sources contained herein may not be accurate and should not be unduly
relied upon.
J1
INTRODUCTION
We commissioned ZhongAn, an Independent Third Party, to prepare the report titled “Market
Research Report of Mid-to-high-end Decoration Materials and Crystalised Stone Market in the PRC from
2005 to 2015” (2005-2015年中國中高檔裝飾裝修材料及微晶石行業市場研究報告) (“ZhongAn Report”)
for use in the “Industry Overview” section of this document. We paid ZhongAn a total of RMB85,000 as the
fee for preparing and updating the ZhongAn Report.
ZhongAn is a company established in 2007 which provides research and consultancy services. Its
headquarters are located in Beijing and it has branches in Xiamen, Shanghai and Guangzhou.
The methodology adopted and used by ZhongAn involved conducting both primary and secondary
research to obtain data on the PRC stone products industry from various sources. Primary research included
interviewing industry participants and secondary research included analysing the quantitative and qualitative
data available from the National Bureau of Statistics, the reports of the PRC stone industry and ZhongAn’s
own proprietary database, respectively.
The forecast report was projected on the basis of historical data analyses, with reference to
macroeconomic data as well as to specific industry-related drivers (i.e. GDP, historical industrial output data,
import and export data, various PRC governmental policies including The Guideline Catalogue for Industrial
Restructuring promulgated by the PRC government, PRC twelfth five-year plan for construction industry),
ZhongAn developed its forecasts on the following base and assumption:–
•
In forecasting the relevant information on market sizes, production values, major business
incomes, export delivery values and import amounts, ZhongAn adopted an estimation method
by which the growth rates for subsequent years was forecast in a floating manner, using the
historical growth rates of the above data and the historical growth rate in the past few years as a
benchmark with reference to the macroeconomic factors such as the policy factors and
international economic environment. This forecasting method did not take into consideration
external risks outside the industry such as the possibility of future economic crises and/or policy
changes.
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J2
J3
J4
J5
J6
INDUSTRY OVERVIEW
[Our Directors confirmed that to the best of their knowledge after taking reasonable care, there is no
adverse change on the market information since the date of the ZhongAn Report which may qualify,
contradict or have an impact on the information in this section.]
J7
THE PRC DECORATION AND BUILDING INDUSTRY
With the rapid development of the PRC real estate, construction and other industries driven by
urbanization since 2000, the PRC decoration and building industry have made significant progress. The real
estate industry plays a significant role in the economic growth in China with rapid development in recent
years. Other industries, such as tourism, catering and convention and exhibition industry also contributed to
the increase in decoration and building materials. ZhongAn believes that international events such as the 2008
Beijing Olympics Games and the 2011 Summer Universiade hosted in Shenzhen, Guangdong Province have
driven the decoration and building industry in terms of development, quality standards and investment. From
2005 to 2012, the output value of the decoration and building industry increased from approximately
RMB1,000,000 million to RMB2,632,000 million, with a CAGR of 14.8% in the same period. In 2012, the
naturally occurring stone and synthetic crystalised stone materials captured approximately [14]% and [2]%
respectively in the decoration and building industry in the PRC. The following diagram sets forth the actual
output value and annual growth rate of the PRC decoration and building industry from 2005 to 2012:–
(RMB’000 million)
(%)
3,000
25
22.6%
2,632
2,500
19.4%
2,000
1,850
2,350
20
2,100
15.0%
1,410
1,500
1,000
1,000
1,150
1,550
9.9%
13.5%
11.9%
J7.1
12%
15
10
5
500
0
2005
2006
2007
2008
2009
2010
Output value of decoration and building industry
0
2011
2012
Annual growth rate
Source: Building and Decoration Industry Association (建築裝飾工業協會), ZhongAn
Proportion of usage of crystalised stone in the stone materials market
The stone materials market mainly consists of marble, granite and synthetic stone materials including
crystalised stone. The usage of stone materials increased from [149,000] million square metres to [432,000]
million square metres from 2005 to 2012, representing a CAGR of [16.4]% over the period, according to the
ZhongAn Report. At present, naturally occurring stone such as marble and granite is still the most preferred
stone material and accounts for a significant proportion of the stone materials market. The usage of
crystalised stone as stone material has been gaining momentum in recent years representing increasing
- 41 -
J7.2
INDUSTRY OVERVIEW
proportion in the stone material markets with a CAGR of 7.0% from 2005 to 2012. The following diagram
sets forth the total usage and the proportion of the usage of crystalised stone and other stone materials in the
stone materials market from 2005 to 2012:–
Usage (million square metres)
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
500.0
95.4%
93.7%
93.5%
93.7%
94.1%
93.1%
92.3%
92.6%
400.0
300.0
200.0
100.0
4.6%
6.3%
6.5%
6.3%
5.9%
6.9%
7.7%
7.4%
2005
2006
2007
2008
2009
2010
2011
2012
Proportion of crystalised stone
Proportion of other stone materials
0
usage of stone materials
Source: ZhongAn
AN INTRODUCTION TO CRYSTALISED STONE
Crystalised stone is a type of synthetic stone products made from various raw materials and commonly
used in the building construction industry. Crystalised stone are primarily manufactured using the sintering
method and the rolling method. The sintering method utilises a combination of multiple melting furnaces with
various crystalisation kilns. The sintering method is suitable for semi-continuous production and the raw
materials are mixed together and formed into slabs while undergoing several heating treatments at
predetermined temperatures. The rolling method utilises one kiln and melted raw materials are formed into
slabs and continuously rolled between upper and lower shaping rollers. The products are then undergo
heating treatment (crystalisation) and are polished.
- 42 -
J8
INDUSTRY OVERVIEW
Crystalised stone can be classified into three types: porous crystalised stone, composite crystalised
stone and non-porous crystalised stone. The following diagram illustrates the actual and forecast market share
of each types of crystalised stone in the PRC in terms of market demand from 2005 to 2015:–
J9
(%)
100
80
64.1%
63.7%
61.7%
60.2%
59.4%
58.3%
58.0%
58.6%
58.7%
58.9%
59.1%
27.2%
28.3%
29.4%
30.1%
30.3%
31.5%
32.2%
30.8%
30.6%
30.4%
29.8%
8.7%
8.0%
8.9%
9.7%
10.3%
10.2%
9.8%
10.6%
10.7%
10.7%
11.1%
2005
2006
2007
2008
2009
2010
2014E
2015E
60
40
20
0
Non-porous crystalised stone
Porous crystalised stone
2011
2012
2013E
Composite crystalised stone
Source: ZhongAn
At present, composite crystalised stone products account for a majority of the market share of the PRC
crystalised stone market in terms of market demand. Despite its launch to the market around 2000 to 2003,
composite crystalised stone developed rapidly due to its similar production process with ceramic products,
which attracted and enabled ceramic manufactures to join the crystalised stone industry. The market
acceptance and demand of porous crystalised stone has been relatively higher than non-porous crystalised
stone due to the earlier launch of porous crystalised stone to the market around 1995 to 1998 while nonporous crystalised stone was launched around 2002 to 2005. In terms of the functional performances and
characteristics, non-porous crystalised stone have an advantage over porous crystalised stone and with
increasing market exposure and acceptance, the market demand of non-porous crystalised stone is expected to
increase.
All three types of crystalised stone have different functional performances and characteristics. In terms
of appearance, composite crystalised stone can be manufactured in a variety of colours and patterns while
porous crystalised stone are offered in fewer ranges of colours and patterns. Currently, non-porous crystalised
stone is only offered in white, which may limit its application as well as customers’ preference and selections.
The functional performances and characteristics of composite crystalised stone are comparable to those of
non-crystalised stone. With the wide range of colours and patterns available for composite crystalised stone,
the market share of composite crystalised stone has remained relatively higher compared to porous crystalised
stone and non-porous crystalised stone accounting for approximately 58.6% and 59.1% of the crystalised
stone market share in 2012 and 2015, respectively. Porous crystalised stone and composite crystalised stone
both have relatively low water absorption while non-porous crystalised stone have zero water absorption.
Porous crystalised stone has the lowest bending strength amongst the three types of crystalised stone and both
composite crystalised stone and non-porous crystalised stone has relatively higher impact toughness. The
compression strength of both porous crystalised stone and composite crystalised stone are both relatively
lower than that of non-porous crystalised stone. In terms of usages, all three types of crystalised stone have
similar usages and applications as decoration and building materials such as walls (both interior and exterior
building walls), floors, furniture, panels and basins. Due to the similar usages of the three types of crystalised
- 43 -
J10
J11
INDUSTRY OVERVIEW
stone, they may be used as substitutes for one another. Amongst the three types of crystalised stone, nonporous crystalised stone has the lowest water absorption and highest compression strength making it ideal to
be used as a decoration and building material.
Comparison of crystalised stone with other decoration materials
The table below sets forth a comparison of some of the functional performances and characteristics of
marble, granite and the three types of crystalised stone:
Porous
crystalised
stone
Composite
crystalised
stone
Non-porous
crystalised
stone
Marble
Granite
Naturally
occurring
colours and
patterns
Naturally
occurring
colours and
patterns
Small range of
colours and
patterns
Variety of
colours and
patterns
White
Specular gloss(1)
42
64
88-92
94-98
93-96
Water absorption
30%
35%
1.8-2.2%
1.8-2.2%
0%
17 MPa
15 MPa
40 – 60 MPa
50 – 100 MPa
50 – 110 MPa
3.0 – 5.0
6.0 – 7.0
5.8 – 6.8
5.0 – 6.0
5.8 – 6.8
90 – 230 MPa
60 – 300 MPa
250 – 600 MPa
250 – 600 MPa
310 – 920 MPa
0.88kJ/m3
0.84kJ/m3
2.3 – 3.0kJ/m3
2.7 – 4.0kJ/m3
2.8 – 4.1kJ/m3
Appearance
Bending strength/Flexural
strength
Mohs scale(2)
Compression strength
Impact toughness
J12
Source: ZhongAn
Notes:
1.
Specular gloss is quantified by measuring the amount of light reflected from the sample and comparing it with
the amount of light reflected when a polished black glass calibration standard is measured under the same
conditions. The glass standard is assigned a value of 100 units and in practice, the highest attainable glass value
for non-metallic paints is around 96 units.
2.
Mohs scale of hardness characterises the scratch resistance of the sample through the ability of a hard material to
scratch a softer material. The Mohs scale is a purely ordinal scale and ranges from 1 (very soft) to 10 (very
hard).
In general, marble is relatively more brittle and prone to discoloration. In addition, calcium carbonate,
the major component of marble, is vulnerable to erosion caused by carbon dioxide and chemical moisture in
the air and acid rain. Marble has also been shown to emit certain levels of radiation while tests demonstrate
that crystalised stone emits zero radiation. Granite is relatively lower in bending and compression strengths
- 44 -
J13
INDUSTRY OVERVIEW
due to the limitation from the natural formation of granite as there is a lack of strong adhesion between the
grains in granite. Conversely crystalised stone has lower water absorption rates, higher bending and
compression strengths and higher impact toughness compared to marble and granite. It also has a high level
of resilience and is not prone to breakage or erosion. The production and use of crystalised stone does not
generate much harmful gases. Stone materials such as marble and granite are naturally occurring substances
and are non-renewable resources. During the mining and processing of marble and granite, certain amounts of
waste materials are produced and such waste materials are non-recyclable while the materials are recyclable
during the manufacturing and processing of non-porous crystalised stone. As such, crystalised stone, in
particular non-porous crystalised stone, could be considered as an environmental friendly building material.
Furthermore, crystalised stone is not radioactive and has an anti-sewage infiltration surface, which can
effectively avoid indoor contamination. Therefore, crystalised stone, in particular non-porous crystalised
stone, is an attractive alternative for other building materials such as marble and granite.
The average usage rate of non-porous crystalised stone as decoration and building materials has
experienced higher growth compared with other stone materials. The average growth rate of the usage of
crystalised stone, non-porous crystalised stone and other stone materials from 2005 to 2012 was
approximately 26.1%, 29.0% and 16.8%, respectively. As confirmed by ZhongAn, the higher growth rate
of non-porous crystalised stone is indicative of the increase in the market demand of non-porous crystalised
stone and how non-porous crystalised stone is capturing the market of stone materials. The following diagram
illustrates the average growth rate of the usage of crystalised stone, composite crystalised stone, porous
crystalised stone, non-porous crystalised stone and stone materials from 2005 to 2012:–
J14
35.0%
30.0%
26.1%
25.0%
20.0%
28.6%
29.0%
Porous
crystalised
stone
Non-porous
crystalised
stone
24.5%
16.8%
15.0%
10.0%
5.0%
0.0%
Stone
materials
Crystalised
stone
Composite
crystalised
stone
Source: ZhongAn
Prices of crystalised stone in the PRC
Crystalised stone enjoys comparative advantages over other decorative building materials in terms of
production procedure, selection of materials, utilisation of equipment and the quality in terms of colour, shape
and lustre. Crystalised stone has been very popular among enterprises and consumers since its introduction to
the market.
- 45 -
J15
INDUSTRY OVERVIEW
Despite the advantages of crystalised stone products, most consumers were discouraged by the high
prices. When crystalised stone products were first introduced to the market, crystalised stone slabs measuring
800x800 mm were generally priced at RMB800 to RMB1,500 per piece with the highest price reaching over
RMB2,000 per piece. Mass production with reduced production cost is key to reducing the price of
crystalised stone.
Production volume of crystalised stone in the PRC increased significantly with the entry of more
domestic manufacturers into the industry. The high prices of crystalised stone cannot be sustained given the
trend of mass production. More companies are expected to produce crystalised stone products and introduce
more types of crystalised stone products in the coming years, particularly from 2012 to 2015. The increase in
the number of manufacturers will continuously enlarge the scale of crystalised stone supply, which may
eventually lead to decrease in prices.
The following diagram illustrates the average prices of porous crystalised stone, composite crystalised
stone and non-porous crystalised stone with thickness of 18mm in the PRC from 2005 to 2015:–
J16
J17
J18
(RMB per square metre)
450
400
400
390
382
363
352
350
345
340
332
330
325
320
300
250
232
226
200
200
220
192
210
185
205
173
202
167
201
163
197
160
150
196
154
190
150
187
146
143
100
50
0
2005
2006
2007
Average price of
non-porous crystalised stone
2008
2009
2010
2011
Average price of
composite crystalised stone
2012 2013E 2014E 2015E
Average price of
porous crystalised stone
Source: ZhongAn
CRYSTALISED STONE MARKET IN THE PRC
As of 30 September 2012, there are 52 large-scale crystalised stone manufacturers in the PRC1, with
many manufacturers using domestically made equipment while a few manufacturers using imported
equipment such as crystalisation kiln, continuous grinding and polishing equipment. Domestic crystalised
stone products mainly comprise matte slabs and polished slabs in various colours including beige, light grey,
light blue, light green, pink, black and white. Non-porous crystalised stone products are currently offered in
white. Some manufacturers can produce customised arc plates and shaped plates. In addition to domestic
sales, crystalised stone products from the PRC are exported to Hong Kong, Southeast Asia, Germany and
other countries and regions.
- 46 -
J19
INDUSTRY OVERVIEW
Sales amount and volume of crystalised stone in the PRC
The crystalised stone industry in the PRC achieved rapid growth in recent years, with the sales amount
increasing from RMB2.9 billion in 2005 to RMB11.4 billion in 2012, representing a CAGR of [21.6]% over
the period. Market demand for crystalised stone in the PRC is expected to grow further in the coming years,
which will directly fuel the growth in the market size of the crystalised stone industry in the PRC. The sales
amount of the crystalised stone industry in the PRC is estimated to grow at a CAGR of [16.8]% over the
period and reach RMB20.0 billion by 2015, representing an increase of RMB8.6 billion or 75.4% from
RMB11.4 billion in 2012.
The following diagram illustrates the actual and forecast sales amount of crystalised stone in the PRC
from 2005 to 2015:–
(RMB’ billion)
20.0
20
18
16
14
12
10
8
6
4
2
0
16.5
55.2
J20
J21
(%)
60
50
14.0
40
11.4
35.6
10.2
8.1
6.1
6.3
6.7
4.5
21.2
25.9
2.9
20
22.8
20.9
3.3
11.8
17.9
6.3
2005
2006
2007
2008
2009
30
10
0
2010
Sales amount of crystalised stone
2011
2012 2013E 2014E 2015E
Annual growth rate
Source: ZhongAn
Demand for crystalised stone in the PRC experienced a significant growth due to the growing
popularity of its application as decorative material. The sales volume of crystalised stone increased from 6.92
million square metres in 2005 to 32.09 million square metres in 2012, representing a CAGR of 24.5% over
the period. The sales volume of crystalised stone in the PRC is expected to grow from 32.09 million square
metres in 2012 to 51.00 million square metres in 2015, representing a CAGR of 16.7% over the period.
- 47 -
J22
INDUSTRY OVERVIEW
The following diagram illustrates the actual and forecast sales volume of crystalised stone in the PRC
from 2005 to 2015:–
(Million square metres)
50
45
40
35
30
25
20
15
10
5
0
51.00
J23
(%)
80
43.50
68.3
70
37.80
60
32.09
37.8
21.65
16.04
16.87 18.09
28.47
50
31.5
40
30
11.64
5.2
6.92
17.2
17.8
7.2
19.6
10
15.1
12.7
20
0
2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014E 2015E
Sales volume of crystalised stone
Annual growth rate
Source: ZhongAn
Market supply of crystalised stone in the PRC
There was a significant growth in the production of crystalised stone from 8.34 million square metres
in 2005 to 34.00 million square metres in 2012, representing a CAGR of [22.2]% over the period. The
production volume of crystalised stone is expected to grow from 34.00 million square metres in 2012 to
56.80 million square metres in 2015, representing a CAGR of [18.7]% over the period.
The following diagram illustrates the actual and forecast production volume of crystalised stone in the
PRC from 2005 to 2015:–
(%)
60
56.80
50
45.1
47.10
45.3
30.27
30
40
34.00
30
23.42
17.58
20
10
50
39.60
40
8.34
18.39
19.57
29.2
19.7
12.10
4.6
6.4
60
18.9
12.3
20.6
20
16.5
10
0
0
2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014E 2015E
Production volume of crystalised stone
Source: ZhongAn
- 48 -
Annual growth rate
J24
J25
INDUSTRY OVERVIEW
Export of domestic crystalised stone
Although crystalised stone in the PRC has been largely dependent on domestic market and
consumption, export volume of crystalised stone has been increasing. The export volume of domestic
crystalised stone increased from 0.65 million square metres in 2005 to 3.80 million square metres in 2012,
representing a CAGR of [28.7]% over the period. The impact of the economic crisis in 2008 to 2009 on the
export volume of crystalised stone can be seen from the decrease in the growth of its export in the period.
However, with gradual improvement and expected growth in the global economy, the export volume of
crystalised stone is expected to increase from 3.80 million square metres in 2012 to 7.20 million square
metres in 2015, representing a CAGR of [23.7]% over the period.
The following diagram illustrates the actual and forecast export volume of domestic crystalised stone
from 2005 to 2015:–
(%)
8
60
7.20
50.00
7
46.67
J27
50
5.60
6
5
30.77
40
4.50
29.41
3.80
4
30
3.30
3
2.25
2
1
J26
0.65
0.85
2005
2006
1.10
1.30
18.18
24.44
1.50
15.38
28.57
15.15 18.42
20
10
0
0
2007
Export volume
2008
2009
2010
2011
2012 2013E 2014E 2015E
Annual growth rate
Source: ZhongAn
Key crystalised stone manufacturers in the PRC
As of 31 December 2012, there are 52 large-scale crystalised stone manufacturers in the PRC1.
Note:–
1
Large-scale crystalised stone manufacturers in the PRC refer to those manufacturers with an annual revenue of over
RMB20 million.
- 49 -
J28
INDUSTRY OVERVIEW
The following table sets forth information on the key crystalised stone manufacturers in the PRC:–
Market
share
Sales volume
in 2012
(million square
metres)
Type of products
J29
General application
Manufacturer A
7.4%
2.36
Floor tiles; interior building walls
Manufacturer B
5.4%
Composite crystalised stone,
1.74
Manufacturer C
5.1%
Composite crystalised stone,
1.65
Manufacturer D
4.7%
1.50
Floor tiles; interior and exterior
building walls
Jiujiang Golden
Phoenix
4.2%
1.36
Sanitary ware and kitchenware;
floor tiles; table tops; interior and
exterior building walls
Manufacturer E
4.1%
1.33
Manufacturer F
2.9%
0.94
Manufacturer G
2.3%
Porous crystalised stone and
non-porous crystalised stone
0.75
Source: ZhongAn, companies information
Key non-porous crystalised stone manufacturers in the PRC
The three largest non-porous crystalised stone manufacturers in the PRC accounts for approximately
over 91.0% of the non-porous crystalised stone market in terms of sales volume in 2012. General background
information of the other two manufacturers are as follows:
J30
Manufacturer F
Manufacturer F captured approximately 27.6% of the PRC non-porous crystalised stone market in
2012 in terms of total sales volume and approximately 2.9% of the market share in terms of sales volume in
the overall crystalised stone market in 2012. Manufacturer F was established in 2006 and currently operates
three production lines at their production facilities in Jiujiang, Jiangxi Province, the PRC. In terms of
production volume, it produced approximately 0.96 million square metres of non-porous crystalised stone in
2012. The non-porous crystalised stone manufactured by them can be applied as sanitary ware and
kitchenware, floor tiles, table tops and interior and exterior building walls.
- 50 -
J31
INDUSTRY OVERVIEW
Manufacturer G
Manufacturer G captured approximately 22.0% of the PRC non-porous crystalised stone market in
2012 in terms of total sales volume and approximately 2.3% of the market share in terms of sales volume in
the overall crystalised stone market in 2012. In terms of production volume, it produced approximately 0.76
million square metres of non-porous crystalised stone in 2012. Manufacturer G was established in 1999 and
currently operates four production lines with three production lines dedicated for the production of porous
crystalised stone and one production line dedicated for the production of non-porous crystalised stone at their
production facilities in Huizhou City, Guangdong Province, the PRC. The non-porous crystalised stone
manufactured by them can be applied as sanitary ware and kitchenware, floor tiles, table tops and interior and
exterior building walls.
J32
Market supply of porous crystalised stone in the PRC
The production volume of porous crystalised stone in the PRC increased from 2.4 million square
metres in 2005 to 9.3 million square metres in 2012, representing a CAGR of 21.4% over the same period.
The market supply of porous crystalised stone is expected to grow at a CAGR of 16.0% from 2012 to 2015.
The following diagram illustrates the actual and forecast production volume of porous crystalised stone in the
PRC from 2005 to 2015:–
(%)
16
14.50
14
46.0%
12
12.80
47.6%
50
40
9.15 9.30
31.4%
8
6.96
6
5.10
2.36
2
0
60
10.70
10
4
J33
5.12
5.41
30
28.7%
20
3.45
19.6%
0.4%
1.7% 15.1%
5.7%
13.3% 10
2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014E 2015E
Production volume of porous crystalised stone
0
Annual growth rate
Source: ZhongAn
Demand of porous crystalised stone in the PRC
The trend of the increasing growth of demand for porous crystalised stone in the PRC is primarily due
to its increasing popularity as decoration and building materials. Demand of porous crystalised stone in the
PRC increased from 1.88 million square metres in 2005 to 9.88 million square metres in 2012, representing a
CAGR of 26.8% over the same period. ZhongAn forecast that the demand of porous crystalised stone in the
- 51 -
J34
INDUSTRY OVERVIEW
PRC will reach 15.2 million square metres in 2015, with a CAGR of 15.4% from 2012 to 2015. The
following diagram illustrates the actual and forecast demand of porous crystalised stone in the PRC from
2005 to 2015:–
16
(%)
15.20
75.1%
14
13.22
10
9.17
43.2%
8
6
4.72
0
5.08
60
9.88
50
6.82 34.5%
5.48 24.4%
40
30
17.1% 14.3%
14.9%
3.29
4
2
70
11.57
12
1.88
7.7%
7.9%
80
7.8%
20
10
2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014E 2015E
0
Annual growth rate
Demand for porous crystalised stone
Source: ZhongAn
Market supply of composite crystalised stone in the PRC
There was a significant growth of production volume of composite crystalised stone in the PRC from
5.4 million square metres in 2005 to 21.0 million square metres in 2012, representing a CAGR of 21.4% over
the same period. The production volume of composite crystalised stone in the PRC will increase with a
CAGR of 19.7% from 2012 to 2015. The following diagram illustrates the actual and forecast production
volume of composite crystalised stone in the PRC from 2005 to 2015:–
40
(%)
44.4% 43.6%
36.00
35
29.00
30
24.50
25
21.00
24.1%
18.10
14.20 27.5% 16.0% 16.7% 18.4%
11.20 11.80 12.40 14.5%
20
15
10
5.40
5
7.80
5.4%
5.1%
0
2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014E 2015E
Production volume of composite crystalised stone
Source: ZhongAn
- 52 -
Annual growth rate
50
45
40
35
30
25
20
15
10
5
0
J35
INDUSTRY OVERVIEW
Demand of composite crystalised stone in the PRC
The demand for composite crystalised stone in the PRC is on the rise. Demand of composite
crystalised stone reached 18.8 million square metres in 2012 from 4.4 million square metres in 2005,
representing a CAGR of 23.1% over the same period. The demand of composite crystalised stone in the PRC
is estimated to increase to 30.2 million square metres, with a CAGR of 10.7% from 2012 to 2015. The
following diagram illustrates the actual and forecast demand of composite crystalised stone in the PRC from
2005 to 2015:–
(%)
35
30.15
67.2%
30
25.60
25
22.21
33.5%
15
9.90
10
5
10.16 10.75
7.41
4.43
2.6%
16.51
12.62 30.9%
17.4%
80
70
60
50
18.80
20
J36
40
13.9%
18.1%
15.3% 17.8%
5.8%
30
20
10
0
0
2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014E 2015E
Demand for composite crystalised stone
Annual growth rate
Source: ZhongAn
Market supply of non-porous crystalised stone in the PRC
Production volume of the non-porous crystalised stone in the PRC increased significantly from 0.58
million square metres in 2005 to 3.70 million square metres in 2012, representing a CAGR of [30.3]% over
the period. Production volume of the non-porous crystalised stone in the PRC is expected to further expand in
the coming years. Production volume of the non-porous crystalised stone in the PRC is expected to increase
from 3.70 million square metres in 2012 to 6.30 million square metres in 2015, representing a CAGR of
[19.4]% over the period.
- 53 -
J37
INDUSTRY OVERVIEW
The following diagram illustrates the actual and forecast production volume of non-porous crystalised
stone in the PRC from 2005 to 2015:–
(%)
7
60
47.2
6
6.30
51.5
4.40
4
3.02
3
2.26
2
1
50
5.30
5
1.28
0.58
1.47
0.85
14.6
1.76
40
3.70
30
33.8
18.9
19.7
20
20.5
22.4
28.3
J38
18.9
10
0
0
2005
2006
2007
2008
2009
2010
2011
2012
2013E 2014E 2015E
Annual growth rate
Production volume of non-porous crystalised stone
Source: ZhongAn
Demand of non-porous crystalised stone in the PRC
Growing popularity of crystalised stone as a decoration and building material has led to a substantial
increase in the sales volume of non-porous crystalised stone from 2005 to 2012. Demand of non-porous
crystalised stone in the PRC increased from 0.60 million square metres in 2005 to 3.40 million square metres
in 2012, representing a CAGR of [28.1]% over the period. Demand of non-porous crystalised stone in the
PRC is expected to grow persistently from 3.40 million square metres in 2012 to 5.70 million square metres
in 2015, representing a CAGR of [18.8]% over the period.
The following diagram illustrates the actual and forecast demand of non-porous crystalised stone in the
PRC from 2005 to 2015:–
6
(%)
5.70
53.4
54.8
5
4.76
60
50
4.10
4
2.79
3
2
1
40
3.40
1.43
0.60
0.93
1.64
1.86
26.2
18.6
14.6
30
2.21
13.9
19.7
21.9
20.6
16.1
20
10
0
0
2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014E 2015E
Demand for non-porous crystalised stone
Source: ZhongAn
- 54 -
Annual growth rate
J39
J40
INDUSTRY OVERVIEW
Factors affecting the development of the crystalised stone market in the PRC
With its fast pace of development as the new building/decoration material, the growth rate of
crystalised stone slowed down in the wake of the financial crisis during 2008 and 2009 as compared with that
in the previous years. The following factors may affect the development of the domestic crystalised stone
industry in the coming years:
•
Real estate industry in the PRC
The domestic real estate industry would affect the demand for decoration and building materials
such as sanitary ware and kitchenware, flooring material, interior and exterior building walls,
being the major application of our non-porous crystalised stone. As a result of the various
austerity policies and measures introduced by the PRC Government in recent years, the
domestic real estate market experienced downward pricing pressures. Nevertheless, the
domestic real estate industry and commercial property industry still hold potential for further
development given the future trend of economic and social development in China.
•
Overseas demand for crystalised stone produced in the PRC
Crystalised stone produced in the PRC is capturing an increasing market share in the
international market. The export volume of crystalised stone produced in the PRC grew from
0.95 million square metres in 2007 to 2.0 million square metres in 2011, representing CAGR of
[20.5]% over the period. International market is expected to continue to be an important source
of growth for crystalised stone produced in the PRC. As a result of the global economic crisis
in 2008, the global economy and international trade experienced negative growth in 2009.
Owing to various measures implemented by different countries for the purpose of boosting their
respective national economies, the growth rate of global economy was gradually restored back
to the positive. However, the recent credit crisis in Europe has created further uncertainties in
the recovery of the global economy. In spite of this, it is expected that the global economy and
international trade will gradually recover in 2013 and the crystalised stone market will benefit.
•
The global market for the stone materials industry
According to the ZhongAn Report, stone materials are used and applied for a variety of
applications, such as flooring, interior and exterior building walls, stairways and stele.
Crystalised stone, including non-porous crystalised stone, are classified as stone materials in the
decoration and building materials industry and are commonly used and applied as flooring,
interior and exterior building walls, tabletops and sanitary ware and kitchenware. As such, the
global demand for stone materials would affect the demand for crystalised stone as they could
be applied for similar usages and applications. The global demand for stone materials increased
from 462.50 million square metres in 1995 to 982.34 million square metres in 2006 and further
to 1,673.90 million square metres in 2010, representing a CAGR of [7.09]% and [14.25]% for
the respective periods.
- 55 -
J41
INDUSTRY OVERVIEW
RAW MATERIALS
Historical prices of major raw materials of crystalised stone
The historical prices of the major raw materials used for the production of crystalised stone were on an
increasing trend. The following table sets forth the historical prices of the major raw materials used for the
production of crystalised stone from 2005 to 2012:–
J42
Historical prices of major raw materials used in the production of crystalised stone from 2005 to
J43
2012
(RMB per tonne)
Year
2005
2006
2007
2008
2009
2010
2011
2012
Soda ash (純鹼)
Sodium fluorosilicate
(氟硅酸鈉)
Potassium carbonate
(碳酸鉀)
Lithium feldspar powder
(鋰長石粉)
1,820
1,800
1,760
1,980
1,200
1,550
2,402
2,150
2,150
2,220
2,340
2,890
2,020
2,680
2,790
2,640
5,700
6,310
7,200
7,920
8,250
6,940
7,920
7,990
150
155
170
175
190
330
560
500
Source: ZhongAn
- 56 -
HISTORY AND DEVELOPMENT
BUSINESS HISTORY
Introduction
Our Group’s history can be traced back to December 2003 when Jiujiang Golden Phoenix was
established in the PRC by Mr. Sui and Mr. Zhu to principally engaged in the production and sales of nonporous crystalised stones. Mr. Sui and Mr. Zhu became acquainted when they were employed at Fujian
Province Shishi City Yi De Sheng Ceramics Co., Limited (福建省石獅市益德盛陶瓷有限公司) during the
period from 1997 to 1998. With the experience in the decoration and building materials industry, Mr. Sui and
Mr. Zhu successfully developed the production techniques and methods for manufacturing non-porous
crystalised stone and established Jiujiang Golden Phoenix. Mr. Lin, who also worked at Fujian Province
Shishi City Yi De Sheng Ceramics Co., Limited (福建省石獅市益德盛陶瓷有限公司), was invited to join as
one of the directors of Jiujiang Golden Phoenix. During the period from December 2003 to early 2005, we
underwent the construction and installation of our production facilities. We first commenced production in
early 2005. Over the years, we have strived to continue to expand and develop, improve and upgrade our
products and maintain our competitiveness in the industry.
K1
K1.1
K1.2
K1.3
K1.4
K1.5
K2
Business milestones
Below are our development milestones:
Year
Business achievements
December 2003
Jiujiang Golden Phoenix was established to be principally engaged
in the production and sales of non-porous crystalised stone
K3
Early 2005
Our first production line commenced its operation and we launched
our 1G Phoenix Stone to the market
K4
October 2005
First granted the GB/T 19001/ISO 9001 certification by Beijing
Zhong Da Hua Yuan Certification Centre (北京中大華遠認證中心)
in respect of the quality management system in our production
process
K5
April 2007
Our second production line commenced its operation and in end of
2007 we launched 2G Phoenix Stone to the market
K6
August 2008
The third production line of our Hengfeng Production Facilities
commenced its operation
K7
November 2009
Obtained registration for the invention patent of a kind of decoration
material and its preparation method (一種裝飾材料及其製備方法)
K8
June 2010
We upgraded our first production line of our Henfeng Production
Facilities to enhance its efficiencies and production technologies
K11.1
- 57 -
October 2010
Our “
” brand was awarded as a “Famous Brand of Jiangxi
Province (江西省著名商標)
K11
March 2011
Ranked among the top ten enterprises in the decoration material
industry in the PRC by China Market Research Centre (中國市場調
查研究中心) and China Social Economy Decision-making
Consultation Centre (中國社會經濟決策諮詢中心)
K10
First half of 2011
Our fourth production line of our Hengfeng Production Facilities
commenced its operation and we launched our 3G Phoenix Stone to
the market
K11.2
February 2013
The first production line of our Yushan Production Facilities
commenced its operation
K11.3
CORPORATE HISTORY
App1A-26(1)(2)
Our Company
App1A-29(2)
Co III (11)
Our Company was incorporated as an exempted company in the Cayman Islands on 4 January 2011.
Please refer to the paragraph headed “Further information about our Company and our subsidiaries – Changes
in share capital of our Company” in Appendix VI to this document for details of changes in the share capital
of our Company. As a result of the Reorganisation, our Company became the holding company of our Group.
The principal business of our Company is investment holding.
K13
K14
K15
China Galaxy
China Galaxy is a company with limited liability incorporated in Hong Kong on 11 January 2011 with
an authorised share capital of HK$10,000 divided into 10,000 shares of HK$1.00 each, of which one share
was issued to the subscriber for cash at par.
On 14 February 2011, the subscriber transferred the one share to our Company for cash at par.
As a result of the Reorganisation, China Galaxy became a direct wholly-owned subsidiary of our
Company.
The principal business of China Galaxy is investment holding.
K16
K17
K18
K18.1
Jiujiang Golden Phoenix
Jiujiang Golden Phoenix is a wholly-foreign owned enterprise established in the PRC on 2 December
2003 with an initial registered capital of US$5,000,000.
- 58 -
K19
Pursuant to the entrustment agreement 《委託投資合同》
(
) dated 1 September 2003 entered into
between Mr. Sui and Mr. Zhu, it was agreed that:
K20
(a)
Mr. Zhu would entrust Mr. Sui to invest in and contribute to any increase in the registered
capital of Jiujiang Golden Phoenix on behalf of Mr. Zhu;
K21
(b)
Mr. Zhu would provide Mr. Sui US$900,000 (representing 18% of the registered capital) and
Mr. Sui would invest such sum into Jiujiang Golden Phoenix on behalf of Mr. Zhu;
K22
(c)
Mr. Sui is the nominee shareholder of the 18% equity interests of Jiujiang Golden Phoenix and
Mr. Zhu would have all the rights, benefits and obligations in respect of the 18% equity
interests of Jiujiang Golden Phoenix;
K23
(d)
after the establishment of Jiujiang Golden Phoenix, Mr. Zhu would be entitled to its profits and,
upon its dissolution, the distributable assets of Jiujiang Golden Phoenix; and
K24
(e)
Mr. Zhu would be responsible for the loss and liability of Jiujiang Golden Phoenix in
proportion to his 18% shareholding in Jiujiang Golden Phoenix.
K25
As a result of the above entrustment arrangement, Jiujiang Golden Phoenix was beneficially owned as
to 82% by Mr. Sui and 18% by Mr. Zhu since its establishment. [Mr. Sui and Mr. Zhu financed their capital
contributions to Jiujiang Golden Phoenix by their own funds.] Since Mr. Zhu is a PRC resident, the
entrustment arrangement is to facilitate the establishment of Jiujiang Golden Phoenix as a wholly-foreign
owned enterprise.
K26
K26
K26.1
On 18 January 2011, (a) Mr. Sui transferred 100% equity interests in Jiujiang Golden Phoenix to Hong
Kong Golden Phoenix, a company wholly-owned by Mr. Sui, at nil consideration; and (b) the registered
capital of Jiujiang Golden Phoenix was increased to US$13,000,000. At the same time, Mr. Zhu entrusted
18% equity interests of Jiujiang Golden Phoenix to Hong Kong Golden Phoenix.
K27
As a result of the transfer and such entrustment arrangement, Jiujiang Golden Phoenix was beneficially
owned as to 82% by Hong Kong Golden Phoenix and as to 18% by Mr. Zhu.
K29
On 24 February 2011, Hong Kong Golden Phoenix transferred 100% equity interests in Jiujiang
Golden Phoenix to China Galaxy at nil consideration. As a result of the transfer, Jiujiang Golden Phoenix
was wholly owned by China Galaxy.
K30
On 6 July 2011, China Galaxy transferred 100% equity interests in Jiujiang Golden Phoenix to Mr. Sui
at nil consideration. As a result of the transfer, Jiujiang Golden Phoenix was wholly owned by Mr. Sui.
K31
On 7 March 2012, Mr. Sui transferred 100% equity interests in Jiujiang Golden Phoenix to China
Galaxy at nil consideration. As a result of the transfer, Jiujiang Golden Phoenix was wholly owned by China
Galaxy.
K34
- 59 -
K26.2
K28
Please refer to the sub-section headed “Acquisition of Jiujiang Golden Phoenix by our Group” in the
section headed “Reorganisation” of this document for the reasons of the transfers made between January 2011
to March 2012. Owing to these reasons, the transfers were made at nil consideration.
K34.1
As at the Latest Practicable Date, the registered capital of Jiujiang Golden Phoenix was paid up to the
amount US$10,500,000, and US$2,500,000 remained outstanding which is to be contributed by 31 December
2013. We intend to finance such registered capital payment by our internal resources.
K34.2
As a result of the Reorganisation, Jiujiang Golden Phoenix became our indirect wholly-owned
subsidiary. The principal business of Jiujiang Golden Phoenix is production and sales of crystalised stone.
K35
Jiangxi Golden Phoenix
Jiangxi Golden Phoenix is a limited liability enterprise established in the PRC on 25 September 2009
with an initial registered capital of RMB10,000,000, all of which were contributed by Jiujiang Golden
Phoenix.
K36
As a result of the Reorganisation, Jiangxi Golden Phoenix became our indirect wholly-owned
subsidiary. The principal business of Jiangxi Golden Phoenix is production and sales of crystalised stone.
K37
K37.1
CAPITALISATION OF LOANS ADVANCED TO OUR SHAREHOLDERS
On 15 February 2011, by capitalisation of the loans the below independent lenders advanced to Mr.
Sui and Mr. Zhu, the following lenders became shareholders of our Company:
Name of lenders
Date of investment
and payment
Amount of
consideration
Use of proceeds from
the loans
City Expert
15 February 2011
US$2,100,000 plus
accrued interest
Used as the registered
capital of Jiujiang
Golden Phoenix
Goldyield
15 February 2011
US$2,100,000 plus
accrued interest
capital of Jiujiang
Golden Phoenix
Grand City
15 February 2011
US$1,800,000 plus
accrued interest
capital of Jiujiang
Golden Phoenix
Details of the above capitalisation of the loans are set out in the sub-section headed “Capitalisation of
the loans advanced by Independent Third Parties to shareholders” of the section headed “Reorganisation” of
this document.
- 60 -
K38
K39
REORGANISATION
REORGANISATION
App1A-26(1)(2)
Co III (11)
The following chart set out the corporate and shareholding structure of Jiujiang Golden Phoenix prior
to the Reorganisation:
L1
Mr. Sui
Mr. Zhu
82%
18% (note)
Jiujiang Golden
Phoenix
(PRC)
100%
Jiangxi Golden
Phoenix
(PRC)
Note:
These 18% equity interests were held by Mr. Sui on behalf of Mr. Zhu pursuant to the entrustment agreement
dated 1 September 2003.
L2
We underwent the Reorganisation which involved in the following steps:
Incorporation of our Company
On 4 January 2011, our Company was incorporated in the Cayman Islands as an exempted company
with an authorised share capital of US$50,000 divided into 50,000 shares of US$1.00 each. One share of
US$1.00 was allotted and issued to the subscriber for cash at par.
App1A-5
L3
L4
On 28 January 2011, the subscriber transferred its one share of US$1.00 to Global Ally for cash at par.
L5
On 15 February 2011, our Company allotted and issued 40,999 shares of US$1.00 each to Hong Kong
Golden Phoenix for cash at par and 9,000 shares of US$1.00 each to Hong Kong Dragon Yu for cash at par.
L6
Incorporation of China Galaxy
On 11 January 2011, China Galaxy was incorporated in Hong Kong as our intermediate holding
company.
L7
On 14 February 2011, the subscriber of China Galaxy transferred one share of HK$1.00, being the
entire issued share capital of China Galaxy, to our Company for cash at par.
L8
- 61 -
REORGANISATION
Acquisition of Jiujiang Golden Phoenix by Hong Kong Golden Phoenix
On 18 January 2011, Mr. Sui transferred 100% equity interests in Jiujiang Golden Phoenix to Hong
Kong Golden Phoenix, a company wholly-owned by Mr. Sui at nil consideration.
L9
Capitalisation of the loans advanced by Independent Third Parties to shareholders
During the period from 8 November 2010 to 11 February 2011, the following lenders had advanced
the following loans (the “Loans”) to Mr. Sui and Mr. Zhu:
(a)
(b)
(c)
Aggregate
principal
loan amount
(US$)
Annual
interest rate
Loan repayment
date
Lenders
Borrowers
City Expert
Mr. Sui
1,722,000
6%
15 February 2011
City Expert
Mr. Zhu
378,000
6%
15 February 2011
Goldyield
Mr. Sui
1,722,000
6%
15 February 2011
Goldyield
Mr. Zhu
378,000
6%
15 February 2011
Grand City
Mr. Sui
1,476,000
6%
15 February 2011
Grand City
Mr. Zhu
324,000
6%
15 February 2011
L10
L11
L12
L13
Within six months from the draw-down of the first loan, each of the three lenders has the right to
choose repayments by (a) equity interests of Jiujiang Golden Phoenix; (b) equity interests of the holding
company of Jiujiang Golden Phoenix; or (c) cash.
L13.1
City Expert is a company incorporated in BVI on 28 July 2010. To the best knowledge of our
Directors, its ultimate beneficial owners are Independent Third Parties. Its principal business is investment
holding. The loans advanced by it to Mr. Sui and Mr. Zhu were to be used as the registered capital to be
injected into Jiujiang Golden Phoenix.
L14
L15
L16
L17
Goldyield is a company incorporated in BVI on 5 January 2010. To the best knowledge of our
L18
L19
L20
L21
Grand City is a company incorporated in BVI on 7 October 2010. To the best knowledge of our
L22
L23
L24
L25
- 62 -
REORGANISATION
In about end of 2010, Jiujiang Golden Phoenix considered to increase its investment amount and
registered capital so as to expand its production capacity. In light of the capital need, a common friend of Mr.
Sui and Mr. Zhu introduced to them the three lenders. After conducting the due diligence on Jiujiang Golden
Phoenix, the three lenders agreed to advance the Loans to Mr. Sui and Mr. Zhu.
L25.1
The lenders chose repayments of the Loans and the interest accrued thereon by shares of US$1.00 each
in our Company. On 15 February 2011, at the directions of Mr. Sui and Mr. Zhu (and Mr. Zhu’s wife), Hong
Kong Golden Phoenix and Hong Kong Dragon Yu transferred the following shares of US$1.00 each in our
Company to the lenders of the Loans in the following manner:
L26
(a)
(b)
(c)
Number of shares
and shareholding
percentage
Consideration
Transferor
Transferee
Hong Kong Golden
Phoenix
City Expert
2,870 shares
of US$1.00 each
(5.74%)
Principal amount of the Loan of
US$1,722,000 plus interests accrued
thereon
Hong Kong
Dragon Yu
City Expert
630 shares
of US$1.00 each
(1.26%)
Principal amount of the Loan US$378,000
plus interests accrued thereon
Hong Kong Golden
Phoenix
Goldyield
2,870 shares
of US$1.00 each
(5.74%)
Principal amount of the Loan US$1,722,000
Hong Kong
Dragon Yu
Goldyield
630 shares
of US$1.00 each
(1.26%)
Hong Kong Golden
Phoenix
Grand City
2,460 shares
of US$1.00 each
(4.92%)
Principal amount of the Loan US$1,476,000
Hong Kong
Dragon Yu
Grand City
540 shares
of US$1.00 each
(1.08%)
The consideration of the above transfers were reached by the lenders and the borrowers after arm’s
length negotiation as agreed by the parties and based on the financial results of Jiujiang Golden Phoenix in
2009 and 2010 and the potential future growth of Jiujiang Golden Phoenix.
- 63 -
L27
L28
L29
L30
L31
REORGANISATION
Upon completion of the above transfers, the shareholding of our Company were:
L32
Number of shares held
and shareholding
percentage
Name of shareholders
32,799 shares of US$1.00
each (65.598%)
Hong Kong Golden Phoenix
one share of US$1.00
(0.002%)
Global Ally
Hong Kong Dragon Yu
each (14.4%)
City Expert
each (7%)
Goldyield
each (7%)
Grand City
each (6%)
each (100%)
Total:
Acquisition of Jiujiang Golden Phoenix by our Group
On 24 February 2011, Hong Kong Golden Phoenix transferred 100% equity interests in Jiujiang
Golden Phoenix to China Galaxy at nil consideration.
L33
On 6 July 2011, China Galaxy transferred 100% equity interests in Jiujiang Golden Phoenix to Mr. Sui
at nil consideration.
L37
On 7 March 2012, Mr. Sui transferred 100% equity interests in Jiujiang Golden Phoenix back to China
Galaxy at nil consideration.
L39
Our Company confirmed that the above transfers of the equity interests during the period from January
2011 to March 2012 in Jiujiang Golden Phoenix were made to facilitate the approvals of the increase of the
registered capital of Jiujiang Golden Phoenix to from US$5,000,000 to US$10,500,000 (i.e. the current paidup amount of the registered capital) and the Reorganisation. On 17 February 2011, Hong Kong Golden
Phoenix, as the then shareholder of Jiujiang Golden Phoenix, injected US$1.5 million into Jiujiang Golden
Phoenix as part payment of the increased registered capital of Jiujiang Golden Phoenix. As a result of such
change, Jiujiang Golden Phoenix applied for a revised business licence with the Jiujiang Industry and
L39.1
- 64 -
L39.2
L39.2.1
REORGANISATION
Commerce Administration Bureau. On 24 February 2011, before completion of the registration of the change
in paid-up registered capital with the Jiujiang Industry and Commerce Administration Bureau, Hong Kong
Golden Phoenix transferred 100% equity interests in Jiujiang Golden Phoenix to China Galaxy.
Consequently, the ultimate then registered shareholders of Jiujiang Golden Phoenix changed from Mr. Sui
to Hong Kong Golden Phoenix, Hong Kong Dragon Yu, City Expert, Goldyield and Grand City. As such
change in shareholding occurred prior to the completion of the registration of the change in paid-up registered
capital, the Jiujiang Industry and Commerce Administration Bureau refused to issue the revised business
licence. To facilitate the registration, on 6 July 2011, China Galaxy transferred the 100% equity interests in
Jiujiang Golden Phoenix back to Mr. Sui, the shareholder of Hong Kong Golden Phoenix. After completion
of the registration of the increased paid-up registered capital with Jiujiang Industry and Commerce
Administration Bureau, on 7 March 2012, the 100% equity interests in Jiujiang Golden Phoenix was
transferred to China Galaxy. On 27 September 2012, Jiujiang Industry and Commerce Administration Bureau
issued a letter confirming that (a) the above transfers were made to facilitate the increase of registered capital
of Jiujiang Golden Phoenix and the Reorganisation; and (b) such transfers complied with the relevant laws,
rules and the requirements of the Jiujiang Industry and Commerce Administration Bureau.
L39.2.2
L39.2.3
L39.2.4
L39.2.5
L39.2.6
L39.2.7
Transfers of shares of our Company held by Global Ally to Hong Kong Golden Phoenix
On 11 June 2013, Global Ally transferred one share of US$1.00 in our Company to Hong Kong
Golden Phoenix for cash at par.
L39.3
Change of the par value of shares in our Company
On 21 June 2013, pursuant to the written resolutions of the Company passed on that day, our
authorised share capital was changed from US$50,000 divided into 50,000 shares of US$1.00 each to
HK$390,000 divided into 3,900,000 shares of HK$0.1 each.
- 65 -
L39.4
REORGANISATION
The following chart sets out our corporate and shareholding structure upon completion of the
Reorganisation:
Mr. Sui
Mr. Zhu
100%
Hong Kong
Golden Phoenix
(Hong Kong)
100%
Hong Kong
Dragon Yu
(Hong Kong)
65.6%
14.4%
Hung Wing Koi
100%
Sze Man Yiu
Chang Cheng Kit
100%
100%
City Expert
(BVI)
Goldyield
(BVI)
Grand City
(BVI)
7%
7%
6%
L40
Our Company
(Caymann Islands)
100%
China Galaxy
(Hong Kong)
100%
(PRC)
100%
(PRC)
Note:
Hung Wing Koi, Sze Man Yiu and Chang Cheng Kit are Independent Third Parties.
PRC LEGAL COMPLIANCE
Our PRC legal adviser, Beijing Tian Yuan Law Firm, confirmed that no approval from [•••] for the
Reorganisation. Given that one of our beneficial shareholders, Mr. Zhu, is a PRC resident, is required to carry
out the foreign exchange registration with local foreign exchange authority under the No. 75 Notice. Please
refer to the paragraph headed “Approvals from PRC governmental authorities in relation to the
Reorganisation – No. 75 Notice” in Appendix IV of this document. Mr. Zhu’s registration under No. 75
Notice was completed on 7 December 2012.
Our PRC legal adviser, Beijing Tian Yuan Law Firm, has confirmed that all approvals, permits and
licences required in connection with the Reorganisation have been obtained, and the Reorganisation has not
violated any applicable PRC laws and regulations.
- 66 -
L43
L44
L45
BUSINESS
OVERVIEW
We are a manufacturer of non-porous crystalised stone in the PRC. We use our expertise and
experience to develop our own patented technologies in manufacturing our products. We captured
approximately [46.2]%, [48.7]% and [40.0]% of the PRC non-porous crystalised stone market for the three
years ended 31 December 2012 in terms of total sales volume, according to the ZhongAn Report. The
domestic non-porous crystalised stone market is highly concentrated with three manufacturers accounting for
approximately 91.0% of market share in terms of total sales volume in 2012, according to the ZhongAn
Report. Non-porous crystalised stone accounted for approximately 10.6% of the domestic crystalised stone
market in the PRC in terms of market demand in 2012. We captured approximately 4.2% of the market share
in terms of sales volume in the overall crystalised stone market in 2012.
Crystalised stone are stone materials formed from inorganic materials melted in high temperature.
Generally, crystalised stone have functional performances such as zero water absorption, high specular gloss
and is resistant to staining. Crystalised stone are new construction and decoration materials. According to the
ZhongAn Report, crystalised stone can generally be classified into three types, namely porous crystalised
stone (有孔微晶石), composite crystalised stones (複合微晶石) and non-porous crystalised stone (無孔微晶
石). Currently, composite crystalised stone account for a majority of the market share of the PRC crystalised
stone market. The market share of non-porous crystalised stone in the PRC is expected to increase in the
future due to the introduction of new non-porous crystalised stone products, increase of general market
acceptance and capturing of market shares of other crystalised stone as well as other stone materials
according to the ZhongAn Report.
We use our expertise and experience to develop our own patented technologies in manufacturing our
products. We currently offer three series of non-porous crystalised stone: 1G Phoenix Stone, 2G Phoenix
Stone and 3G Phoenix Stone. Our customers include trading companies, wholesalers and processing
companies, who resell our products to their own customers. To the best knowledge of our Directors, the end
customers of our products will apply our products for use as sanitary ware and kitchenware, flooring material,
interior and exterior building walls, etc. As of the Latest Practicable Date, we had a total of three registered
patents, one of which is an invention patent and is used in the production process of 3G Phoenix Stone. Such
invention patent was also granted the Gold Award in the China International Patent and Brand Expo (中國國
際專利與名牌博覽會金獎) in 2009. The two utility model patents are used in the manufacturing process of
our products. Our products are marketed under our “ ” and “KING BIRD” brands and are primarily sold to
trading companies, wholesalers and processing companies in the PRC and overseas markets. Our
brand
was recognised as the “Famous Brand of Jiangxi Province (江西省著名商標)” in October 2010.
- 67 -
App1A-28
(1)(a)
M1
M1.1
M1.2
M1.3
M1.4
M1.6
M1.7
M1.8
M1.9
M1.10
M1.11
M1.12
M1.13
M1.14
M1.18
M1.19
M1.20
M1.21
M1.22
M1.23
M1.23.1
BUSINESS
Our business experienced significant growth in terms of revenue over the Track Record Period. Our
revenue increased from approximately RMB[282.7] million for the year ended 31 December 2010, to
approximately RMB[402.1] million for the year ended 31 December 2011 and to approximately RMB[458.7]
million for the year ended 31 December 2012. The following table sets forth the breakdown of the sales of
our three series of non-porous crystalised stone during the Track Record Period:–
2010
RMB’000
1G Phoenix Stone
2G Phoenix Stone
3G Phoenix Stone
2011
2012
(%)
RMB’000
(%)
RMB’000
M1.24
M1.25
M1.26
(%)
86,452
196,219
–
30.6
69.4
–
87,344
216,983
97,783
21.7
54.0
24.3
[51,858]
[281,327]
[125,531]
[11.3]
[61.3]
[27.4]
282,671
100
402,110
100
458,716
100
OUR BUSINESS MODEL
Our business model is vertically integrated starting from product development, production to sales of
our non-porous crystalised stone products.
We have developed our own patented technologies to apply in our manufacturing process, which we
believe improve the quality of our products and enhance our efficiency and production time.
We strive to broaden our product types and to improve and enhance the quality and functional
performances of our products. We launched our first generation non-porous crystalised stone, 1G Phoenix
Stone, in 2005. Leveraging on about 10 years of experience in manufacturing non-porous crystalised stone,
we have been able to enhance the functional performance and characteristics of our products such as
compression strength and impact toughness. We launched 2G Phoenix Stone in 2007 and 3G Phoenix Stone
in 2011, providing our customers with better quality products with a wider scope of usage and application.
Our three series of non-porous crystalised stone are white in colour, which we believe to have sufficient
market demand currently. We will continue to diversify our product offerings and to improve and enhance
our products. We have recently widened our focus and developed non-porous crystalised stones that are black
and ivory in colour and we will launch these new products to the market when there is sufficient market
acceptance and demand and when there is sufficient production capacity. With the expansion plan of our
production plants, we intend to launch the non-porous crystalised in black and ivory colour to the market in
2014. Our non-porous crystalised stone are sold mainly to trading companies, wholesalers and processing
companies in the PRC and overseas markets.
- 68 -
M1.27
M1.28
M1.29
M1.30
M1.31
M1.32
M1.33
M1.34
M1.35
M1.36
M1.36.1
BUSINESS
The following diagram illustrates our business model:–
Research and
development
• Research and improve
on product types,
performances
Production
• Raw materials and parts
procurement
• Quality control
• Enhance production
techniques
• Highly automated
production process
• Registration of patents
M1.37
Sales and
distribution
• Sales to customers
includes trading
companies, wholesalers
and processing
comapnies
• Collect feedbacks on
products from customers
regularly
Research and development
App1A-28(5)
We believe that our product development capabilities enable us to develop new products with features
such as zero water absorption and enhanced compression and bending strengths. As of the Latest Practicable
Date, we had a dedicated team of 47 research and development staff focusing on product development and
improvement of our production technologies and process. We also cooperate with industry experts and
tertiary institutions in our research and development projects. As of the Latest Practicable Date, we had a
total of three registered patents, one of which is an invention patent and is used in the production process of
3G Phoenix Stone. Such invention patent was also granted the Gold Award in the China International Patent
and Brand Expo (中國國際專利與名牌博覽會金獎) in 2009. The two utility model patents are used in the
manufacturing process of our products. We believe that our product development capabilities have been and
will continue to be critical to the success of our business. Please refer to the section headed “Further
information about the business of our Group – Intellectual property rights of our Group” in Appendix VI of
this document for further details of our intellectual property portfolio.
M1.38
M1.39
M1.40
M1.41
M1.42
M1.43
M1.44
M1.45
Production
We manufacture non-porous crystalised stone at our Hengfeng Production Facilities and Yunshan
Production Facilities, both located in Jiujiang City, Jiangxi Province, the PRC. We manufactured
approximately 1.46 million square metres of non-porous crystalised stone in 2012. Our production process
is highly automated and we apply our own patented technologies in our production process. Our production
equipment and machinery are assembled in the PRC specifically for and to satisfy the technical requirements
for the production of our products. With our highly automatic production facilities, we are able to maintain
production efficiency and produce non-porous crystalised stone with enhanced functional performance and
characteristics. We also set a high standard of quality control and have obtained the GB/T 19001/ISO9001
series certification in respect of our quality management system in our production process in our Hengfeng
Production Facilities. We have specific quality control measures in place throughout our production process
- 69 -
M1.46
M1.47
M1.48
M1.49
M1.50
M1.51
BUSINESS
and submit our sample products to independent institutions for testing. We will continue to expand our
production facilities to cater for our further development as well as to satisfy the increasing demand from our
customers.
Our Hengfeng Production Facilities first commenced its operation in 2005 and four production lines
are in full operation with a maximum annual production capacity of [1.96] million square metres as of 2012.
Our Yunshan Production Facilities is our new production facilities and is expected to have four production
lines. The construction of the production line 1 of our Yunshan Production Facilities has been completed and
it has commenced operation in February 2013. We expect the production line 2 of our Yunshan Production
Facilities to commence operation in September 2013 and both the production lines 3 and 4 to commence
operation in the second half of 2014. The estimated maximum designed annual production capacity of the
four production lines of our Yunshan Production Facilities, upon full operation, will be approximately [3.2]
million square metres. We believe that our sizeable production facilities provide us with economies of scale
by increasing our production efficiency and lowering our production costs and expenses. Please refer to the
sub-sections headed “Our expansion plans and source of funding” and “Production facilities” of this section
for futher details on our Hengfeng Production Facilities and Yunshan Production Facilities.
M1.52
M1.53
M1.54
M1.55
M1.56
M1.57
M1.58
M1.59
M1.59.1
Sales and distribution
Our customers include trading companies and wholesalers and, to the best knowledge of our Directors,
they in turn re-sell our products to both the domestic and overseas markets. We also sell our products to
processing companies and they would arrange for additional processing of our non-porous crystalised stone
which are then re-sold to their own customers. [To the best knowledge of our Directors, the end customers of
our products will apply our products for use as sanitary ware and kitchenware, flooring material, interior and
exterior building walls, etc.] Trading companies include companies that are engaged in the business of
trading [various products including decoration and building materials.] Wholesalers include entities engaged
in the business of wholesaling and they sell our products in their own stores to their customers.] Processing
companies include entities [that have the capabilities to further process our products into sanitary ware and
kitchenware and other products.]
M1.60
M1.61
M1.62
M1.62.1
M1.62.2
M1.62.3
M1.63
M1.64
M1.65
M1.66
Our domestic sales are widely spread to cover customers in Beijing, Shanghai, Fujian Province,
Guangdong Province, Zhejiang Province, Jiangsu Province, Jiangxi Province, Shangdong Province, Liaoning
Province, Anhui Province and Sichuan Province. We also directly export our products to our overseas
customers such as those in Hong Kong, Brazil and the UAE. Our sales employees directly contact our
customers and communicate with them regularly to collect information on their feedbacks, preferences,
specifications and general requirements with respect to our products. Based on this information, we are able
to research and improve our products to meet our customers’ requirements.
- 70 -
BUSINESS
The following table sets forth the breakdown of revenue by sales channels during the Track Record
Period:–
2010
RMB’000
Trading companies
Wholesalers
2011
(%)
RMB’000
(%)
2012
RMB’000
(%)
147,073
83,779
51,819
52.0
29.7
18.3
239,905
95,975
66,230
59.7
23.8
16.5
218,080
142,298
98,338
47.5
31.1
21.4
282,671
100.0
402,110
100.0
458,716
100.0
M1.67
OUR COMPETITIVE STRENGTHS
We believe we have the following competitive strengths:
We have approximately [46.2]%, [48.7]% and [40.0%] market share in terms of sales volume in the
non-porous crystalised stone industry in the PRC for the three years ended 31 December 2012
Our total sales volume for non-porous crystalised stone reached [1.36] million square metres in 2012,
accounting for approximately 40.0% of the market share of non-porous crystalised stone, according to the
ZhongAn Report.
According to the ZhongAn Report, the demand for non-porous crystalised stone in the PRC is
expected to reach 4.76 million square metres by 2014, an increase from 2.26 million square metres in 2010,
representing a CAGR of [20.5]% over the period. We expect that the continuous growth in the PRC economy
and increasing urbanisation will further drive the demand in the PRC for non-porous crystalised stone
products as decoration and building materials. With the expansion plan of our production facilities, we
believe that we are well-positioned to capture a significant portion of the growth of the non-porous
crystalised stone market in the PRC and further develop our business.
M1.68
M1.69
M1.70
M1.71
Our product development capabilities enable us to improve and enhance our products
M2
We launched 1G Phoenix Stone, being our first generation non-porous crystalised stone, in 2005. Over
the years, we have continued to improve our products to enhance their functional performance, including
water absorption, density, specular gloss, bending strength, hardness, thermal-shock resistance, compression
strength and stain resistance. We launched, 2G Phoenix Stone, being our second generation non-porous
crystalised stone in 2007 and 3G Phoenix Stone, being our third generation non-porous crystalised stone, in
2011, providing enhanced functionality with a wider scope of applications. In late 2012, we have successfully
developed non-porous crystalised stone that is black and ivory in colour thereby expanding our product
offerings.
M3
- 71 -
M4
M5
M6
BUSINESS
We apply our own patented technologies in the manufacturing process of our products. As of the
Latest Practicable Date, we had three registered patents, one of which was an invention patent and is used in
the production process of 3G Phoenix Stone. Such invention patent was also granted the Gold Award in the
China International Patent and Brand Expo (中國國際專利與名牌博覽會金獎) in 2009. The two utility
model patents are used in the production process of our products.
Given the successful development and launch of three generations of non-porous crystalised stone and
the use of our three registered patents in our manufacturing process, we are positioned to enhance and
improve the quality of our products and expand the scope of their usages and applications.
M8
M9
M10
M11
M12
Our highly automated production facilities enable us to manufacture non-porous crystalised stone
efficiently and cost-effectively
Our production equipment and machinery are assembled in the PRC specifically for and to satisfy the
technical requirements for the production of our products. We strived to achieve a highly automated
production line for our key production processes to enhance efficiency.
We believe that substantial capital commitments are required in order to stay competitive in the nonporous crystalised stone industry and achieve economies of scale. The technical features of equipment and
machinery determine product quality and performance. We have invested in our equipment and machinery to
improve our production process. Our production lines at our Hengfeng Production Facilities and Yunshan
Production Facilities are highly automated. As of the Latest Practicable Date, we had five production lines in
operation with a maximum total annual production capacity of approximately 3.07 million square metres.
Further information on our production facilities is set forth in the sub-section headed under “Production
facilities” in this section. For the three years ended 31 December 2012, our capital expenditure in our
production facilities was approximately RMB122.8 million, RMB143.7 million and RMB168.9 million,
respectively. We provide our personnel with appropriate training such that they are equipped with the
requisite technical capabilities to operate and maintain our production equipment and machinery.
[In addition, we believe that maintaining an adequate utilisation rate of our production facilities is
essential to reduce the unit cost of our products which, in turn, allows us to remain competitive. Our
production facilities operate 24 hours a day and for 360 days per year. Our production facilities operated at
an average utilisation rate of [81.0]%, [78.0]% and [74.6]% for each of the three years ended 31 December
2012, respectively. Please refer to the sub-section headed “Production facilities” of this section for futher
details of our utilisation rate.
With our highly automatic production process and patented technologies, we are able to maintain
production efficiency and produce non-porous crystalised stone with more reliable and functional features.
M19
M20
M21
M22
M23
M24
M25
M25.1
M26
M27
M29
M30
M31
M32
We have an experienced and cohesive senior management team with a proven track record of success
We have an experienced management team with strong operational experience and extensive industry
expertise. Our chairman, Mr. Sui, has approximately 18 years of experience in the decoration and building
materials industry. Mr. Zhu, our President and executive Director, has about 16 years of experience in the
- 72 -
M33
BUSINESS
decoration and building materials industry. Mr. Zhu is principally responsible for the research and
development of our products and is the inventor of the three patents which are registered under the name of
Jiujiang Golden Phoenix.
Furthermore, we have an experienced senior management team with extensive operational expertise
and an in-depth understanding of the crystalised stone market in China, which has allowed us to anticipate
market trends when formulating our positioning and development strategies. Additionally, key members of
our senior management team have worked together as a team for over 10 years. Further information of our
executive Directors and senior management team is set forth in the section headed “Directors, senior
management and staff” in this document. We believe that their extensive knowledge and experience as well
as cohesive working culture have been crucial to the success of our business.
M34
M35
M39
M40
M41
OUR BUSINESS STRATEGIES
Our goal is to become the leading non-porous crystalised stone manufacturer in China and globally.
We intend to achieve this objective by implementing the following strategies:
M42
Expand our production capacities, improve our production technologies and increase production
efficiency
As of the Latest Practicable Date, we have a total of five production lines in operation with an annual
designed production capacity to produce approximately [3.07 million] square metres of non-porous
crystalised stone. We are actively seeking to expand our production facilities and increase our production
capacity through construction and investment in production facilities. We expect that our annual designed
production capacity will be increased progressively to [3.88] million square metres by the end of 2013 and
further to [5.48] million square metres by the end of 2014. We believe that a larger production capacity will
enable us to better control our production efficiency, allow us to respond to market changes promptly and
enable us to provide timely and sufficient supply to our customers.
According to the ZhongAn Report, the sales volume of crystalised stone in the PRC is expected to
increase from 32.09 million square metres in 2012 to 51.0 million square metres in 2015, representing a
CAGR of 16.7% over the period. In addition, the export of crystalised stone is expected to increase from 3.80
million square metres in 2012 to 7.20 million square metres in 2015, representing a CAGR of 23.7% over the
period. Although the market share of non-porous crystalised stone in the PRC is expected to range from
approximately 10% to 12% by 2015 of the overall crystalised stone market according to the ZhongAn Report,
our Directors believe that there are adequate market opportunities for our products.
M43
M44
M44.1
M44.2
M45
M45.1
M45.2
M45.3
M45.4
M45.4.1
M45.4.2
M45.4.3
M45.4.4
Despite distinct functional performances, characteristics and production methods, the three types of
crystalised stone (i.e. porous crystalised stone, non-porous crystalised stone and composite crystalised stone)
are commonly applied as decoration and building materials and may be used as substitutes for one another.
As compared with the other two types of crystalised stone, non-porous crystalised stone is better in terms of
compression strength and water absorption. Stone materials such as marble and granite are naturally occurring
substances and are non-renewable resources. During the mining and processing of marble and granite, certain
amounts of waste materials are produced and such waste materials are non-recyclable while the materials are
recyclable during the manufacturing and processing of non-porous crystalised stone. As such, non-porous
crystalised stone could be considered as an environmentally friendly decoration and building material.
- 73 -
BUSINESS
Therefore, crystalised stone, in particular non-porous crystalised stone, is an attractive alternative for other
decoration and building materials such as marble and granite. Generally, the choice of decoration and
building materials is largely dependent on the requirements, needs and preference of customers and end
consumers. In addition to requirements on functional performance of decoration and building materials,
customers and consumers would also base their decision on the aesthetics of stone materials. We have
recently developed non-porous crystalised stone in black and ivory colour thereby expanding our product
offerings and we will launch these new products to the market when there is sufficient market acceptance and
demand and when there is sufficient production capacity. With the expansion plan of our production
facilities, we intend to launch the non-porous crystalised stone in black and ivory colour to the market in
2014. As such, our Directors intend to also capture market opportunities from porous crystalised stone,
composite crystalised stone and other stone materials in various colours by expanding our production
capacities and construction of additional production lines.
M45.4.5
M45.4.6
M45.4.7
M45.4.8
M45.4.9
M45.4.10
Optimise our product offerings and continue to leverage on our own patented technologies to enhance
our products
We believe that product innovation and timely response to market trends and development are crucial
to success in the crystalised stone industry. By enhancing our research and development capabilities, we can
continue to optimise our product portfolio by adding new products and improving our existing products. To
achieve this end, we intend to:
•
establish a research and development centre on our Yunshan Production Facilities to diversify
our product lines, enhance functional performance of our non-porous crystalised stone and
expand their applications to other areas such as applications as utensils, electronic parts and
components, etc.;
•
recruit more experienced professionals and experts from the industry to further enhance our
research and development expertise;
•
cooperate with accredited research institutions, universities and industry experts to research and
develop technologies and techniques to increase our production quality and reduce production
costs; and
•
purchase additional and upgrading existing product testing and research equipment to maintain
our high quality standards and enhance our research capabilities.
We consider our research and development expertise to be a crucial element of our success and we
intend to enhance our technical expertise and know-how to ensure continuous improvement of the
functionality and unique features of our products.
M46
M47
M48
Expand our existing market share by developing new customers and exploring new markets
We will continue to produce and supply non-porous crystalised stone to our customers and strengthen
our relationship with them with an aim to increase our sales with our existing customers. We also aim to
develop business relationship with new customers by attending and participating in trade shows and industry
- 74 -
M49
BUSINESS
trade exhibitions. Furthermore, we will promote and advertise our products through various media such as
billboards, industry magazines and the Internet. Our sales team will also proactively seek out and target
potential customers.
M49.1
Our Directors believe that there are opportunities to further expand into the overseas market. During
the Track Record Period, our overseas sales increased from approximately RMB4.0 million in 2010 to
RMB13.3 million in 2011 and further to RMB51.4 million in 2012, accounting for approximately 1.4%, 3.3%
and 11.2% of our total sales, respectively. Further, to the best knowledge of our Directors, our products are
re-sold overseas by some of our domestic customers.
M50.2
According to the ZhongAn Report, the export volume of domestic crystalised stone increased from
0.65 million square metres in 2005 to 3.80 million square metres in 2012, representing a CAGR of 28.7%
over the period and the export volume of crystalised stone is expected to increase to 7.20 million square
metres in 2015, representing a CAGR of 23.7% from 2012 to 2015.
Accordingly, we plan to continue to develop and explore the overseas markets such as [South Africa],
[Europe and the Middle East] by attending and participating in overseas exhibitions in order to promote our
products overseas and seek out overseas customers. Our sales staff will also take the initiative to
communicate with our overseas customers regularly. During the Track Record Period, we actively
participated in various exhibitions overseas, including those in Brazil, Middle East and Italy, such as the
International Trade Fair for Stone Design and Technology 2012 (2012年意大利維羅納國際石材展覽會) and
Victoria 2012 Stone Fair (2012年巴西維多利亞國際石材展覽會), to meet and approach new customers. For
each for the three years ended 31 December 2012, our sales volume to our overseas customers were 12,015
square metres, 33,591 square metres and 114,489 square metres, respectively. We will explore other means to
expand our overseas sales, including possible co-operation with building materials chain stores but in the near
future, we will follow our existing marketing and promotion policies in relation to overseas customers. We
will continue to focus on direct communication with our overseas customers and placing resources in
participating in overseas exhibitions in the future as our Directors consider this as the most effective way to
approach new customers directly and raise awareness and recognition of our Group and products among
potential customers and overseas markets.
We also aim to actively increase the exposure of our “ ” and “KING BIRD” brands and products by
cooperating with selected wholesalers to standardise the designs of their stores to feature only our non-porous
crystalised stone. We target to select stores located in first-tier and selected major cities in the PRC. We
target to begin our cooperation with eight wholesalers in 2013 and will select around seven to 10 additional
wholesalers each year. At this stage, we expect to cooperate with a total of 25 wholesalers. Under the
proposed cooperation with the selected wholesalers, we will bear the cost of the design and furnishing of the
show room and the advertising and promotional cost to promote our presence in the selected city and
products in the standardised store, which is expected to be approximately RMB[1.0] million for each
standardised store. Our contribution accounts for around 70.0% of the total amount required under the
cooperation and the selected wholesalers will contribute around 30.0% of the amount required. The
wholesalers are required to commit to the display and sale of our products on an exclusive basis for a period
of not less than two years. If selected wholesalers terminate the cooperation before the expiration of the twoyear period, they will be required to return an amount of up to 80.0% of our contribution depending on the
remaining term of the cooperation. During the cooperation, the wholesalers are not permitted to amend the
standardised design of the stores without our prior written approval. By assisting the wholesalers in
- 75 -
M50
M50.1
M50.3
M50.4
M50.5
M51
M52
M53
M53.1
M53.2
M53.3
M54, M54.1
M54.2
M54.3
M54.31
M54.4
M54.5
M54.5.0.1
M54.5.0.2
M54.5.0.3
M54.5.0.4
BUSINESS
decorating and outfitting the stores, we will be able to display our products and enable customers and
consumers to see our products in an upmarket environment. We will not participate in the management and
operations of these stores. We believe the standardised stores will help to further improve brand awareness
among customers and enhance our image as a leading non-porous crystalised stone manufacturer in the
domestic market. As of the Latest Practicable Date, we have not commenced such cooperation plan or enter
into any cooperation agreements with our wholesaler customers.
M54.5.0.5
M54.5.0.6
M54.5.0.7
M54.5.0.8
OUR EXPANSION PLANS AND SOURCE OF FUNDING
We will continue to expand our production facilities to cater for our further development as well as to
satisfy the increasing demand from our customers. Our sales volume has been increasing with our production
capacity expansion. Our Directors believe that the market demand for our products is increasing based on the
feedback from our customers and the industry knowledge of our Directors. Competitors in the decoration and
building materials industry compete in aspects of quality, functions, and diversity of products that they can
offer to the market. To maintain competitive, other than having strong research and develop capabilities,
market players must also compete on production capacity. Manufacturers may lose its market share if it fails
to maintain an efficient and large-scale production capacity. We have been increasing our production capacity
gradually over the years and we will continue to adopt this strategy to remain competitive in the market. Our
increases in revenue are in line with the increase in our production capacity by adding new production lines
and upgrading existing production lines.
The table below shows the key information on our existing operations, market position and our
expansion plans:
2012
2013
(estimated)
2014
(estimated)
Market demand for crystalised stone in the
PRC (note 1)
32.1 million
square metres
37.8 million
square metres
43.5 million
square metres
Market demand of non-porous crystalised
stone in the PRC (note 1)
3.40 million
square metres
4.10 million
square metres
4.76 million
square metres
Our actual production volume
1.46 million
square metres
not available
not available
Our maximum annual production capacity
(note 2)
1.96 million
square metres
3.21 million
square metres
4.33 million
square metres
74.6%
70.0% -75.0%
70.0% -75.0%
not applicable
(note 5)
1.02 million
square metres
2.03 million
square metres
RMB[262.7]
million
RMB[124.5]
million
RMB[312.8]
million
Our utilisation rate (note 3)
Our total indicated minimum sales volume
based on the framework agreements
(note 4)
Capital expenditure required for our
expansion plan (note 6)
- 76 -
M54.5.1
M54.5.2
M54.5.3
M54.5.4
M54.5.5
M54.5.6
M54.5.7
M54.5.8
M54.5.9
BUSINESS
Notes:
1.
Based on the ZhongAn Report.
2.
The estimated maximum designed production capacity for 2013 and 2014 has taken into account the projected
commencement dates of operation of our production lines at the Yunshan Production Facilities and the estimated
overhaul period as disclosed on page [•••] of this document. Our designed maximum annual production capacity
for 2013 and 2014 is 3.88 million square metres and 5.48 million square metres, respectively.
3.
The basis of calculations our utilisation rate is set out on page [•••] of this document.
4.
The indicated total sales volumes are based on the minimum purchase amounts in the framework agreements.
5.
No framework agreements were signed in 2012.
According to the ZhongAn Report, the market demand for non-porous crystalised stone in the PRC is
expected to reach 4.76 million square metres in 2014, an increase from 3.40 million square metres in 2012,
representing a CAGR of 18.3% over the period.
Our estimated maximum designed annual production capacity of 4.33 million square metres for 2014
is close to the market demand for non-porous crystalised stone in the PRC of 4.76 million square metres in
2014. The market demand only refers to the non-porous crystalised stone segment in the PRC. Our expansion
plan is not limited to the PRC market. We have to take into account the potential growth in our export sales,
substitution as decoration and building materials for crystalised stone and our ability to capture the market
share of other types of crystalied stone.
M54.5.10
M54.5.11
M54.5.12
M54.5.13
According to the ZhongAn Report, the sales volume of crystalised stone in the PRC is expected to
grow from 32.09 million square metres in 2012 to 43.50 million square metres in 2014, representing a CAGR
of 16.4% over the period, and the export volume of domestic crystalised stone is expected to increase from
3.80 million square metres in 2012 to 5.60 million square metres in 2014, representing a CAGR of 21.4%
over the period.
M54.5.14
Our utilisation rate during the Track Record Period is approximately 81.0%, 78.0% and 74.6%,
respectively. We target to maintain our utilisation rate in 2013 and 2014 to be in the range of 70% to 75%,
which is in line with the utilisation rate of the non-porous crystalised stone industry in the PRC of about
75%, according to the ZhongAn Report.
M54.5.15
Our Yunshan Production Facilities is our new production facilities and will have four production lines.
The construction of the production line 1 of our Yunshan Production Facilities has been completed and it has
commenced operation in February 2013. We expect the second production line of our Yunshan Production
Facilities to commence operation in September 2013. As of the Latest Practicable Date, we had spent
approximately RMB[262.7] million on the construction of our Yunshan Production Facilities. We plan to
commence operation of both the production lines 3 and 4 at our Yunshan Production Facilities in the second
half of 2014. We expect the remaining capital expenditure required for the construction of the Yunshan
Production Facilities will be approximately RMB[437.3] million, whereby RMB[152.8] million will be
financed by internal resources and/or bank borrowing. In addition, we had RMB121.1 million of outstanding
borrowings as of 31 December 2012 which are due and payable within one year and we are required to make
capital contribution of US$2.5 million (approximately RMB15.5 million) by 31 December 2013.
- 77 -
M54.6
M54.7
M54.8
M54.9
M54.10
M54.12
BUSINESS
The table below sets forth the details of our expansion plans for the Yunshan Production Facilities:–
Estimated
maximum
designed annual
production
capacity
(‘000 square
metres)
Commencement
date/expected
commencement
date of operation
M54.13
Capital expenditure and
source of funding
Yunshan Production Facilities
Foundation work and ancillary
facilities
N/A
N/A
RMB[•••] million (RMB[•••] million funded
by internal resources and/or bank loans and
RMB[•••] million funded by [•••])
Production line 1
800
February 2013
RMB[•••] million funded by [internal
resources and/or bank loans]
Production line 2
800
September 2013
RMB[•••] million funded [•••]
Production line 3
800
Second half of
2014
RMB[•••] million funded [•••]
Production line 4
800
Second half of
2014
RMB[•••] million funded by [•••]
As confirmed by our PRC legal adviser, the following permits and approvals are required for our
production facilities expansion:–
•
Approval Concerning the Annual Production of 5.0 Million Square Metres of Crystalised Stone
by Jiangxi Golden Phoenix (關於核准江西金鳳凰納米微晶有限公司年產500萬平方米微晶玻
璃裝飾板項目的批覆) (obtained on 3 December 2009);
M54.14
•
Approval Concerning the Environmental Impact Assessment in Relation to the Annual
Production of 5.0 Million Square Metres of Crystalised Stone by Jiangxi Golden Phoenix (關於
<九江金鳳凰裝飾材料有限公司年產500萬平方米微晶玻璃專案環境影�評價報告表>的批
覆) (obtained on 18 January 2010);
M54.15
•
Construction Planning Permit (No. 2009Y0209016) (建設用地規劃許可證（2009Y0209016號）)
relating to total site area of 82,000.41 square metres (obtained on 28 September 2009);
•
Construction Planning Permit (No. 2011Y0209059) (建設用地規劃許可證（2011Y0209059號）)
relating to total site area of 61,565.78 square metres (obtained on 19 September 2011); and
•
Ownership Rights Certificates and Land Use Rights certificates for the construction of nine
buildings and structures (obtained on 16 July 2010).
- 78 -
M54.16
M54.17
M54.18
BUSINESS
We will apply for and complete the related procedures for obtaining the requisite permits and licenses
to ensure compliance with the relevant laws and regulations. As advised by our PRC legal adviser, there
would be no legal impediments for us to obtain the requisite permits and approvals.
Our Directors consider that we can secure sufficient funding to continue to operate at our existing
levels and to meet capital requirements for our committed or planned expansion plan based on the following:
•
the capital expenditure for the production capacity expansion plans will be gradually incurred
from 2013 to 2014, which is expected to be approximately RMB[124.5] million and
RMB[312.8] million, respectively;
•
the existing bank loans of RMB[208.6] million as at 30 April 2013 are expected to be replaced
with new bank loans upon repayment;
•
the unutilised banking facilities of RMB[270.5] million as at the Latest Practicable Date of
which RMB98.0 million will expire in 2017;
•
additional bank loans and/or banking facilities that could be secured by pledging the new
production lines at the Yunshan Production Facilities; and
•
the positive cash flows generated from our operations from 2013 to 2015; during the Track
Record Period, we had positive cash flows from our operations of RMB70.4 million,
RMB185.0 million and RMB136.9 million for each of the three years ended 31 December
2012, respectively.
Based on the framework agreements signed with some of our customers, the total indicative minimum
sales volume is 1.02 million square metres during the period from May 2013 to December 2013 and 2.03
million square metres in 2014, representing approximately 24.9% and 42.6% of the market demand of nonporous crystalised stone in the PRC in 2013 and 2014, respectively. We formulate our expansion plan taking
into various factors including the competitive industry landscape, the importance of maintaining a large scale
and efficient production capacity, the management’s knowledge on market demand, the feedbacks and
demands from customers, the sales order on hand, the expected amount of sales orders and the domestic and
global market trends. We believe that the proposed expansion of our production capacity is fair and
reasonable and there is adequate market demand for our products. Our Directors will adopt a prudent
approach and review our expansion plan from time to time taking into consideration factors such as our
production volume, sales orders and market conditions.
M54.19
M54.20
M54.21
M54.22
M54.23
M54.24
OUR PRODUCTS
As of the Latest Practicable Date, we offered [three series of non-porous crystalised stone, namely 1G
Phoenix Stone, 2G Phoenix Stone and 3G Phoenix Stone.] All our products are sold under our “ ” and
“KING BIRD” brands.
All three series of non-porous crystalised stone produced and offered by us are white in colour, which
we believe to have sufficient market demand currently. According to the ZhongAn Report, only white nonporous crystalised stone are currently offered in the market. Our Directors believe that non-porous crystalised
- 79 -
M81
M82
M83
M84
BUSINESS
stone products are only offered in white because there is a large demand for white non-porous crystalised
stone as (i) there is a lack of naturally occurring stone materials in pure white and (ii) pure white decoration
and building materials are highly sought after for its ease of integration in a variety of setting and
environment and can be easily matched and paired with decoration and building materials in other colours.
The three series of our products involve different production processes and have different functional
performances and characteristics, such as bulk density, specular gloss, compression strength, bending strength
and impact toughness. With different functional performances and characteristics, the three series of our
products can be applied in a wide variety of settings and applications ranging from sanitary ware and
kitchenwares to exterior building walls.
M85
M86
Our non-porous crystalised stone are generally produced as slabs. We are able to customise our nonporous crystalised stone slabs according to customers’ requirements and specifications.
M87
M88
To ensure the standard and quality of our products, samples of our products are submitted for testing
at the National Research Centre of Testing Techniques for Building Materials.
M89
- 80 -
BUSINESS
The table below is a summary of the average of the key functional performances, characteristics and
general applications of our products:–
1G Phoenix Stone
2G Phoenix Stone
3G Phoenix Stone
White
White
White
91
98
92
0.01%
0.004%
0.008%
2.44g/cm3
2.64g/cm3
2.50g/cm3
40 MPa
73.2 MPa
57 MPa
5
5
6
212 MPa
402 MPa
759 MPa
No crazing
No crazing
No crazing
1.72kJ/m3
2.08kJ/m3
2.80kJ/m3
No cracking, crazing,
blistering
blistering
blistering, no colour
differences
Sanitary ware and
kitchenware
Flooring material,
interior and exterior
building walls and
table tops
All applications of our
1G Phoenix Stone and
2G Phoenix Stone,
including flooring
material, interior and
and table tops
M90
M90.1
Appearance
Colour
Specular gloss(1)
Physical state and performance
Water absorption
Bulk density
Bending strength/Flexural
strength
Mohs scale(2)
Compression strength
Thermal shock resistance
Impact toughness
Reactive characteristics
High temperature resistance
General applications
Notes:
1.
2.
Specular gloss is quantified by measuring the amount of light reflected from the sample and comparing it with
the amount of light reflected when a polished black glass calibration standard is measured under the same
conditions. The glass standard is assigned a value of 100 units and in practice the highest attainable glass value
for non-metallic paints is around 95 units.
M90.2
Mohs scale characterises the scratch resistance of the sample through the ability of a harder material to scratch a
softer material. The Moh’s scale is a purely ordinal scale and ranges from 1 (very soft) to 10 (very hard).
M90.3
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BUSINESS
1G Phoenix Stone
1G Phoenix Stone is the first generation non-porous crystalised stone launched by us in 2005. Our 1G
Phoenix Stone can be manufactured with thickness ranging from 12mm to 30mm. During the Track Record
Period, the specifications of 1G Phoenix Stone that had the highest sales volume was 18mm, 20mm and
30mm.
Compared with 2G Phoenix Stone and 3G Phoenix Stone, 1G Phoenix Stone generally has lower
compression strength and impact toughness and is relatively more brittle. 1G Phoenix Stone is ideal for
undergoing further processing by our customers into sanitary ware and kitchenware such as washbasins,
bidets and countertops. Due to its raw materials combination, 1G Phoenix Stone is relatively more fragile. As
additional processing would generally yield products that are more resilient, 1G Phoenix Stone remain best
suited for sanitary ware and kitchenware.
M91
M92
M93
M94, M95
M96
M97
M98
M99
M100
For the three years ended 31 December 2012, the revenue generated from our sales of 1G Phoenix
Stone was approximately RMB86.5 million, RMB87.3 million and RMB[51.9] million respectively,
representing approximately 30.6%, 21.7% and [11.3]%, respectively of our total sales.
2G Phoenix Stone
2G Phoenix Stone is our second generation non-porous crystalised stone and is an improvement and
advancement of 1G Phoenix Stone. 2G Phoenix Stone was first commercially launched to the market in 2007.
Our 2G Phoenix Stone can be manufactured with thickness ranging from 12mm to 30mm, with 18mm being
the most popular specification among our customers during the Track Record Period.
We developed 2G Phoenix Stone as an advancement to 1G Phoenix Stone because [there was a
demand in the market for increased durability of flooring materials]. 2G Phoenix Stone generally has a higher
compression strength which contributes to its resilience as compared to 1G Phoenix Stone. 2G Phoenix Stone
products are generally applied as flooring material, interior and exterior building walls and table tops. The
improvement in the compression strength of 2G Phoenix Stone has enabled it to be used in a variety of
applications as the products are more robust and resilient.
representing approximately 69.4%, 54.0% and [61.3]%, respectively of our total sales.
M104, M105
M106
M107
M108
M109
M110
M112
3G Phoenix Stone
3G Phoenix Stone, being our third generation non-porous crystalised stone, is a further improvement
and advancement of our 2G Phoenix Stone with better functional performances. 3G Phoenix Stone was
recently launched to the market in 2011. Our 3G Phoenix Stone can be manufactured with thickness ranging
from 12mm to 30mm, with 18mm being the most popular specification among our customers during the
Track Record Period.
- 82 -
M113
M113.1
M114
BUSINESS
With its high bending strength and high resilience, 3G Phoenix Stone is ideal for undergoing further
processing and for use as flooring material, interior and exterior building walls as it allows for easy
installation. With the best functional performances among our three generations of products, our 3G Phoenix
Stone can generally be applied in all the usages and applications of 1G Phoenix Stone and 2G Phoenix Stone.
For the three years ended 31 December 2012, the revenue generated from our sales of the 3G Phoenix
Stone approximately was nil, RMB97.8 million and RMB[125.5] million respectively, representing
approximately nil, 24.3% and [27.4]%, respectively of our total sales.
The following table sets forth the sales volume of our three series of non-porous crystalised stone
during the Track Record Period:–-
M117
M118
M121
M121.1
2010
2011
2012
square metres
square metres
square metres
1G Phoenix Stone
2G Phoenix Stone
3G Phoenix Stone
378,690
637,093
[–]
386,547
704,403
268,520
224,210
797,833
338,028
1,015,783
1,359,470
1,360,071
The following table sets forth the breakdown of the revenue of our products for the Track Record
Period:–
2010
RMB’000
1G Phoenix Stone
2G Phoenix Stone
3G Phoenix Stone
2011
2012
(%)
RMB’000
(%)
RMB’000
M124.1
(%)
86,452
196,219
–
30.6
69.4
–
87,344
216,983
97,783
21.7
54.0
24.3
[51,858]
[281,327]
[125,531]
[11.3]
[61.3]
[27.4]
282,671
100
402,110
100
[458,716]
100
PRODUCTION FACILITIES
As of the Latest Practicable Date, we have two production facilities: the Hengfeng Production
Facilities and the Yunshan Production Facilities.
- 83 -
M129
BUSINESS
Hengfeng Production Facilities
App1A-28(8)
App1A-29(2)
As of the Latest Practicable Date, our Hengfeng Production Facilities located at Hengfeng Town,
Yongxiu County, Jiujiang City, Jiangxi Province, the PRC, occupied a gross floor area of approximately
46,195.10 square metres. Our Hengfeng Production Facilities first commenced operation in early 2005. As of
the Latest Practicable Date, our Hengfeng Production Facilities had [four] production lines with a maximum
designed annual production capacity of 2.27 million square metres.
The following table sets forth certain key information about our Hengfeng Production Facilities:–
GFA (square metres)
46,195.10
First commencement date of operation:
Early 2005
Number of production lines
as of 31 December 2012
[four](1)
Maximum
production
capacity(3) for
the year
(’000 square
metres)
Actual
production
volume(4) for
the year
(’000 square
metres)
Utilisation
rate(5)
1,272
1,818
1,957
1,030
1,417
1,461
81.0%
78.0%
74.6%
For the year ended 31 December 2010
For the year ended 31 December 2011
For the year ended 31 December 2012(2)
M130
M131
M132
Notes:
1.
In 2010, we upgraded one of the production lines, which increased our maximum production capacity. The
production line 4 at the Hengfeng Production Facilities commenced production in the first half of 2011.
2.
In July 2012, operation of a production line was suspended for major upgrade. The production line resumed
operation in January 2013.
M133.1
The maximum production capacity is calculated based on the manufacturing of 1G Phoenix Stone with thickness
of 18mm and the production facilities operating at 24 hours per day and 360 days per year taking into account
the ceasing of production lines for maintenance and repair.
M134
3.
4.
5.
M133
The actual production volume is calculated based on non-porous crystalised stone slabs with thickness of 18mm,
being the most popular specification among our customers during the Track Record Period, without taking into
account the difference in production time required for each of our series of products. Based on historical
operating data, the average production time required for 1G Phoenix Stone, 2G Phoenix Stone and 3G Phoenix
Stone is approximately 6.8, 7.9 and 8.4 hours, respectively.
M135
The utilisation rate is based on the actual production volume divided by the maximum production capacity.
M135.2
- 84 -
M135.1
BUSINESS
Our utilisation rate during each of the three years ended 31 December 2012 was 81.0%, 78.0% and
74.6%, respectively. For the three years ended 31 December 2012, we achieved a break-even point at
approximately 43.4%, 33.4% and 30.4%, respectively, utilisation rate at our Hengfeng Production Facilities.
M135.3
In our experience, we target to maintain the utilisation rate of our production facilities at a range of
70.0% to 80.0% based on the following reasons:
M135.4
(i)
the crucial production processes of our products include melting of raw materials at high
temperature and crystalisation of the melted materials. Different product thickness and product
series require different melting temperatures and crystalisation timing and melting rate. Time
must be allocated for the production techniques to be adjusted and controlled throughout the
production process according to the product series, thickness and specification;
(ii)
as stated in paragraph (i) above, the temperature, crystalisation point and production time
depends on the series and specifications of our products (generally, the crystalisation process
would be longer for non-porous crystalised stone slabs that are thicker). As such, our utilisation
rate must provide flexibility for adjustments;
(iii)
if our production facilities are almost fully utilised, we may not have sufficient time and
capacity to make necessary adjustments in our production techniques and processes required for
the different series and specification of our products and this may affect the quality of our
products;
(iv)
our production involves a recycling process during which the excess materials from the precutting process will be recycled and put back into the furnace;
(v)
extended dimension of non-porous crystalised stone slabs retained as rough edges for our
customers, which are not calculated as part of the production volume; and
(vi)
intermittent suspensions of the operation of our production lines are required for regular
maintenance and repairs.
According to ZhongAn, the utilisation rate of the non-porous crystalised stone industry in the PRC is
around 75% by reference to researches of ZhongAn of other PRC non-porous crystalised stone manufacturers.
Based on the above and taking into account the expansion of our Yunshan Production Facilities, we
expect our utilisation rate will remain in the range of 70% to 75% from 2013 to 2014. Our Directors believe
that to maintain our utilisation rate at such rate is reasonable and beneficial to our Group. In order to capture
growth in export sales and capture other market opportunities of crystalised stone and natural stone, we will
continue to expand our production capacity by adding new production lines.
- 85 -
M135.5
M135.6
M135.7
M135.8
M135.9
BUSINESS
Yunshan Production Facilities
We will continue to expand our production facilities to cater for our further development as well as to
satisfy the increasing demand from our customers. We recently added a new production facilities which is
located at Yunshan Economic and Technological Development Zone, Yongxiu County, Jiujiang City, Jiangxi
Province, the PRC, which is about 15 km from our Hengfeng Production Facilities.
The estimated total investment amount for the Yunshan Production Facilities is approximately
RMB700.0 million. As of the Latest Practicable Date, the aggregate investment amount used for the Yunshan
Production Facilities amounted to approximately RMB262.7 million. We expect the remaining investment
will be RMB437.3 million, whereby RMB[•••] million will be financed by internal resources and/or bank
borrowings and RMB[•••] million will be financed by [•••].
Our Yunshan Production Facilities occupies a gross floor area of approximately 39,702.87 square
metres. Construction of our Yunshan Production Facilities commenced in September 2011 and our Yunshan
Production Facilities will initially comprise of four production lines with an aggregate estimated annual
production capacity of 3.2 million square metres. The construction of the production line 1 has been
completed and it has commenced operation in February 2013. We expect the production line 2 to commence
operation in September 2013 and both the production lines 3 and 4 to commence operation in the second half
of 2014. Our Yunshan Production Facilities will principally be used for the production of the 3G Phoenix
Stone which applies higher technology standards than those involved in the production of the other two series
of our products. The production process in the Yunshan Production Facilities are highly automated which we
believe will further increase our production efficiency and lower our production costs and expenses. Our
Directors expect the Yunshan Production Facilities will contribute to the increase in our revenue and growth.
The table below sets forth the key details of our Yunshan Production Facilities:–
First commencement date of operation of production line 1:
February 2013
Construction date of production line 2:
June 2013
First commencement date of operation of production line 2:
September 2013
Construction date of production lines 3 and 4:
First half of 2014
First commencement date of operation of
production lines 3 and 4:
Second half of 2014
Expected commencement date of full operation:
Second half of 2014
Estimated total investment amount:
RMB700.0 million
Total investment amount used as of the Latest Practicable Date:
RMB262.7 million
Number of production lines:
Four
Estimated maximum designed annual production capacity (’000 square
metres):
[3,200](1)
- 86 -
M136
M137
M137.1
M137.2
M137.3
M139
M140
M141
M142
M142.1
M143
M144
M146.1
BUSINESS
Note:
1.
The maximum production capacity is calculated based on the manufacturing of 1G Phoenix Stone with thickness
of 18mm and the production facilities operating at 24 hours per day and 360 days per year taking into account
the ceasing of production lines for maintenance and repair.
M146.2
PRODUCTION PROCESS
Our production process is highly automated. We use advanced equipment and machinery along with
the use of our own patented technologies in our production. Our two registered utility model patents are used
in the manufacturing process of our products. We have been granted GB/T 19001/ISO9001 certification in
respect of the quality management in our production process. Our production equipment and machinery are
assembled in the PRC and are designed and made specifically for and to satisfy the technical requirements for
the production of our products.
M147
M148
M148.1
M148.2
M149
Typically, our production process can be divided in four major stages:–
Stage 1 – Preparation of raw materials for processing
Weigh raw materials
in accordance with
pre-determined formula
Amalgamation
of raw materials
Deposit raw materials
in the furnace
- 87 -
M149.1
BUSINESS
Stage 2 – Formation of non-porous crystalised stone slabs
M149.2
Melting of raw materials
Formation and
shaping of slabs
Crystalisation
Pre-cutting
Stage 3 – Processing and treatment
M149.3
Thickness calibration
Polishing
Cutting of slabs
to dimensions
- 88 -
BUSINESS
Stage 4 – Packaging and delivery
M149.4
Testing and packaging
Delivery
The key production process for our non-porous crystalised stone products includes the following steps.
The raw materials are weighed according to the pre-determined formula and are amalgamated and deposited
in the furnace for melting. After the raw material mixture is melted at high temperatures, the mixture is rolled
out to form slabs. The formed slabs then undergo crystalisation and are pre-cut before the thickness of the
slabs is calibrated. To ensure high levels of lustre and shine, the slabs are polished. We cut the slabs
according to specifications of our customers as stated in the sales orders. All of our products are subject to inprocess testing and quality control throughout the production process. We monitor our manufacturing process
to verify conformity with specific quality control requirements. In addition, we conduct series of tests, such
as gloss, density and hardness tests on our products to ensure that the product specifications have been
complied with consistently. Our quality control employees will test and measure each slab and record its
specifications. Further details are set out in the sub-section headed “Quality control” of this section. The
finished products that pass the inspection and testing are packed and delivered to our customers. The average
production time of our 1G Phoenix Stone, 2G Phoenix Stone and 3G Phoenix Stone is approximately 6.8, 7.9
and 8.4 hours, respectively.
M150
During the Track Record Period, we did not experience any disruption in production which materially
and adversely affected our operations and financial conditions.
M157
M152
M153
M154, M154.1
M154.2
M155
M155.1
M155.2
M155.3
M155.4
M156
M156.1
Machinery and equipment
We employ highly automated machinery and equipment in the production process, including melting
furnace, crystalisation kiln, cutting machines, polishing machines and various kilns. In general, our
production machinery and equipment have useful lives and replacement cycles of 10 years. As of 31
December 2012, the average life of our production machinery and equipment is approximately [3.2] years.
Our production equipment and machinery are assembled in the PRC and are designed and made specifically
for and to satisfy the technical requirements for the production of our products. We own all of our production
equipment and machinery. In addition to our unique production technique and process, our success is also
attributable to the continuous improvement in our production efficiency.
- 89 -
M158
M158.1
M158.1.0
M158.2
M158.2.1
M158.2.2
M158.2.2.0
BUSINESS
Maintenance and repair
Generally, our production machinery operate 24 hours a day. We have a comprehensive maintenance
system for our production facilities and equipment including scheduled downtimes for maintenance and
repairs by our qualified employees. Regular inspection of our production facilities and equipment are also
conducted by us in order to ensure that our production lines operate efficiently and at optimal levels.
Generally, our production lines currently require a complete overhaul once every three years primarily to
repair the furnace and change various other ancillary parts. Each complete overhaul requires us to cease
production on the particular production line for an average period of one month to three months. The
overhauls are conducted on one production line at a time in order not to disrupt our overall production. In
addition, we conduct assessments on our customer orders and inventory of our products prior to the overhauls
to ensure that we can satisfy our orders with the suspension of one production line and to allocate our
resources accordingly. For each of the three years ended 31 December 2012, the scheduled downtime for
maintenance, repairs and overhaul was 52, 25 and 99 days, respectively. In July 2012, we commenced
upgrade of one production line which involved the upgrade of certain machinery and equipment in the
production line to enhance production efficiency and output from only 1G Phoenix Stone to all three types of
products. The production line resumed operation in January 2013. The scheduled downtime for maintenance,
repairs and overhaul is expected to be [nil] and [60] days for 2013 and 2014, respectively. Minor
maintenance and repairs are also generally conducted on individual production line in order to not disrupt our
overall production. Based on our policy to conduct overhauls on individual production line and the
assessments conducted prior to each overhaul, our Directors confirm that we did not experience any
disruption in production which materially adversely affected our operations and financial conditions during
the Track Record Period.
- 90 -
M158.2.3
M158.2.4
M158.3
M158.4
M158.9
M158.11
M158.12
M158.12.1
M158.12.2
M158.13
M158.14
M158.15
M158.16
BUSINESS
PROCUREMENT AND SUPPLIERS
The table below sets forth the breakdown of our total purchase of raw materials and coal for the three
years ended 31 December 2012:–
M158.17
2010
2011
2012
% of our
% of our
% of our
total
total
total
RMB’000
purchase
RMB’000
purchase
RMB’000
purchase
Coal
Soda ash (純鹼)
Calcite powder (滑石粉)
Quartz sand (石英砂)
Others1
32,552
8,420
8,811
10,842
8,056
–
6,235
17,428
35.3
9.1
9.5
11.7
8.7
–
6.8
18.9
33,409
25,042
17,181
15,890
13,554
8,525
9,363
25,330
22.5
16.9
11.6
10.7
9.1
5.7
6.4
17.1
33,441
24,557
18,168
14,214
12,737
10,954
8,920
33,632
21.4
15.7
11.6
9.1
8.1
7.0
5.7
21.4
92,344
100
148,294
100
156,623
100
Note:–
1
Other raw materials procured by us include sodium nitrate, fluorite powder, calcite powder, etc.
Raw materials and parts and components
Our principal raw materials include quartz sand (石英砂), lithium feldspar powder (鋰長石粉), soda
ash (純鹼), potassium carbonate (碳酸鉀) and sodium fluorosilicate (氟硅酸鈉). Our principal parts and
components include metal accessories (五金配件), packaging materials (�裝材料), abrasive tools (磨具) and
saw blades (鋸片). Coal is also procured by us as fuel for the furnaces in our production process. We source
our raw materials and parts and components from multiple suppliers in the PRC.
M159
M160
M161
Our procurement team is responsible for the purchase of raw materials and parts and maintains an
inventory to satisfy our production needs. Our policy is to maintain inventory of raw materials of not less
than 15 days and inventory of parts and components of not less than five days to meet our production needs.
M163
M164
Procurement of raw materials and parts and components are normally carried in the following manner:
M165
–
regular procurement: for commonly used raw materials and parts and components, we purchase
these raw materials and parts and components from time to time on a regular basis based on the
monthly projection.
- 91 -
M165.1
BUSINESS
–
specific procurement: for raw materials and parts and components required for specific purpose,
we will purchase such parts and components on a case by case basis pursuant to the customers’
orders and projected demands.
Our procurement team would procure the raw materials necessary based on the monthly production
plans and projections formulated by our production team. The monthly production plans and projections
formulated by our production team is primarily based on internal sales forecast and the sales orders received
from our customers which must be fulfilled during the relevant period. It is our policy to request for price
quotations from the suppliers from our list of qualified suppliers to obtain the best price for the raw materials
and the parts and components. In addition to procuring raw materials and parts and components based on the
monthly projections, our procurement team may occasionally also make purchases to satisfy unexpected or
urgent sales orders. We would then enter into purchase agreements with the selected suppliers. Our quality
control employees conduct sampling inspection on the raw materials and parts and components.
We maintain long term business relationships with our key suppliers to secure a stable supply of raw
materials. Purchase price is usually determined based on the prevailing market price when we place a
particular purchase order. Any significant increase in the prices of our principal raw materials would have a
significant impact on our cost of sales and we may experience difficulties in passing on these increased cost
to our customers. As of the Latest Practicable Date, we did not have any hedging arrangements protecting us
from price fluctuations in raw materials nor do we have any cost control measures to mitigate fluctuation of
raw material prices. Please refer to the section headed “Financial Information – Price of major raw materials
and coal” in this document for the sensitivity analyses on the price fluctuation of key components of our cost
of sales.
M166
M167
M168
M169
M170
M170.1.1
M170.1.2
M170.1.3
M170.1.4
M170.1.5
Coal
Coal is used as fuel in our production of non-porous crystalised stone. We purchase coal from third
party coal suppliers in the PRC. We generally enter into supply agreements with each of our coal suppliers on
a case-by-case basis. These agreements contain provisions for the return of goods in the event that the supply
fails to meet the required quality.
Our average price of coal during the three years ended 31 December 2012 were RMB1,143,
RMB1,011 and RMB997, respectively per tonne.
M170.2
M170.3
M170.4
M170.5
M170.7
Electricity
We obtain our electricity supply on grid from the electricity supply bureau of Jiangxi Province. Our
electricity consumption for the period ended 31 December 2010, 2011 and 2012 amounted to [29.7 million]
kWh, [26.8 million] kWh and [[23.4] million] kWh, respectively.
During the Track Record Period, our average on grid electricity price per kWh (inclusive of VAT) was
RMB[0.75], RMB[0.77] and RMB[0.82], respectively. Our electricity costs amounted to approximately
RMB[19.1] million, RMB[17.6] million and RMB[16.3] million, respectively. We have a diesel back-up
power supply facility which enables us to maintain a certain level of operation if there is a blackout or
shortage of electricity.
- 92 -
M170.9
M170.10
M170.10.1
M170.10.2
M170.11
BUSINESS
For the three years ended 31 December 2012, the cost of purchasing electricity accounted for
approximately [11.0]%, [7.8]% and [6.7]%, respectively of our total cost of sales.
M170.13
During the Track Record Period, we did not experience any electricity shortage that had a material
impact on our production.
M170.13.1
Suppliers
As of the Latest Practicable Date, we had a total of approximately [135] suppliers. We believe we
have established stable relationships with our major suppliers which enable us to obtain a reliable supply of
raw materials and parts and components. During the Track Record Period, all of our suppliers are located in
the PRC and [half] of them were located in the Jiangxi Province, which allow us to enjoy logistics and
delivery benefits from the close proximity and easy access. Given our raw materials and parts and
components are widely and commonly used, we believe there are readily available alternative suppliers for
our raw materials and parts and components and we do not foresee any difficulty in obtaining an adequate
and timely supply.
M171
We have implemented a strict procedure in selecting our suppliers. Our procurement team will collect
the background information of our potential suppliers through direct contacts and independent checks.
Thereafter, we will inspect and assess the potential suppliers from various aspects, including their scale of
operation, quality control system, quality, price and delivery time and financial position. More favourable
terms offered under the supply agreements by suppliers will also be a factor we look into in selecting our
suppliers. Having completed all the selection criteria, we will compile a report on our potential suppliers and
submit such report for approval by the manager of our procurement team and our general manager.
M175
M176
M177
M178
We evaluate our suppliers on an annual basis on their prices, services, time and stability in delivery,
supply co-ordination capacity, production size, financial position and management system.
Our raw materials and parts and components suppliers are Independent Third Parties located in the
PRC. Our suppliers generally grant to us a credit period of 30 to 60 days. During the Track Record Period,
we principally settled our payments with our suppliers in RMB by telegraphic transfer and bank bills.
Since we do not foresee any difficulty in sourcing substitute suppliers for our raw materials and parts
and components, we do [not] enter into any long-term supply agreements with our suppliers. Instead, we
place individual purchase orders with our suppliers on a case-by-case basis. Generally, these purchase orders
provide that substandard raw materials and parts and components shall be returned unconditionally.
During 2012, we applied bank acceptance bills of approximately RMB[109.5] million and these bank
acceptance bills were delivered to suppliers as prepayments for raw materials, coal and electricity. As of 31
December 2012, such bank acceptance bills obtained, which were delivered to suppliers, amounted to
approximately RMB[21.5] million and were disclosed under other commitments in our financial information.
In addition to the four production lines at the Hengfeng Production Facilities, the commencement of
operation of the first production line at the Yunshan Production Facilities, which is located at a separate
location from our Hengfeng Production Facilities, in 2013 would require us to procure additional raw
materials, coal and electricity for production. In order to avoid any negative effects of the fluctuation in the
price of raw materials, coal and electricity and to ensure an adequate supply for our production needs, we
- 93 -
M172
M173
M174
M179
M180
M181
M185
M186
M187
M189
M190
M191
Co III (24)
App1A-28(3),
M191.1
M191.2
M191.3
BUSINESS
entered into supply agreements with 11 suppliers. Under such supply agreements, the price of the raw
materials, coal and electricity was capped at a specified price and in consideration of the fixed maximum
capped price obtained from the suppliers, we made prepayments to the suppliers. Our Directors confirm that
the supply agreements (including the terms of prepayment) were entered into on an arm’s length basis upon
normal commercial terms. The suppliers are principally engaged in selling and trading of industrial chemicals
and raw materials (such as coal, quartz sand, fluorite powder, calcite powder) and the provision of liquefied
gas and electricity. We have had past business relationships with each of the 11 suppliers and over three
years of business relationships with two-thirds of these 11 suppliers. Our Directors believe that such suppliers
do not consider our credit risks to be relatively high as we have made payments in due course to the suppliers
under previous supply agreements with the suppliers. Our Directors believe that such prepayments made to
suppliers are not a common industry practice and we expect that such prepayments were non-recurring in
nature and made on a one-off basis in order to procure additional materials, coal and electricity for the
commencement of operation of the first production line at our Yunshan Production Facilities, which is
located at a separate location from our Hengfeng Production Facilities. As such, our Directors confirm that
we do not expect to make advance prepayments to suppliers in the future in contemplation of our expansion
plans at the Yunshan Production Facilities. For the three years ended 31 December 2012, we have transaction
amounts, VAT inclusive, to these 11 suppliers, in aggregate, amounting to approximately RMB[68.6 million],
RMB[115.4 million] and RMB[257.9 million]. Apart from the aforesaid prepayments made to the 11
suppliers, we did not make any other similar prepayments during the Track Record Period.
M191.3.1
For the three years ended 31 December 2012, purchases from our five largest suppliers accounted for
approximately [77.5]%, [56.1]%, and [75.2]%, respectively, of our total purchases and purchases from our
largest supplier accounted for [35.3]%, [14.7]%, and [21.4]%, respectively, of our total purchases. Our five
largest suppliers are all located in the PRC and are engaged in the business of producing and selling
industrial chemicals and raw materials or coal. The majority of our five largest suppliers have had business
relationships with us for more than three years. Our Directors confirm that each of our five largest suppliers
are Independent Third Parties and none of our Directors, their respective associates or any Shareholder
holding more than 5% of the issued share capital had any interest in any of these five largest suppliers during
the Track Record Period.
App1A.28(1)(b)
(i),(ii)
We have not experienced any material disruption or dispute in relation to the supply of our raw
materials and parts and components during the Track Record Period.
M199
M191.3.2
M191.4
M191.5
M191.6
M191.6.1
M191.7
M191.8
M191.9
M191.10
M191.11
M197
M198
SALES AND MARKETING
Our sales and marketing strategies primarily focus on increasing our sales to our existing customers
and expanding our sales network.
M199.1
During the Track Record Period, we principally sold our products to domestic enterprises in the PRC.
We also exported our products to overseas countries.
M200
M201
Our domestic sales are widely spread to cover customers in Beijing, Shanghai, Fujian Province,
Guangdong Province, Zhejiang Province, Jiangsu Province, Jiangxi Province, Shangdong Province, Liaoning
Province, Anhui Province and Sichuan Province. During the Track Record Period, majority of our domestic
sales were made to customers in Fujian Province and Guangdong Province. For the three years ended 31
- 94 -
M204
M205
BUSINESS
December 2012, sales to customers in [Fujian Province] accounted for approximately [47.4]%, [45.9]% and
[30.7]%, respectively, of our total revenue and sales to customers in [Guangdong Province] accounted for
approximately [12.2]%, [19.3]% and [16.9]%, respectively, of our total revenue.]
M206
In addition to domestic sales, we also directly exported our products to overseas customers in Hong
Kong, Brazil and the UAE. The following table sets forth the breakdown of our sales to domestic and
overseas customers during the Track Record Period:–
M207
M208
2010
RMB’000
2011
2012
(%)
RMB’000
(%)
RMB’000
(%)
Domestic sales
Overseas sales
278,704
3,967
98.6
1.4
388,809
13,301
96.7
3.3
[407,330]
[51,386]
88.8
11.2
TOTAL
282,671
100.0
402,110
100.0
[458,716]
100.0
Our products are delivered to our overseas customers under free on board (FOB) basis. According to
such arrangements, we would be responsible for arranging delivery from our production facilities to specified
ports in the PRC and our products’ legal title, risks and rewards, among others, pass to the overseas
customers at the spot of exporting ports in the PRC when our products pass the rail of ships appointed by the
overseas customers.
Our overseas customers are responsible for the declaration of customs for our products to those
overseas countries and are responsible for ensuring that our products are in compliance with the relevant
overseas laws and regulations (including import regulations, quotas, product quality and safety, consumer
protection, etc.). Under the FOB arrangements, we are not directly responsible for paying any duties or
tariffs. The overseas customers, as importers, are responsible for tariffs and related expenses, which is in line
with the industry practice. Our Directors confirm that they are not aware of any overseas laws or regulations
on the import of our products. During the Track Record Period and up to the Latest Practicable Date, we
neither received nor were we aware of any claims for non-compliance of overseas laws and regulations. Our
Directors and senior management will closely monitor the trading policies and international trade information,
including laws and regulations on imported goods, of the jurisdictions where our existing or potential
overseas customers are located.
M208.1
M208.2
M208.3
M208.4
M208.5
M208.6
M208.7
M208.8
Our customers
Trading companies
Our products are sold to trading companies overseas and in the PRC and they further sell our products
to their own customers. Trading companies include companies which are in the business of trading various
products including decoration and building materials. We are not involved in any sales and marketing of our
products sold by these trading companies nor do we have any policy to monitor sales of our products by
these customers. We do not enter into long term sales agreements with the trading companies and our
products are sold to trading companies on an order-by-order basis which, to the best knowledge of our
- 95 -
M208.9
M208.10
M208.11
BUSINESS
Directors, are then further sold to their overseas and domestic customers. We have had an average of
approximately two years of business relationship with our trading company customers. Due to the nature of
the trading business which depends on the orders from their customers, the number of new customers and
customers that did not place recurring sales orders is relatively larger compared to our other types of
customers.
M208.12
M208.13
Wholesalers
We sell our products to wholesale customers, which are in the business of wholesaling, and they sell
our products at their own stores to their customers. Our wholesale customers operate their own stores located
both in the PRC and the overseas. We have had an average of more than five years of business relationship
with our wholesaler customers. We do not enter into long term sales agreements with these wholesalers but
enter into individual sales orders with wholesalers and our products are sold to them on a case-by-case basis.
We are not involved in any sales and marketing of our products by these wholesalers nor do we have any
policy to monitor sales of our products by these customers.
M208.14
M208.15
M208.16
M208.17
Our products are sold to processing companies in the PRC and overseas and they have the capabilities
to further process our products into sanitary ware, kitchenware and other products. We have had an average
of approximately four years of business relationship with our processing company customers. We do not
enter into long term sales agreements with the processing companies and our products are sold to them on an
order-by-order basis. After processing our products into sanitary ware, kitchenware or other products, to the
best knowledge of our Directors, the processing companies sell the processed products to their own
customers. We are not involved in any sales and marketing of our products by these processing companies
nor do we have any policy to monitor sales of our products by these customers.
Record Period:–
2010
RMB’000
Trading companies
Wholesalers
2011
(%)
RMB’000
(%)
2012
RMB’000
(%)
147,073
83,779
51,819
52.0
29.7
18.3
239,905
95,975
66,230
59.7
23.8
16.5
218,080
142,298
98,338
47.5
31.1
21.4
282,671
100.0
402,110
100.0
458,716
100.0
- 96 -
M208.18
M208.19
M208.20
M208.21
M203
BUSINESS
The following table sets forth the gross profit and gross profit margin by sales channels during the
2010
RMB’000
Trading companies
Wholesalers
2011
(%)
RMB’000
(%)
2012
RMB’000
(%)
57,148
32,280
19,382
38.9
38.5
37.4
104,971
41,591
28,630
43.8
43.3
43.2
105,358
64,939
45,761
48.3
45.6
46.5
108,810
38.5
175,192
43.6
216,058
47.1
The following table sets forth the number and the movement of each type of our customers during the
As of
Addition
1 January 2010 during the year
Trading companies
Wholesalers
54
10
11
34
8
1
As of
Addition
Trading companies
Wholesalers
81
18
11
55
3
6
- 97 -
Customers that
did not place
recurring sales
orders during
the relevant
As of
year 31 December 2010
7
0
1
81
18
11
Customers that
did not place
recurring sales
orders during
the relevant
As of
49
5
3
87
16
14
M203.1
M203.2
BUSINESS
As of
Addition
Trading companies
Wholesalers
87
16
14
49
4
4
Customers that
did not place
recurring sales
orders during
the relevant
As of
50
4
4
86
16
14
Our customers are not distributors as we do not have any control or influence as to (i) how the
customers re-sell our products onward to their own customers; (ii) their credit and pricing policy of our
products; and (iii) their modes of operation and their management of their own sales networks.
M203.3
We do not enter into long-term sales agreements with our customers. Instead, we enter into individual
sales order with our customers on a case-by-case basis. These sales orders will in general provide for product
standards and specifications, specific requirements for packaging of our products, payment terms and
settlement terms. The sales orders generally provides that the defaulting party shall pay to the other party a
penalty of 20% of the purchase price of the goods if we fail to deliver the goods on time or if the customers
terminate the sales orders.
M209
M209.1
For the two years ended 31 December 2011, the sales to our five largest customers accounted for less
than 30% of our total sales. For the year ended 31 December 2012, sales to our five largest customers
accounted for approximately 30.4% of our total sales. Our largest customer accounted for 10.1% of our total
sales in 2012. Our five largest customers are trading companies, wholesalers and processing companies and
each of them had business relationship with us for more than one year. Our Directors confirm that each of
our five largest customers are Independent Third Parties and none of our Directors, their respective associates
of any Shareholder holding more than 5% of the issued share capital had any interest in any of these five
largest customers during the Track Record Period. Our customers do not have any past or present relationship
with our Group, our Shareholders, our Directors, our senior management and any of their respective
associates.
App1A-28
(1)(b)(vii)
M216
App1A-28
28(1)(b),
M216.1
M210
M211
M216.2
M216.3
M216.4
M216.5
Framework agreements
In view of the expansion of our production capacity as a result of the establishment of our Yunshan
Production Facilities, in 2013, we entered into framework agreements with some of our key customers. Our
framework agreements specify the minimum purchase amounts of non-porous crystalised stone during the
term of the agreements and the customers are required to pay a compensation of 10% of the shortfall of the
minimum purchase amount if they fail to meet the minimum purchase amount. The unit selling price of our
products was not fixed in the framework agreements and will be based on the uniform selling price at the
time of placing sales orders. The agreements will be automatically renewed for a period of one year upon
expiry of their initial term on 31 December 2013, subject to the termination of the agreements by either party
by prior written notice. Our customers are required to purchase our products from us on an exclusive basis
and the customers may be required to pay all loss and damages suffered by us if they purchase non-porous
- 98 -
M216.6
M216.7
M216.8
BUSINESS
crystalised stone from other manufacturers. We may offer discounts to our customers pursuant to the
framework agreements. The orders pursuant to the framework agreements will be made by individual sales
orders placed by our customers.
M216.9
M216.10
M216.11
Based on the framework agreements signed with some of our customers, the total indicative minimum
sales volume during the period from May 2013 to December 2013 is 1.02 million square metres and 2.03
million square metres in 2014.
M216.12
Our PRC legal adviser, Beijing Tian Yuan Law Firm, has confirmed that these framework agreements
are valid and legally binding on the parties to the agreements and are enforceable under the PRC laws within
the term of validity.
M216.13
We believe that it is beneficial to us to enter into framework agreements with only selected customers
because of the fluctuations in the market demand and supply for non-porous crystalised stone. The framework
agreements will also allow us to efficiently allocate our resources accordingly and to better manage
production schedules.
M216.14
M216.15
Sales strategy
Our sales team is responsible for developing new customers, handling sales orders and formulating our
sales policy. At present, we sell our products through direct contact with our customers. Our sales employees
directly contact our customers and communicate with them regularly to collect information on their
feedbacks, preferences, specifications and general requirements with respect to our products. Based on this
information, we are able to research and develop our products to meet our customers’ requirements in a
timely manner. In addition, our sales team communicates regularly with each of our other teams to ensure up
to date information exchange.
M230, M231
M232
M233
M234
Marketing and promotion
We believe that effective marketing is important in expanding our market share and gaining
recognition from potential customers. Our sales team is responsible for conducting marketing activities and
building relationships with potential customers. We use various marketing channels to promote our brand
recognition, reputation and productions, including placing advertisements in billboards, industry magazines
and internet. We actively market our products overseas and in the PRC by participating in industry trade
shows and exhibitions. During the Track Record Period, we participated in certain exhibitions in the PRC,
Brazil, Middle East and Italy, such as the China Xiamen International Stone Fair (中國廈門國際石材展覽
會), International Trade Fair for Stone Design and Technology 2012 (2012年意大利維羅納國際石材展覽會)
and Victoria 2012 Stone Fair (2012年巴西維多利亞國際石材展覽會), to meet and approach new customers.
From time to time, our sales personnel collect and analyse market information to enable our Group to keep
abreast with the market trends and needs of the customers.
We will develop our market share and new domestic customers in locations such as Xi’an, Wuhan and
Chengdu. At the same time, we also strive to explore the overseas markets and increase our export sales to
overseas markets such as South Africa, Europe and the Middle East.
- 99 -
M234.1
M234.2
M234.3
M234.4
M234.5
M234.6
M246
M247
BUSINESS
For the three years ended 31 December 2012, our advertising expenses and exhibition fees represented
approximately [1.3]%, [0.8]% and [0.5]%, respectively, of our total revenue.
M248
Pricing strategy and credit period
Our pricing strategy and pricing policy takes into account a number of factors, including market price,
projected production volumes, specification requirements, raw material, coal and energy costs, logistics and
other expenses and available production capacity, as well as our strategic business objective and plans. Any
fluctuation in the price of our raw materials may impact our production cost, which we may also take into our
consideration in our pricing strategy. We generally offer uniform selling prices to most of our customers. We
will review and adjust our selling price from time to time taking into account factors as stated above.
Our products with thicknesses of 18mm, 20mm and 30mm accounted for the highest sales volume
among different thicknesses of our products. The following table sets forth the average selling price of our
products with the above thicknesses during the Track Record Period:–
M217
M218
M218.1
M218.2
M219
2010
2011
2012
RMB per
RMB per
RMB per
square metre
square metre
square metre
1G Phoenix Stone
18mm
20mm
30mm
Average
2G Phoenix Stone
18mm
20mm
30mm
Average
3G Phoenix Stone
18mm
20mm
30mm
Average
Overall
202
232
396
228
202
220
460
226
194
225
427
231
307
427
–
308
306
322
–
308
315
351
556
353
–
–
–
–
364
–
–
364
371
381
590
372
278
296
337
The increase in the overall average selling price of our products from RMB278 per square metre in
2010 to RMB296 per square metre in 2011 and further to RMB337 per square metre in 2012 was mainly
attributable to (i) the increase of sales of products with thicker specifications which had higher selling prices;
and (ii) the launch of our 3G Phoenix Stone, which had a higher average selling price.
- 100 -
M219.1
BUSINESS
A sensitivity analysis on the average selling price of our products during the Track Record Period is
set forth below, which illustrates the hypothetical effects on our net profit with 5%, 10% and 15% increase or
decrease of the average selling price, representing the maximum fluctuation of our average selling price.
average selling price of
+/-5%
+/-10%
+/-15%
RMB’000
RMB’000
RMB’000
+/-12,367
+/-15,079
+/-17,202
+/-24,734
+/-30,158
+/-34,404
M219.2
M219.3
+/-37,101
+/-45,237
+/-51,606
We usually grant credit periods to our customers ranging from 30 days to 90 days based on various
factors including their scale of operation, their development prospects, our business relationship and history
with them. For new customers, we would mainly consider their scale of operation and credit will not be
granted if customers do not meet these criteria. We believe that our control over our trade receivables is
adequate and we did not sustain any loss resulting from bad debts or experience any major defaults in
payments during the Track Record Period. For further details of our accounts receivable, please refer to the
paragraph headed “Financial Information – Trade and other receivables” in this document.
M220
M221
M221.1
M221.2
Our domestic customers mainly settled their payments in RMB by way of telegraphic transfer. Our
overseas customers mainly settled their payments in U.S. dollars by way of telegraphic transfer. For the three
years ended 31 December 2012, the payments received by us in U.S. dollars accounted for approximately
[1.3]%, [2.9]% and 9.5%, respectively, of the total payments received.
M222
M223
We have not adopted any arrangement to hedge any fluctuation in the foreign currency in relation to
our overseas sales during the Track Record Period.
M226
M224
Delivery and logistics
Prior to 1 March 2011, delivery of our products to domestic customers were either (i) arranged by the
customer or (ii) arranged by us. If delivery was arranged by us, we would arrange for third party logistics
service providers to deliver our products from our production facilities to specified locations and pursuant to
the logistics agreements, the logistics service providers were responsible for any product damage caused
during delivery. Under such arrangement, the legal title, risks and rewards of our products are passed to our
customers upon acceptance of goods at the specified locations. The average delivery time prior to 1 March
2011 was one day. If delivery was arranged by the customer, the customer would assume responsibility for
any damage caused during delivery. The legal title, risks and rewards of our products are passed to our
customers on the date of delivery. Under such arrangement, the customers who elected to arrange for their
own delivery may not be familiar with the transportation routes to our production facilities which caused
delays for customers to reach our production facilities. In addition, the logistics service providers arranged by
the customers would often combine various orders for delivery to multiple locations which may increase the
whole arrangement time to the customers. As such, the customers who elected to arrange their own delivery
- 101 -
M235
M235.1
M235.2
M238
M238.1
M239
M239.1
M239.3
BUSINESS
would experience a prolonged time from arranging logistics service providers to receiving the products while
delivery time was approximately one day. As such, we decided to change our delivery policy to manage the
delivery process of our products.
Subsequent to 1 March 2011, delivery of our products to our customers was arranged by us only by
selected logistics service providers who are familiar with the transportation routes to our production facilities.
We believe that the change in our delivery policy was an initiative taken by us in order to provide better
services to our customers as the new policy allowed us to better control the timing and quality of the delivery
of our products. As a result of the change in our delivery policy, we were able to reduce the whole
arrangement time while the delivery time remained the same. During the Track Record Period, we outsourced
the delivery of our products to logistics service providers, all of which are Independent Third Parties.
According to the logistics agreements, the logistics service providers are responsible for any product damage
caused during delivery. Through these arrangements, we are able to reduce our capital investment in logistics
and eliminate the risk of liability for loss during transit. For the three years ended 31 December 2012, our
delivery cost in contracting Independent Third Party logistics service providers represented [1.3]%, [3.5]%
and [2.9]%, respectively, of our total revenue.
Products sold to our overseas customers are delivered by shipment on free on board (FOB) basis, i.e.
we are responsible for arranging delivery from our production facilities to specified ports in the PRC. Under
such arrangement, the legal title, risks and rewards or our products are passed to our overseas customers
when our products pass the rail of ships at the port of shipment. Our overseas customers arrange delivery of
our products primarily by cargo vessels. We believe that such mode of delivery to our overseas customers is
relatively low as compared to other modes of delivery (such as by aircraft). Our Directors confirm that we did
[not] experience any material disruption to the delivery of our products during the Track Record Period.
M239.4
M239.5
M239.6
M239.7
M239.8
M239.9
M239.10
M239.11
M240
M241
M242
M243
M244
M245
AFTER-SALES SERVICES
Our sales personnel contact our customers to collect information and communicate with them regularly
on their needs, preferences, special requirements, general demands and feedbacks with respect to our
products. We will analyse the information collected and exchange such information with our other teams and
follow up with any queries and feedbacks from our customers. Most importantly, we will enhance our
existing products and research and develop new products in response to feedbacks from our customers.
If customers request for exchange of our products due to its own reasons such as requests for different
specifications, we will exchange the products and the customers will be responsible for the cost of the
product exchange. If there are any defects in our products, we may offer discounts ranging from
approximately 10% to 30% of the price of the defective products as compensation to the customers subject to
the extent of the defects and upon negotiations with the customers. The cost of the product exchange related
to defective products will be borne by us and the customer equally. We do not accept return of products from
our customers.
During the Track Record Period, we did not receive any requests for product exchange, make any
compensation or offer any discount to customers. No warranty provision was made during the Track Record
Period.
- 102 -
M249
M250
M251
M253
M253.1
M254
M255
M255.1
M256
BUSINESS
RESEARCH AND DEVELOPMENT
We believe that our product development capabilities enable as to develop non-porous crystalised
stone with features such as zero water absorption and enhanced compression and bending strengths. In order
to produce non-porous crystalised stone with reliable functional performance and characteristics, we have
focused, and will continue to focus on our research and development in improving the quality and functional
performances of our products.
As of the Latest Practicable Date, our research and development team comprised of 47 employees and
is led by Mr. Zhu, our executive Director and President. Mr. Zhu graduated from Wuhan University of
Technology (武漢理工大學) with a bachelor’s degree in chemical ceramic (化工陶瓷) in 1997 and has about
16 years of experience in the decoration and building materials industry. Other key team members are
university graduates and in general have more than six years of experience in the research and development
of decoration and building materials.
As of the Latest Practicable Date, we had a total of three registered patents. Two of the patents are
utility model patents which are used in the production process of our products. The third one is an invention
patent which is used in the production process of 3G Phoenix Stone and it was granted the Gold Award in
China International Patent and Brand Expo in 2009.
Our three series of products, namely 1G Phoenix Stone, 2G Phoenix Stone and 3G Phoenix Stone,
were developed by our research and development team. Recently in late 2012, we have successfully
developed non-porous crystalised stone that are black and ivory in colour thereby expanding our product
offerings. The new products will have the same functional performances and characteristics of 3G Phoenix
Stone. Our newly developed non-porous crystalised stone in black and ivory have not been officially
launched to the market and we have not sold non-porous crystalised stone in black or ivory as of the Latest
Practicable Date. We will launch the new products to the market as and when considered appropriate by our
Directors after taking into factors such as market acceptance and demand and our production capacity. With
the expansion plan of our production facilities, we intend to launch the non-porous crystalised stone in black
and ivory to the market in 2014. Our Directors believe that the addition of the new products will further
solidify our Company’s position in the crystalised stone industry and will attract new customers for our
Group. The development of non-porous crystalised stone in different colours involve researching and testing
of the product formula to develop a precise product formula customised for the specific colour of non-porous
crystalised stone without compromising on the quality. The product formula would also be required to be
tested with various melting temperatures and levels of crystalisation as variations of the product formula may
affect the melting temperature and levels of crystalisation which may in turn affect the functional
performances and characteristics of the resulting product. As such, the development of non-porous crystalised
stone in various colours requires a certain level of experience and capability in the development and
manufacturing of non-porous crystalised stone. Our Group will continue to explore new product opportunities
and improve our production techniques and technologies so as to effectively capture customers’ preferences
and needs.
To enhance our research and development capacity, we have appointed Mr. Shi Zheng Dong as our
consultant to provide advice and consulting services to us since May 2012, at an annual remuneration of
RMB120,000. He has been providing advice and recommendations on our production process including
improvement plans on the furnace and energy saving methods. Mr. Shi Zheng Dong has entered into an
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M258
M259
M260
M260.1
M260.2
M260.3
M260.4
M260.6
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M262
M262.0
M262.0.1
M262.2
M263
M264
M264.1
M264.2
M264.3
M265
M266
BUSINESS
employment agreement with us and has agreed to be bound by the non-disclosure and exclusivity obligations
relating to our production techniques and trade secrets. Mr. Shi Zheng Dong graduated from Wuhan Institute
of Iron and Steel (武漢鋼鐵學院) (currently known as Wuhan University of Science and Technology (武漢
科技大學)), where he studied metallurgy and silicate from 1973 to 1976. From 1985 to 1986, he studied at
the East China Institute of Science and Technology (華東化工學院) (currently known as East China
University of Science and Technology (華東理工大學)), focusing on inorganic materials and operation of
furnaces. Mr. Shi Zheng Dong was awarded the Labour Award Certificate in April 1993 by the All China
Federation of Trade Unions for his work in technology. Mr. Shi Zheng Dong was also awarded the
Government Subsidy Certificate (政府特殊津貼證書) for his skills in the engineering field by the PRC
Government in April 1997.
We have cooperated with a research institution in Jiangxi Province since 2007 for development and
improvement of some of our production techniques, product quality and performance. The cooperation
agreement provides that we would provide the information and materials necessary for further development
and improvement of our production techniques, product quality and performance would be provided by us to
the research institution. The research institution would provide technical support if required by us during
production. Pursuant to the cooperation agreement entered into between this research institution and our
Group, the intellectual property rights relating to our production techniques developed by it were owned by
our Group. The research institution also undertook to our Group that it would not disclose any information
relating to our production techniques to third party without our prior consent.
Our three generations of non-porous crystalised stone were developed by our research and
development team, led by Mr. Zhu. In general, our products are developed in three stages: initial
development, testing and trial production. In the initial development stage, the product formula is formulated
and tested with various melting temperatures and levels of crystalisation. The comparative results of the
different variables and components are tested to ensure optimal results from the initial development stage.
The testing stage involves applying the results from the initial development stage to a full production process.
The products from the testing stage undergo physical performance and reactive characteristics testing and
analysis to ensure the overall quality of our products. The trial production is conducted to ensure that the
product can be manufactured on a mass production scale at our production facilities.
During the Track Record Period, our research and development and product improvement efforts were
mainly focused on improving our production process, enhancement of product quality as well as the product
feature improvement and the development of non-porous crystalised stone that are black and ivory in colour.
Our total expenditures resulted from the aforementioned activities amounted to approximately RMB[1.3]
million, RMB[1.7] million and RMB[10.9] million, respectively, for each of the three years ended 31
December 2012, representing approximately [0.5]%, [0.4]% and [2.4]%, respectively, of our revenue over the
same period. Our average research and development expenditures were relatively less during the Track
Record Period as the research and development efforts during the period were on the refinement and
improvement of our existing products which did not involve significant capital expenditure.
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M269.1
M270
M270.1
M270.2
M270.3
M270.4
M270.5
M270.6
M270.7
M270.8
M270.9
M270.10
M270.11
M270.12
M280
M280.1
BUSINESS
INVENTORY MANAGEMENT
We monitor and control the inventory levels of our raw materials, coal and parts and components and
finished products to optimise our operations, sales and delivery of our products. Our inventory primarily
consists of raw materials, coal and parts and components and finished products of non-porous crystalised
stone. Our procurement team work closely with our production and sales teams to formulate the monthly
projections of our procurement based on our production needs.
The raw materials and coal procured by us are stored in our storage facilities, which are located at our
production facilities. Since our finished products are temperature and humidity resistant, they are not required
to be stored indoors in specific storage facilities.
We have installed inventory management software such that our inventory management employees are
able to closely monitor and keep track with our inventory level and respond to inventory needs on a timely
basis. We generally conduct monthly stock-take on a sampling basis of our inventory level and conduct full
stock-take annually. Our policy is to maintain an average 15-day inventory of raw materials to meet our
production needs and five-day inventory of parts and components for maintenance and repair of our
production machinery and equipment.
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M283
M284
M285
M286
M288
M289
QUALITY CONTROL
Our quality control team is in charge of applying and monitoring consistent and strict standards for our
products. We have implemented quality control procedures throughout our manufacturing process. We
monitor our manufacturing process closely and conduct performance and reliability testing to ensure our
products meet our customers’ expectations. In addition, we seek regular feedback from our customers on the
quality of our products. We strive to resolve any quality issues on-site before delivery of products to prevent
returns or exchange of products.
Our quality control team, which as of the Latest Practicable Date consisted of 38 employees (including
20 employees that are also involved in the research and development aspects of our operations), is
responsible for establishing strategies, standardised programs and quality control reporting. Most of the
employees in our quality control team have relevant experience in quality control. We also provide induction
programs and training to our quality control employees to ensure that they have the requisite quality control
knowledge.
Our quality control process includes:–
M290
M290.1
M291
M292
M293
M295
M295.1
M295.2
M296
Inspection of raw materials and components
We closely monitor the quality of our raw materials and components. Our quality control team
conducts sampling tests on the raw materials and components purchased from qualified suppliers to ensure
compliance with quality standards. Pursuant to the purchase orders entered into with our suppliers, any
substandard raw materials and components shall be returned unconditionally.
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M298
M299
BUSINESS
In-process quality control
We also monitor our manufacturing process to verify conformity with specific quality control
requirements. In the polishing production process (拋光), we will use the automatic light sensor to monitor
the lustre and gloss of our products. Quality testing will also be conducted after the cutting process to ensure
that the products have met the density, hardness and solidity requirements. Each slab will be measured by our
quality inspection employees for actual thickness and levelness and the specifications will be recorded. We
also conduct colour tests to ensure that there are no deviations.
M300
M301
M302
M302.1, M302.2
In addition to inspection during the production process, we submit our sample products to the National
Research Centre of Testing Techniques for Building Materials (國家建築材料測試中心) for testing at least
once annually. On occasion, our customers will also conduct an on-site inspection. Our Directors confirm that
we have not received any reports from our customers for failing to pass their on-site inspection conducted by
them during the Track Record Period and up to the Latest Practicable Date.
M303, M303.1
In 2005, we obtained the GB/T 19001/ISO9001 series certification which was renewed in 2011 in
respect of our quality management system in our production process.
M305
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BUSINESS
AWARDS AND CERTIFICATIONS
In recognition of our quality and management, we have been granted a number of awards and
certifications. The more significant awards and certifications we received are summarised as follows:
Date of grant
Award/Certification
Issuing authority/institution
October 2005
(renewed in
2011)
First granted the GB/T
19001/ISO 9001 certification
Beijing ZhongDaHua Yuan Certification
Centre (北京中大華遠認證中心)
November 2009
Our invention patent a kind of
decoration material and its
preparation method (一種裝飾
材料及其製備方法) was
granted the Gold Award
China International Patent & Brand Expo
(中國國際專利與名牌博覽會)
organised by the State Intellectual
Property Office of the PRC
December 2009
“AAA” Grade Credible Customer
(AAA級信用客戶)
Agricultural Bank of China, Jiangxi
Province Branch (中國農業銀行江西省
分行)
October 2010
Our “
” brand was recognised
as a “Famous Brand of Jiangxi
Province (江西省著名商標)”
Jiangxi Administration for Industry and
Commerce (江西省工商行政管理局)
and Famous Brand Recognition
Committee of Jiangxi Province (江西省
著名商標認定委員會)
November 2010
High and New Technology
Enterprise (高新技術企業)
Jiangxi Provincial Department of Science
and Technology (江西省科學技術廳),
Jiangxi Provincial Finance Bureau (江
西省財政廳), Jiangxi State Tax Bureau
(江西省國家稅務局) and Local Tax
Bureau of Jiangxi Province (江西省地
方稅務局)
February 2011
2010 Corporation Scale Award
(2010年度決戰工業－企業規模
獎)
Yongxiu County Committee of the
Communist Party of China (中共永修
縣委) and People’s Government of
Yongxiu County (永修縣人民政府)
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M307
BUSINESS
Date of grant
Award/Certification
Issuing authority/institution
March 2011
Top Ten Enterprises in Decorative
Materials Industry of China (中
國裝飾材料行業10強)
China Market Research Centre (中國市場
調查研究中心) and China Social
Economy Decision-making Consultation
Centre (中國社會經濟決策諮詢中心)
July 2011
Jiujiang City Science and
Technology Progress Award –
Second Prize (九江市科學技術
進步獎二等獎)
Jiujiang People’s Government (九江市人
民政府)
February 2012
2011 Corporation Contribution
Award (2011企業貢獻獎)
Yongxiu County Committee of the
Communist Party of China (中共永修
縣委) and People’s Government
Yongxiu County (永修縣人民政府)
2011 Excellent Member Enterprise
Award (2011優秀會員企業)
Yongxiu Country Federation of Industry
and Commerce (永修縣工商聯及永修
縣總商會)
Certificate of Green Building
Material Products (綠色建材產
品)
Technical Supervision and Research
Centre of the Building Materials
Industry (建築材料工業技術監督研究
中心) and China Building Material
Trade and Exhibition Centre (國家建築
材料展貿中心)
May 2012
PROPERTIES
As of 31 May 2013, our production facilities, offices buildings and other ancillary facilities occupied a
total site area of 219,847.87 square metres with a total gross floor area of approximately 85,897.97 square
metres. We also have obtained the land use rights for two parcels of land with a total site area of 61,565.78
square metres, which will be used to cater for the future expansion of our production facilities. For further
details about our properties, please refer to the property valuation report set forth in Appendix III to this
document.
M308
M309
Land use rights
As of 31 May 2013, we owned or held 8 parcels of land with a total site area of 281,413.65 square
metres in Yongxiu County, Jiujiang City, Jiangxi Province, the PRC. We have obtained land use rights
certificates for all such land.
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M309.1
M311
BUSINESS
Buildings
As of 31 May 2013, we owned and occupied 45 buildings with a total gross floor area of
approximately 85,897.97 square metres. We have obtained the building ownership certificates to 36
buildings. Please refer to the paragraph headed “Material non-compliance incidents” in this section for further
details relating to the permits, approvals and certificates of the nine buildings.
M312
M313
M313.1
COMPETITION
According to the ZhongAn Report, there are 52 large-scale crystalised stone manufacturers in the PRC
as of 30 September 2012. We captured approximately 4.2% of the market share in terms of sales volume in
the overall PRC crystalised stone market in 2012. Key crystalised stone manufacturers produce various types
of products including porous crystalised stone, composite crystalised stone and non-porous crystalised stone.
We mainly compete with domestic manufacturers of crystalised stone in aspects of product quality, product
differentiation, [brand recognition], production capacity, production technology and proximity to customers.
We believe that the principal competitive factors in our market segments include product quality, functional
features, cost, price and experienced personnel with strong research and development capability.
There is no significant barrier for new market entrants. However, we believe that substantial capital
commitments and the ability to produce high quality and reliable product are normally required in order to
stay competitive in our industry segment. In particular, the production facilities would require substantial
capital commitments to sustain the application of the production technology to produce products with high
quality, reliability, stability and performance features. Our Directors confirm that, despite current low level of
barrier for new market entrants, we are able to sustain a comparable level of business and gross profit margin
going forward.
We are of the view that our product quality and the ability to develop products distinguished us from
our competitors. For instance, we focus on the manufacturing of non-porous crystalised stone which we
consider to have better functional performances and characteristics in terms of [compression strength] and
[impact toughness] as compared to other crystalised stone produced by other manufacturers. In addition, we
have successfully developed non-porous crystalised stone in black and ivory colour thereby expanding our
product offerings. As non-porous crystalised stone is primarily offer in white, our successful development of
non-porous crystalised stone in other colours would give us a competitive edge against other non-porous
crystalised stone manufacturers. We believe that we have been able to sustain our market position and
increase our gross profit margins due to the following:–
M313.2
M313.3
M3.3.4
M316
M317
M318
M319
M319.1
M319.2
M321
M322
M322.1
M322.2
•
We currently offer three series of non-porous crystalised stone. As confirmed by our Directors,
other non-porous crystalised stone manufacturers offer a relatively fewer range of non-porous
crystalised stone products;
M322.2.1
•
Our non-porous crystalised stone can be manufactured with thickness ranging from 12mm to
30mm and our thicker non-porous crystalised stone enjoy a relatively higher gross profit
margin; and
M322.2.2
•
The economies of scale resulting from our increased production efficiency and relatively lower
production costs and expenses.
M322.2.3
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BUSINESS
With our established management and operational teams and expertise, we believe we are wellpositioned to compete in the industry.
M322.3
INTELLECTUAL PROPERTY
As of the Latest Practicable Date, we had 36 registered trademarks in the PRC and one trademark in
Hong Kong. We also had 10 trademark applications pending approval by the relevant PRC regulatory
authorities. In 2010, our “
” brand was recognised as a “Famous Brand of Jiangxi Province (江西省著名
商標)”. We also had three registered patents, one of which is an invention patent and is used in relation to
our production of 3G Phoenix Stone. The other two utility model patents are used in the production process
of our products.
[Our employees involved in research and development are bound by a confidentiality obligation, and
have agreed to disclose and assign to us inventions conceived by them during their term of employment.] The
confidentiality agreements signed by our employees include non-disclosure obligation and the obligation to
safeguard our [production techniques and processes and trade secrets during and after the employment
period.] Our employees agree not to join companies producing similar and competitive products after their
termination of employment with us. Only a few members of our senior management team have knowledge of
the whole formulas for the manufacturing of our non-porous crystalised stone. This will ensure that our
product formulas are protected.
During the Track Record Period and up to the Latest Practicable Date, we were not aware of any
infringement of our intellectual property rights.
For details of our intellectual property rights, please refer to the paragraph headed “Statutory and
General Information – Further information about the business of our Group – Intellectual property rights of
our Group” in Appendix VI to this document.
M323
M323.1
M324
M325
M325.1
M326
M327
M327.1
M328
M330
M331
INSURANCE COVERAGE
We maintain property insurance and mandatory accident liability insurance policies with insurance
companies covering the machinery and vehicles used in our operations. We do not maintain product liability
insurance, business interruption insurance or third-party liability insurance for claims of personal injury or
property damage arising from accidents relating to our operations. These insurance policies are not mandatory
under PRC laws. We believe our insurance coverage to be consistent with the market practice in China.
During the Track Record Period and up to the Latest Practicable Date, we had not made or been the
subject of any material insurance claims.
M332
M333
M334, M335
M336
ENVIRONMENTAL PROTECTION
Our production process involves the handling and disposal of pollutants and the use of hazardous
chemicals.
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M336.1
BUSINESS
The pollutants we generate and discharge in the course of our production include waste water and air
pollutants. We are subject to PRC environmental laws and regulations, namely (a) the Environmental
Protection Law; (b) the Prevention and Control of Water Pollution Law; (c) the Prevention and Control of Air
Pollution Law; and (d) the Environment Impact Appraising Law. For details of these laws and regulations,
please refer to the section headed “Summary of Principal Legal and Regulatory Provisions” in Appendix IV
to this document.
Our production process involves the handling and disposal of pollutants (waste water and air
pollutants) and we have implemented an environmental protection system in compliance with the relevant
PRC laws and regulations. In addition, we have taken the following measures to ensure our compliance with
the PRC laws and regulations regarding environmental protection: (a) equipping our employees responsible
for the handling of waste water and air pollutants with dust masks, helmets, safety shoes, safety gloves and
other safety supplies; (b) providing relevant trainings to our employees in respect of environmental and safety
protection; (c) applying environmental protection technologies to comply with the discharge standard and
total discharge control index of local regulations on pollutant discharge; and (d) adopting various internal
control and guidelines on environmental protection and pollution controls including establishing early
warning mechanism which requires immediate report to and coordination with competent authorities in the
event of any non-compliance incidents.
In addition, the Group has developed and implemented environmentally-friendly production
technologies and production process. We have established a waste water treatment and recycle station in
our manufacturing facilities to process, purify and recycle the waste water discharged. The waste water, after
processed and purified by our waste water treatment, is reused in our production process. The air pollutants
discharged during our production process undergo [sulphur elimination and dust removal] before its
emissions.
We have carried out environmental impact assessment on our production facilities and obtained all the
Approvals for Environment Protection Completion Check (竣工環境保護驗收的批覆) in relation to the
manufacturing of our non-porous crystalised stone. We may be subject to environmental assessment and
inspection by the environmental protection authorities from time to time. We have obtained two
environmental compliance certificates issued by the Yongxiu Environmental Protection Bureau dated
3 December 2012 and 25 January 2013 confirming that our pollutant emissions comply with the statutory
indicators and we have not violated any requirement and standard provided by the relevant environmental
protection laws, regulations and policies and we do not have any record of violating any environmental
protection laws and regulations. During the Track Record Period and up to the Latest Practicable Date, we
have passed all environmental impact assessments and inspections by the relevant environmental protection
authorities.
The raw materials used in our production process include sodium fluosilicate (氟硅酸鈉) and sodium
nitrate (硝酸鈉), which are classified as hazardous chemicals according to List of hazardous chemicals
(version 2002) (危險化學品目錄
（2002年版）). As such, we have implemented detailed measures for
preventing and controlling environmental risks related to the use of such hazardous chemicals, including
providing required trainings annually to our employees in respect of the storage and usage of hazardous
chemicals for the purpose of managing and safeguarding the hazardous chemicals in a standardised and safe
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M337
M338
M339
M339.1
M339.2
M340
M341
M342
M343
M344
M345
M345.1
M345.2
M345.3
BUSINESS
manner. Furthermore, we have applied for environmental administrative registration for producing and using
hazardous chemicals in accordance with the Measures for the Environmental Administrative Registration of
Hazardous Chemicals (Provisional) implemented on 1 March 2013.
We have obtained a formal statement and confirmation issued by the Yongxiu Environmental
Protection Bureau on 18 March 2013 confirming that it has accepted the application documents submitted by
us in relation to the environmental administrative registration for producing and using hazardous chemicals
and reported the application to its higher authority, namely the Jiujiang Environmental Protection Bureau. On
7 May 2013, we submitted our application to the Jiujiang Environmental Protection Bureau in relation to the
environmental administrative registration for producing and using hazardous chemicals. However, as the
Jiujiang Environmental Protection Bureau have not yet implemented the formal procedure for such
registration in Jiangxi Province as of the date of our application, our application was temporarily deferred
until such date as the formal procedure have been implemented. Our Directors confirm that we will closely
monitor for any updates from the Jiujiang Environmental Protection Bureau regarding the environmental
administrative registration for producing and using hazardous chemicals in Jiangxi Province and ensure that
our application will be re-submitted as soon as the formal procedures have been implemented. Furthermore,
Yongxiu Environmental Protection Bureau and Jiujiang Environmental Protection Bureau confirmed that our
use of hazardous chemicals is in compliance with the state and local environmental protection policy and the
relevant laws and regulations and that no accident had occurred during our use of hazardous chemicals since
our establishment.
For each of the three years ended 31 December 2012, our cost of compliance with the applicable
environmental protection laws and regulations was approximately RMB11.0 million, RMB6.5 million, and
RMB8.4 million, respectively. Based on the historical cost and the expected commencement of the full
operation of our Yunshan Production Facilities, we expect our annual cost of compliance with applicable
environmental protection laws and regulations will be approximately RMB[12.0 million] and RMB[12.0
million], for the years ending 31 December 2013 and 2014, respectively, which will be primarily applied for
the construction of the waste water treatment system, waste water treatment control room and air pollutants
treatment system at our production facilities.
Our Directors believe that we have adopted effective measures to prevent and control pollution to the
environment. During the Track Record Period, we have not encountered any penalty for failure to comply
with the applicable environmental laws and regulations.
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M345.4
M345.5
M345.6
M345.7
M345.8
M345.9
M345.10
M346
M347
M347.1
M348
M349
BUSINESS
EMPLOYEES
As of [31 December 2012], we had a total of [831] employees. The following table shows a
breakdown of our employees by functions as at 31 December 2012:–
Team
M349.1
Number of employees
Production
General and administration
Procurement and logistics
Research and development
Quality control
Sales and marketing
Finance
[582]
[90]
[11]
[47]
[38](1)
[31]
[32]
Total
[831]
Note:
1
[20] employees in our quality control team are involved in research and development aspects of our operations.
We believe we have maintained a good relationship with our staff. We have not, in the past,
experienced any disruption of our operations due to labour disputes or strikes.
We are of the view that the ability to recruit and retain experienced and skilled labour is crucial to our
growth and development. We strive to create a harmonious, warm working and living environment for our
staff.
We provide induction programs and training to our employees to ensure that they have the requisite
technical, safety and quality control knowledge. We also provide training to our employees from time to time
to enhance and reinforce their awareness of work safety.
M349.1.1
M349.1.0
M349.2
M349.3
SAFETY CONTROL
We place emphasis on the health and safety of our employees in our production facilities. Various
measures have been implemented to ensure safe production process, including the formulation of production
safety measures, safe inspection of our production facilities and holding regular production safety meetings,
all with the purpose to provide a safe working environment and eliminate potential safety hazard in our
production process. For new employees members, we provide safety-related training to them covering our
safe production system, measures and requirements. We also provide training to our employees from time to
time to enhance and reinforce their awareness of work safety. Furthermore, our employees would attend work
safety seminars, trainings and programs organised by government authorities.
M350
We have a set of procedures to handle work place accidents. We have a system of reporting work
place accidents to our management team and our management will follow up the injured employee. An
accident report would be compiled after investigations into the cause and factual circumstances of the
M354.1
M354.2
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M351
M352
M353
M354
BUSINESS
accident. The report would also contain recommendations on how to improve work safety and any new safety
measures would be implemented within five days of the accident. We keep a record of the accidents and
analyse our safety control measures annually in order to improve work safety.
During the Track Record Period and up to the Latest Practicable Date, we [had] complied with the
relevant PRC regulatory requirements on workplace safety and did not have any incidents or complaints
related to workplace safety which had materially and adversely affected our operations.
M354.3
M354.4
M354.5
M355
GOVERNMENT REGULATIONS
As of the Latest Practicable Date, our business operations in China are subject to legislation or
regulatory controls as set out in the section headed “Summary of Principal Legal and Regulatory Provisions”
in Appendix IV to this document. Other than disclosed in the paragraph headed “Material non-compliance
incidents” of this section, as confirmed by our PRC legal advisers, we have obtained all the necessary
licences and permits for our business operations in China and complied with all relevant laws and regulations
since our establishment in 2003.
M356
M357
INDUSTRY STANDARDS
Subject to the requirements of the Interim Regulations on the Quality Supervision and Inspection of
Building Material Industrial Products (建築材料工業產品質量監督檢驗暫行條例), we have respectively
submitted our 1G Phoenix Stone, 2G Phoenix Stone and 3G Phoenix Stone for testing. The National
Research Centre of Testing Techniques for Building Materials (國家建築材料測試中心) (“National
Building Materials Testing Centre”) is one of testing organisations authorised by the Certification and
Accreditation Administration of the PRC (國家認證認可監督管理委員會) to engage in the testing of
harmful substances in decoration materials. [Based on the test reports issued by the National Building
Materials Testing Centre, our first, second and third generation non-porous crystalised stone had been duly
sent for test at the National Building Materials Testing Centre and certified to meet the technical indicators of
category A decoration materials as provided by GB6566-2001/GB6566-2010 according to the abovementioned provisions.] As such, the production, marketing and range of usage of our non-porous crystalised
stones are not limited. Further information on the Administrative Regulation is set forth in the section headed
“Summary of Principal Legal and Regulatory Provisions – PRC laws relating to the industry – Relevant
industry Standards” in Appendix IV to this document.
- 114 -
M357.1
M357.2
M357.3
M357.4
M357.5
BUSINESS
MATERIAL NON-COMPLIANCE INCIDENTS
No.
1.
Non-compliance
incident(s)
Reason(s) for
non-compliance
Laws and Regulations concerning
the penalty
Corrective actions and impact on
our Group
We did not fully
comply with the
housing provident
fund and social
insurance fund
contributions
requirement for our
employees during
the Track Record
Period and up to
the [August] 2012
The non-compliance with
the housing provident
fund requirements was
principally due to (i) the
Jiujiang Housing
Provident Fund Centre
had not yet widely
introduced the
establishment of housing
provident fund in nonpublic enterprises in
Jiujiang City; (ii) some
employees are local
workers and have and
resided in their own home
nearby, so they had no
intention to pay housing
provident fund; and (iii)
we provided
accommodation for our
employees in our own
dormitories.
Under the relevant laws and
regulations of the PRC, if an
employer fails to register and make
contribution of housing provident fund
for its employees, the relevant housing
provident fund authority is entitled to
order the employer to pay such
outstanding housing provident fund
contributions within a prescribed time
limit. If the employer fails to do so
within such prescribed time limit, a
fine in the range of RMB10,000 to
RMB50,000 will be imposed. The
housing provident fund authority may
also order the employer to pay the
outstanding housing fund within a
prescribed time limit. If it fails to do
so within such prescribed time limit,
the housing fund authority may sort
an order for payment from the
relevant PRC court.
The Housing Provident Fund
Management Centre of Jiujiang, the
competent and responsible authority in
respect of our housing provident fund
issued a letter of confirmation on 28
January 2013 to confirm that since the
effective date of the Regulations on
Management of the Housing Provident
Fund（《住房公積金管理條例》）, it
has been progressively implementing
the regulations on private enterprises,
foreign-invested enterprises and other
non state-owned enterprises in Jiujiang
municipality and are currently taking
steps to set up and contribute towards
the housing provident funds. The
Housing Provident Fund Management
Centre of Jiujiang further confirmed
that it will not require Jiujiang Golden
Phoenix and Jiangxi Golden Phoenix
to make any contribution payment in
respect of the unpaid contributions
from date of incorporation of Jiujiang
Golden Phoenix and Jiangxi Golden
Phoenix to August 2012 nor will any
penalty or other form of
administrative penalties be imposed on
Jiujiang Golden Phoenix and Jiangxi
Golden Phoenix for the unpaid
contributions to the housing provident
fund.
Prior to August 2012, Jiujiang Golden
Phoenix and Jiangxi Golden Phoenix
did not register with the relevant
authority or maintain accounts with a
designated bank in respect of the
housing provident fund, or make any
contributions to the housing provident
fund.
- 115 -
M358
BUSINESS
No.
Non-compliance
incident(s)
Reason(s) for
non-compliance
the penalty
our Group
The non-compliance with
the requirements of
registration and payment
of social insurance was
principally due to the
following: (i) since its
establishment until August
2012, Jiangxi Golden
Phoenix had been
focusing on the
construction of the new
production facilities and
did not commence any
production or management
activities such as the
establishment of its
corporate structure (for
instance, the establishment
of a human resources
department). Since the
construction of the
production facilities were
handled and arranged by
Jiujiang Golden Phoenix,
only hired two employees
at the time to handle
miscellaneous logistics
and security matters. In
view of the small number
of employees at the time
and the lack of a human
resources department, the
management of Jiangxi
Golden Phoenix omitted
to arrange for the social
insurance registration and
payment; and (ii) as
confirmed by our
Directors, the Social
Insurance Administration
of Yongxiu County puts
more emphasis on the
social insurance payment
of enterprises that have
started commercial
production while making
no mandatory
requirements for
enterprises in the
preparatory stage. As
such, Jiangxi Golden
Phoenix did not apply for
social insurance
registration and make
payments for its
employees until August
2012.
Prior to the implementation of the
Social Insurance Law of the PRC,
which came into force on 1 July
2011, under the PRC laws, a fine
ranging from RMB1,000 to
RMB5,000 or in case of material
breach, a fine ranging from
RMB5,000 to RMB10,000, will be
imposed on the management and other
persons with direct responsibilities of
the employer for non-compliances that
occurred prior to 1 July 2011. The
social insurance authorities are also
entitled to order the employer to pay
the outstanding social insurance within
or without a time limit and impose a
late charge of 0.05% and a fine
ranging from one to three times of the
outstanding amount for work-related
injury insurance and the late charge of
0.2% for the other four types of social
insurance if the employer fails to
rectify the breach of social insurance
contribution. Since 1 July 2011, for
non-compliances that occurred after 1
July 2011, according to Social
Insurance Law of the PRC 《中華人
(
民共和國社會保險法》), the social
insurance authorities are entitled to
order the employer to pay the
outstanding social insurance (including
pension, medical, work injury,
unemployment and maternity
insurance), and impose a late charge
of 0.05% and a fine ranging from one
to three times of the outstanding
social insurance.
On 28 January 2013, Jiangxi Golden
Phoenix obtained a written
confirmation from the Social
Insurance Bureau of Yongxiu, the
competent and responsible authority
regarding the unpaid contributions
from date of incorporation of Jiangxi
Golden Phoenix to August 2012.
According to such written
confirmation, the Social Insurance
Bureau of Yongxiu will not require
Jiangxi Golden Phoenix to make any
contribution payment in respect of the
above unpaid contributions nor will
any penalty or other form of
administrative penalties be imposed on
Jiangxi Golden Phoenix for the unpaid
contributions to the social insurance
fund.
- 116 -
For the three years ended 31
December 2012, the amount of
outstanding housing provident fund
contribution was approximately
RMB617,000, RMB941,000 and
RMB991,000, respectively, and the
amount of outstanding social
insurance contribution by was
approximately RMB8,000,
RMB14,000 and RMB8,000,
respectively. No provision for these
amounts was made during the Track
Record Period as we obtained the
written confirmation from the
competent authorities to not require us
to make any contribution payment in
respect of the unpaid contributions.
Both Jiujiang Golden Phoenix and
Jiangxi Golden Phoenix have made
housing provident funds registration
and commenced to make respective
contribution for the employees from
[August] 2012. Jiangxi Golden
Phoenix have made social insurance
registration and commenced to make
contribution for the employees from
[August] 2012. We will continue to
contribute to the employee social
welfare schemes pursuant to the
relevant laws and regulations of the
PRC.
BUSINESS
No.
Non-compliance
incident(s)
Reason(s) for
non-compliance
the penalty
our Group
Prior to August 2012, Jiangxi Golden
Phoenix did not register with the
relevant authority or maintained
accounts with a designated bank in
respect of the social insurance fund,
or made any contributions to the
social insurance fund. As such,
Jiangxi Golden Phoenix has breached
the Provisional Regulations on
Collection and Payment of Social
Insurance Premiums 《社會保險費徵
(
繳暫行條例》) and the Social
Insurance Law of the PRC 《中華人
(
民共和國社會保險法》).
As of the Latest Practicable Date, we
had [not] received any order or
enforcement actions by the relevant
PRC authorities against us for the
non-compliance as mentioned above.
- 117 -
Each of Mr. Sui and Mr. Zhu have
undertaken to indemnify us for any
losses, liabilities or damages suffered
by us as a result of our failure to
make housing provident fund
contributions for our employees prior
to [•••].
BUSINESS
No.
2.
Non-compliance
incident(s)
Reason(s) for
non-compliance
the penalty
our Group
We did not obtain
the construction
project planning
permits and the
building ownership
certificates for
certain buildings or
structures
constructed on part
of our land
The non-compliance was
principally due to the
following: (i) six buildings
were constructed by the
previous owner of the
land which we have not
utilised since our
occupation of the land;
(ii) one building was
constructed by a third
party which we did not
utilised; (iii) three
buildings were constructed
by a gas company and is
currently co-managed by
the gas company and us
and we were not able to
unilaterally apply for the
relevant permits and
certificates without their
cooperation; and (iv) the
inexperience of our
employees in the handling
the relevant process and
failing to apply for the
relevant permits and
certificates for eight
buildings in a timely
manner.
According to the Urban and Rural
Planning Law of the People’s
Republic of China (中華人民共和國
城鄉規劃法), if a construction project
proceeded without obtaining the
relevant planning permit or the
construction project violated the
provisions of the planning permit, the
competent department of the local
people’s government urban and rural
planning at or above the county level
shall order the construction to cease.
If measures can be taken to eliminate
the impact on the implementation of
urban and rural planning, the
governmental department shall order
the offender to rectify the situation
within a certain time limit and impose
a penalty of 5% to 10% of the
construction cost. If it is impossible to
take measures to eliminate the impact,
the department shall order the
offender to demolish the building or
structure within a certain time limit or
forfeit the building or structure and
confiscate any illegal gain, and may
also impose a penalty not more than
10% of the construction cost.
Our production facilities, the
Hengfeng Production Facilities and
the Yunshan Production Facilities, are
located at Jiujiang City, Jiangxi
Province, the PRC with a gross floor
area of approximately 46,195.10
square metres and 39,702.87 square
metres, respectively.
Pursuant to the relevant PRC laws,
the competent authorities may order
the demolition, forfeiture of such
buildings and/or require us to pay a
penalty of up to RMB[82,670.4].
M359
We currently own the land on which
our production facilities are situated
and [we have obtained the land use
rights certificate from the PRC
Government relating to the land.]
However, we did not obtain the
construction project planning permits
and the building ownership certificates
for [18] buildings or structures which
are situated on our land which have a
total gross floor area of approximately
[1,882.8] square metre.
As advised by our PRC Legal
Advisers, our failure to obtain the
requisite PRC government approvals,
permits and the ownership certificates
may result in such buildings or
structures being considered illegal and
unauthorised structures.
We have applied for and were granted
the building ownership certificates for
the [15] structures comprising of two
single-storey electricity supply rooms,
five water closets, three gas supply
rooms, one office structure, two
single-storey guard houses, a molding
control room. We have demolished
[three] buildings and we do not intend
to reconstruct these buildings in the
future.
Each of Mr. Sui and Mr. Zhu has
agreed to indemnify us for all costs,
expense, fine and losses incurred by
us as a result of the above title
defects.
As of the Latest Practicable Date, we
did not receive any orders for
demolition, forfeiture or payment of
penalty for the above non-compliance.
On this basis, our Directors do not
consider that the defects of the above
buildings to be material to our
business and operations.
Save as set out above, we had [not] experienced any material non-compliances and irregularities in
relation to our operations during the Track Record Period.
- 118 -
M359.1
BUSINESS
INTERNAL CONTROLS
In order to continuously improve our corporate governance and to prevent recurrence of the noncompliance incidents, we intend to adopt or have adopted the following measures:
M359.2
(i)
we have engaged PRC legal adviser to provide legal services to our Group in relation to future
compliance with PRC laws and regulations;
(ii)
we have arranged for our Directors and senior management to attend training programs on
applicable laws and regulations, including [•••], provided by our legal adviser prior to [•••]. We
will continue to arrange various training programs to be provided by the PRC legal adviser
engaged by us and/or any appropriate accredited institution to update our Directors, senior
management and relevant employees on the relevant laws and regulations;
(iii)
our Group has improved the existing internal control framework by adopting a set of internal
control manual and policies, including the corporate governance manual, which covers
corporate governance, risk management, operations, legal matters, finance and audit;
(iv)
we will appoint a compliance officer who will be responsible for assessing and monitoring
compliance with our internal control policies, recommending additional internal control
measures if required, coordinating compliance training for our employees and reporting of the
above to our Directors;
(v)
we will establish a compliance department which will oversee compliance matters for the dayto-day operation of our Group;
M359.2.1
(vi)
we have strengthen training for our employees on compliance matters in order to develop a
corporate culture and to enhance employee compliance perception and responsibility; and
M359.2.2
(vii)
we have designated Mr. Lin Ren Ze, our executive Director, to oversee and monitor future
compliance with the above-mentioned non-compliance incidents.
Based on the above, our Directors are of the view that we have taken all reasonable steps to establish a
proper internal control system to prevent future non-compliance with the PRC laws and regulations.
As of the Latest Practicable Date, there were no litigation or arbitration proceedings or administrative
proceedings pending or threatened against us or any of our Directors which would have a material adverse
effect on our financial condition or results of operations.
M359.3
M359.4
M360
CONNECTED TRANSACTIONS
During the Track Record Period, other than the transactions as set out in note 39 to the Accountants’
Report in Appendix I to this document, we did not enter into any other connected transactions. As of the
Latest Practicable Date, we did not have any connected transactions which will be continued or carried out by
us after [•••] which will be subject to reporting, announcement and shareholders’ approvals requirements
under [•••].
- 119 -
M361
M361.1
CONTROLLING SHAREHOLDERS AND SUBSTANTIAL SHAREHOLDERS
COMPETING INTERESTS
As confirmed by our Directors, our Controlling Shareholders and their respective associates do not
have any interests in any business, apart from the business operated by members of our Group, that competes
or is likely to compete, directly or indirectly, with the business of our Group.
LR 8.10
N6
DEED OF NON-COMPETITION
To better safeguard our Group from any potential competition, each of our Controlling Shareholders,
Hong Kong Dragon Yu and Mr. Zhu (collectively, the “Covenantors”) has entered into a deed of noncompetition with our Company whereby each of the Covenantors irrevocably and unconditionally, undertakes
with our Company that with effect [•••] (i) the Covenantors, individually or collectively with its/his
associates, are, directly or indirectly, interested in not less than 30% of our Shares in issue; or (ii) the relevant
Covenantor remains as our executive Director, each of the Covenantors shall, and shall procure that its/his
respective associates shall:–
(a)
not directly or indirectly engage, participate or hold any right or interest in or render any
services to or otherwise be involved in any business in competition with or likely to be in
competition with the existing business activities of our Group or any business activities which
our Group may undertake in the future;
(b)
not take any direct or indirect action which constitutes an interference with or a disruption to
the business activities of our Group including, but not limited to, solicitation of customers,
suppliers and staff of our Group;
(c)
keep our Board informed of any matter of potential conflicts of interests between the relevant
Covenantor (including its/his associates) and our Group, in particular, a transaction between any
of the relevant Covenantor (including its/his associates) and our Group; and
(d)
provide as soon as practicable upon our Company’s request a written confirmation in respect of
compliance by it with the terms of the deed of non-competition and their respective consent to
the inclusion of such confirmation in our Company’s annual report and all such information as
may be reasonably requested by the Company for its review.
In addition, each of the Covenantors hereby irrevocably and unconditionally, undertakes that if any
new business opportunity relating to any products and/or services of our Group (the “Business
Opportunity”) is made available to it/him or its/his associates (other than members of our Group), it or
he will direct or procure the relevant associate to direct such Business Opportunity to our Group with such
required information to enable our Group to evaluate the merits of the Business Opportunity.
The relevant Covenantor shall provide or procure its/his associates to provide all such reasonable
assistance to enable our Group to secure the Business Opportunity. If he or it (or his/its associates) plans to
participate or engage in any new activities or new business which may, directly or indirectly, compete with
the existing business activities of our Group, he or it shall give our Company a first right of refusal to
participate or engage in the Business Opportunity and will not participate or engage in these activities unless
with the prior written consent of our Company. None of the Covenantors and their respective associates
- 120 -
N7
N8
N9
(other than members of our Group) will pursue the Business Opportunity until our Group decides not to
pursue the Business Opportunity because of commercial reasons. Any decision of our Company will have to
be approved by our independent non-executive Directors taking into consideration the prevailing business and
financial resources of our Group, the financial resources required for the Business Opportunity and, where
necessary, any expert opinion on the commercial viability of the Business Opportunity.
Each of the Covenantors further irrevocably and unconditionally, undertakes that it or he will (i)
provide to our Group all information necessary for the enforcement of the undertakings contained in the deed
of non-competition; and (ii) confirm to our Company on an annual basis as to whether it or he has complied
with such undertakings.
The deed of non-competition will cease to have any effect on the earliest of the date on which:–
(a)
our Company becomes wholly-owned by any of the Covenantor and/or its/his associates;
(b)
the aggregate beneficial shareholding (whether direct or indirect) of the Covenantors and/or its/
his associates in the Shares in issue falls below 30% of the number of Shares in issue and the
relevant Covenantor shall cease to be our executive Director; or
N10
N11
INDEPENDENCE FROM OUR CONTROLLING SHAREHOLDERS
Management independence
Our Group’s management and operational decisions are made by our Board and a team of senior
management. Our Board consists of eight members, comprising of five executive Directors and three
independent non-executive Directors. Each of our Directors is aware of his/her fiduciary duties as a Director
of our Company which requires, among other things, that he/she acts for the benefit and in the best interests
of our Company and does not allow any conflict between his/her duties as a Director and his/her personal
interests. In the event that there is a potential conflict of interests arising out of any transaction to be entered
into between our Group and our Directors or their respective associates, the interested Director(s) shall
abstain from voting at the relevant board meetings of our Company in respect of such transactions and shall
not be counted in the quorum. Further, the independent non-executive Directors will bring independent
judgment to the decision making process of our Board. The senior management team possesses in-depth
experience and understanding of the industry in which our Group is engaged. In this regard, our Directors are
of the view that our Group can be managed independently notwithstanding that Mr. Sui, being a Controlling
Shareholder, is an executive Director.
N13
Operational independence
The organisational structure of our Group is made up of a number of departments, comprising general
and administration department, procurement and logistics department, production department, sales and
marketing department, finance department, research and development department and quality control
department. Each department takes a specific role in our Group’s operations. There are internal control
procedures to ensure effective operation of our Group’s business. Furthermore, our Group has its own
production lines and its own sources of suppliers and customers, which are all Independent Third Parties.
Accordingly, our Group can carry out its business operations independently.
- 121 -
N14
Financial independence
Our Directors are of the view that our Group does not unduly rely on the advances from our
Controlling Shareholders and related parties for its business operations. As of 31 December 2010, 2011 and
2012, [the total outstanding amount of loans and advances from our Controlling Shareholders and their
associates were approximately RMB41.4 million, RMB43.6 million and RMB4.8 million, respectively, all of
which shall be fully settled prior to [•••]. The loans and advances from our Controlling Shareholders and their
associates were primarily used for acquisition of property, plant and equipment,[guarantee deposit for bank
acceptance bills] and as general working capital. Our Directors believe that our Group is capable of obtaining
financing from external sources without reliance on our Controlling Shareholders. Furthermore, our Group
has its own finance department and has established its own financial accounting system independent of our
Controlling Shareholders. Our Group has its own bank account, makes its tax registrations and has employed
a sufficient number of financial accounting personnel. Accordingly, our Directors consider that our Group is
capable of operating independently from a financial perspective.
- 122 -
N15
DIRECTORS, SENIOR MANAGEMENT AND STAFF
DIRECTORS
App1A-41
LR 8.15
Co III (6)
Date of
appointment
Date of joining us
Principal responsibilities
Name
Age
Position
Sui He Zuo (施
合作)
58
[Chairman and executive
Director]
28 January 2011
[16 September] 2003
Responsible for business strategy and overall
development of our Group; member of our
nomination committee
O2
Zhu Xin Ming
(朱新明)
37
[President and executive
Director]
28 January 2011
16 September 2003
Responsible for product research and development,
production management, product sales,
procurement management, administration
management, financial management and overall
day-to-day business management of our Group
etc.; member of our nomination committee and
remuneration committee
O3
Zeng Xiao Ying 36
(曾小英)
Chief Financial Officer
and executive Director
28 January 2011
16 September 2003
Responsible for financial management including
[managing financial risks and overseeing day-today financial planning of our Group]; member
of our remuneration committee
O4
Lin Ren Ze
(林仁澤)
31
Executive Director
[•••]
[16 September] 2003
Responsible for assisting the Chairman with dayto-day affairs of our Group
O5
Sze Shun Pan
(施純彬)
29
Executive Director
[•••]
[1 July] 2009
Responsible for sales and establishment and
development of sales network of our Group
O6
Chan Choi Hi
(陳財喜)
57
Independent nonexecutive Director
[•••]
N/A
Chairman of our nomination committee; member
of our audit committee and remuneration
committee; supervising and providing
independent judgment to our Board
O7
Li Yik Sang
(李奕生)
38
[•••]
N/A
Chairman of our audit committee; member of our
remuneration committee and nomination
O8
Lin Chun Sheng 49
(林春升)
[•••]
N/A
Chairman of our remuneration committee; member
of our audit committee and nomination
O9
- 123 -
Executive Directors
Mr. Sui He Zuo (施合作), aged 58, is our Chairman, executive Director and the chairman of Jiujiang
Golden Phoenix. Mr. Sui co-founded Jiujiang Golden Phoenix with Mr. Zhu in 2003. He is responsible for
the overall development of our Group and charting our business strategy and has played a determining role in
establishing our Group’s presence in the PRC crystalised stone industry. Mr. Sui graduated from Hua Qiao
University (華僑大學) with a bachelor’s degree in business administration in 1994. Mr. Sui has about 18
years of experience in the decoration and building materials industry. Prior to founding Jiujiang Golden
Phoenix in 2003, he had [extensive] operational experience in the decoration and building materials industry.
Mr. Sui was the chairman and general manager of [Fujian Province Shishi City Yi De Sheng Ceramics Co.,
Limited] (福建省石獅市益德盛陶瓷有限公司), which was principally engaged in the development,
production and sale of ceramic products for use in the decoration and building materials industry, from
July 1994 to August 1998 and was responsible for the overall development and management of the
company.] [In 1995, Mr. Sui [established [Jinjiang De Yi Ceramics Co., Limited] (晉江德億陶瓷有限公司)
(“Jinjiang De Yi”). As Mr. Sui focused on the establishment of Jiujiang Golden Phoenix, he decided to cease
the business operations of Jinjiang De Yi in December 2002 and did not allocate sufficient time and effort to
manage Jinjiang De Yi (including the required annual inspection) since December 2002. As a result of the
failure to attend to the annual inspection, the relevant industry and commerce administration bureau revoked
the business licence of Jinjiang De Yi Ceramics Co., Limited in 2004. [Jinjiang De Yi Ceramics., Limited has
initiated the winding-up proceedings in accordance with the relevant PRC laws which is expected to be
completed by the end of July 2013. Upon its winding-up, it will no longer exist as a legal entity.] Mr. Sui
had been its chairman and general manager from 1995 to 2002.] Mr. Sui is the father of Mr. Sze Shun Pan.
O10
Mr. Zhu Xin Ming (朱新明), aged 37, is our President, executive Director and the general manager
of Jiujiang Golden Phoenix and Jiangxi Golden Phoenix. Mr. Zhu founded Jiujiang Golden Phoenix with Mr.
Sui in 2003. He is primarily responsible for the product research and development, production management,
product sales, procurement management, administration management, financial management and day-to-day
business management of our Group. Mr. Zhu graduated from Wuhan University of Technology (武漢理工大
學) with a bachelor’s degree in chemical ceramic (化工陶瓷) in 1997. Mr. Zhu has about 16 years of
experience in the decoration and building material industry. Prior to joining our Group in 2003, [Mr. Zhu was
the research and development manager of [Fujian Province Shishi City Yi De Sheng Ceramics Co., Limited]
(福建省石獅市益德盛陶瓷有限公司) between February 1997 and June 2003] and was primarily responsible
for its product development, production process controls and day-to-day management. Since 16 September
2003, Mr. Zhu joined Jiujiang Golden Phoenix as general manager.
O11
Ms. Zeng Xiao Ying (曾小英), aged [36], is our Chief Financial Officer and executive Director, and
is also the general manager of our finance team. She is primarily responsible for the overall financial
management and day-to-day financial affairs, including managing financial risks and overseeing day-to-day
financial planning of our Group etc.. Ms. Zeng graduated from the Jiangxi University of Finance and
Economics (江西財經大學) with a bachelor’s degree in general accounting in 1998. Prior to joining our
Group in 2003, Ms. Zeng was the [head of the finance department of [Guangdong Province Dongguan Shi Le
Qu Toys Co., Limited] (廣東省東莞市樂趣玩具有限公司) between October 1998 and September 2003]. On
16 September 2003, Ms. Zeng joined Jiujiang Golden Phoenix and was promoted to the general manager of
the finance team in 2008.
O12
- 124 -
Mr. Lin Ren Ze (林仁澤), aged [31], is our executive Director and is primarily responsible for the
day-to-day management of our Group. Mr. Lin graduated from Jimei University (集美大學) with a major in
accountancy in 2009. Prior to joining our Group in 2003, Mr. Lin was the assistant general manager of
[Fujian Province Shishi City Yi De Sheng Ceramics Co., Limited] (福建省石獅市益德盛陶瓷有限公司)
between July 2000 and September 2003 and was responsible for its day-to-day operations. In September
2003, Mr. Lin joined Jiujiang Golden Phoenix as a director and assistant to the chairman.
O13
Mr. Sze Shun Pan (施純彬), aged [29], is our executive Director and the general manager of our
sales team. He is primarily responsible for sales and establishment and development of sales network of our
Group. Mr. Sze graduated from the University of Wollongong with a bachelor’s degree in international
business in 2008. Mr. Sze obtained the Ontario Secondary School Diploma in 2006. In 2009, Mr. Sze joined
Jiujiang Golden Phoenix in our foreign trade team and he participated in foreign exhibitions on behalf of our
Group and conducted international market research to develop international marketing strategies. Mr. Sze was
promoted in [January] 2010 to the deputy general manager of our the sales team where he was responsible for
establishing and improving our Group’s sales network and market share. Mr. Sze is the son of Mr. Sui He
Zuo, our Chairman and executive Director.
O14
Independent non-executive Directors
Mr. Chan Choi Hi (陳財喜), aged [57], was appointed as our independent non-executive Director on
22 June 2013. Mr. Chan graduated with a bachelor’s degree in sociology from University of Toronto in
[November 1980] and is a candidate for doctorate of philosophy in politics and public affairs management at
National Sun Yat-Sen University. He is currently an elected district councilor for the Central and Western
District of Hong Kong. Mr. Chan was a member of the Urban Council of Hong Kong between November
1994 and December 1999, Mr. Chan was also a member of the Provisional Legislative Council of Hong
Kong between 1997 and 1998.
O15
Mr. Chan was a director and a shareholder of Service Centre (Hong Kong Inter-Association) Limited
(“Service Centre”). Service Centre was a company incorporated on 7 December 1995 and was principally
engaged in the retail business. By a petition made by a creditor, Service Centre was ordered by the High
Court of Hong Kong to be wound up on 30 May 2001 and it was dissolved on 28 December 2011.
In January 2013, an action was brought against Mr. Chan by an independent bank in Hong Kong (the
“Bank”). The Bank has granted general banking facilities to Service Centre, the borrower, and as security for
the indebtedness of Service Centre, Mr. Chan executed a deed of guarantee (the “Guarantee”) in favor of the
Bank. Service Centre was ordered by the High Court of Hong Kong to be wound up on 30 May 2001 and it
was dissolved on 28 December 2011. As of November 2012, Service Centre was indebted to the Bank for a
total sum of HK$2,613,818.92 (the “Indebted Sum”). By virtue of the Guarantee, the Bank claimed against
Mr. Chan for the Indebted Sum and the interest accrued on the principal amount. The action was
subsequently settled between Mr. Chan and the Bank and the Bank confirmed on 10 April 2013 that all
liabilities of Mr. Chan under the action have been fully discharged.
Mr. Li Yik Sang (李奕生), aged [38], was appointed as our independent non-executive Director on 22
June 2013. Mr. Li is a member of the Hong Kong Institute of Certified Public Accountants and a certified
practicing accountant of CPA Australia. Mr. Li attended the Queensland University of Technology from 1995
to 1996. Mr. Li graduated with a bachelor’s degree of commerce from the University of Queensland in 1998
- 125 -
O16
and obtained a master’s degree of commerce (information systems) from the same university in 2000. Mr. Li
has over 10 years’ experience in accounting and financial management. He was an auditor of Grant Thornton
from November 2000 to December 2002 and has worked at Ernst & Young as an accountant between January
2003 and September 2006 and as a manager between October 2006 and January 2007.
Mr. Lin Chun Sheng (林春升), aged [49], was appointed as our independent non-executive Director
on 22 June 2013. Between 1982 to 1985, Mr. Lin attended Fujian University of Technology (福建工程學院)
(previously known as Fujian Province Architectural Engineering College (福建建築高等專科學校)). From
1985 to 1992, he was employed as a technician at Fujian Coal Infrastructure Company (福建煤炭工業基本
建設公司). Mr. Lin was an engineer of the Shishi City Planning and Design Institute (石獅市規劃設計院)
from 1992 to 1995 and was the dean of the same institute from 1995 to 2011. In 2012, Mr. Lin joined
Shanghai Thousand Year Design Engineering Co., Ltd. (上海千年城市規劃工程設計股份有限公司) and is
currently the general manager of its Fujian Province branch.
O17
Save as disclosed in this document, each of our Directors confirms that he or she (i) did not hold any
directorships in the last three years prior to the Latest Practicable Date in public companies; (ii) does not hold
any other positions with our Company or other members of our Group; and (iii) does not have any
relationship with other Directors, senior management or Controlling Shareholders of our Company or any
interest in our Shares within the meaning of [•••].
O18
LR8.10
(2)(a)
SENIOR MANAGEMENT
Name
Age
Position
Mr. Zhu Tu Gen (朱土根)
[41]
[General manager of our production team]
O20
[Ms. Li Zong Ru] (李宗茹)
[45]
[General manager of our procurement team]
O21
[Mr. Gan Jian Ming] (淦建明)
[46]
[General manager of our administration team]
O22
Mr. Zhu Tu Gen (朱土根), aged [41], is the general manager of our production team. He joined us in
December 2003 and is primarily responsible for overseeing and managing our production process. Mr. Zhu
Tu Gen graduated from Jiangxi Jingde Zhen Ceramics College (景德鎮陶瓷學院) with a bachelor’s degree in
[materials science (材料學)] in 1994. Mr. Zhu Tu Gen has almost [18] years of experience in the production
of decoration and building materials industry. Prior to joining our Group in 2003, [Mr. Zhu Tu Gen worked
at Jingde Zhen Ceramics Production Plant (景德鎮陶瓷廠) between May 1994 and October 2000]. [Between
November 2000 and November 2003, Mr. Zhu Tu Gen was the production manager of [Guangdong Xin
Zhong Yuan Ceramics Co., Limited] (廣東新中源陶瓷有限公司)].
O23
Ms. Li Zong Ru (李宗茹), aged [45], is the general manager of our procurement team. She joined us
in December 2003 and is primarily responsible for overseeing and managing the purchase process of the raw
materials to be used in our Group’s production. Ms. Li graduated from Jiangxi Industrial University (江西工
業大學) (which merged with Jiangxi University into Nanchang University) with a bachelor’s degree in
corporation management in 1991. Prior to joining our Group in 2003, [she was the deputy director of the
procurement department of Jiangxi Xinghuo Huagongchang (江西星火化工廠) between February 1991 and
December 2002].
O24
- 126 -
Mr. Gan, Jian Ming (淦建明), aged [46], is the general manager of our administration team. He
joined us in December 2006 and is primarily responsible for the human resources management, staff
recruitment, appraisal and training of our Group. [Mr. Gan graduated from Jiangxi Agricultural University
(江西農業大學) with a bachelor’s degree in agricultural economics in 1988]. Mr. Gan also graduated from
Correspondence Institute of the Party School of Central Committee of Communist Party of China (中共中央
黨校函授學院) with a bachelor’s degree in politics and laws in 2000. Prior to joining our Group in 2006, [he
had been the head of the administration department of [Guangdong Province Guangzhou City Dong Lin Wu
Jin Electric Co., Limited] (廣東省廣州市東林五金電器有限公司) between March 2002 and January 2005].
[Between February 2005 and December 2006, Mr. Gan was the deputy general manager of the administration
department of [Guangdong Province Foshan City Xi Hai Mechanics Co., Limited] (廣東省佛山市西還機械
有限公司)].
O25
COMPANY SECRETARY
App1A-42
LR 8.17
Mr. Chan Kam Fuk (陳錦福), aged 47, was appointed as our company secretary on 30 May 2013.
He has over 10 years of experience in auditing, finance and accounting. Mr. Chan is the sole proprietor of
Dominic K. F. Chan & Co., CPA, an accounting firm in Hong Kong. Mr. Chan graduated from the
University of Southern Queensland, Australia with a master’s degree in professional accounting in 1998 and
from the City University of Hong Kong with a master’s degree in finance in 1995. He is currently a member
of both the Hong Kong Institute of Certified Public Accountants and CPA Australia.
O25.1
BOARD COMMITTEES
Audit Committee
An audit committee was established by our Company on [•••] with written terms of reference. The
primary duties of our audit committee are to review and approve our Group’s financial reporting process and
internal control system. Our audit committee comprises all independent non-executive Directors, namely, Li
Yik Sang, Chan Choi Hi and Lin Chun Sheng. Li Yik Sang is the chairman of our audit committee.
O26
Remuneration Committee
A remuneration committee was established by our Company on [•••] with written terms of reference.
The primary duties of our remuneration committee include reviewing and determining the terms of
remuneration packages, bonuses and other compensation payable to our Directors and senior management of
our Group. Our remuneration committee is chaired by Lin Chun Sheng, an independent non-executive
Director, and other members are Mr. Zhu, Zeng Xiao Ying, Chan Choi Hi and Li Yik Sang.
O27
Nomination Committee
A nomination committee was established by our Company on [•••] with written terms of reference.
The primary duties of our nomination committee are to make recommendations to our Board on the
appointment of Directors and the senior management of our Group. The members of our nomination
committee are Mr. Sui, Mr. Zhu, Li Yik Sang, Chan Choi Hi and Lin Chun Sheng. Chan Choi Hi is the
chairman of our nomination committee.
- 127 -
O28
DIRECTORS’ REMUNERATION
App1A-33(2)
(a),(b),(c),(d)
During the Track Record Period, the aggregate amount of fees, salaries, housing allowances, other
allowances, benefits in kind (including contribution to the pension scheme on behalf of Our Directors) and
discretionary bonuses paid by our Group to our Directors for the three years ended 31 December 2012 were
approximately RMB408,000, RMB398,000 and RMB448,000, respectively.
O29
The aggregate amount of fees, salaries, housing allowances, other allowances, benefits in kind
(including contribution to the pension scheme on behalf of our Directors) and discretionary bonuses paid to
the five highest paid individuals of our Group, excluding our Directors, for three years ended 31 December
2012 were approximately RMB[63,000], RMB[68,000] and RMB[78,000], respectively.
O30
App1A-33(3)
(a),(b),(c)
During the Track Record Period, no remuneration was paid by our Group to, or receivable by, our
Directors or the five highest paid individuals as an inducement to join or upon joining our Group or as a
compensation for loss of office as a director of any member of our Group or of any other office in connection
with the management of the affairs of any member of our Group. In addition, none of our Directors has
waived any emoluments.
O31
App1A-33(2)
(e),(f),(g)
Co III (19)
App1A-33
(3)(d)(e)
Save as disclosed above, no other payments have been paid, or are payable, by our Group to our
Directors during the Track Record Period.
O32
App1A-46(2)
EMPLOYEES’ BENEFITS PROVIDED BY OUR GROUP
Save as disclosed in the paragraph headed “Business – Material non-compliance incidents” of this
document, we have complied in all material aspects with all statutory requirements on retirement contribution
in the jurisdictions where our Group operates. We have established various employee benefit plans, including
pension insurance, unemployment insurance, childbirth insurance, work-related injury insurance, medical
insurance and housing fund as required by the relevant PRC rules and regulations and the existing policy of
the local government.
O37
We have complied in all material aspects with all statutory requirements on retirement contribution in
the jurisdictions where our Group operates.
O38
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SHARE CAPITAL
SHARE CAPITAL
Ap1A-23(1)
Co III (2)
The table below set out our share capital issued and to be issued fully paid or credited as fully paid, as
of the date of this document:
Issued and to be issued, fully paid or credited as fully paid:
App1A-15(1)
R3
HK$
1,000,000,000
Shares
100,000,000
- 129 -
R1
FINANCIAL INFORMATION
The following discussion and analysis should be read in conjunction with our consolidated
financial information together with the accompanying notes set out in the Accountants’ Report in
Appendix I to this document. The following discussion and analysis contains forward-looking
statements that involve risks and uncertainties. Factors that could cause or contribute to such risks
and uncertainties include, without limitations, those discussed in the sections headed “Risk Factors”
and “Business” in this document.
OVERVIEW
We are a manufacturer of non-porous crystalised stone industry in the PRC. We use our expertise and
experience to develop our own patented techniques in manufacturing our products. We captured
approximately [46.2]%, [48.7]% and [40.0]% of the PRC non-porous crystalised stone market in terms of
total sales volume for the three years ended 31 December 2012, according to the ZhongAn Report. The
domestic non-porous crystalised stone market is highly concentrated with three manufacturers accounting for
approximately 91.0% of market share in terms of total sales volume in 2012, according to the ZhongAn
Report. Non-porous crystalised stone accounted for approximately 10.6% of the domestic crystalised stone
market in the PRC in terms of market demand in 2012. We captured approximately 4.2% of the market share
in terms of sales volume in the overall PRC crystalised stone market in 2012.
S1
We currently offer three series of non-porous crystalised stone: 1G Phoenix Stone, 2G Phoenix Stone
and 3G Phoenix Stone. [To our knowledge, the end customers of our products will apply our products for use
as sanitary ware and kitchenware, flooring material, interior and exterior building walls, etc.] As of the Latest
Practicable Date, we had a total of three registered patents, one of which is an invention patent and is used in
the production process of 3G Phoenix Stone. Such invention patent was also granted the Gold Award in the
[China International Patent and Brand Expo] (中國國際專利與名牌博覽會金獎) in 2009. The two utility
model patents are used in the manufacturing process of our products. Our products are marketed under our
“ ” and “KING BIRD” brand and are primarily sold to trading companies, wholesalers and processing
companies in the PRC and overseas markets. Our
brand was recognised as the “Famous Brand of Jiangxi
Province (江西省著名商標)” in October 2010.
S1.1
Our business experienced significant growth in revenue over the Track Record Period. Our revenue
increased from approximately RMB[282.7] million for the year ended 31 December 2010, to approximately
RMB[402.1] million for the year ended 31 December 2011, to approximately RMB[458.7] million for the
year ended 31 December 2012.
S1.2
We strive to broaden our product types and to improve and enhance the quality and functional
performances of our products. We launched our first generation non-porous crystalised stone, 1G Phoenix
Stone, in 2005. Leveraging on about 10 years of experience in manufacturing non-porous crystalised stone,
we have been able to enhance the functional performance and characteristics of our products such as
compression strength and impact toughness. We launched 2G Phoenix Stone in 2007 and 3G Phoenix Stone
in 2011, providing our customers with better quality products with a wider scope of usage and application.
Our three series of crystalised stone are white in colour, which we believe have sufficient market demand
currently. We will continue to diversify our product offerings and to improve and enhance our products. We
have recently widened our focus and developed non-porous crystalised stones that are black and ivory in
- 130 -
S1.3
colour and we will launch these new products to the market when there is sufficient market acceptance and
demand and when there is sufficient production capacity. Our non-porous crystalised stone are sold mainly to
trading companies, wholesalers and processing companies in the PRC and overseas markets.
BASIS OF PREPARATION
Pursuant to the Reorganisation completed on 7 March 2012, our Company and its subsidiary, China
Galaxy, were interspersed between Jiujiang Golden Phoenix and our shareholders, and our Company became
the holding company of the companies now comprising our Group. Accordingly, our Group resulting from
the Reorganisation is regarded as a continuing entity.
The consolidated statements of comprehensive income, consolidated statements of changes in equity
and consolidated statements of cash flows for the Track Record Period which include the results, changes in
equity and cash flows of the companies now comprising our Group have been prepared as if the current
group structure had been in existence throughout the Track Record Period, or since the respective dates of
their incorporation/establishment where it is a shorter period.
The consolidated statements of financial position as of 31 December 2010 and 2011 have been
prepared to present the assets and liabilities of the companies now comprising our Group as if the current
group structure had been in existence at those dates, taking into account the respective dates of their
incorporation/establishment, where applicable.
As of 31 December 2010, 2011 and 2012, our Group had net current liabilities of RMB51.9 million,
RMB41.0 million and RMB39.7 million, respectively. We have unutilised banking facilities of approximately
[RMB270.5 million] currently available to our Group and which the directors expect to be able to renew
when the facilities expire. Accordingly, our directors are satisfied that our Group will have sufficient financial
resources to meet its financial obligations as they fall due in the foreseeable future, after taking into
consideration the banking facilities already in place and funds generated internally from operation and
consider that it is appropriate for our Financial Information to be prepared on a going concern basis.
S2
S3
S4
S4.1
KEY FACTORS AFFECTING OUR RESULTS OF OPERATIONS
Our results of operations and our financial condition have been and will continue to be affected by a
number of factors, including those set out below.
S5
Our ability to develop new products to respond to changing market trends and consumers’ tastes
Our ability to develop new products is important to us. New products or techniques are subject to
continuous evolution and changes and we cannot assure you that our products or techniques developed will
be well accepted by the market, or such products or techniques can be developed and put into market in a
timely manner or at all. In the event that we are unable to develop new products and techniques that meet the
needs of our customers or that our competitors have developed new and more advanced products and
techniques which are well-received by the market, our business, financial condition and results of operations
may be materially and adversely affected. Our non-porous crystalised stone is mainly engineered and
manufactured to be white in colour, which we believe have sufficient market demand currently. We launched
our 3G Phoenix Stone to the market in 2011 and we have recently successfully developed non-porous
- 131 -
S5.1
crystalised stone that are black and [ivory] in colour. Our sales are subject to changing consumers’
preference, development of the crystalised stone technology and the crystalised stone market trends which we
may or may not be able to predict accurately. Our ability to understand the PRC and overseas crystalised
stone industry and its trends, our ability to foresee market opportunities and direct our resources to product
development projects, financial resources and the experience of our team members could all affect the result
of our product development.
Price of major raw materials and coal
Our results of operations are significantly affected by the cost of coal; which is used as fuel in our
production. The cost of coal is one of the principal components of our total purchase, which accounted for
approximately RMB32.6 million, RMB33.4 million and RMB[33.4] million, respectively, and representing
35.3%, 22.5% and 21.4%, respectively, of our total purchase during the Track Record Period. We endeavour
to improve our production efficiency and reduce our coal cost. Our average purchase price for coal was
approximately RMB1,143 per tonne, RMB1,011 per tonne and RMB997 per tonne, respectively, for the
Track Record Period. During the Track Record Period, our business and results of operations were affected
by the fluctuation of coal price.
Our operation also require a significant amount of soda ash as it is one of our major raw materials in
2011 and 2012, and our purchases of soda ash accounted for approximately RMB8.4 million, RMB25.0
million and RMB[24.6] million, respectively, representing approximately 14.1%, 21.8% and 19.9%,
respectively, which accounted for the largest portion of our total purchase after deduction of coal, during the
Track Record Period. Our average purchase price for soda ash was approximately RMB1,117 per tonne,
RMB1,794 per tonne and RMB1,589 per tonne, respectively, for the three years ended 31 December 2012.
We maintain long term business relationships with our suppliers to secure a stable supply of raw
materials. Purchase price is usually determined based on the prevailing market price when we place an
individual purchase order.
As of the Latest Practicable Date, we did not have any hedging arrangements protecting us from price
fluctuations in raw materials nor do we have any cost control measures to mitigate fluctuation of raw material
prices. Any significant increase in the price of coal, soda ash and/or other major raw materials could have a
significant impact on our cost of sales, which could in turn have a material adverse effect on our business,
financial condition and results of operations if we are unable to pass on a portion or all of such increased
costs to our customer. We may experience difficulties in passing on these increased cost to our customers
when market conditions are unfavourable and/or competition is intensified in the industry.
- 132 -
S5.2
S5.3
S5.4
S5.5
The table below sets forth the purchase of our major raw materials and coal as a percentage of our
total purchase during the Track Record Period:–
Coal
Soda ash (純鹼)
For the year ended
31 December
2010
2011
%
%
2012
%
35.3
9.1
9.5
11.7
8.7
21.4
15.7
11.6
9.1
8.1
22.5
16.9
11.6
10.7
9.1
The table below sets forth the average prices of our major raw materials and coal purchased during the
2010
RMB/tonne
Average price
2011
RMB/tonne
2012
RMB/tonne
1,143
1,117
2,124
5,656
272
1,011
1,794
2,113
7,394
464
997
1,589
1,975
6,786
413
Coal
Soda ash (純鹼)
A sensitivity analysis on the price fluctuation of coal during the Track Record Period is set forth
below, which illustrates the hypothetical effects on our net profit with 5%, 10% and 15% increase or decrease
of coal price, representing the maximum fluctuation of our coal price.
S5.5.1
S5.5.2
S5.6
coal price of
+/-5%
+/-10%
+/-15%
RMB’000
RMB’000
RMB’000
-/+1,416
-/+1,290
-/+1,291
- 133 -
-/+2,831
-/+2,580
-/+2,582
-/+4,247
-/+3,871
-/+3,874
S5.6.1
A sensitivity analysis on the price fluctuation of soda ash during the Track Record Period is set out
below, which illustrates the hypothetical effects on our net profit with 20%, 40% and 60% increase or
decrease of soda ash price, representing the maximum fluctuation of our soda ash price.
Change in our net profit for change in soda ash
price of
+/-20%
+/-40%
+/-60%
RMB’000
RMB’000
RMB’000
-/+1,577
-/+3,628
-/+3,793
-/+3,154
-/+7,257
-/+7,585
S5.6.2
S5.6.3
-/+4,731
-/+10,885
-/+11,378
Direct labour costs
We experienced an increase in direct labour costs during the Track Record Period due to the increased
number of employees we employed and the increase in average wages of 13.2% from 2010 to 2011. The
number of our direct labour increased from 275 as of 31 December 2010 to 395 as of 31 December 2011 and
further increased to 582 (including 96 that were employed in December 2012) as of 31 December 2012. The
total amount of wages paid by us amounted to RMB5.1 million, RMB8.4 million and RMB9.9 million,
respectively, representing 3.0%, 3.7% and 4.1%, respectively, of our cost of sales for the three years ended
31 December 2012. Our operational results and conditions may be adversely affected should we fail to
monitor our direct labour costs.
S5.7
CRITICAL ACCOUNTING POLICIES
The preparation of our consolidated financial information and related notes requires us to make
judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, net sales and
expenses, and related disclosure of contingent assets and liabilities. We have based our estimates on historical
experience and on various other assumptions that we believe to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values of assets and liabilities that
are not readily apparent from other sources. Our management has discussed the development, selection and
disclosure of these estimates with our Directors. Actual results may differ from these estimates under different
assumptions or conditions.
An accounting policy is considered to be critical if it requires an accounting estimate to be made based
on assumptions about matters that are highly uncertain at the time the estimate is made, and if different
estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably
likely to occur periodically, could materially impact the consolidated financial information. We believe that
the following critical accounting policies are the most sensitive and are those that require the more significant
estimates and assumptions used in the preparation of our consolidated financial information. We also have
other policies that we consider to be significant accounting policies, which are set forth in “Accountants’
Report – Note 4” in Appendix I to this document.
- 134 -
S6
S7
Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable and represents
amounts receivable for goods sold in the normal course of business, net of discounts, value added tax and
sales related taxes.
S8
Revenue from the sale of goods is recognised when the goods are delivered and title has passed, at
which time all the following conditions are satisfied:
S9
•
the Group has transferred to the buyer the significant risks and rewards of ownership of the
goods;
•
the Group retains neither continuing managerial involvement to the degree usually associated
with ownership nor effective control over the goods sold;
•
the amount of revenue can be measured reliably;
•
it is probable that the economic benefits associated with the transaction will flow to the Group;
and
•
the costs incurred or to be incurred in respect of the transaction can be measured reliably.
Interest income from a financial asset is recognised when it is probable that the economic benefits will
flow to the Group and the amount of income can be measured reliably. Interest income is accrued on a time
basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate
that exactly discounts the estimated future cash receipts through the expected life of the financial asset to that
asset’s net carrying amount on initial recognition.
S10
Property, plant and equipment
Property, plant and equipment, including buildings held for use in the production of goods or for
administrative purposes (other than construction in progress), are stated in the consolidated statements of
financial position at cost less subsequent accumulated depreciation and accumulated impairment losses, if
any.
Depreciation is recognised so as to write off the cost of items of property, plant and equipment other
than construction in progress less their residual values over their estimated useful lives, using the straight-line
method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each
reporting period, with the effect of any changes in estimate accounted for on a prospective basis.
Properties in the course of construction for production or administrative purposes are carried at cost,
less any recognised impairment loss. Costs include professional fees and, for qualifying assets, borrowing
costs capitalised in accordance with the Group’s accounting policy. Such properties are classified to the
appropriate category of property, plant and equipment when completed and ready for intended use.
Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready
for their intended use.
- 135 -
S11
S12
S13
An item of property, plant and equipment is derecognised upon disposal or when no future economic
benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal of
an item of property, plant and equipment is determined as the difference between the sales proceeds and the
carrying amount of the asset and is recognised in profit or loss.
S14
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is calculated using the
weighted average method. Net realisable value represents the estimated selling price for inventories less all
estimated costs of completion and costs necessary to make the sales.
S15
Financial assets
The Group’s financial assets are classified into available-for-sale financial asset and loans and
receivables. The classification depends on the nature and purpose of the financial assets and is determined at
the time of initial recognition.
S16
Effective interest method
The effective interest method is a method of calculating the amortised cost of a financial asset and of
allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts
estimated future cash receipts (including all fees and points paid or received that form an integral part of the
effective interest rate, transaction costs and other premiums or discounts) through the expected life of the
financial asset, or, where appropriate, a shorter period to the net carrying amount on initial recognition.
S17
Interest income is recognised on an effective interest basis for debt instruments.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are
not quoted in an active market. Subsequent to initial recognition, loans and receivables (including trade and
other receivables, amount due from a director, pledged bank deposits and bank balances and cash) are carried
at amortised cost using the effective interest method, less any identified impairment losses (see accounting
policy on impairment loss on financial assets below).
S18
Available-for-sale financial assets
Available-for-sale financial assets are non-derivatives that are either designated or not classified as
financial assets at fair value through profit or loss, loans and receivables or held-to-maturity investments.
For available-for-sale equity investments that do not have a quoted market price in an active market
and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by
delivery of such unquoted equity instruments, they are measured at cost less any identified impairment losses
at the end of the reporting period (see accounting policy on impairment loss on financial assets below).
- 136 -
S19
S19.1
Impairment loss on financial assets
Financial assets are assessed for indicators of impairment at the end of each reporting period. Financial
assets are considered to be impaired where there is objective evidence that, as a result of one or more events
that occurred after the initial recognition of the financial asset, the estimated future cash flows of the financial
assets have been affected.
S20
For an available for-sale equity investment, a significant or prolonged decline in fair value of the
investment below its cost is considered to be objective evidence of impairment.
For other financial assets, objective evidence of impairment could include:
•
significant financial difficulty of the issuer or counterparty; or
•
breach of contract, such as default or delinquency in interest and principal payments; or
•
it becoming probable that the borrower will enter bankruptcy or financial re-organisation.
For certain categories of financial asset, such as trade receivables, assets that are assessed not to be
impaired individually are, in addition, assessed for impairment on a collective basis. Objective evidence of
impairment for a portfolio of receivables could include the Group’s past experience of collecting payments,
and observable changes in national or local economic conditions that correlate with default on receivables.
For financial assets carried at amortised cost, the amount of the impairment loss recognised is the
difference between the asset’s carrying amount and the present value of the estimated future cash flows
discounted at the financial asset’s original effective interest rate.
For financial assets carried at cost, the amount of the impairment loss is measured as the difference
between the asset’s carrying amount and the present value of the estimated future cash flows discounted at
the current market rate of return for a similar financial asset. Such impairment loss will not be reversed in
subsequent periods.
The carrying amount of the financial asset is reduced by the impairment loss directly for all financial
assets with the exception of trade receivables, where the carrying amount is reduced through the use of an
allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss.
When a trade receivable and other receivables are considered uncollectible, they are written off against the
allowance account. Subsequent recoveries of amounts previously written off are credited to profit or loss.
For financial assets measured at amortised cost, if, in a subsequent period, the amount of impairment
loss decreases and the decrease can be related objectively to an event occurring after the impairment losses
was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that
the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised
cost would have been had the impairment not been recognised.
- 137 -
S20.1
S20.2
S20.3
S20.4
S20.5
Financial liabilities and equity instruments
S21
Debt and equity instruments issued by the group entities are classified as either financial liabilities or
as equity in accordance with the substance of the contractual arrangements and the definitions of a financial
liability and an equity instrument.
The effective interest method is a method of calculating the amortised cost of a financial liability and
of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly
discounts estimated future cash payments (including all fees and points paid or received that form an integral
part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life
of the financial liability, or, where appropriate, a shorter period, to the net carrying amount on initial
recognition.
S22
Interest expense is recognised on an effective interest basis.
Financial liabilities
Financial liabilities (including other payables, bills payables, amount due to a director/a subsidiary and
bank borrowings) are subsequently measured at amortised cost, using the effective interest method.
S23
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of the Group after
deducting all of its liabilities. Equity instruments issued by a group entity are recognised at the proceeds
received, net of direct issue costs.
S23.1
Derecognition
The Group derecognises a financial asset only when the contractual rights to the cash flows from the
asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of
the asset to another entity.
S23.2
On derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount
and the sum of the consideration received and receivable is recognised in profit or loss.
S23.3
The Group derecognises financial liabilities when, and only when, the Group’s obligations are
discharged, cancelled or expire. The difference between the carrying amount of the financial liability
derecognised and the consideration paid and payable is recognised in profit or loss.
S23.4
- 138 -
SUMMARY OF OPERATING RESULTS
The following table sets forth a summary of our consolidated statements of comprehensive income for
the three years ended 31 December 2012, which are derived from the Accountants’ Report as set forth in
Appendix I to this document.
S24
2010
2011
2012
RMB’000
RMB’000
RMB’000
Revenue
Cost of sales
282,671
(173,861)
402,110
(226,918)
458,716
(242,658)
Gross profit
Other income
Other gains and losses
Administrative expenses
Distribution and selling expenses
Finance costs
Other expenses
108,810
119
(1,647)
(8,350)
(12,307)
(2,036)
(1,218)
175,192
699
89
(10,698)
(20,331)
(3,104)
(1,400)
216,058
1,062
(4,157)
(14,618)
(17,925)
(7,447)
(11,209)
Profit before tax
Income tax expense
83,371
(10,843)
140,447
(35,711)
161,764
(43,382)
72,528
104,736
118,382
Profit and total comprehensive income
for the year
PRINCIPAL INCOME STATEMENT ITEMS
Revenue
2010
RMB’000
2011
2012
(%) RMB’000
(%) RMB’000
(%)
1G Phoenix Stone
2G Phoenix Stone
3G Phoenix Stone
86,452
196,219
–
30.6
69.4
–
87,344
216,983
97,783
21.7
54.0
24.3
51,858
281,327
125,531
11.3
61.3
27.4
TOTAL
282,671
100.0
402,110
100.0
458,716
100.0
Our product mainly consists of the three different generations of non-porous crystalised stone. The
quantities of our products sold varied and was influenced by our expanded production capacity and
introduction of a new product as well as change in technology and product mix.
- 139 -
S25
S26
The increase in overall revenue during the Track Record Period was mainly due to (i) an increase in
the quantity of products sold from approximately 1.02 million square metres in 2010 to approximately 1.36
million square metres in 2011 and 2012 following an increase in our production capacities during 2011; (ii) a
general increase in our average selling prices during the Track Record Period from RMB278 per square metre
in 2010 to RMB296 per square metre in 2011 and to RMB337 per square metre in 2012 as a result of
increase in sales of product with thicker specifications that enjoy a higher selling price and (iii) the launch of
3G Phoenix Stone in the market in 2011 which had a higher selling price than 1G Phoenix Stone and 2G
Phoenix Stone.
S27
S28
1G Phoenix Stone
1G Phoenix Stone is the first generation non-porous crystalised stone launched by us in 2005. [Our 1G
Phoenix Stone can be manufactured with thickness ranging from 12mm to 30mm. During the Track Record
Period, the specifications of 1G Phoenix Stone that had the highest sales volume was 18mm, 20mm and
30mm.]
Compared with 2G Phoenix Stone and 3G Phoenix Stone, 1G Phoenix Stone generally has lower
compression strength and impact toughness and is relatively more brittle. With its high specular gloss, 1G
Phoenix Stone has remained popular as it can be further processed by our customers into sanitary ware and
kitchenware such as washbasins, bidets and countertops. Due to its raw materials combination, 1G Phoenix
Stone is relatively more fragile. As additional processing would generally yield products that are more
resilient, 1G Phoenix Stone remain best suited for sanitary ware and kitchenware.
representing approximately 30.6%, 21.7% and [11.3]%, respectively of our total revenue. In July 2012, we
suspended the production of 1G Phoenix Stone as the production line designated for its production was
undergoing an upgrade which involved the upgrade of certain machinery and equipment in the production
line to enhance production efficiency and output from only 1G Phoenix Stone to all three types of products.
The production line was then deployed for product feature improvement and research and development
activities temporarily. As a result, we recorded a decrease in our revenue of 1G Phoenix Stone. The
production of 1G Phoenix Stone resumed operation in January 2013.
S26.1
S26.2
S26.3
2G Phoenix Stone
2G Phoenix Stone is our second generation non-porous crystalised stone and is an improvement and
advancement of 1G Phoenix Stone. 2G Phoenix Stone was first commercially launched to the market in 2007.
[Our 2G Phoenix Stone can be manufactured with thickness ranging from 12mm to 30mm, with 18mm being
the most popular among our customers during the Track Record Period.]
We developed 2G Phoenix Stone as an advancement to 1G Phoenix Stone because [there was a
demand in the market for increased durability of flooring materials]. [2G Phoenix Stone generally has a
higher compression strength which contributes to its resilience as compared to 1G Phoenix Stone]. 2G
Phoenix Stone products are generally applied as flooring material, interior and exterior building walls and
[table and tops]. The improvement in the compression strength of 2G Phoenix Stone has enabled it to be used
in a variety of applications as the products are more robust and resilient.
- 140 -
S26.4
S26.5
representing approximately 69.4%, 54.0% and [61.3]%, respectively of our total revenue.
The sales volume increased from approximately 637,000 square metre to approximately 704,000
square metre and further to approximately 798,000 square metre for the year ended 31 December 2010, 2011
and 2012.
S26.6
S26.6.1
3G Phoenix Stone
3G Phoenix Stone, being our third generation non-porous crystalised stone, is a further improvement
and advancement of our 2G Phoenix Stone with better functional performances. 3G Phoenix Stone was
recently launched to the market in 2011. [Our 3G Phoenix Stone can be manufactured with thickness ranging
from 12mm to 30mm, with 18mm being the most popular among our customers during the Track Record
Period.]
With its high bending strength and high resilience, 3G Phoenix Stone is ideal for further processing
and for use as flooring material, interior and exterior building walls as it is less fragile and allows for easy
installation. With the best functional performances among our three generations of products, our 3G Phoenix
Stone can generally be applied in all the usages and applications of 1G Phoenix Stone and 2G Phoenix Stone.
S26.7
S26.8
Since the launch of 3G Phoenix Stone in 2011, the sales volume increased from approximately
269,000 square metre in 2011 to approximately 338,000 square metre in 2012. For the three years ended 31
December 2012 the revenue generated from our sales of the 3G Phoenix Stone was nil, RMB97.8 million and
RMB125.5 million respectively, representing approximately nil, 24.3% and [27.4]%, respectively of our total
revenue.
S26.9
The following tables set forth the geographical breakdown of our revenue by products. The
geographical location of customers is based on the location to which our products were delivered:–
S29
Domestic
Overseas
Total
RMB’000
RMB’000
RMB’000
1G Phoenix Stone
2G Phoenix Stone
- 141 -
83,985
194,719
2,467
1,500
86,452
196,219
278,704
3,967
282,671
Domestic
Overseas
Total
RMB’000
RMB’000
RMB’000
1G Phoenix Stone
2G Phoenix Stone
3G Phoenix Stone
75,607
215,419
97,783
11,737
1,564
–
87,344
216,983
97,783
388,809
13,301
402,110
Domestic
Overseas
Total
RMB’000
RMB’000
RMB’000
1G Phoenix Stone
2G Phoenix Stone
3G Phoenix Stone
36,781
250,567
119,982
15,077
30,760
5,549
51,858
281,327
125,531
407,330
51,386
458,716
During the Track Record Period, over 88% of our sales are domestic sales. For domestic sales, we
achieved RMB278.7 million, RMB388.8 million and RMB407.3 million for the three years ended 31
December 2012 respectively.
S30
Our Group has been developing into the overseas market since 2010, with sales to customers in
countries such as Hong Kong, Brazil and the UAE. Our overseas sales increased drastically from RMB4.0
million in 2010 to RMB13.3 million in 2011 and further to RMB51.4 million in 2012 representing 1.4%,
3.3% and 11.2% of our total revenue, respectively, for each of the three years ended 31 December 2012.
Such increase was mainly attributable to increase in sales to an overseas trading company from nil in 2010 to
approximately RMB9.8 million in 2011 and further to approximately RMB46.5 million in 2012.
S31
Record Period:–
S33
2010
RMB’000
Trading companies
Wholesalers
2011
(%)
RMB’000
(%)
2012
RMB’000
(%)
147,073
83,779
51,819
52.0
29.7
18.3
239,905
95,975
66,230
59.7
23.8
16.5
218,080
142,298
98,338
47.5
31.1
21.4
282,671
100.0
402,110
100.0
458,716
100.0
- 142 -
S32
Most of our sales were made to trading companies and wholesalers and they in turn may re-sell our
products in both the domestic and overseas markets. Our sales to trading companies increased from
RMB147.1 million in 2010 to RMB239.9 million in 2011 and such increase was mainly attributable to the
increase in sales to our customers from an average of RMB1.8 million per trading company customer in 2010
to RMB2.8 million in 2011, and also as a result of sales to a new overseas trading company customer which
contributed turnover of approximately RMB9.8 million. Our sales to wholesalers and processing companies
experienced a relatively mild increase from 2010 to 2011.
In 2012, our sales to wholesalers customers increased from RMB96.0 million to RMB142.3 million
which is mainly attributable to two new wholesaler customers with sales amount of RMB27.4 million in
2012. Sales to processing companies increased from RMB66.2 million in 2011 to RMB98.3 million in 2012,
and during the year, we have secured a new processing company customer with sales amount of RMB13.7
million and a general increase in sales with some major processing companies customers contributing to the
overall increase in sales and sales to processing companies.
Sales to trading companies accounted for 52.0%, 59.7% and 47.5%, respectively, of our revenue for
each of the three years ended 31 December 2012. Our sales to wholesalers accounted for 29.7%, 23.8% and
31.1%, respectively, of our revenue for the three years ended 31 December 2012.
S34
S34.1
S35
Pricing
Our products with thicknesses of 18mm, 20mm and 30mm accounted for the highest sales volume
among different thicknesses of our products. The following table sets forth the average selling price of our
products with the above thicknesses during the Track Record Period:–
2010
2011
2012
RMB per
RMB per
RMB per
square metre
square metre
square metre
1G Phoenix Stone
18mm
20mm
30mm
Average
2G Phoenix Stone
18mm
20mm
30mm
Average
3G Phoenix Stone
18mm
20mm
30mm
Average
Overall average
- 143 -
202
232
396
228
202
220
460
226
194
225
427
231
307
427
–
308
306
322
–
308
315
351
556
353
–
–
–
–
278
364
–
–
364
296
371
381
590
372
337
S37
The increase in the overall average selling price of our products from RMB278 per square metre in
2010 to RMB296 per square metre in 2011 and further to RMB337 per square metre in 2012 was mainly
attributable to (i) the increase of sales of products with thicker specifications which had higher selling prices
and (ii) the launch of our 3G Phoenix Stone, which had better functional features and therefore a higher
average selling price.
S38
A sensitivity analysis on the average selling price of our products during the Track Record Period is
set forth below, which illustrates the hypothetical effects on our net profit with 5%, 10% and 15% increase or
decrease of the average selling price, representing the maximum fluctuation of our average selling price.
S38.1
average selling price of
+/-5%
+/-10%
+/-15%
RMB’000
RMB’000
RMB’000
+/-12,367
+/-15,079
+/-17,202
+/-24,734
+/-30,158
+/-34,404
+/-37,101
+/-45,237
+/-51,606
Cost of sales
Our cost of sales comprises the direct cost associated with the manufacturing of our products, which
consists mainly of cost of inventory sold, direct labour and manufacturing overheads.
S39
Cost of inventory sold primarily includes raw materials such as soda ash, potassium carbonate, sodium
fluorosilicate and lithium feldspar powder and coal as our fuel in production. Direct labour refers to the
compensation and benefits we provide to our manufacturing employees.
S40
Manufacturing overheads includes depreciation, utilities, packing fee, consumables and others.
The table below sets forth the components of our cost of sales and the components as a percentage of
total cost of sales during the Track Record Period:–
2010
RMB’000
Cost of inventory sold
Direct labour
Manufacturing overheads
2011
(%)
RMB’000
(%)
2012
RMB’000
(%)
94,706
5,143
74,012
54.5
3.0
42.5
140,114
8,365
78,439
61.7
3.7
34.6
161,266
9,917
71,475
66.4
4.1
29.5
173,861
100.0
226,918
100.0
242,658
100.0
The total cost of sales were RMB173.8 million, RMB226.9 million and RMB242.7 million,
respectively, during the three years ended 31 December 2012.
- 144 -
S41
S42
S42.1
The increase in our cost of sales for 2010 to 2012 was in line with the increasing trend in our revenue
in the corresponding period.
S42.2
The cost of inventory sold increased from approximately RMB94.7 million in 2010 to RMB140.1
million in 2011 and further to RMB161.3 million in 2012.
S42.3
The increase in cost of inventory from 2010 to 2011 was mainly attributable to the increase in price as
well as the quantities of our raw material consumed. The price of our major raw material, soda ash, per tonne
increased from RMB1,117 in 2010 to RMB1,794 in 2011 and the price of another major raw material,
lithium feldspar powder, per tonne also increased from RMB272 in 2010 to RMB464 in 2011. The increase
in quantities of raw material consumed is in line with the increase in sales volume as a result of more sales
order obtained and expansion of production capacity during the year. The overall increasing trend in cost of
inventory is in line with that of the increase in revenue.
In 2012, the cost of inventory sold increased from RMB140.1 million in 2011 to RMB161.3 million
despite the constant sales volume in 2011 and decrease in the price level of raw materials.
During the last quarter of 2012, some new raw material types amounting to approximately RMB8.4
million have been consumed for product improvement purposes including better functional performances.
Also, we introduced products with increased thicknesses during the year, such as 30mm for 2G Phoenix
Stone and 20mm and 30mm for 3G Phoenix Stone. The quantities of raw materials consumed increased with
the introduction of products with increased thicknesses accordingly. Hence, the cost of inventory sold
increased approximately 15.1% in 2012, which is comparable with the 14.1% increase in revenue for the
same period.
S42.4
S42.5
S42.6
The proportion of cost of inventory sold increased from 54.5% in 2010 to 61.7% in 2011 and further
to 66.4% in 2012.
S42.7
The proportion of direct labour cost increased from 3.0% in 2010 to 4.1% in 2012, which was mainly
attributable to the increase in the number of direct labour we employed increased from 275 as at 31
December 2010 to 395 as at 31 December 2011 and further to 582 (including 96 that were employed in
December 2012) as at 31 December 2012 as a result of the increase in our production capacity.
S42.8
The manufacturing overhead represents the utilities, maintenance, packing and overhead expenses
incurred in the production process.
S42.9
The manufacturing overhead increased from RMB74.0 million in 2010 to RMB78.4 million in 2011
despite the increase in sales and production volume. During 2011, the commencement of production of our
new production line increased our production capacity, as such, we were able to benefit from the economies
of scales generated from the expansion of production capacity.
S42.10
The manufacturing overhead decreased to RMB71.5 million in 2012 from RMB78.4 million in 2011
as a result of decreasing maintenance expenses from the overhauls carried out previously. During 2012, we
upgraded certain machinery and equipment in the production line designated for the manufacturing of 1G
S42.11
- 145 -
Phoenix Stone. The cost of the upgrade have been recognised in our fixed assets in 2012 instead of it being
recognised as maintenance expenses. The maintenance expenses from the overhauls carried out during 2010
and 2011 was approximately RMB12.2 million and RMB8.4 million, respectively.
Gross profit and gross profit margin
App1A-33(1)
Co III (27)
The table below sets forth the gross profit and gross profit margin by product during the Track Record
Period:–
2010
RMB’000
1G Phoenix Stone
2G Phoenix Stone
3G Phoenix Stone
2011
(%)
RMB’000
(%)
2012
RMB’000
(%)
25,755
83,055
–
29.8
42.3
–
29,591
100,609
44,992
33.9
46.4
46.0
17,887
138,962
59,209
34.5
49.4
47.2
108,810
38.5
175,192
43.6
216,058
47.1
Our overall gross profit increased during the Track Record Period which was principally in line with
the increase in our revenue. Our gross profit margin improved from 38.5% in 2010 to 43.6% in 2011 and
further to 47.1% in 2012 principally due to the (i) increase of 2G Phoenix Stone and 3G Phoenix Stone sold
and thus an increase in average selling price of our products from RMB278 per square metre in 2010 to
RMB296 per square metre in 2011 and further to RMB337 per square metre in 2012; (ii) increase in the sales
volume of our products from approximately 1.02 million square metres in 2010 to approximately 1.36 million
square metres in 2011 and 1.36 million square metres in 2012 as a result of our expansion in production
capacity; (iii) the introduction of our 3G Phoenix Stone, which generally enjoy a higher selling price, into the
market in 2011 and the increase in production capacity along with the increase in sales order, which lowered
our average cost of production and (iv) the introduction of thicker product type for our 2G Phoenix Stone and
3G Phoenix Stone during 2012, which also enjoyed a higher average selling price and also contributed to the
increase in gross profit margin.
For the three years ended 31 December 2012, the gross profit margin of our 1G Phoenix Stone
increased from 29.8% in 2010 to 33.9% in 2011 and further to 34.5% in 2012. Such an increase in gross
profit margin for our 1G Phoenix Stone mainly resulted from economies of scale in manufacturing overhead
achieved by the increase in our production capacity as a new production line commenced operations in June
2011. The increase in our average selling price also contributed to the increase in gross profit margin in the
same period.
The gross profit margin of 2G Phoenix Stone improved from 42.3% in 2010 to 46.4% in 2011 and
further to 49.4% in 2012. The increasing trend of the gross profit margin of 2G Phoenix Stone is attributable
to (i) economies of scale achieved by expanding our production facilities in 2011; (ii) more products with
thicknesses, such as 30mm, that had higher average selling prices were introduced in 2012 and (iii) the
increase in average selling price in 2012.
- 146 -
S44
S45
S45.1
S45.2
For 3G Phoenix Stone, the gross profit margin increased from 46.0% in 2011 to 47.2% in 2012. 3G
Phoenix Stone was introduced to the market in 2011, the increase in gross profit margin is the combined
effect of increasing in our average selling price in 2012 together with the introduction of new product
thicknesses such as 20mm and 30mm in 2012, which generally enjoying a higher average selling price as
well as better profit margin.
S45.3
Other income
Other income mainly represents bank interest income generated from our bank deposits during the
period.
S46
Other gains and losses represents (i) foreign exchange gains or losses during the period as a result of
transactions with overseas customers and (ii) loss on disposal/write off of property, plant and equipment on
certain production equipment as a result of replacement of assets from time to time.
S47
Administrative expenses mainly represent staff costs for our administrative staff, depreciation and
amortisation, travelling expenses and other administrative expenses.
S48
The table below sets forth the components of our administrative expenses during the Track Record
Period:–
S49
2010
RMB’000
Staff costs
Depreciation and
amortisation
Professional and
service fees
Travelling expenses
Stamp duty and land
use tax
Motor vehicle expenses
Others1
2011
(%)
RMB’000
(%)
2012
RMB’000
(%)
2,887
34.6
4,146
38.8
5,478
37.5
1,620
19.4
2,364
22.1
2,602
17.8
661
416
7.9
5.0
121
628
1.1
5.9
1,029
996
7.0
6.8
493
239
2,034
5.9
2.9
24.3
781
358
2,300
7.3
3.3
21.5
796
319
3,398
5.4
2.2
23.3
8,350
100.0
10,698
100.0
[14,618]
100.0
Note:–
1
Other administrative expenses mainly represents insurance expenses, office supplies, telecommunication,
donations and miscellaneous expenses.
- 147 -
The increase in administrative expenses was mainly attributable to the increase in staff costs and
depreciation and amortisation of office building and office equipment. The increase in staff costs from
RMB2.9 million in 2010 to RMB4.1 million in 2011 and further to RMB5.5 million in 2012 was principally
due to the increase in administrative headcount as well as the general increase in average salary of our
administrative staff as a result of expansion in our operations. The increase in depreciation and amortisation
was due to increase in office equipment as a result of the expansions of operation.
S50
Distribution and selling expenses mainly represent delivery charges, advertising expenses and
exhibition fees, staff costs, travelling and other miscellaneous expenses.
S51
The table below sets forth the components of our distribution and selling expenses during the Track
Record Period:–
2010
RMB’000
Delivery charges
Advertising expenses
and exhibition fee
Staff costs
Travelling expenses
Others
2011
(%)
RMB’000
(%)
2012
RMB’000
(%)
3,670
29.8
14,081
69.3
13,344
74.4
3,713
709
3,526
689
30.2
5.9
28.5
5.6
3,331
981
580
1,358
16.4
4.8
2.8
6.7
2,299
1,118
335
829
12.8
6.2
1.9
4.7
12,307
100.0
20,331
100.0
[17,925]
100.0
Delivery charges and travelling expenses are major components of our distribution and selling
expenses amounting to approximately 58.3%, 72.1% and 76.3% of our distribution and selling expenses for
the three years ended 31 December 2012, respectively.
The majority of delivery charges incurred are for delivery of our products to our customers. The
significant increase in distribution and selling expenses was mainly due to the increase in delivery charges as
result of the change in our policy to deliver products to our customers since March 2011. Before March 2011,
most of our customers arranged their own delivery and logistics. Subsequent to 1 March 2011, we changed
our delivery policy so that delivery of our products was arranged by us only. The change in our delivery
policy was because logistics service providers would often combine shipments of their various orders for
delivery to multiple locations, which increased our delivery time to our own customers. In addition, our
customers who elected to arrange for their own delivery may not be familiar with the transportation routes to
our production facilities and the whole arrangement time to customers was consequently prolonged. In order
to better manage the delivery process, we changed our delivery policy in 2011 so that we are responsible for
delivery of our products by selected logistics service providers. We believe that the change in our delivery
policy was an initiative taken by us in order to provide better services to our customers as the new policy
allowed us to better control the timing and quality of the delivery of our products. In 2012, the delivery
- 148 -
S52
S53
S54
charges decreased mildly as a result of more portion of export sales incurred in terms of quantities and the
delivery charges to the export port is usually lower than the delivery charges to customer in other location in
the PRC.
Our travelling expenses decreased from RMB3.5 million in 2010 to RMB0.6 million in 2011 and
RMB0.3 million in 2012, as we took more business trips in 2010 to several new customers and relatively
high travelling expenses were incurred in 2010. Since then, we have built up a stable and recurring customer
base. Therefore, our travelling expenses decreased significantly in 2011 and remained stable in 2012 as a
result of the decrease in business trips for the purpose of engaging new customers.
S55
Finance costs
Finance costs mainly represent interest expense on bank borrowings. The increase in finance costs is
mainly as a result of the increase in interest rates for the bank borrowings obtained by us ranging from 5.31%
to 8.5% in 2010 to 5.94% to 11.36% in 2011 and further to 5.94% to 11.82% in 2012 and balances of bank
loans from RMB84.9 million as at 31 December 2010 to RMB113.6 million as of 31 December 2011 and to
RMB204.1 million as of 31 December 2012.
S56
Other expenses
Other expenses mainly represent research and development expenses and [•••] expenses incurred in
2012 in relation to [•••].
S56.1
Income tax expense
In 2010, we were in our final year of 2+3 tax holiday. As such, our standard tax rate was 12.5% in
S56.2
We were accredited as a High and New Technology enterprise in November 2010 for an initial period
of three years from November 2010 to November 2013. Under the PRC Enterprise Income Tax Law (中華人
民共和國企業所得稅法) (the “PRC EIT Law”) and its relevant regulations, High and New Technology
enterprises are conferred with a preferential income tax rate of 15% (reduced from the unified enterprise
income tax rate of 25% under the PRC EIT Law).
S56.3
In 2011 and 2012, we were unable to pass the annual review as our research and development
activities namely, the number of our research and development employees and capital expenditures, did not
meet the specified criteria as a High and New Technology enterprise for enjoying 15% tax rate during 2011
and 2012. Hence, our applicable tax rate for 2011 and 2012 was 25%. This was mainly due to relative less
research and development expenditures as our research and development efforts during the relevant period
were on the refinement of our existing products and did not involve significant capital expenditure.
S56.4
2010.
Our income tax expenses increased from RMB10.8 million in 2010 to RMB35.7 million in 2011 and
to RMB43.4 million in 2012, mainly because of the increase in profit. In 2010, our effective tax rate was
about 13%. Our effective tax rate increased to 25.4% in 2011 and 26.8% for 2012, mainly because of the
completion of the 2 + 3 tax holiday in 2010 and the standard income tax at 25% was applied thereafter.
- 149 -
S57
YEAR TO YEAR COMPARISON OF RESULTS OF OPERATIONS
Year Ended 31 December 2012 Compared with Year Ended 31 December 2011
Revenue
Our revenue increased by approximately RMB56.6 million or 14.0% to RMB458.7 million for the year
ended 31 December 2012 from RMB402.1 million for the year ended 31 December 2011. This increase was
primarily due to (i) the increase in the average selling price of our products from RMB296 per square metre
in 2011 to RMB337 per square metres in 2012 and (ii) the introduction of products with thicknesses that had
higher selling prices during 2012. We introduced 30mm thickness for our 2G Phoenix Stone with an average
selling price of approximately 57% higher than that of the overall average selling price of 2G Phoenix Stone.
We also introduced 20mm and 30mm thicknesses for our 3G Phoenix Stone with higher average selling
prices.
Our 1G Phoenix Stone sales decreased by RMB35.4 million or 40.5% from RMB87.3 million in 2011
to RMB51.9 million in 2012. Such decrease in sales was mainly attributable to the upgrade of the production
line used for the manufacturing of 1G Phoenix Stone. The upgrade of production line commenced in July
2012 and after completion of the upgrade, the production line can be used for the manufacturing of all three
types of products. The production line resumed operations in January 2013.
S57.1
S57.2
Sales from the 2G Phoenix Stone increased by RMB64.3 million or 29.6% from RMB217.0 million in
2011 to RMB281.3 million in 2012. We have introduced 2G Phoenix Stone in 30mm during 2012 with
higher average selling of RMB[556] per square metre compared with 18mm (RMB[315] per square metre)
and 20mm (RMB[351] per square metre) in 2012.
S57.3
Also, we secured a new overseas trading company customer in 2011 who contributed RMB46.5
million of sales in 2012 as compared to RMB9.8 million in 2011. As a majority of their purchase were 2G
Phoenix Stone in 2012, our sales of 2G Phoenix Stone increased.
S57.4
[The 3G Phoenix Stone was introduced to the market in 2011 with positive feedback and its sales
achieved RMB97.8 million in the same year.] [Sales from the 3G Phoenix Stone increased by RMB27.7
million or 28.3% from RMB97.8 million in 2011 to RMB125.5 million in 2012 as a result of introduction of
product with thicknesses of 20mm and 30mm compared to 18mm in 2011.]
Our sales to overseas customers increased significantly by RMB38.1 million or 286.6% from
RMB13.3 million in 2011 to RMB51.4 million in 2012 as we have increased sales to one of our overseas
trading customers from RMB9.8 million in 2011 to RMB46.5 million in 2012.
S57.5
S57.6
Cost of sales
Our cost of sales comprises of the direct cost associated with the manufacturing of our products
including cost of inventory sold, direct labour and manufacturing overhead. Our cost of sales increased by
RMB15.7 million or 6.9% to RMB242.7 million for the year ended 31 December 2012 from RMB226.9
- 150 -
S62
million for the year ended 31 December 2011. The increase was mainly attributable to the increase in cost of
inventory sold and direct labour despite the effect has been partially offset by the decrease in manufacturing
overhead.
Cost of inventory sold. The cost of inventory sold increased by approximately RMB21.2 million or
15.1% from approximately RMB140.1 million in 2011 to RMB161.3 million in 2012. The increase in cost of
inventory sold was due to (1) new types of raw material consumed, which amounted to RMB8.4 million, for
product improvement purpose and (2) the increase in the quantities of key raw materials consumed as a result
of increased quantities of product with thicker size sold. The increasing effect from the (1) and (2) has been
partially offset by the mild decrease in the prices of the raw material. Such increase was in line with the
increase in our total revenue by 14.1% during the same period.
Direct labor. The cost of direct labor increased by approximately RMB1.5 million or 17.9% from
approximately RMB8.4 million in 2011 to approximately RMB9.9 million in 2012. The change was
attributable to the increase in the number of production employees we employed from 395 as at 31 December
2011 to 582 (including 96 that were employed in December 2012) as at 31 December 2012.
Manufacturing overhead. Manufacturing overhead represents the utilities and overhead expenses
incurred in the production process. The manufacturing overhead decreased by RMB7.0 million or 8.9% from
2011 to 2012 despite the production volume remaining stable in the same period. The upgrade of one of the
production lines which involved the upgrade of certain machinery and equipment in 2012 was capital in
nature and the related cost was capitalised as fixed assets instead of recognised as maintenance expense. The
maintenance expense for the overhaul carried out in 2011 was RMB8.4 million.
S63
S64
S64.1
Our gross profit increased by 23.3% or RMB40.9 million from RMB175.2 million for the year ended
31 December 2011 to RMB216.1 million for the year ended 31 December 2012. Gross profit margin
increased from 43.6% to 47.1% during the same period. The increase in our gross profit margin was mainly
due to:–
S65
(1)
the increase in the average selling price of our products from RMB296 per square metre to
RMB337 per square metre;
S66
(2)
the change in product mix where a higher proportion of products with higher profit margin were
sold. The proportion of sales of 2G Phoenix Stone and 3G Phoenix Stone was 88.7% in 2012 as
compared to 78.3% in 2011;
S66.1
(3)
the introduction of new products with thickness that enjoyed a higher average selling price,
such as 30mm for 2G Phoenix Stone and 20mm and 30mm for 3G Phoenix Stone; and
S66.2
(4)
the decrease in the prices of raw materials as well as the decrease in manufacturing overhead as
explained above.
S67
- 151 -
As a result, the overall gross profit margin increased from 43.6% in 2011 to 47.1% in 2012. The gross
profit margins of 1G Phoenix Stone, 2G Phoenix Stone and 3G Phoenix Stone improved from 33.9%, 46.4%
and 46.0%, respectively, in 2011 to 34.5%, 49.4% and 47.2%, respectively, in 2012.
S68
S69
Other income
Other income increased by RMB0.4 million or 57.1% to RMB1.1 million for the year ended 31
December 2012 from RMB0.7 million for the year ended 31 December 2011. Such increase was mainly due
to [the increase in interest income from pledged bank deposits as a result of increase in interest rate from
2.2% per annum in 2011 to 3.3% per annum in 2012.
S70
S71
Other gains and losses mainly represent net foreign exchange losses and loss on disposal/write off of
property, plant and equipment arising from the replacement of equipment.
S71.1
Our administrative expenses increased by RMB3.9 million or 36.4% to RMB14.6 million for the year
ended 31 December 2012 from RMB10.7 million for the year ended 31 December 2011. The reason for the
increase was primarily due to [the increase in labour costs as a result of the increase in headcount and general
increase in average salaries due to the expansion of our Group.]
S72
Our distribution and selling expenses decreased by RMB2.4 million or 11.8% from RMB20.3 million
for the year ended 31 December 2011 to RMB17.9 million for the year ended 31 December 2012. Such
decrease was mainly due to the [decrease in delivery charges of approximately RMB0.8 million from
RMB14.1 million in 2011 to RMB13.3 million in 2012 as a result of increased quantities for export sales
delivered in 2012 and the delivery charges to the port is generally lower than those to the domestic
customers.]
S73
Finance costs
Our finance costs increased by RMB4.3 million or 138.7% to RMB7.4 million for the year ended 31
December 2012 from RMB3.1 million for the year ended 31 December 2011. The increase was mainly due to
[the increase in bank borrowings from RMB113.6 million as at 31 December 2011 to RMB204.1 million as
at 31 December 2012.
S74
Other expenses
[Other expenses mainly represent [•••].]
S74.1
- 152 -
Income tax expense
Income tax expense increased by RMB7.7 million or 21.6% to RMB43.4 million for the year ended 31
December 2012 from RMB35.7 million for the year ended 31 December 2011. Our Group’s effective tax
rates calculated based on the tax charged to the consolidated statements of comprehensive income over the
profit before tax increased from 25.4% for the year ended 31 December 2011 to 26.8% for the year ended 31
December 2012.
S75
Profit for the year
Our profit for the year increased by RMB13.7 million or 13.1% to RMB118.4 million for the year
ended 31 December 2012 from RMB104.7 million for the year ended 31 December 2011. Our net profit
margin remained fairly stable at approximately 25.8% for the year ended 31 December 2012 and 26.0% for
the year ended 31 December 2011. The reason for the increase in our profit for the year was mainly
attributable to [the increase in revenue and gross profit margin as a result of the increase in the average
selling price of our products.]
S76
Year Ended 31 December 2011 Compared with Year Ended 31 December 2010
Revenue
Our revenue increased by approximately RMB119.4 million or 42.2% to RMB402.1 million for the
year ended 31 December 2011 from RMB282.7 million for the year ended 31 December 2010. This increase
was primarily due to (i) the increase in sales volume from 1.02 million square metres in 2010 to
approximately 1.36 million square metres in 2011 following an increase in our production capacity during the
year and (ii) the launch of 3G Phoenix Stone which had a higher average selling price at RMB364 per square
metre compared with the average selling price of 1G Phoenix Stone and 2G Phoenix Stone at RMB226 per
square metre and RMB308 per square metre, respectively, which caused our average selling price of
RMB278 per square metre in 2010 to increase to RMB296 per square metre in 2011.
S58
Our 1G Phoenix Stone sales remained constant with a mild increase of RMB0.8 million or 0.9% from
RMB86.5 million in 2010 to RMB87.3 million in 2011 as a result of the effect of increase in sales volume
being partially offset by the mild decrease in average selling price.
S59
Sales from 2G Phoenix Stone increased by RMB20.8 million or 10.6% from RMB196.2 million in
2010 to RMB217.0 million in 2011 which was mainly attributable to the increase in the sales volume with
higher production capacity.
S60
During 2011, we designated a production line for the production of 3G Phoenix Stone and introduced
3G Phoenix Stone to the market.
S60.1
As a result, we achieved sales of RMB97.8 million in the same year. 3G Phoenix Stone achieved a
higher average selling price compared to 1G Phoenix Stone and 2G Phoenix Stone due to its high bending
strength and high resilience.
S61
- 153 -
Cost of sales
Our cost of sales comprises of the direct cost associated with the manufacturing of our products
including cost of inventory sold, direct labour and manufacturing overhead. Our cost of sales increased by
RMB53.0 million or 30.5% to RMB226.9 million for the year ended 31 December 2011 from RMB173.9
million for the year ended 31 December 2010. The increase was mainly attributable to the increase in cost of
inventory sold and direct labour.
Cost of inventory sold. The cost of inventory sold increased by approximately RMB45.4 million or
48.0%, from approximately RMB94.7 million in 2010 to RMB140.1 million in 2011. The change was
attributable to the increase in the price of key raw materials, such as soda ash with an average selling price
increase from RMB1,117 per tonne in 2010 to RMB1,794 per tonne in 2011 as well as increase in an average
selling price per tonne of lithium feldspar powder from RMB272 in 2010 to RMB464 in 2011. The increase
in cost of inventory sold was also due to the increase of the quantities of these material consumed. Such
increase was in line with the increase in our total revenue by 42.2% during the same period.
Direct labour. The cost of direct labour increased by approximately RMB3.3 million or 64.7%, from
approximately RMB5.1 million in 2010 to approximately RMB8.4 million in 2011. The change was
attributable to the increase in the number of production employees we employed from 275 as at 31 December
2010 to 395 as at 31 December 2011. The average wages of our direct labour increased by 10.5% from 2010
to 2011.
Manufacturing overhead. Manufacturing overhead represents the utilities and overhead expenses
incurred in the production process. The manufacturing overhead increased slightly by 6.0% from 2010 to
2011 despite the increase in the cost of sales by approximately 30.5% in the same period as a result of the
economics of scale enjoyed followed by expansion of production capacity during the period.
S62
S63
S64
S64.1
Our gross profit increased by 61.0% or RMB66.4 million from RMB108.8 million for the year ended
31 December 2010 to RMB175.2 million for the year ended 31 December 2011. Gross profit margin
increased from 38.5% to 43.6% during the same period. The increase in our gross profit margin was mainly
due to the:–
(1)
increase in the production volume of our products which reduced our overall average
production cost;
(2)
the introduction of 3G Phoenix Stone during the year which enjoy a higher average selling price
of RMB[364] per square metre compared to that of our 1G Phoenix Stone (RMB[226] per
square metre) and 2G Phoenix Stone (RMB308 per square metre); and
(3)
increase in proportion sales of our product with higher gross profit margin. In 2011, our gross
profit margin of 2G Phoenix Stone was 46.4% and our gross profit margin of 3G Phoenix Stone
was 46.0% while our gross profit margin of 1G Phoenix Stone was 33.9%. In 2011, the
combined percentage for 2G Phoenix Stone and 3G Phoenix Stone was 78.3% of our sales as
compared to that of 69.4% in 2010.
- 154 -
S65
S66
S67
As a result, the overall gross profit margin increased from 38.5% in 2010 to 43.6% in 2011. The gross
profit margin of 1G Phoenix Stone and 2G Phoenix Stone improved from 29.8% and 42.3%, respectively, to
33.9% and 46.4%, respectively. The 3G Phoenix Stone was introduced to the market in 2011, with gross
profit margin at 46.0% in the period.
S68
S69
Other income
Other income increased by RMB0.6 million or 600.0% to RMB0.7 million for the year ended 31
December 2011 from RMB0.1 million for the year ended 31 December 2010. Such increase was mainly due
to the increase in interest income from the increase of pledged bank deposits and bank balance and cash from
RMB57.7 million as at 31 December 2010 to RMB103.4 million as at 31 December 2011.
S70
S71
Our administrative expenses increased by RMB2.3 million or 27.4% to RMB10.7 million for the year
ended 31 December 2011 from RMB8.4 million for the year ended 31 December 2010. The reason for the
increase was primarily due to the increase in staff costs as a result of increase in headcount and general
increase in average salary due to the expansion of our Group.
S72
Our distribution and selling expenses increased by RMB8.0 million or 65.0% from RMB12.3 million
for the year ended 31 December 2010 to RMB20.3 million for the year ended 31 December 2011. Such
increase was mainly due to the increase in delivery charges of approximately RMB10.4 million or 281.1%,
from RMB3.7 million in 2010 to RMB14.1 million in 2011 as a result of the change in our delivery policy
from March 2011 onwards to arrange delivery of products for our customers.
S73
Finance costs
Our finance costs increased by RMB1.1 million or 55.0% to RMB3.1 million for the year ended 31
December 2011 from RMB2.0 million for the year ended 31 December 2010. The increase was mainly due to
the increase in bank borrowings balance from RMB84.9 million as at 31 December 2010 to RMB113.6
million as at 31 December 2011.
S74
Other expenses
Other expenses represent research and development expenses which remained fairly stable over the
period.
S74.1
Income tax expense
Income tax expense increased significantly by RMB24.9 million or 230.6% to RMB35.7 million for
the year ended 31 December 2011 from RMB10.8 million for the year ended 31 December 2010. The
significant increase was mainly due to the completion of 2 + 3 tax holiday. Our Group’s effective tax rates
- 155 -
S75
calculated based on the tax charged to the consolidated statements of comprehensive income over the profit
before tax increased significantly from 13.0% for the year ended 31 December 2010 to 25.4% for the year
ended 31 December 2011.
Profit for the year
Our profit for the year increased by RMB32.2 million or 44.4% to RMB104.7 million for the year
ended 31 December 2011 from RMB72.5 million for the year ended 31 December 2010. Our net profit
margin increased slightly to 26.0% for the year ended 31 December 2011 from 25.7% for the year ended 31
December 2010. The reason for the increase in our profit for the year was mainly attributable to the increase
in revenue and gross profit margin as a result of the increase in the average selling price of our products.
S76
LIQUIDITY AND CAPITAL RESOURCES
App1A-32
(5)(b)
During the Track Record Period, we met our working capital needs primarily through cash flow from
operating activities, bank loans and the use of trade and other payables. Our primary uses of cash were for
our working capital needs and capital expenditures.
S77
We expect to meet our working capital needs primarily through cash flows from operating activities,
bank loans, the use of trade and other payables. We are satisfied that, after due and careful inquiry, we have
available sufficient working capital for our Group’s present requirements, which is for at least the next 12
months from the date of this document.
S78
Cash flows
Set out below are our net cash flows for the periods indicated:
Net increase (decrease) in cash and cash
equivalents
2010
2011
RMB’000
RMB’000
2012
RMB’000
70,400
(124,627)
53,237
184,979
(173,089)
33,310
136,906
(182,375)
35,337
45,200
(10,132)
(990)
S79
Our cashflow from operating activities comprises of our profit before taxation and adjusted for non
cash item such as depreciation and amortisation, finance costs, the effect of changes in working capital such
as trade and other receivables and payables and inventories.
- 156 -
S80
Net cash generated from operating activities for the year ended 31 December 2012 was RMB136.9
million. The amount was mainly attributable to our profit before income tax of RMB161.8 million from our
operations, decrease in inventories of RMB4.6 million and increase in other payables of RMB4.5 million.
The amount was partially offset by the increase in trade and other receivables of RMB42.4 million and
income tax paid of RMB25.6 million.
S81
operations, increase in bills payables of RMB37.4 million, decrease in trade and other receivables of RMB5.7
million and increase in other payables of RMB1.4 million. The amount was partially offset by the increase in
inventories of RMB8.2 million and income tax paid of RMB20.6 million.
S82
operations, increase in bills payables of RMB21.2 million, decrease in inventories of RMB2.4 million. The
amount was partially offset by the decrease in other payables of RMB20.1 million, the increase in trade and
other receivables of RMB28.4 million and income tax paid of RMB9.1 million.
S83
Our cashflow in investing activities mainly consists of the payment of and proceeds from the sale and
purchase of prepaid lease premium and property, plant and equipment.
S84
Net cash used in investing activities for the year ended 31 December 2012 was RMB182.4 million.
The amount was mainly attributable to the purchase of property, plant and equipment of RMB195.7 million
as well as the net withdrawal of pledged bank deposit of RMB11.7 million.
S85
The amount was mainly attributable to the purchase of property, plant and equipment of RMB158.7 million.
S86
The amount was mainly attributable to the purchase of property, plant and equipment of RMB97.4 million as
well as the net placement of pledged bank deposit of RMB20.0 million.
S87
Our cashflow from financing activities mainly consists of the proceeds from bank loans, advance and
repayment of the amount due to a director and repayment of bank loans.
Net cash generated from financing activities for the year ended 31 December 2012 was RMB35.3
million. The amount was mainly attributable to the proceeds from the advance from a director and the bank
borrowings of RMB11.4 million and RMB142.0 million respectively, which were partially offset by the
repayment of the amount due to a director amounting to RMB50.2 million, repayment of bank borrowings of
RMB51.5 million and interest paid amounted to RMB16.4 million in the same period.
- 157 -
S88
S89
repayment of the amount due to a director amounting to RMB121.5 million and repayment of bank
borrowings of RMB54.9 million. Capital injection from shareholders amounted to RMB9.9 million or US$1.5
million for capital injection into Jiujiang Golden Phoenix in the same year.
repayment of the amount due to a director amounting to RMB34.5 million and repayment of bank borrowings
of RMB39.2 million. Capital injection from shareholders amounted to RMB26.8 million or US$4.0 million
for capital injection into Jiujiang Golden Phoenix in the year.
S90
S91
Capital expenditures
We have financed our historical capital expenditure through cash flows generated from operating
activities and bank borrowings. The following table sets forth a summary of our capital expenditures during
the Track Record Period:–
2010
2011
RMB’000
RMB’000
Building
Plant and machinery
Furniture, fixtures and equipment
Motor vehicles
Construction in progress
2012
RMB’000
–
17,893
120
106
104,920
–
82,489
160
–
61,221
2,400
20,307
932
1,162
146,183
123,039
143,870
170,984
Capital expenditures for the purchase of property, plant and equipment during the Track Record Period
primarily went towards the expansion of our maximum production capacity from approximately 1.3 million
square metres in 2010 to approximately 1.8 million square metres in 2011. Our maximum production capacity
was approximately 2.0 million square metres in 2012. Capital expenditures for construction in progress
during the Track Record Period was primarily due to the construction of new production facilities and
additions of new production lines.
We may incur additional capital expenditures from time to time as we pursue new opportunities to
expand our production capacity and actual expenditures may differ significantly from our current plans. Our
planned capital expenditure projects may also be changed due to changes in business plans such as potential
acquisitions, progress of individual projects and market conditions and outlook. Further, our ability to obtain
- 158 -
S92
S93
S94
sufficient funding for our planned capital expenditure projects in the future is subject to a variety of
uncertainties, including our future results of operations, financial condition and cash flows, economic,
political and other conditions in the PRC, Hong Kong and other jurisdictions in which we may operate.
Should any financing needs arises in the future, our Directors expect to finance such needs with
internal resources, unutilised banking facilities and/or debt or equity financing.
S95
WORKING CAPITAL
[The Directors are of the opinion that, after taking into account the financial resources available to us
including [•••], the available credit facilities and our internally generated funds, our Group has sufficient
working capital to satisfy its requirements for at least the next 12 months following the date of this
document.]
LR 8.21A(1)
App1A-36
S96
NET CURRENT LIABILITIES
Set forth below is the breakdown of our Group’s net current liabilities:–
2010
RMB’000
CURRENT ASSETS
Prepaid lease payments
Inventories
Trade and other receivables
Amount due from a director
Pledged bank deposits
Bank balances and cash
CURRENT LIABILITIES
Trade and other payables
Bills payables
Amount due to a director
Tax payables
Bank borrowings
As at 31 December
2011
RMB’000
2012
RMB’000
As at 30 April
2013
RMB’000
(unaudited)
S97
1,550
18,163
49,367
–
55,000
2,724
2,028
26,342
43,685
273
55,486
47,924
2,028
21,700
86,090
–
43,810
37,792
2,028
28,802
123,898
–
29,720
29,587
126,804
175,738
191,420
214,035
(4,083)
(85,000)
(41,410)
(4,336)
(43,850)
(5,482)
(102,854)
(43,571)
(18,245)
(46,600)
(9,993)
(61,467)
(4,821)
(33,767)
(121,100)
(22,561)
(30,000)
(7,261)
(15,827)
(169,600)
(178,679)
(216,752)
(231,148)
(245,249)
(51,875)
(41,014)
(39,728)
(31,214)
Our net current liabilities position improved from approximately RMB51.9 million as of 31 December
2010 to approximately RMB41.0 million as of 31 December 2011 and to approximately RMB39.7 million as
of 31 December 2012 and to RMB[31.2] million as at [30 April] 2013. The improvement was mainly due to
the increasing trend of our profits made during the Track Record Period and up to [30 April] 2013.
- 159 -
S98
We were at a net current liabilities position as of 31 December 2010, 2011 and 2012 and as of 30
April 2013 because we had financed our purchases of property, plant and equipment with various bank
borrowings and working capital.
S99
Our net current liabilities improved from RMB39.7 million as of 31 December 2012 to RMB31.2
million as of 30 April 2013, which was primarily due to increase in trade and other receivables and decrease
in bills payables which was partially set off by the increase in other payables. Our increase in trade and other
receivables was mainly due to revenue generated with the commencement of operation of our production line
1 of our Yunshan Production Facilities in February 2013. Our Company used less bills to finance our
payables as at 30 April 2013 and the increase in trade and other payables was mainly attributable to [•••]. Our
Directors confirm that there is no material change in our indebtedness position since 30 April 2013.
Set forth below are our trade and other receivables balances:–
As at 31 December
2010
2011
RMB’000
RMB’000
Trade receivables
Prepayments
Others
Average trade receivables turnover days
2012
RMB’000
49,046
–
321
43,457
144
84
82,533
2,798
759
49,367
43,685
86,090
45
42
50
S100
Significant increase in trade receivable from RMB43.5 million as of 31 December 2011 to RMB82.5
million as at 31 December 2012 was mainly due to the combined effect of (1) increase in sales during the
year, in particular, to customers which were granted a higher credit limit and (2) a longer credit periods
granted to selected customers who have built up good relationships with us, the credit period of these selected
customers have been generally extended, but was within 90 days.
Average trade receivables equals the average of the net trade receivables at the beginning and the end
of the year. Average trade receivables turnover days for each of the three years ended 31 December 2012
equals average trade receivables divided by the revenue for the relevant year multiplied by 365 days.
We were able to maintain a stable average trade receivable turnover days during the Track Record
Period as a result of our close monitoring of our trade receivable positions. The average trade receivables
turnover days for the Track Record Period were within our credit periods granted to customers, which was
generally within 30 days to 90 days.
- 160 -
S101
S103
The following table shows the aging analysis of trade receivables of our Group:
As at 31 December
2010
2011
RMB’000
RMB’000
0 – 30 days
31 – 60 days
61 – 90 days
2012
RMB’000
32,292
15,366
1,388
24,641
17,583
1,233
45,770
29,205
7,558
49,046
43,457
82,533
S105
Up to 30 April 2013, all of the total trade receivable as of 31 December 2012 have been subsequently
settled.
S106
Our Directors consider that the outstanding amount will be received and bad debt provision on the
amount is not required at the present stage. No provision for doubtful debts were made during the Track
Record Period.
S107
Prepayments
Prepayments as of 31 December 2012 mainly represents prepayment of [research and development
expenses].
S108
During 2012, we applied bank acceptance bills of approximately RMB[109.5] million and these bank
acceptance bills were delivered to suppliers as prepayments for raw materials, coal and electricity. As of 31
December 2012, such bank acceptance bills amounted to approximately RMB[21.5] million and were
disclosed under other commitments in our financial information. In addition to the four production lines at the
Hengfeng Production Facilities, the commencement of operation of the first production line at the Yunshan
Production Facilities, which is located at a separate location from our Hengfeng Production Facilities, in 2013
would require us to procure additional raw materials, coal and electricity for production. In order to avoid any
negative effects of the fluctuation in the price of raw materials, coal and electricity and to ensure an adequate
supply for our production needs, we entered into supply agreements with each of the 11 suppliers. Under
such supply agreements, the price of the raw materials, coal and electricity was capped at a specified price
and in consideration of the fixed maximum capped price obtained from the suppliers, we made prepayments
to the suppliers. Our Directors confirm that the supply agreements (including the terms of prepayment) were
entered into on an arm’s length basis upon normal commercial terms. We have over three years of business
relationships with two-thirds of the suppliers. Our Directors believe that such suppliers do not consider our
credit risks to be relatively high as we have made payments in due course to the suppliers under previous
supply agreements with the suppliers. Our Directors believe that such prepayments made to suppliers are not
a common industry practice and we expect that such prepayments are non-recurring in nature and made on a
one-off basis in order to procure additional materials, coal and electricity for the commencement of operation
of the first production line at our Yunshan Production Facilities, which is located a separate location from our
Hengfeng Production Facilities. As such, our Directors confirm that we do not expect to make advance
S109
- 161 -
S110
prepayments to suppliers in the future in contemplation of its expansion plans at the Yunshan Production
Facilities. Apart from the aforesaid prepayments made to the 11 suppliers, we did not make any other similar
prepayments during the Track Record Period.
Our Group obtained bank acceptance bills of RMB21.5 million as of 31 December 2012. As of 30
April 2013, they have been subsequently utilised.
S111
Other payables
Other payables during the Track Record Period mainly represent other tax and duties payable
including [real estate tax, VAT payable and urban maintenance and construction tax], [•••] payable and other
operating expense accrued.
S112
The increase of the balance of other payables from RMB5.5 million at 31 December 2011 to RMB10.0
million at 31 December 2012 was mainly attributable to [•••] accrued or payable of RMB5.6 million in
relation to [•••].
S112.1
Trade and bills payables
2010
RMB’000
Trade payables
Bills payables (trade nature)
As at 31 December
2011
RMB’000
2012
RMB’000
–
31,510
–
68,898
–
61,167
31,510
68,898
61,167
Trade and bills payables (trade nature)
31,510
68,898
61,167
Average trade and bills payables (trade
nature) turnover days
27
46
52
The average credit period for trade purchase is 30 to 60 days.
S113
S113.1
During the Track Record Period, we settled our trade payables through telegraph transmit as well as
bank bills. For bank bills, we repay the bills to the bank when they were due, which was normally 180 days
after the bills were issued.
S113.2
Average trade and bills payables (trade nature) equals the average of the trade and bills payables (trade
nature) at the beginning and end of year. Average trade and bills payables (trade nature) turnover days for
each of the three years ended 31 December 2012 equals average trade and bills payables (trade nature)
divided by the revenue for the relevant year multiplied by 365 days.
S114
- 162 -
The increasing trend in our average trade and bills payables (trade nature) turnover days during the
Track Record Period from 27 days in 2010 to 46 days in 2011 and further to 52 days in 2012 was mainly due
to the increase in using bank bills to settle our trade payables along with the increase in our production
activities. As the bills payable have a longer credit period of 180 days in general, our average trade and bills
payables turnover days increased accordingly. The trade and bills payable balance increased significantly
from RMB31.5 million as at 31 December 2010 to RMB68.9 million as at 31 December 2011 and RMB61.2
million as at 31 December 2012 accordingly.
S116
An ageing analysis of our bills payables with trade nature is set forth below:
As at 31 December
2010
2011
RMB’000
RMB’000
0 – 30 days
31 – 60 days
61 – 90 days
91 – 180 days
2012
RMB’000
7,000
13,700
702
10,108
11,970
28,036
2,670
26,222
18,987
11,126
8,909
22,145
31,510
68,898
61,167
S116.1
Up to [30 April 2013], all of the total bills payable with trade nature as of 31 December 2012 have
been subsequently settled.
Inventories
Our inventories comprises of raw materials, work in progress and finished goods. Set forth below are
our inventories balances:
As at 31 December
2010
2011
RMB’000
RMB’000
Raw materials
Work in progress
Finished goods
Average inventory turnover days
2012
RMB’000
6,802
1,019
10,342
11,633
1,564
13,145
8,474
1,452
11,774
18,163
26,342
21,700
25
20
19
Average inventory equals the average of inventory at the beginning and the end of the year. Average
inventory turnover days for each of the three years ended 31 December 2012 equals average inventory
divided by revenue for the relevant year multiplied by 365 days.
- 163 -
S117
S118
The increase in the inventories of RMB8.1 million from RMB18.2 million as of 31 December 2010 to
RMB26.3 million as of 31 December 2011 was due to a higher inventory level maintained in 2011 as a result
of the increase in production capacity for the year ended 31 December 2011. The inventories balance as of 31
December 2012 was less than that as of 31 December 2011, and such decrease was mainly attributable to (1)
the ongoing upgrade of our 1G Phoenix Stone production line, which resulted in, no finished inventory of 1G
Phoenix Stone in the warehouse as at 31 December 2012; (2) the decrease in the average price of our key raw
materials. The decrease in average inventory turnover days in 2011 was attributable to the significant increase
in revenue from RMB282.7 million in 2010 to RMB402.1 million in 2011 and such increase in revenue
outweighed the effect of the increase in inventories balance for the same period. The improvement in
inventory turnover was in line with the increase in product demand from the market which attributed to such
decrease in turnover day. The average inventory turnover days remained fairly stable at 20 days and 19 days
in 2011 and 2012, respectively, as a result of our strict control over our inventory management.
As of 30 April 2013, [all] of our inventories as of 31 December 2012 have been utilised or sold.
S120
S120.1
INDEBTEDNESS
App1A-32(2)
Co III (23)
We financed our operations and constructing of new production facilities through bank borrowings.
All of our bank borrowings are secured by our prepaid lease payment, pledged bank deposit and property,
plant and equipment. The table below sets forth the repayable schedule of our bank borrowings:
S121
Secured bank borrowings
2010
RMB’000
Current
More than one year,
but not exceeding two years
More than two years,
but not exceeding five years
More than five years
As at 31 December
2011
RMB’000
2012
RMB’000
43,850
46,600
121,100
8,000
20,000
47,000
33,000
–
33,000
14,000
36,000
–
84,850
113,600
204,100
Total bank borrowings increased by RMB28.7 million or 33.8% from RMB84.9 million as at 31
December 2010 to RMB113.6 million as of 31 December 2011 and increased by 90.5 million or 79.7% to
RMB204.1 million as of 31 December 2012. During the Track Record Period, our bank borrowings were
primarily used for the construction of our production facilities and for general working capital purpose,
including day to day operation and trade finance. The increase in our bank borrowings as at 31 December
2012 was mainly attributable to the funding need for the construction of our new production facilities,
Yunshan Production Facilities, as well as the increase in the use of our general working capital and trade
finance.
- 164 -
S122
As of 31 December 2010, 2011 and 31 December 2012, bank borrowings were secured by certain
property, plant and equipment, prepaid lease payment and pledged bank deposit of our Group with a net book
value of approximately RMB223.6 million, RMB402.5 million and RMB423.1 million, respectively.
S123
At the close of business on [30 April 2013], being the latest practicable date for the purpose of this
indebtedness statement, our Group had outstanding borrowings of:
RMB’000
Bank borrowings (secured)
Bills payables (secured)
Amount due to a director (unsecured)
[208,600]
[30,000]
[7,261]
[245,861]
At the close of business on [30 April 2013], being the latest practicable date for the purpose of this
indebtedness statement, the Group had pledged the following assets to secure the credit facilities granted to
our Group:
RMB’000
[313,871]
[36,598]
[29,720]
[380,189]
As at [30 April 2013], included in above pledged assets are plant and machineries with a carrying
amount [RMB18,122,000] which were pledged to independent surety companies for counter-guarantee in
return for banking facilities granted to our Group by banks.
S124
Save as aforesaid or as otherwise disclosed herein, and apart from intra-group liabilities, the Group did
not have, at the close of business on [30 April 2013], any outstanding loan capital issued or agreed to be
issued, bank overdrafts and loans, debt securities, borrowings or other similar indebtedness, liabilities under
acceptances or acceptance credits, debentures, mortgages, charges, finance leases or hire purchases
commitments, guarantees or other material contingent liabilities.
App1A-24
App1A-32
(1),(3),(4),(2)
Co III (24),(25)
S125
There is no restriction on utilising our unutilised banking facilities of RMB270.5 million as at the
Latest Practicable Date, including RMB98.0 million will expire in 2017.
S125.0
We have not experienced any withdrawal of facilities, default in payment of bank borrowing or breach
of financial covenants up to the Latest Practicable Date.
S125.0.1
- 165 -
Our Directors confirmed that we had not experienced difficulties in meeting obligations during the
Track Record Period and none of our Group’s bank borrowings and facilities are subject to the fulfilment of
covenants relating to financial ratio requirements or any other material covenants which would adversely
affect our Group’s ability to undertake additional debt or equity financings. Our Directors confirm that there
is no material change in our indebtedness position since 30 April 2013.
S125.1
The amount due to a director will be settled before [•••]. As at 30 April 2013, our Company has no
reserve available for distribution to our equity holders.
SUMMARY OF FINANCIAL RATIOS
2010
Gearing ratio (%)
Net debt to equity ratio (%)
Return on equity (%)
Return on total assets (%)
Current ratio
Quick ratio
38%
36%
41%
21%
0.71
0.61
As at 31 December
2011
33%
19%
37%
20%
0.81
0.69
2012
44%
36%
30%
17%
0.83
0.73
S126
Gearing ratio is calculated based on total borrowings divided by the total equity at the end of the
respective period.
S127
Gearing ratio
The gearing ratio increased from 33% as of 31 December 2011 to 44% as of 31 December 2012,
which was due to the increase in average total borrowings which was derived from the increase of total bank
borrowings from RMB113.6 million as of 31 December 2011 to RMB204.1 million as of 31 December 2012,
an increase of RMB90.5 million or 79.7% for the construction of our Yunshan Production Facilities. The
impact of the increase in borrowing out-weight the increase in equity contribution by the profit for the year
ended 31 December 2012.
The gearing ratio decreased from 38% as of 31 December 2010 to 33% as of 31 December 2011 due
to increase in average total equity which derived from increase of total equity from RMB225.6 million as of
31 December 2010 to RMB340.5 million as of 31 December 2011, an increase of RMB114.9 million or
50.9%. The reason for such decrease was mainly attributable to the increase in our total equity with the
improvement in our profit for the year ended 31 December 2011.
S128
S129
Net debt to equity ratio
Net debt to equity ratio is calculated based on net debt divided by total equity at the end of the
respective year.
- 166 -
S130
The net debt to equity ratio increased significantly from 19% as of 31 December 2011 to 36% as of 31
December 2012 which was primarily due to the significant increase in total bank borrowings from RMB113.6
million as of 31 December 2011 to RMB204.1 million as of 31 December 2012, an increase of RMB90.5
million or 79.7% for the construction of our Yunshan Production Facilities.
The net debt to equity ratio dropped significantly from 36% as at 31 December 2010 to 19% as at 31
December 2011, which was primarily due to increase in bank balance and cash from RMB2.7 million as at 31
December 2010 to RMB47.9 million as at 31 December 2011, as a result of our significant increase in our
net cash from operating activities.
S131
S132
Return on equity
Return on equity is calculated by dividing the profit for the year by the arithmetic mean of the opening
and closing balances of total equity of the relevant year expressed as a percentage.
S133
We were able to maintain a stable return on equity as we experienced significant increase in net profit
in 2011 with the increase in total equity with the improvement in our profits. Despite the increase in net
profit in 2012, our return on equity decreased from 37% in 2011 to 30% in 2012. Our average balance of
equity increased with our profit for the year and such effect out-weighted the increase in net profit for the
year.
S134
Return on total assets
Return on total assets is calculated by dividing the profit for the year by the arithmetic mean of the
opening and closing balances of total asset of the relevant year expressed as a percentage.
S136
We were able to maintain a stable return on total assets as we experienced significant increase in net
profit in 2011 with the increase in total assets together with the expansion in our production capacity.
S137
The return on total assets decreased slightly in 2012 as a result of the increase in average total assets
out-weighted the effect of the increase in net profit for the year.
S137.1
Current ratio
Current ratio is calculated by dividing current assets by current liabilities.
Our current ratio experienced growth during the Track Record Period. The current ratio increased from
0.71 as of 31 December 2010 to 0.81 as of 31 December 2011 and further improved to 0.83 as of 31
December 2012. The increase was primarily due to the significant increase in the bank balances and cash by
RMB45.2 million or 1,674% from RMB2.7 million as of 31 December 2010 to RMB47.9 million as of 31
December 2011 and increase in trade and other receivables from RMB43.7 million as of 31 December 2011
to RMB86.1 million as of 31 December 2012, despite such effect being offset by the increase in current
portion bank borrowing from RMB46.6 million as of 31 December 2011 to RMB121.1 million as of 31
December 2012.
- 167 -
S138
S139
Quick ratio
Quick ratio is calculated by dividing current assets less inventories by current liabilities.
S140
Our quick ratio improved during the Track Record Period. Our quick ratio increased slightly from 0.61
as of 31 December 2010 to 0.69 as of 31 December 2011 and further increased to 0.73 as of 31 December
2012. The increase was primarily due to the significant increase in bank balances and cash by RMB45.2
million or 1,674% from RMB2.7 million as of 31 December 2010 to RMB47.9 million as of 31 December
2011 and increase on trade and other receivables for RMB43.7 million as of 31 December 2011 to RMB86.1
million as of 31 December 2012, despite such effect being offset by the increase in current portion bank
borrowing from RMB46.6 million as of 31 December 2011 to RMB121.1 million as of 31 December 2012.
S141
COMMITMENTS
(a)
Capital Commitment
As at 31 December
2010
2011
RMB’000
RMB’000
Capital expenditure in respect of acquisition
of property, plant and equipment:
– Contracted for but not provided
(b)
40,010
15,224
S142
7,925
Operating leases
As at 31 December
2010
2011
RMB’000
RMB’000
Within one year
(c)
2012
RMB’000
114
114
2012
RMB’000
S143
–
Other commitments
As at 31 December 2012, the Group obtained bank acceptance bills of RMB21.5 million and these
have been delivered to suppliers as deposits for purchase of raw materials and electricity. The bills will
mature by the end of March 2013. There was no such arrangement at 31 December 2010 and 31 December
2011. Details are set out in note 36(b) of the Accountant’s Report in Appendix I to this document.
S143.1
CONTINGENT LIABILITIES
App1A-32(3)
As of 31 December 2010, 2011 and 2012, we did not have any significant contingent liabilities and we
confirm that as of the Latest Practicable Date there had been no material changes to our contingent liabilities.
S144
- 168 -
OFF-BALANCE SHEET ARRANGEMENTS
Save as disclosed above in section headed “Other commitments”, up to the Latest Practicable Date, we
had not entered into any off-balance sheet transaction or arrangements.
S145
RELATED PARTY BALANCES
With respect to the related party transactions set out in the consolidated financial information of our
Group included in the Accountants’ Report in Appendix I to this document, the Directors confirm that these
transactions were conducted on normal commercial terms and/or that such terms were no less favourable to
our Group than terms available to Independent Third Parties and were fair and reasonable and in the interest
of the Shareholders.
S146
FINANCIAL RISKS
We are exposed to various types of financial risks in the normal course of business, including credit,
liquidity and interest rate.
S147
Credit risk
Our credit risk is primarily attributable to trade and other receivables and cash and cash equivalents.
Management has a credit policy in place and the exposure to these credit risks is monitored on an ongoing
basis.
S148
In respect of cash and cash equivalents, we only place deposits with major financial institutions, which
management believe are of high credit rating.
S149
Liquidity risk
App1A-32
(5)(a)
Our policy is to regularly monitor our liquidity requirements to ensure that we maintain sufficient
reserve of cash and adequate committed lines of funding from major banks and financial institutions to meet
our liquidity requirements in the short and long term. For further quantitative information, please see note
34(b) of the Accountants’ Report in Appendix I to this document.
S150
Interest rate risk
Our interest rate risk arises primarily from bank borrowings issued at variable or fixed rates that
expose us to cash flow interest rate risk and fair value interest rate risk, respectively. For further quantitative
information, please see note 34(b) of the Accountants’ Report in Appendix I to this document.
S151
DIVIDEND POLICY
No dividends have been declared or paid by our Company since its incorporation.
- 169 -
S152
The payment and the amount of any dividend, if paid, will depend on the results of operations, cash
flows, financial condition, statutory and regulatory restrictions on the payment of dividends by us, future
prospects and other factors that we may consider relevant. Holders of our Shares will be entitled to receive
such dividends pro rata according to the amounts paid up or credited as paid up on our Shares. The
declaration, payment, and amount of dividends will be subject to our discretion.
Our PRC subsidiary may pay dividends only out of its accumulated distributable profits, if any,
determined in accordance with its articles of association, and the accounting standards and regulations in
China. Furthermore, pursuant to the relevant PRC laws and regulations applicable to our subsidiary in the
PRC, our PRC subsidiary is required to set aside a certain amount of its accumulated after-tax profits each
year, if any, to fund statutory reserves. These reserves may not be distributed as cash dividends. Dividends
may be paid only out of our distributable profits as permitted under the relevant laws.
S153
S153.1
There can be no assurance that we will be able to declare or distribute any dividend in the amount set
out in any plan of our Board or at all. The dividend distribution record in the past may not be used as a
reference or basis to determine the level of dividends that may be declared or paid by us in the future.
S153.2
Subject to the above factors, our expected dividend policy is that not less than approximately [20]% of
our profits available for distribution will be recommended for distribution in each financial year. The amount
of dividend actually distributed to our Shareholders will depend upon our earnings and financial condition,
operating requirements, capital requirements and any other conditions that our Directors may deem relevant
and will be subject to approval of our Shareholders.
App1A-33(5)
S153.3
NO MATERIAL ADVERSE CHANGE
App1A-38
Our Directors confirm that there has been no material adverse change in the financial or trading
position of our Company since 31 December 2012 (being the date to which our latest consolidated financial
results were prepared as set out in the Accountants’ Report in Appendix I to this document).
S154
PROPERTY INTERESTS AND PROPERTY VALUATION
Particulars of our Company’s property interests are set out in Appendix III to this document. GA
Valuation Limited has valued the property interests of our Company as of 31 May 2013. A summary of
values and valuation certificates issued by GA Valuation Limited are included in Appendix III to this
document.
- 170 -
S156
The table below sets forth the reconciliation of the aggregate amount of net book value of our Group’s
property interests from our consolidated financial information as of 31 December 2012 to the valuation of
property interests as of 31 May 2013:
RMB’000
Valuation of properties as of 31 May 2013 as set out in Appendix III
to this document
Lease prepayments (Note 1)
Buildings (Note 1)
Construction in progress (Note 2)
[260,570]
[51,119]
[85,830]
[84,600]
Net book value of property interests of our Group as at 31 December 2012
Add: Additions of Buildings
Less: Depreciation and amortisation for the five months ended
31 May 2013
[221,549]
[1,601]
Net book value of property interests of our Group as at 31 May 2013
[218,840]
Valuation surplus
(4,310)
[41,730]
Notes:
1.
The net book values are extracted from the accountants’ report set out in Appendix I to this document.
2.
The net book value excludes amount relating to plant and machinery which are included in the balance of
construction in progress.
- 171 -
S157
FUTURE PLANS
FUTURE PLANS
A detailed description of our Group’s future plans is set forth in the paragraph headed “Business – Our
business strategies” in this document.
- 172 -
T1
APPENDIX I
ACCOUNTANTS’ REPORT
App1A-37
88 Que e ns wa y
[28 June 2013]
The Directors
Dear Sirs,
We set out below our report on the financial information relating to China Golden Phoenix
International (Holdings) Limited (formerly known as Strong Elite Limited) (the “Company”) and its
subsidiaries (hereinafter collectively referred to as the “Group”) for each of the three years ended 31
December 2012 (the “Track Record Period”) (the “Financial Information”).
The Company was incorporated in the Cayman Islands on 4 January 2011 as an exempted company
with limited liability under the Companies Law of the Cayman Islands. Pursuant to a group reorganisation, as
more fully explained in [the section headed “Reorganisation”] (the “Reorganisation”), the Company became
the holding company of the Group on 7 March 2012.
- I-1 -
APPENDIX I
At the date of this report, the Company has direct and indirect interests in the following subsidiaries:
Name of subsidiary
Place and date of
incorporation/
establishment
Issued and fully
paid share capital/
registered capital
Hong Kong
11 January 2011
HK$1.00
The People’s Republic
of China (“PRC”)
2 December 2003
Principal
Attributable equity interest held by the Group
activities
At 31 December
At date of
issuance of
2010
2011
2012 this report
Directly owned
China Galaxy Limited
(“China Galaxy”) (note (i))
N/A
100%
100%
100% Investment
holding
US$13,000,000
(Paid-up capital:
US$10,500,000)
100%
100%
100%
100% Production and
sales of
crystallised
stone
RMB10,000,000
100%
100%
100%
100% Production and
sales of
crystallised
stone
Indirectly owned
Decoration Material Co.,
Limited 九江金鳳凰裝飾材料
有限公司 (“Jiujiang Golden
Phoenix”)
(notes (ii) and (iii))
PRC
Nanocrystalline Co., Limited 25 September 2009
江西金鳳凰納米微晶有限公司
(“Jiangxi Golden Phoenix”)
(notes (ii) and (iv))
notes:
(i)
The subscriber of China Galaxy transferred one share of HK$1.00, being the entire issued capital of China
Galaxy, to the Company for cash at par on 14 February 2011.
(ii)
The English name is for identification only. The official name of the company is in Chinese.
(iii)
Jiujiang Golden Phoenix is wholly foreign-owned enterprise established in the PRC. On 18 January 2011, the
registered capital of Jiujang Golden Phoenix was increased to US$13,000,000. As at 31 December 2012, the
paid-in capital of Jiujiang Golden Phoenix was US$10,500,000. Pursuant to the Memorandum and Articles of
Association of Jiujiang Golden Phoenix, the registered capital shall be paid in full no later than two years from
the date of renewed business license which was granted on 18 January 2011. On 27 December 2012, Jiujiang
Golden Phoenix obtained approval from the relevant bureau for extension of the deadline of full payment of
registered capital to 30 June 2013. On 20 June 2013, Jiujiang Golden Phoenix obtained approval from the
relevant bureau for further extension of the deadline of full payment of registered capital to 31 December 2013.
(iv)
Jiangxi Golden Phoenix is registered as a limited liability company under PRC law and has been a wholly
owned subsidiary of Jiujiang Golden Phoenix since its establishment on 25 September 2009.
The financial year end date of the companies now comprising the Group is 31 December.
- I-2 -
App1A-29(1)
CoIII(29)
APPENDIX I
No statutory financial statements have been prepared for the Company since the date of its
incorporation as it has not carried out any business other than the Reorganisation and there is no statutory
audit requirement in the Cayman Islands. We have, however, reviewed all relevant transactions of the
Company since the date of its incorporation and carried out such procedures as we considered necessary for
inclusion of the financial information relating to the Company in this report.
The statutory financial statements of China Galaxy for the period from the date of its incorporation to
31 December 2011 and for the year ended 31 December 2012 were prepared in accordance with Hong Kong
Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public
Accountants (the “HKICPA”) and Hong Kong Companies Ordinance and were audited by us.
The statutory financial statements of Jiujiang Golden Phoenix and Jiangxi Golden Phoenix for each of
the three years ended 31 December 2012 were prepared in accordance with PRC accounting rules and
regulations and were audited by Jiujiang Longcheng Certified Public Accountants (九江龍城會計師事務所
有限公司), certified public accountants registered in the PRC.
For the purpose of this report, the directors of the Company have prepared consolidated financial
statements of the Group for the Track Record Period in accordance with HKFRSs issued by the HKICPA (the
“Underlying Financial Statements”). We have undertaken an independent audit on the Underlying Financial
Statements in accordance with Hong Kong Standards on Auditing issued by the HKICPA and examined the
Underlying Financial Statements in accordance with [•••].
The Financial Information set out in this report has been prepared from the Underlying Financial
Statements on the basis set out in Note 2A of Section A below. No adjustment is considered necessary to the
Underlying Financial Statements in preparing our report.
The preparation of the Underlying Financial Statements are the responsibility of the directors of the
Company who approved their issue. It is our responsibility to compile the Financial Information set out in
this report from the Underlying Financial Statements, to form an independent opinion on the Financial
Information and to report our opinion to you.
In our opinion, on the basis of presentation set out in Note 2A of Section A below, the Financial
Information gives, for the purpose of this report, a true and fair view of the state of affairs of the Company as
at 31 December 2011 and 2012 and of the Group as at 31 December 2010, 2011 and 2012 and of the
consolidated results and consolidated cash flows of the Group for the Track Record Period.
- I-3 -
APPENDIX I
A.
LR8.05
LR8.06
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Notes
Revenue
Cost of sales
6
2010
2011
2012
RMB’000
RMB’000
RMB’000
282,671
(173,861)
402,110
(226,918)
458,716
(242,658)
175,192
699
89
(10,698)
(20,331)
(3,104)
(1,400)
216,058
1,062
(4,157)
(14,618)
(17,925)
(7,447)
(11,209)
Gross profit
Other income
Finance costs
Other expenses
9
10
108,810
119
(1,647)
(8,350)
(12,307)
(2,036)
(1,218)
Profit before tax
Income tax expense
11
83,371
(10,843)
140,447
(35,711)
161,764
(43,382)
Profit and total comprehensive
income for the year attributable
to owners of the Company
12
72,528
104,736
118,382
7
8
- I-4 -
APPENDIX I
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
At 31 December
2011
RMB’000
Notes
2010
RMB’000
16
17
18
20
278,731
39,280
497
200
398,192
51,119
456
200
535,799
49,091
415
–
318,708
449,967
585,305
1,550
18,163
49,367
–
55,000
2,724
2,028
26,342
43,685
273
55,486
47,924
2,028
21,700
86,090
–
43,810
37,792
126,804
175,738
191,420
4,083
85,000
41,410
4,336
43,850
5,482
102,854
43,571
18,245
46,600
9,993
61,467
4,821
33,767
121,100
178,679
216,752
231,148
(51,875)
(41,014)
(39,728)
TOTAL ASSETS LESS CURRENT
LIABILITIES
266,833
408,953
545,577
41,000
229
67,000
1,405
83,000
3,647
41,229
68,405
86,647
225,604
340,548
458,930
62,800
162,804
73,008
267,540
329
458,601
225,604
340,548
458,930
NON-CURRENT ASSETS
Intangible assets
Available-for-sale investment
CURRENT ASSETS
Inventories
Bank balances and cash
CURRENT LIABILITIES
Other payables
Bills payables
Tax payables
Bank borrowings
NON-CURRENT LIABILITIES
Bank borrowings
Deferred tax liabilities
17
21
22
23
24
24
25
26
27
29
29
30
NET ASSETS
CAPITAL AND RESERVES
Paid-in/issued share capital
Reserves
31
TOTAL EQUITY ATTRIBUTABLE
TO OWNERS OF THE COMPANY
- I-5 -
2012
RMB’000
APPENDIX I
STATEMENTS OF FINANCIAL POSITION
Notes
At 31 December
2011
2012
RMB’000
RMB’000
NON-CURRENT ASSET
Investment in a subsidiary
19
–
–
CURRENT ASSETS
Prepayments
22
23
–
273
2,132
–
273
2,132
–
–
–
5,727
4,792
255
–
10,774
CURRENT LIABILITIES
Other payables
Amount due to a subsidiary
25
27
28
NET CURRENT ASSETS (LIABILITIES)
273
(8,642)
TOTAL ASSETS LESS CURRENT LIABILITIES
273
(8,642)
329
(56)
329
(8,971)
273
(8,642)
CAPITAL AND RESERVE
Share capital
Accumulated losses
31
32
TOTAL EQUITY (NET DEFICIT)
- I-6 -
APPENDIX I
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Paid-in/
issued
share
capital
RMB’000
Capital
reserve
RMB’000
Statutory
reserve
RMB’000
(Note)
Retained
profits
RMB’000
Total
RMB’000
At 1 January 2010
36,045
–
7,580
82,696
126,321
income for the year
Capital injection by the owners
Transfer of reserve
–
26,755
–
–
–
–
–
–
7,941
72,528
–
(7,941)
72,528
26,755
–
At 31 December 2010
62,800
–
15,521
147,283
225,604
–
329
9,879
–
–
–
–
–
–
–
–
12,409
104,736
–
–
(12,409)
104,736
329
9,879
–
73,008
–
27,930
239,610
340,548
–
72,679
–
–
–
13,510
118,382
–
(13,510)
118,382
–
–
72,679
41,440
344,482
458,930
income for the year
Issue of share capital
Capital injection by the owners
Transfer of reserve
At 31 December 2011
income for the year
Arising on the Reorganisation
Transfer of reserve
At 31 December 2012
Note:
–
(72,679)
–
329
Statutory reserve represents appropriations from the profits after tax of the Group’s subsidiaries established in
the PRC and forms part of shareholders’ equity. In accordance with the PRC Company Law and the articles of
association of these subsidiaries, these subsidiaries are required to appropriate an amount at a minimum of 10%
of their profits after tax each year to a statutory reserve until the statutory reserve reaches 50% of their registered
capital. The statutory reserve can be used for converting into additional capital of these subsidiaries.
- I-7 -
APPENDIX I
CONSOLIDATED STATEMENTS OF CASH FLOWS
2010
2011
2012
RMB’000
RMB’000
RMB’000
OPERATING ACTIVITIES
Profit before tax
Adjustments for:
Depreciation of property, plant and equipment
Finance costs
Loss on disposal/write off of property, plant and
equipment
Release of prepaid lease payments
Amortisation of intangible assets
Unrealised exchange loss
Interest income
83,371
140,447
161,764
16,053
2,036
24,409
3,104
29,357
7,447
1,399
1,559
41
4
(115)
–
2,013
41
–
(699)
3,932
2,028
41
–
(1,062)
104,348
2,361
(28,390)
(20,056)
21,210
169,315
(8,179)
5,682
1,399
37,388
203,507
4,642
(42,405)
4,511
(7,731)
Cash generated from operations
Income tax paid
79,473
(9,073)
205,605
(20,626)
162,524
(25,618)
NET CASH FROM OPERATING ACTIVITIES
70,400
184,979
136,906
75,045
115
–
135,083
699
–
232,376
1,062
273
–
–
200
Operating cash flows before movements
in working capital
Decrease (increase) in inventories
(Increase) decrease in trade and other receivables
(Decrease) increase in other payables
Increase (decrease) in bills payables
INVESTING ACTIVITIES
Withdrawal of pledged bank deposits
Interest received
Repayment from a director
Proceeds from disposal of available-for-sale
investment
Proceeds from disposal of property,
plant and equipment
Placement of pledged bank deposits
Purchase of property, plant and equipment
Addition to prepaid lease payments
Advance to a director
NET CASH USED IN INVESTING ACTIVITIES
FINANCING ACTIVITIES
New bank borrowings raised
Advance from a director
Capital injection from owners
Issue of shares
Repayment of bank borrowings
Repayment to a director
Interest paid
NET CASH FROM FINANCING ACTIVITIES
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS AT
BEGINNING OF THE YEAR
1,290
(95,045)
(97,417)
(8,615)
–
–
(135,569)
(158,699)
(14,330)
(273)
88
(220,700)
(195,674)
–
–
(124,627)
(173,089)
(182,375)
85,000
19,000
26,755
–
(39,150)
(34,500)
(3,868)
83,600
123,670
9,879
329
(54,850)
(121,509)
(7,809)
142,000
11,410
–
–
(51,500)
(50,160)
(16,413)
53,237
33,310
35,337
45,200
(10,132)
2,724
47,924
–
–
47,924
37,792
(990)
3,718
Effect of foreign exchange rate changes
(4)
CASH AND CASH EQUIVALENTS
AT END OF THE YEAR,
represented by bank balances and cash
2,724
- I-8 -
APPENDIX I
NOTES TO THE FINANCIAL INFORMATION
1.
GENERAL
The Company was incorporated in the Cayman Islands on 4 January 2011 as an exempted company with limited
liability. The name of the Company was changed from Strong Elite Limited to China Golden Phoenix International
(Holdings) Limited on 25 February 2013. Its immediate and ultimate parent is Golden Phoenix Nanotechnology Holding
Limited which was incorporated in Hong Kong on 3 January 2011 and is wholly owned by Mr. Sui He Zuo. The
registered office of the Company is located at Scotia Centre, 4th Floor, P.O. Box 2804, George Town, Grand Cayman
KY1-1112, Cayman Islands and its principal place of business is located at Hengfeng Town, Yongxiu Country, Jiujiang
City, Jiangxi Province, the PRC.
The Company is an investment holding company. The principal activities of the Group are production and sales
of crystallised stone.
The Financial Information is presented in Renminbi (“RMB”), which is also the functional currency of the
Company.
2A.
BASIS OF PRESENTATION OF FINANCIAL INFORMATION
Pursuant to the Reorganisation completed on 7 March 2012, the Company and its subsidiary, China Galaxy,
were interspersed between Jiujiang Golden Phoenix and its shareholders, and the Company became the holding company
of the companies now comprising the Group. Accordingly, the Group resulting from the Reorganisation is regarded as a
continuing entity.
The consolidated statements of comprehensive income, consolidated statements of changes in equity and
consolidated statements of cash flows for the Track Record Period which include the results, changes in equity and cash
flows of the companies now comprising the Group have been prepared as if the current group structure had been in
existence throughout the Track Record Period, or since the respective dates of their incorporation/establishment where it
is a shorter period.
The consolidated statements of financial position as at 31 December 2010 and 2011 have been prepared to
present the assets and liabilities of the companies now comprising the Group as if the current group structure had been in
existence at those dates, taking into account the respective dates of their incorporation/establishment, where applicable.
2B.
BASIS OF PREPARATION OF FINANCIAL INFORMATION
As at 31 December 2010, 2011 and 2012, the Group had net current liabilities of RMB51,875,000,
RMB41,014,000 and RMB39,728,000, respectively. Up to the date of issuance of this report, the Group has unutilised
banking facilities of approximately [RMB270,500,000] currently available to the Group and which the directors of the
Company expect to be able to renew when the facilities expire. After taking into consideration the banking facilities
already in place and funds generated internally from operation, the directors of the Company are satisfied that the Group
will have sufficient financial resources to meet its financial obligations as they fall due in the foreseeable future and
consider that it is appropriate for the Financial Information to be prepared on a going concern basis.
3.
APPLICATION OF HONG KONG FINANCIAL REPORTING STANDARDS (“HKFRSs”)
For the purpose of preparing and presenting the Financial Information for the Track Record Period, the Group
has consistently applied Hong Kong Accounting Standards (“HKASs”), HKFRSs and Interpretations (“HK(IFRC) – Int”)
issued by the HKICPA, which are effective for the accounting period beginning on 1 January 2012 throughout the Track
Record Period.
- I-9 -
APPENDIX I
At the date of this report, the Group has not early applied the following new and revised standards, amendments
or interpretation that have been issued but are not yet effective:
Annual Improvements to HKFRSs 2009 – 2011 Cycle1
Disclosures – Offsetting Financial Assets and Financial
Liabilities1
Mandatory Effective Date of HKFRS 9 and Transition
Disclosures2
Consolidated Financial Statements, Joint Arrangements and
Disclosure of Interests in Other Entities: Transition Guidance1
Investment Entities4
Amendments to HKFRSs
Amendments to HKFRS 7
Amendments to HKFRS 9 and HKFRS 7
Amendments to HKFRS 10, HKFRS 11
and HKFRS 12
Amendments to HKFRS 10, HKFRS 12
and HKAS 27
HKFRS 9
HKFRS 10
HKFRS 11
HKFRS 12
HKFRS 13
HKAS 19 (as revised 2011)
Amendments to HKAS 1
Amendments to HKAS 32
HK(IFRIC) – Int 20
1
2
3
4
Effective
Effective
Effective
Effective
for
for
for
for
annual
annual
annual
annual
periods
periods
periods
periods
beginning
beginning
beginning
beginning
Financial Instruments2
Consolidated Financial Statements1
Joint Arrangements1
Disclosure of Interests in Other Entities1
Fair Value Measurement1
Employee Benefits1
Separate Financial Statements1
Investments in Associates and Joint Ventures 1
Presentation of Items of Other Comprehensive Income3
Offsetting Financial Assets and Financial Liabilities4
Stripping Costs in the Production Phase of a Surface Mine1
on
on
on
on
or
or
or
or
after
after
after
after
1
1
1
1
January 2013
January 2015
July 2012
January 2014
The directors of the Company anticipate that the application of these new and revised standards, amendments or
interpretation will have no material impact to the results and the financial positions of the Group.
4.
SIGNIFICANT ACCOUNTING POLICIES
The Financial Information has been prepared on historical cost basis in accordance with the accounting policies
set out below which conform with HKFRSs. Historical cost is generally based on the fair value of the consideration
given in exchange for goods.
In addition, the Financial Information includes applicable disclosures required by [•••] and by the Hong Kong
Companies Ordinance.
Basis of consolidation
The Financial Information incorporates the financial statements of the Company and entities controlled
by the Company (its subsidiaries). Control is achieved where the Company has the power to govern the financial
and operating policies of an entity so as to obtain benefits from its activities.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring their
accounting policies in line with those used by other members of the Group.
All intra-group transactions, balances, income and expenses are eliminated on consolidation.
- I-10 -
APPENDIX I
Property, plant and equipment, including buildings held for use in the production of goods or for
administrative purposes (other than construction in progress), are stated in the consolidated statements of
financial position at cost less subsequent accumulated depreciation and accumulated impairment losses, if any.
Depreciation is recognised so as to write off the cost of items of property, plant and equipment other
than construction in progress less their residual values over their estimated useful lives, using the straight-line
method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each
reporting period, with the effect of any changes in estimate accounted for on a prospective basis.
Properties in the course of construction for production or administrative purposes are carried at cost, less
any recognised impairment loss. Costs include professional fees and, for qualifying assets, borrowing costs
capitalised in accordance with the Group’s accounting policy. Such properties are classified to the appropriate
category of property, plant and equipment when completed and ready for intended use. Depreciation of these
assets, on the same basis as other property assets, commences when the assets are ready for their intended use.
An item of property,
benefits are expected to arise
item of property, plant and
carrying amount of the asset
plant and equipment is derecognised upon disposal or when no future economic
from the continued use of the asset. Any gain or loss arising on the disposal of an
equipment is determined as the difference between the sales proceeds and the
and is recognised in profit or loss.
Research and development expenditure
Expenditure on research activities is recognised as an expense in the period in which it is incurred.
An internally-generated intangible asset arising from development activities (or from the development
phase of an internal project) is recognised if, and only if, all of the following have been demonstrated:
•
the technical feasibility of completing the intangible asset so that it will be available for use or
sale;
•
the intention to complete the intangible asset and use or sell it;
•
the ability to use or sell the intangible asset;
•
how the intangible asset will generate probable future economic benefits;
•
the availability of adequate technical, financial and other resources to complete the development
and to use or sell the intangible asset; and
•
the ability to measure reliably the expenditure attributable to the intangible asset during its
development.
The amount initially recognised for internally-generated intangible asset is the sum of the expenditure
incurred from the date when the intangible asset first meets the recognition criteria listed above. Where no
internally generated intangible assets can be recognised, development expenditure is recognised in profit or loss
in the period in which it is incurred.
Internally-generated intangible assets, which represent trademarks and patents with finite useful lives, are
stated at cost less accumulated amortisation and accumulated impairment losses (if any). Amortisation of
trademarks and patents is recognised to write off the cost of the intangible assets over their useful lives, using
the straight-line method.
- I-11 -
APPENDIX I
Investments in subsidiaries
Investments in subsidiaries are included in the Company’s statement of financial position at cost less any
identified impairment loss.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is calculated using the weighted
average method. Net realisable value represents the estimated selling price for inventories less all estimated costs
of completion and costs necessary to make the sales.
Financial instruments
Financial assets and financial liabilities are recognised in the consolidated statements of financial
position when a group entity becomes a party to the contractual provisions of the instrument.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are
directly attributable to the acquisition or issue of financial assets and financial liabilities are added to or deducted
from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.
Financial assets
The Group’s financial assets are classified into available-for-sale financial asset and loans and
receivables. The classification depends on the nature and purpose of the financial assets and is determined at the
time of initial recognition.
The effective interest method is a method of calculating the amortised cost of a financial asset and of
allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts
estimated future cash receipts (including all fees and points paid or received that form an integral part of the
financial asset, or, where appropriate, a shorter period to the net carrying amount on initial recognition.
Interest income is recognised on an effective interest basis for debt instruments.
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are
not quoted in an active market. Subsequent to initial recognition, loans and receivables (including trade and
other receivables, amount due from a director, pledged bank deposits and bank balances and cash) are carried at
amortised cost using the effective interest method, less any identified impairment losses (see accounting policy
on impairment loss on financial assets below).
Available-for-sale financial assets
Available-for-sale financial assets are non-derivatives that are either designated or not classified as
financial assets at fair value through profit or loss, loans and receivables or held-to-maturity investments.
For available-for-sale equity investments that do not have a quoted market price in an active market and
whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery
of such unquoted equity instruments, they are measured at cost less any identified impairment losses at the end
of the reporting period (see accounting policy on impairment loss on financial assets below).
- I-12 -
APPENDIX I
Impairment loss on financial assets
Financial assets are assessed for indicators of impairment at the end of each reporting period. Financial
assets are considered to be impaired where there is objective evidence that, as a result of one or more events that
occurred after the initial recognition of the financial asset, the estimated future cash flows of the financial assets
have been affected.
For an available-for-sale equity investment, a significant or prolonged decline in fair value of the
investment below its cost is considered to be objective evidence of impairment.
For other financial assets, objective evidence of impairment could include:
•
significant financial difficulty of the issuer or counterparty; or
•
breach of contract, such as default or delinquency in interest and principal payments; or
•
it becoming probable that the borrower will enter bankruptcy or financial re-organisation.
For certain categories of financial asset, such as trade receivables, assets that are assessed not to be
impaired individually are, in addition, assessed for impairment on a collective basis. Objective evidence of
impairment for a portfolio of receivables could include the Group’s past experience of collecting payments, and
observable changes in national or local economic conditions that correlate with default on receivables.
For financial assets carried at amortised cost, the amount of the impairment loss recognised is the
difference between the asset’s carrying amount and the present value of the estimated future cash flows
discounted at the financial asset’s original effective interest rate.
For financial assets carried at cost, the amount of the impairment loss is measured as the difference
between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the
current market rate of return for a similar financial asset. Such impairment loss will not be reversed in
subsequent periods.
The carrying amount of the financial asset is reduced by the impairment loss directly for all financial
assets with the exception of trade receivables, where the carrying amount is reduced through the use of an
allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss.
When a trade receivable is considered uncollectible, they are written off against the allowance account.
Subsequent recoveries of amounts previously written off are credited to profit or loss.
For financial assets measured at amortised cost, if, in a subsequent period, the amount of impairment
loss decreases and the decrease can be related objectively to an event occurring after the impairment losses was
recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the
carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost
would have been had the impairment not been recognised.
Financial liabilities and equity instruments
Debt and equity instruments issued by the group entities are classified as either financial liabilities or as
equity in accordance with the substance of the contractual arrangements and the definitions of a financial
liability and an equity instrument.
- I-13 -
APPENDIX I
The effective interest method is a method of calculating the amortised cost of a financial liability and of
allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts
estimated future cash payments (including all fees and points paid or received that form an integral part of the
financial liability, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.
Interest expense is recognised on an effective interest basis.
Financial liabilities (including other payables, bills payables, amount due to a director/a subsidiary and
bank borrowings) are subsequently measured at amortised cost, using the effective interest method.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of the Group after
deducting all of its liabilities. Equity instruments issued by a group entity are recognised at the proceeds
received, net of direct issue costs.
Derecognition
The Group derecognises a financial asset only when the contractual rights to the cash flows from the
asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of
the asset to another entity.
On derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount
and the sum of the consideration received and receivable is recognised in profit or loss.
The Group derecognises financial liabilities when, and only when, the Group’s obligations are
discharged, cancelled or expire. The difference between the carrying amount of the financial liability
derecognised and the consideration paid and payable is recognised in profit or loss.
Impairment losses on tangible and intangible assets
At the end of the reporting period, the Group reviews the carrying amounts of its tangible and intangible
assets to determine whether there is any indication that those assets have suffered an impairment loss. If any
such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the
impairment loss, if any. When it is not possible to estimate the recoverable amount of an individual asset, the
Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a
reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual
cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a
reasonable and consistent allocation basis can be identified.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in
use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of money and the risks specific to the asset for which the
estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or a cash-generating unit) is estimated to be less than its carrying
amount, the carrying amount of the asset (or a cash-generating unit) is reduced to its recoverable amount. An
impairment loss is recognised immediately in profit or loss.
- I-14 -
APPENDIX I
Where an impairment loss subsequently reverses, the carrying amount of the asset (or a cash-generating
unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount
does not exceed the carrying amount that would have been determined had no impairment loss been recognised
for the asset (or a cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income
immediately.
Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable and represents amounts
receivable for goods sold in the normal course of business, net of discounts, value added tax and sales related
taxes.
Revenue from the sale of goods is recognised when the goods are delivered and title has passed, at
which time all the following conditions are satisfied:
•
the Group has transferred to the buyer the significant risks and rewards of ownership of the
goods;
•
the Group retains neither continuing managerial involvement to the degree usually associated
with ownership nor effective control over the goods sold;
•
the amount of revenue can be measured reliably;
•
it is probable that the economic benefits associated with the transaction will flow to the Group;
and
•
the costs incurred or to be incurred in respect of the transaction can be measured reliably.
Interest income from a financial asset is recognised when it is probable that the economic benefits will
flow to the Group and the amount of income can be measured reliably. Interest income is accrued on a time
basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that
exactly discounts the estimated future cash receipts through the expected life of the financial asset to that asset’s
net carrying amount on initial recognition.
Government grants
Government grants are not recognised until there is reasonable assurance that the Group will comply
with the conditions attaching to them and that the grants will be received. Government grants are recognised in
profit or loss on a systematic basis over the periods in which the Group recognises as expenses the related costs
for which the grants are intended to compensate.
Retirement benefit costs
Payments to stated-managed retirement benefit schemes are recognised as an expense when employees
have rendered service entitling them to the contributions.
Leasing
Leases where substantially all the risks and rewards of ownerships of assets remain with the lessors are
accounted as operating leases.
- I-15 -
APPENDIX I
The Group as lessee
Operating lease payments are recognised as an expense on a straight-line basis over the term of the
relevant lease.
Leasehold land and building
When a lease includes both land and building elements, the Group assesses the classification of each
element as a finance or an operating lease separately based on the assessment as to whether substantially all the
risks and rewards incidental to ownership of each element have been transferred to the Group unless it is clear
that both elements are operating leases, in which case the entire lease is classified as an operating lease.
Specifically, the minimum lease payments (including any lump-sum upfront payments) are allocated between the
land and the building elements in proportion to the relative fair values of the leasehold interests in the land
element and building element of the lease at the inception of the lease. To the extent the allocation of the lease
payments can be made reliably, interest in leasehold land that is accounted for as an operating lease is presented
as “prepaid lease payments” in the consolidated statements of financial position and is amortised over the lease
term on a straight-line basis.
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets,
which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are
added to the cost of those assets until such time as the assets are substantially ready for their intended use or
sale.
All other borrowing costs are recognised in profit or loss in the year in which they are incurred.
Taxation
Income tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit before
tax as reported in the consolidated statements of comprehensive income because it excludes items of income or
expense that are taxable or deductible in other years and it further excludes items that are never taxable or
deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or
substantively enacted by the end of each reporting period.
Deferred tax is recognised on temporary differences between the carrying amounts of assets and
liabilities in the consolidated statement of financial positions and the corresponding tax base used in the
computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary
differences. Deferred tax assets are generally recognised for all deductible temporary difference to the extent that
it is probable that taxable profits will be available against which those deductible temporary differences can be
utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial
recognition of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting
profit.
Deferred tax liabilities are recognised for taxable temporary differences associated with investments in
subsidiaries, except where the Group is able to control the reversal of the temporary difference and it is probable
that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from
deductible temporary differences associated with such investments are only recognised to the extent that it is
probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary
differences and they are expected to reverse in the foreseeable future.
- I-16 -
APPENDIX I
The carrying amount of deferred tax assets is reviewed at the end of the reporting period and reduced to
the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the
asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in
which the liability is settled or the asset is realised, based on tax rate (and tax laws) that have been enacted or
substantively enacted by the end of the reporting period.
The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow
from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying
amount of its assets and liabilities.
Current and deferred tax is recognised in profit or loss, except when it relates to items that are
recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax are
also recognised in other comprehensive income or directly in equity respectively.
Foreign currencies
In preparing the financial statements of each individual group entity, transactions in currencies other than
the functional currency of that entity (foreign currencies) are recorded in the respective functional currency (i.e.
the currency of the primary economic environment in which the entity operates) at the rates of exchanges
prevailing on the dates of the transactions. At the end of the reporting period, monetary items denominated in
foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items that are measured in
terms of historical cost in a foreign currency are not retranslated.
Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary
items, are recognised in profit or loss in the period in which they arise.
5.
KEY SOURCES OF ESTIMATION UNCERTAINTY
In the application of the Group’s accounting policies, which are described in Note 4, the directors of the
Company are required to make estimates and assumptions about the carrying amounts of assets and liabilities that are not
readily apparent from other sources. The estimates and associated assumptions are based on historical experience and
other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates
are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of
the revision and future periods if the revision affects both current and future periods.
The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at
the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of
assets within the next financial year.
Useful lives, residual values and impairment of property, plant and equipment
The Group estimates useful lives, residual values and related depreciation charges for its items of
property, plant and equipment. This estimate is based on the historical experience of the actual lives of items of
property, plant and equipment of similar nature and functions. It could change significantly as a result of
technical innovations and actions of its competitors. The depreciation charge will increase where useful lives are
less than previously estimated. Details of the useful lives of property, plant and equipment are disclosed in Note
16.
- I-17 -
APPENDIX I
In addition, the Group reviews the carrying amounts of its property, plant and equipment to determine
whether there is any indication that those assets have suffered an impairment loss. Determining whether
property, plant and equipment are impaired requires an estimation of the recoverable amount which is the higher
of the value in use and fair value less cost to sell of the assets. The value in use calculation requires the entity to
estimate the future cash flows expected to arise from the continuing use of the assets and from its ultimate
disposal and a suitable discount rate in order to calculate the present value. Where the actual future cash flows
are less than expected, a material impairment loss may arise. The carrying amounts of property, plant and
equipment as at 31 December 2010, 2011 and 2012 were RMB278,731,000, RMB398,192,000 and
RMB535,799,000, respectively.
6.
REVENUE AND SEGMENT INFORMATION
Information reported to the executive directors of the Company who are identified as the chief operating decision
maker (“CODM”) for the purposes of resources allocation and performance assessment focuses on the three types of
products produced by the Group. The following three types of products form the basis of the Group’s operating and
reportable segments:
•
1G Phoenix Stone
•
2G Phoenix Stone
•
3G Phoenix Stone
The following is an analysis of the Group’s revenue and results by operating and reportable segment:
2010
2011
RMB’000
RMB’000
Segment revenue
– 1G Phoenix Stone
Segment profit
- I-18 -
2012
RMB’000
86,452
196,219
–
87,344
216,983
97,783
51,858
281,327
125,531
282,671
402,110
458,716
25,755
83,055
–
29,591
100,609
44,992
17,887
138,962
59,209
108,810
175,192
216,058
APPENDIX I
The reportable and operating segment results are reconciled to profit before tax of the Group as follows:
2010
2011
RMB’000
RMB’000
Segment profit
Unallocated income and expenses
– Other income
– Other gains and losses
– Administrative expenses
– Distribution and selling expenses
– Finance costs
– Other expenses
Profit before tax
2012
RMB’000
108,810
175,192
216,058
119
(1,647)
(8,350)
(12,307)
(2,036)
(1,218)
699
89
(10,698)
(20,331)
(3,104)
(1,400)
1,062
(4,157)
(14,618)
(17,925)
(7,447)
(11,209)
83,371
140,447
161,764
The accounting policies of the reportable and operating segments are the same as the Group’s accounting
policies described in Note 4. Segment revenue represents sales to external parties. There is no inter-segment transactions
during the Track Record Period. Segment profit represents the gross profit of each type of products. This is the measure
reported to the CODM for the purposes of resource allocation and performance assessment.
Segment assets and liabilities
Amounts of segment assets and liabilities of the Group are not reviewed by the CODM or otherwise
regularly provided to the CODM. Accordingly, segment assets and liabilities are not presented.
Other segment information
Amounts included in the measure of segment profit:
2010
2011
RMB’000
RMB’000
2012
RMB’000
Depreciation and amortisation (Note)
5,946
10,003
–
6,827
12,441
4,743
4,743
16,877
7,150
Segment total
Unallocated depreciation and amortisation
15,949
1,704
24,011
2,452
28,770
2,656
17,653
26,463
31,426
Note:
The amounts set out above include depreciation of property, plant and equipment, amortisation
of intangible assets and release of prepaid lease payments.
- I-19 -
APPENDIX I
Geographical information
The analysis of revenue by geographical location of customer is as follows:
2010
2011
RMB’000
RMB’000
The PRC
Other countries (Note)
Note:
2012
RMB’000
278,704
3,967
388,809
13,301
407,330
51,386
282,671
402,110
458,716
Other than the PRC, the Group also exports its products to overseas countries. The revenue
contributed by overseas countries is individually insignificant for the two years ended 31
December 2010 and 2011.
For the year ended 31 December 2012, the Group exported its products to United Arab Emirates
amounting to RMB46,542,000.
As at 31 December 2010, 2011 and 2012, all of the Group’s non-current assets excluding available-forsale investment are located in the PRC.
Information about major customers
Revenue from customer contributing over 10% of the total sales of the Group is as follows:
2010
2011
RMB’000
RMB’000
Customer A
Note:
7.
(Note)
(Note)
2012
RMB’000
46,542
The corresponding revenue did not contribute over 10% of the total sales of the Group.
OTHER INCOME
2010
2011
RMB’000
RMB’000
Bank interest income
Government grants
- I-20 -
2012
RMB’000
115
4
699
–
1,062
–
119
699
1,062
APPENDIX I
8.
OTHER GAINS AND LOSSES
2010
2011
RMB’000
RMB’000
Net foreign exchange (losses) gains
Loss on disposal/write off of property, plant and
equipment
9.
2012
RMB’000
(248)
89
(225)
(1,399)
–
(3,932)
(1,647)
89
(4,157)
FINANCE COSTS
2010
2011
RMB’000
RMB’000
Interest on bank borrowings wholly repayable
within five years
Less: Amount capitalised
Financing arrangement fee
2012
RMB’000
3,657
(1,832)
7,411
(4,705)
15,928
(8,966)
1,825
211
2,706
398
6,962
485
2,036
3,104
7,447
Borrowing cost capitalised during the three years ended 31 December 2010, 2011 and 2012, arose on the general
borrowing pool were calculated by applying a capitalisation rate of 8.4%, 9.9% and 10.5% per annum, respectively, for
the Group’s expenditure on construction of buildings and manufacturing plant and machineries. Other than that, for
funds borrowed specifically for the purpose of construction of buildings, borrowing costs that directly relate to these
assets are fully capitalised.
10.
OTHER EXPENSES
2010
2011
RMB’000
RMB’000
Research and development expenses
[•••]
- I-21 -
2012
RMB’000
1,218
–
1,400
–
2,539
8,670
1,218
1,400
11,209
APPENDIX I
11.
INCOME TAX EXPENSE
2010
2011
RMB’000
RMB’000
PRC Enterprise Income Tax (“EIT”)
– current year
– underprovision in prior years
Deferred tax (Note 30)
– current year
2012
RMB’000
10,553
61
34,220
315
41,140
–
10,614
34,535
41,140
229
1,176
2,242
10,843
35,711
43,382
No provision for Hong Kong Profits Tax has been made as the Group’s income neither arises in, nor is derived
from, Hong Kong.
According to the old Law of PRC on Foreign Enterprise Income Tax (cancelled on 1 January 2008), Jiujiang
Golden Phoenix is entitled to an exemption from EIT for two years starting from its first profit making year since its
establishment and followed by a 50% tax relief in the three years thereafter (the “Tax Holiday”). Under the new Law of
PRC on Enterprise Income Tax (the “EIT Law”, effective from 1 January 2008) and Implementation Regulation of the
EIT Law, the statutory EIT rate of PRC enterprises is 25% from 1 January 2008 onwards. The above Tax Holiday could
continue to be enjoyed until expiry. The first profit making year for Jiujiang Golden Phoenix was 2006. Jiujiang Golden
Phoenix was therefore subject to a reduced tax rate of 12.5% for the year ended 31 December 2010. The income tax rate
has resumed to 25% for the two years ended 31 December 2011 and 2012.
Under the EIT Law and Implementation Regulation of the EIT Law, the statutory tax rate of Jiangxi Golden
Phoenix is 25% during the Track Record Period.
The income tax expense for the Track Record Period can be reconciled to the profit before tax per the
consolidated statement of comprehensive income as follows:
2010
2011
RMB’000
RMB’000
Profit before tax
Tax at the domestic income tax rate of 25%
(Note)
Tax effect of expenses not deductible
for tax purpose
Tax effect of tax losses not recognised
Underprovision in respect of prior years
Tax effect of reduced tax rate
Income tax expenses for the year
83,371
140,447
161,764
20,843
35,112
40,441
126
158
315
–
2,370
571
–
–
35,711
43,382
630
91
61
(10,782)
10,843
- I-22 -
2012
RMB’000
APPENDIX I
Note:
12.
The applicable tax rate represents EIT rate of 25% where the operation of the Group is substantially
based.
PROFIT AND TOTAL COMPREHENSIVE INCOME FOR THE YEAR
2010
2011
RMB’000
RMB’000
2012
RMB’000
Profit and total comprehensive income for the year
has been arrived at after charging:
Directors’ emoluments (Note 13)
Other staff costs:
Salaries and other allowances
Retirement benefit scheme contributions,
excluding those of directors
408
398
448
7,421
13,891
17,293
1,940
2,538
3,060
Total staff costs
9,769
16,827
20,801
45
173,861
16,053
1,559
55
226,918
24,409
2,013
65
242,658
29,357
2,028
41
41
41
Auditor’s remuneration
Cost of inventories recognised as expenses
Depreciation of property, plant and equipment
Release of prepaid lease payments
Amortisation of intangible assets
(included in cost of sales)
During the three years ended 31 December 2010, 2011 and 2012, staff costs in respect of research and
development amounting to RMB103,000, RMB275,000 and RMB946,000, respectively, are included in total staff costs
above.
- I-23 -
APPENDIX I
13.
DIRECTORS’ AND EMPLOYEES’ EMOLUMENTS
App1A-33(2)
Directors
Details of the emoluments paid by the Group to the executive directors of the Company during the Track
Record Period are as follows:
Mr. Sui
He Zuo
(Chairman)
RMB’000
Mr. Sze
Shun Pan
RMB’000
Mr. Zhu
Xin Ming
(Chief
Executive
Officer)
RMB’000
96
20
48
5
84
10
58
5
52
5
338
45
5
5
5
5
5
25
Total remuneration
121
58
99
68
62
408
For the year ended
31 December 2011
Retirement benefits scheme
contributions
107
53
92
63
58
373
5
5
5
5
5
25
Total remuneration
112
58
97
68
63
398
For the year ended
31 December 2012
contributions
117
62
102
73
69
423
5
5
5
5
5
25
Total remuneration
122
67
107
78
74
448
For the year ended
31 December 2010
Discretionary bonus (Note)
contributions
Note:
Mr. Lin
Ren Ze
RMB’000
Ms. Zeng
Xiao Ying
RMB’000
Total
RMB’000
The bonus is discretionary and is determined by reference to the individuals’ performance.
No remuneration was paid to the independent non-executive directors during the Track Record Period.
- I-24 -
APPENDIX I
Employees
App1A-33(3)
The five highest paid individuals of the Group included four executive directors for each of the three
years ended 31 December 2010, 2011 and 2012. Details of their emoluments are set out above. The emoluments
of the remaining one highest paid individuals for the respective years are as follows:
2010
2011
RMB’000
RMB’000
Retirement benefit scheme contributions
2012
RMB’000
58
5
63
5
73
5
63
68
78
The emolument of each of the five highest paid individuals (including the directors) during the Track
Record Period were within HK$1,000,000.
During the Track Record Period, no emoluments were paid by the Group to the directors of the
Company or the five highest paid individuals (including directors and employees) as an inducement to join or
upon joining the Group or as compensation for loss of office. None of the directors waived any emoluments
during the Track Record Period.
14.
DIVIDENDS
During the Track Record Period, no dividend was paid or declared by the Company or by any of the companies
now comprising the Group.
No special dividend was proposed to be distributed after 31 December 2012.
- I-25 -
APPENDIX I
16.
PROPERTY, PLANT AND EQUIPMENT
Buildings
RMB’000
Plant and
machinery
RMB’000
Furniture,
fixtures and
equipment
RMB’000
Motor vehicles
RMB’000
Construction
in progress
RMB’000
Total
RMB’000
COST
At 1 January 2010
Additions
Disposals/write off
Transfer
23,424
–
–
19,998
117,478
17,893
(5,490)
58,610
1,003
120
(8)
–
1,048
106
–
–
63,227
104,920
–
(78,608)
206,180
123,039
(5,498)
–
At 31 December 2010
Additions
Transfer
43,422
–
53,693
188,491
82,489
6,459
1,115
160
–
1,154
–
–
89,539
61,221
(60,152)
323,721
143,870
–
At 31 December 2011
Additions
Disposals/write off
Transfer
97,115
2,400
–
–
277,439
20,307
(12,720)
30,882
1,275
932
(22)
–
1,154
1,162
(282)
–
90,608
146,183
–
(30,882)
467,591
170,984
(13,024)
–
At 31 December 2012
99,515
315,908
2,185
2,034
205,909
625,551
3,274
1,890
27,603
13,808
424
195
445
160
–
–
31,746
16,053
–
(2,802)
(7)
–
–
(2,809)
At 31 December 2010
Provided for the year
5,164
3,614
38,609
20,427
612
205
605
163
–
–
44,990
24,409
At 31 December 2011
Eliminated on disposals/
write off
8,778
4,907
59,036
23,894
817
250
768
306
–
–
69,399
29,357
–
(8,725)
(11)
(268)
–
(9,004)
At 31 December 2012
13,685
74,205
1,056
806
–
89,752
CARRYING VALUE
At 31 December 2010
38,258
149,882
503
549
89,539
278,731
At 31 December 2011
88,337
218,403
458
386
90,608
398,192
At 31 December 2012
85,830
241,703
1,129
1,228
205,909
535,799
DEPRECIATION
At 1 January 2010
Eliminated on disposals/
write off
- I-26 -
APPENDIX I
The above items of property, plant and equipment other than construction in progress are depreciated on a
straight-line basis, after taking into account their estimated residual values, at the following year/rates per annum:
Buildings
Plant and machinery
Furniture, fixtures and equipment
Motor vehicles
20 years
10%
20%
20%
The Group’s buildings are erected on land under a medium-term land use right in the PRC.
The Group pledged its property, plant and equipment with the following carrying amounts to secure credit
facilities granted to the Group.
2010
RMB’000
Buildings
Plant and machinery
Construction in progress
17.
38,258
110,562
4,090
At 31 December
2011
RMB’000
84,408
172,925
50,593
2012
RMB’000
74,269
175,364
78,491
PREPAID LEASE PAYMENTS
The Group’s prepaid lease payments comprise leasehold land in the PRC held under a medium-term lease.
2010
RMB’000
Analysed for reporting purposes as:
Non-current asset
Current asset
At 31 December
2011
RMB’000
2012
RMB’000
39,280
1,550
51,119
2,028
49,091
2,028
40,830
53,147
51,119
As at 31 December 2010, 2011 and 2012, the Group pledged prepaid lease payments with a carrying amount of
RMB15,695,000, RMB39,131,000 and RMB51,119,000 to banks to secure banking facilities granted to the Group,
respectively.
- I-27 -
APPENDIX I
18.
INTANGIBLE ASSETS
Trademarks
RMB’000
Patent
RMB’000
Total
RMB’000
110
600
710
AMORTISATION
At 1 January 2010
37
11
135
30
172
41
At 31 December 2010
48
11
165
30
213
41
At 31 December 2011
59
11
195
30
254
41
At 31 December 2012
70
225
295
CARRYING VALUE
At 31 December 2010
62
435
497
At 31 December 2011
51
405
456
At 31 December 2012
40
375
415
COST
At 1 January 2010, 31 December 2010,
2011 and 2012
All trademarks and patent are internally generated assets.
The Group registered two trademarks for 10 years each, expiring in 2016 and 2021, respectively, and the patent
of decorative material production formula for 20 years, expiring in 2029.
The above intangible assets have finite useful lives and are amortised on a straight-line basis over the following
periods:
Trademarks
Patent
19.
10 years
20 years
INVESTMENT IN A SUBSIDIARY
At 31 December
2011
RMB
Unlisted investment, at cost
1
- I-28 -
2012
RMB
1
APPENDIX I
20.
AVAILABLE-FOR-SALE INVESTMENT
The available-for-sale investment represented an unlisted investment in Yongxiu County Rural Credit
Cooperatives (永修縣農村信用合作聯社) (“Yongxiu Credit”), a joint-equity cooperative enterprise (股份合作制企業)
incorporated in the PRC engaged in deposit taking, money lending, bills acceptance and discounting, issuing, redeeming
and underwriting of bonds on behalf of PRC government and financial institutions in the PRC, insurance service and
other services authorised by China Banking Regulatory Commission (中國銀行業監督管理委員會) in the PRC.
As at 31 December 2010 and 2011, the directors of the Company considered that the Group could not exercise
significant influence or control on Yongxiu Credit and accordingly, it was classified as an available-for-sale investment.
It was measured at cost less impairment at the end of each reporting period due to financial information of Yongxiu
Credit available to the Group was limited and the directors of the Company are of the opinion that the fair value cannot
be measured reliably because the range of reasonable fair value estimate is significant.
In June 2012, the Group derecognised the entire investment which had been carried at cost less impairment upon
withdrawal of the investment. The investment cost of RMB200,000 was refunded by Yongxiu Credit in June 2012. No
gain or loss has been recognised in profit or loss for the year ended 31 December 2012 for such derecognition.
21.
INVENTORIES
2010
RMB’000
Raw materials
Work in progress
Finished goods
22.
At 31 December
2011
RMB’000
2012
RMB’000
6,802
1,019
10,342
11,633
1,564
13,145
8,474
1,452
11,774
18,163
26,342
21,700
TRADE AND OTHER RECEIVABLES/PREPAYMENTS
The Group
2010
RMB’000
Trade receivables
Prepayments
Others
- I-29 -
At 31 December
2011
RMB’000
2012
RMB’000
49,046
–
321
43,457
144
84
82,533
2,798
759
49,367
43,685
86,090
APPENDIX I
The Group generally allows a credit period of 30 to 90 days to its trade customers. The following is an aged
analysis of trade receivables presented based on the invoice date which approximated revenue recognition date at the end
of the reporting period.
2010
RMB’000
0 – 30 days
31 – 60 days
61 – 90 days
At 31 December
2011
RMB’000
2012
RMB’000
32,292
15,366
1,388
24,641
17,583
1,233
45,770
29,205
7,558
49,046
43,457
82,533
Before accepting any new customer, the Group assesses the potential customer’s credit quality and defines credit
limits. Credit sales are mainly available for existing customers with good repayment history. Credit limits to customers
are reviewed regularly.
With reference to the track records of these customers, the directors of the Company consider all trade
receivables at the end of each reporting period are of good credit quality with reference to the past repayment record. At
the end of each reporting period, all of the trade receivable balance was neither past due nor impaired. The Group does
not hold any collateral over the above balances.
The trade receivables that are denominated in foreign currency is set out below:
2010
RMB’000
United States dollars (“USD”)
–
At 31 December
2011
RMB’000
–
2012
RMB’000
4,833
The Company
2010
RMB’000
Prepayments
23.
–
At 31 December
2011
RMB’000
–
2012
RMB’000
2,132
AMOUNT DUE FROM A DIRECTOR
The Group and the Company
The balance at 31 December 2011 represents an amount due from Mr. Sui He Zuo, a director and the
ultimate controlling party of the Company, of RMB273,000 which was unsecured, non-interest bearing,
repayable on demand and mainly denominated in USD. The amount was fully settled during the year ended 31
December 2012.
- I-30 -
APPENDIX I
Maximum amount outstanding during the year/period are as follows:
The Group
2010
2011
RMB’000
RMB’000
Mr. Sui He Zuo
–
273
2012
RMB’000
273
The Company
Period from
4 January 2011
(date of incorporation)
to 31 December 2011
RMB’000
Year ended
31 December 2012
RMB’000
273
273
Mr. Sui He Zuo
24.
PLEDGED BANK DEPOSITS/BANK BALANCES AND CASH
As at 31 December 2010, 2011 and 2012, the entire pledged bank deposits represent deposits pledged to banks
to secure banking facilities (mainly for issuance of bank acceptance bills) utilised by the Group. The pledged bank
deposits carry interest at fixed rates and variable rates as follows:
2010
Interest rate per annum:
Fixed rates
Variable rates
2.20%
0.36%
At 31 December
2011
2.20%
0.36 – 0.5%
2012
3.30%
0.35 – 0.5%
Bank balances and cash comprise cash and short-term bank deposits with an original maturity of three months or
less. The bank balances carry interest at variable rates as follows:
2010
Interest rate per annum
0.36% to
1.15%
At 31 December
2011
0.36% to
1.15%
2012
0.01% to
1.15%
Except for the amount set out below which is denominated in foreign currency, all the Group’s pledged bank
deposits and bank balances were denominated in RMB and were subject to foreign exchange control.
2010
RMB’000
USD
Hong Kong dollars (“HKD”)
172
–
- I-31 -
At 31 December
2011
RMB’000
–
–
2012
RMB’000
–
8
APPENDIX I
25.
OTHER PAYABLES
The Group
2010
RMB’000
Accrued [•••] expenses
Accrued operating expenses
Other tax payables
[•••] expenses payable
At 31 December
2011
RMB’000
2012
RMB’000
–
665
3,418
–
–
1,238
4,244
–
4,521
2,333
2,020
1,119
4,083
5,482
9,993
The Company
2010
RMB’000
Accrued [•••] expenses
Accrued operating expenses
[•••] expenses payable
At 31 December
2011
RMB’000
2012
RMB’000
–
–
–
–
–
–
4,521
87
1,119
–
–
5,727
The other payables of the Group and the Company that are denominated in foreign currency is set out below:
2010
RMB’000
HKD
26.
At 31 December
2011
RMB’000
–
–
2012
RMB’000
1,119
BILLS PAYABLES
2010
RMB’000
Trade nature
Non-trade nature (Note)
At 31 December
2011
RMB’000
2012
RMB’000
31,510
53,490
68,898
33,956
61,167
300
85,000
102,854
61,467
All bills will mature within 180 days from the end of the reporting periods.
Note:
The bills with non-trade nature were mainly issued for settlement of construction cost payables and plant
and machineries procured as at 31 December 2010 and 2011. As at 31 December 2012, the bills with
non-trade nature were only issued for plant and machineries procured.
The average credit period for trade purchases is 30 to 60 days.
- I-32 -
APPENDIX I
An ageing analysis of the Group’s bills payables with trade nature is presented based on the invoice date at the
end of each reporting period is as follows:
2010
RMB’000
0 – 30 days
31 – 60 days
61 – 90 days
91 – 180 days
27.
At 31 December
2011
RMB’000
2012
RMB’000
7,000
13,700
702
10,108
11,970
28,036
2,670
26,222
18,987
11,126
8,909
22,145
31,510
68,898
61,167
AMOUNT DUE TO A DIRECTOR
The Group
The amounts represent advances from Mr. Sui He Zuo to finance the Group’s operations and are
unsecured, non-interest bearing and repayable on demand. In the opinion of the directors of the Company, the
amounts will be fully settled before [•••]. The balance at 31 December 2012 is mainly denominated in HKD.
The Company
The balance at 31 December 2012 represents advances from Mr. Sui He Zuo to finance the Company’s
operations, is unsecured, non-interest bearing and repayable on demand, and is mainly denominated in HKD. In
the opinion of the directors of the Company, the amounts will be fully settled before [•••].
28.
AMOUNT DUE TO A SUBSIDIARY
The Company
The amount is unsecured, non-interest bearing and repayable on demand.
- I-33 -
APPENDIX I
29.
BANK BORROWINGS
2010
RMB’000
The entire bank borrowings are secured and
repayable as follows:
On demand and/or within one year
More than one year, but not exceeding two years
More than two years, but not exceeding five years
More than five years
At 31 December
2011
RMB’000
2012
RMB’000
43,850
8,000
33,000
–
46,600
20,000
33,000
14,000
121,100
47,000
36,000
–
84,850
113,600
204,100
(43,850)
(46,600)
(121,100)
Amount shown under non-current liabilities
41,000
67,000
83,000
Fixed-rate borrowings
Variable-rate borrowings
75,850
9,000
94,600
19,000
142,100
62,000
84,850
113,600
204,100
Less: amounts due on demand and/or within one
year shown under current liabilities
Details of assets pledged for the above borrowings are set out in Note 37 and Note 39(e).
The Group’s floating-rate borrowings are mainly subject to interest at RMB Benchmark Loan Rates offered by
the People’s Bank of China. The ranges of effective interest rates on the Group’s bank borrowings are as follows:
2010
Effective interest rate:
Fixed-rate borrowings
5.31% to
7.14%
5.94% to
8.50%
Variable-rate borrowings
- I-34 -
At 31 December
2011
5.94% to
11.36%
5.94% to
7.14%
2012
5.94% to
11.82%
5.94% to
7.14%
APPENDIX I
30.
DEFERRED TAX LIABILITIES
The deferred tax liabilities are attributable to the capitalisation of finance costs as detailed in Note 9 and
movements thereon during the Track Record Period are as follows:
RMB’000
At January 1, 2010
Charged to profit or loss
–
229
At December 31, 2010
229
1,176
1,405
2,242
3,647
At 31 December 2010, 2011 and 2012, the Group had unused tax losses of approximately RMB382,000,
RMB1,014,000 and RMB3,296,000, respectively, available for offset against future profit. No deferred tax asset has
been recognised in respect of all the unused tax losses as the amounts involved are insignificant. All unused tax losses
arising from the PRC may be carried forward for the next five years.
According to a joint circular of Ministry of Finance and the PRC State Administration of Taxation (“SAT”), Cai
Shui【2008】No. 1, only the profits earned by foreign-investment enterprise prior to 1 January 2008, when declared to
distribute to foreign investors, can be grandfathered and exempted from withholding tax. Whereas, dividend declared to
distribute out of the profits generated thereafter, shall be subject to EIT at 10% and withheld by the PRC entity declaring
to make the distribution. By the Tax Arrangement for Avoidance of Double Taxation between China and Hong Kong
(China-HK TA) and Bulletin of the SAT【2012】No. 30, either a Hong Kong-incorporated company listed in Hong
Kong or an offshore incorporated company normally managed or controlled and listed in Hong Kong should be entitled
to preferential tax rate of 5% when receiving dividend from its PRC subsidiary. The Company and China Galaxy are
neither company listed in Hong Kong nor normally managed or controlled in Hong Kong. Therefore, the Group is
subject to EIT at 10%. However, as the directors of the Company have determined to set aside the earnings for the
period from 1 January 2008 to 31 December 2012 for expansion of operations and the Group is able to control the
timing of paying dividend by its PRC subsidiaries. As such, the above earnings will not be distributed and therefore no
deferred tax liabilities has been provided for in the Financial Information in respect of temporary differences attributable
to accumulated profits of the Group’s PRC companies generated after 1 January 2008 amounting to RMB141,737,000,
RMB235,862,000 and RMB351,931,000 as at 31 December 2010, 2011 and 2012, respectively.
31.
PAID-IN/ISSUED SHARE CAPITAL
For the purpose of the presentation of the consolidated statements of financial position, the balance of the capital
as at 31 December 2010 represents the then paid-in capital of Jiujiang Golden Phoenix, the balance of the capital as at
31 December 2011 represents the then paid-in capital of Jiujiang Golden Phoenix and the then issued and fully paid
share capital of the Company, and the balance of the capital as at 31 December 2012 represents the issued and fully paid
share capital of the Company.
- I-35 -
APPENDIX I
Details of movements of share capital of the Company are as follows:
Number of
shares
Amounts
USD
Authorised:
Ordinary shares of USD1 each on date of incorporation,
31 December 2011 and 2012
50,000
50,000
Issued and fully paid:
Ordinary shares of USD1 each
– issue of share upon incorporation on 4 January 2011
– issue of shares on 15 February 2011
1
49,999
1
49,999
Balance at 31 December 2011 and 2012
50,000
50,000
RMB’000
Shown in the statements of financial position as
329
[On 15 February 2011, 40,999 and 9,000 shares of USD1 each were issued and alloted to Golden Phoenix
Nanotechnology Holding Limited and Hong Kong Dragon Yu New Material Co., Limited, respectively. The ordinary
shares issued rank pari passu with the existing ordinary shares in all respects.]
32.
ACCUMULATED LOSSES
The Company
RMB’000
At 4 January 2011
Loss for the period
33.
–
(56)
At 31 December 2011
Loss for the year
(56)
(8,915)
At 31 December 2012
(8,971)
CAPITAL RISK MANAGEMENT
The Group manages its capital to ensure that the entities in the Group will be able to continue as a going
concern while maximising the return to stakeholders through the optimisation of the debt and equity balance. The
Group’s overall strategy remains unchanged throughout the Track Record Period.
The capital structure of the Group consists of amount due to a director and bank borrowings as disclosed in
Notes 27 and 29 and equity attributable to owners of the Company, comprising capital and various reserves.
The capital structure of the Company consists of amount due to a director and amount due to a subsidiary as
disclosed in Notes 27 and 28 and equity attributable to owners of the Company, comprising capital and accumulated
losses.
- I-36 -
APPENDIX I
The directors of the Company review the capital structure regularly. As part of this review, the directors of the
Company consider the cost and the risks associated with each class of the capital. Based on the recommendations of the
directors of the Company, the Group will balance its overall capital structure through the payment of dividends, new
share issues as well as the issue of new debt or the redemption of existing debt.
34.
FINANCIAL INSTRUMENTS
(a)
Categories of financial instruments
2010
RMB’000
At 31 December
2011
RMB’000
The Group
Financial assets
Loans and receivables (including cash and
cash equivalents)
Available-for-sale investment
106,834
200
147,224
200
164,894
–
Amortised cost
211,260
260,025
271,507
273
–
–
6,166
The Company
Financial assets
Amortised cost
(b)
2012
RMB’000
Financial risk management objectives and policies
The Group’s major financial instruments include available-for-sale investment, trade and other
receivables, amount due from a director, pledged bank deposits, bank balances and cash, other payables, bills
payables, amount due to a director and bank borrowings. The Company’s major financial instrument includes
amount due from (to) a director/a subsidiary and other payables. Details of these financial instruments are
disclosed in the respective notes. The risks associated with these financial instruments include market risk, credit
risk and liquidity risk. The policies on how to mitigate these risks are set out below. Directors of the Company
manage and monitor these exposures to ensure appropriate measures are implemented on a timely and effective
manner.
Market risk
(i)
Currency risk
Except for certain trade receivables, amount due from a director, bank balances, other payables
and amount due to a director which were denominated in USD and HKD (see Notes 22, 23, 24, 25 and
27) and expose the Group to foreign currency risk, almost all of the Group’s transactions are
denominated in RMB, functional currency of the relevant group entities. In addition, the Company’s
amount due from a director was mainly denominated in USD (see Note 23) and other payables and
amount due to a director were mainly denominated in HKD (see Notes 25 and 27), which expose the
Company to foreign currency risk. Directors of the Company have closely monitored foreign exchange
exposure and will undertake procedures necessary to mitigate the currency risk.
The Group is mainly exposed to the currency risk of USD and HKD.
- I-37 -
APPENDIX I
The following table details the Group’s sensitivity to a 5% increase and decrease in RMB
against the relevant foreign currencies, USD and HKD, which represents management’s assessment of
the reasonably possible change in foreign exchange rates. The sensitivity analysis includes USD
denominated trade receivables, amount due from a director and bank balances and HKD denominated
bank balances, other payables and amount due to a director and adjusts their translation at the end of the
reporting period for a 5% change in foreign currency rate. A positive number below indicates an increase
in post-tax profit where the foreign currency strengthen 5% against RMB and vice versa.
2010
RMB’000
(ii)
Profit for the year
2011
RMB’000
2012
RMB’000
The Group
USD
HKD
8
–
11
–
181
(247)
The Company
USD
HKD
–
–
11
–
–
(247)
Interest rate risk
The Group is exposed to cash flow interest rate risk in relation to variable-rate bank borrowings
(see Note 29 for details of these borrowings) and bank balances (see Note 24 for details of these bank
balances) because they carry interest at variable interest rates.
The Group’s fair value interest rate risk relates primarily to its fixed-rate bank borrowings (see
Note 29 for details of these borrowings) and pledged bank deposits (see Note 24 for details of these
bank deposits). It is the Group’s policy to maintain a majority of borrowings at fixed rate of interest so
as to reduce the cash flow interest rate risk.
The Group currently does not have an interest rate hedging policy. However, the directors of the
Company monitor interest rate exposure and will consider hedging significant interest rate exposure
should the need arise. The Group’s exposures to interest rates on financial liabilities are detailed in the
liquidity risk management section of this note.
The Group’s cash flow interest rate risk is mainly concentrated on the fluctuation of RMB
Benchmark Loan Rates offered by the People’s Bank of China from its bank borrowings. The Company
has no material interest rate risk exposure.
Sensitivity analysis
The sensitivity analysis below has been determined based on the exposure to interest
rates for bank balances and variable-rate bank borrowings of the Group at the end of the
reporting period.
The analysis is prepared assuming the financial instruments outstanding at the end of the
reporting period were outstanding for the whole year. 10 basis points and 50 basis points
increase or decrease for bank balances and variable-rate bank borrowings are used and represent
management’s assessment of the reasonably possible change in interest rates.
- I-38 -
APPENDIX I
If interest rates had been 10 basis points and 50 basis points higher/lower for bank
balances and variable-rate bank borrowings, respectively, and all other variables were held
constant, the Group’s post-tax profits for the Track Record Period, taking into account the effect
of interest capitalised, would (decrease) increase as follows:
2010
2011
RMB’000
RMB’000
Profit for the year
(9)
13
2012
RMB’000
(132)
In the opinion of the directors of the Company, the sensitivity analysis is
unrepresentative of the inherent interest rate risk as the exposure at the end of reporting
period does not reflect the exposure during the relevant year.
Credit risk
At the end of each reporting period, the Group’s and the Company’s maximum exposure to
credit risk which will cause a financial loss to the Group and the Company due to failure to discharge an
obligation by the counterparties and related party is arising from the carrying amount of the respective
recognised financial assets as stated in the consolidated statements of financial position of the Group and
statements of financial position of the Company, respectively.
Before accepting any new customer, the Group assesses the potential customer’s credit quality
and defines credit limits. Credit sales are mainly available for existing customers with good repayment
history. Credit limits to customers are reviewed regularly. In order to minimise the credit risks, the
directors of the Company reviews the recoverable amount of each individual debt at the end of the
reporting period to ensure that adequate impairment losses are made for irrecoverable amounts. In this
regards, the directors of the Company consider the Group’s credit risk is significant reduced.
As at 31 December 2010, 2011 and 2012, 47%, 47% and 36% of trade receivables is due from
customers situated in Fujian Province, the PRC, respectively.
The credit risk on liquid funds is limited because the counterparties are either state-owned banks
in the PRC or banks with high credit ratings assigned by reputable credit-rating agencies.
Liquidity risk
In the management of the liquidity risk, the Group monitors and maintains a level of cash and
cash equivalents deemed adequate by management to finance the Group’s operations and mitigate the
effects of fluctuations in cash flows. Management monitors the utilisation of borrowings and ensures
compliance with the terms of borrowings. The Group relies on bills payables and bank borrowings as
significant source of liquidity. Up to the date of this report, the Group has unutilised banking facilities of
approximately [RMB270,500,000] currently available to the Group and which the directors of the
Company expect to be able to renew when the facilities expire. The Company relies on fund from a
director and a subsidiary as major source of liquidity.
The following tables detail the Group’s and the Company’s remaining contractual maturity for
its financial liabilities and commitments. The tables have been drawn up based on the undiscounted cash
flows of financial liabilities based on the earliest dates on which the Group and the Company can be
required to pay. Specifically, bank loan with a repayable on demand clause are included in the earliest
time band regardless of the probability of the banks choosing to exercise their rights. The tables include
both interest and principal cash flows. To the extent that interest flows are floating rate, the undiscounted
amount is derived from interest rate at the end of the reporting period.
- I-39 -
APPENDIX I
Liquidity and interest risk tables
Weighted
average On demand
effective or less than
3 months to
interest rate
1 month 1-3 months
1 year
%
RMB’000
RMB’000
RMB’000
The Group
As at 31 December 2010
Non-derivative financial
liabilities
Bills payables
Bank borrowings
– fixed rate
– variable rate
liabilities
Bills payables
Bank borrowings
– fixed rate
– variable rate
liabilities
Other payables
Bills payables
Bank borrowings
– fixed rate
– variable rate
More than
1 year
but not
exceeding
2 years
RMB’000
More than
2 years
but not
exceeding
5 years
RMB’000
Total
Over undiscounted
5 years cash flows
RMB’000
RMB’000
Carrying
amount
RMB’000
–
–
–
41,410
19,298
–
65,702
–
–
–
–
–
–
–
85,000
41,410
85,000
41,410
6.25
7.08
18,297
52
594
105
24,574
4,480
10,250
354
31,500
5,708
–
–
85,215
10,699
75,850
9,000
59,759
19,997
94,756
10,604
37,208
–
222,324
211,260
–
–
4,964
43,571
30,464
–
67,426
–
–
–
–
–
–
–
102,854
43,571
102,854
43,571
6.77
6.82
14,448
107
897
213
36,711
976
23,250
1,296
29,896
6,296
–
14,955
105,202
23,843
94,600
19,000
63,090
31,574
105,113
24,546
36,192
14,955
275,470
260,025
–
–
–
1,119
3,000
4,821
–
58,467
–
–
–
–
–
–
–
–
–
–
–
–
–
1,119
61,467
4,821
1,119
61,467
4,821
7.99
6.77
30,736
3,328
29,473
656
45,164
23,009
42,517
10,640
5,056
34,926
–
–
152,946
72,559
142,100
62,000
43,004
88,596
68,173
53,157
39,982
–
292,912
271,507
–
21,533
–
–
–
–
21,533
–
1,119
4,792
255
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,119
4,792
255
1,119
4,792
255
6,166
–
–
–
–
–
6,166
6,166
Commitment
Bills payables
The Company
The Company has no financial liability as at 31 December 2011.
liabilities
Other payables
Amount due to a subsidiary
–
–
–
The amounts included above for variable rate bank borrowings are subject to change if changes
in variable interest rates differ from those estimates of interest rates determined at the end of the
reporting period.
- I-40 -
APPENDIX I
Bank borrowings with a repayment on demand clause are included in the “on demand or less
than 1 month” time band in the above maturity analysis. As at 31 December 2010, 2011 and 2012, the
aggregate undiscounted principal amounts of these bank borrowings amounted to RMB18,000,000,
RMB14,000,000 and RMB30,000,000, respectively. Taking into account the Group’s financial position,
the directors of the Company believe that it is probable that the banks will not exercise their
discretionary rights to demand immediate repayment. The directors of the Company believe that such
bank borrowings will be repaid after the end of each reporting period in accordance with the scheduled
repayment dates set out in the loan agreements.
For the purpose of managing liquidity risk, management reviews the expected cash flow
information of the Group’s bank borrowings based on the scheduled repayment dates set out in the bank
borrowings agreements as set out in the tables below:
Weighted
average
effective
interest rate
%
The Group
Bank borrowings
– fixed rate
– variable rate
Bank borrowings
– fixed rate
– variable rate
Bank borrowings
– fixed rate
– variable rate
(c)
6.25
7.08
6.77
6.82
7.99
6.77
Less than
3 months to
1 month 1-3 months
1 year
RMB’000
RMB’000
RMB’000
More than
1 year
but not
exceeding
2 years
RMB’000
More than
2 years
but not
exceeding
5 years
RMB’000
Total
Over undiscounted
5 years cash flows
RMB’000
RMB’000
Carrying
amount
RMB’000
390
52
3,779
105
40,280
4,480
10,250
354
31,500
5,708
–
–
86,199
10,699
75,850
9,000
442
3,884
44,760
10,604
37,208
–
96,898
84,850
526
107
15,053
213
36,711
976
23,250
1,296
29,896
6,296
–
14,955
105,436
23,843
94,600
19,000
633
15,266
37,687
24,546
36,192
14,955
129,279
113,600
933
3,328
59,867
656
45,164
23,009
42,517
10,640
5,056
34,926
–
–
153,537
72,559
142,100
62,000
4,261
60,523
68,173
53,157
39,982
–
226,096
204,100
Fair value
The fair values of financial assets and financial liabilities are determined in accordance with generally
accepted pricing models based on discounted cash flow analysis.
The directors of the Company consider that the carrying amounts of financial assets and financial
liabilities recorded at amortised cost in the Financial Information approximate their fair values.
35.
OPERATING LEASE
The Group’s minimum lease payments paid during the three years ended 31 December 2010, 2011 and 2012
under operating lease in respect of rented premise amounted to RMB114,000, RMB114,000 and RMB114,000,
respectively.
- I-41 -
APPENDIX I
At the end of each reporting period, the Group had commitments for future minimum lease payments under noncancellable operating lease in respect of rented premise which fall due as follows:
2010
RMB’000
Within one year
114
At 31 December
2011
RMB’000
114
2012
RMB’000
–
The lease was negotiated for a term of one year with fixed rentals.
36.
COMMITMENTS
(a)
Capital commitments
2010
RMB’000
Capital expenditure in respect of
acquisition of property, plant and
equipment:
Contracted for but not provided
(b)
40,010
At 31 December
2011
RMB’000
15,224
2012
RMB’000
7,925
Other commitments
As at 31 December 2012, the Group obtained bank acceptance bills of RMB21,533,000 and these bank
acceptance bills were delivered to suppliers for purchase of raw materials in 2013. The bills matured in March
2013. There was no such arrangement at 31 December 2010 and 2011.
37.
PLEDGE OF ASSETS
At the end of each reporting period, the Group had pledged the following assets to secure the credit facilities
granted to the Group:
2010
RMB’000
Property, plant and equipment (Note 16)
Prepaid lease payments (Note 17)
Pledged bank deposits (Note 24)
At 31 December
2011
RMB’000
2012
RMB’000
152,910
15,695
55,000
307,926
39,131
55,486
328,124
51,119
43,810
223,605
402,543
423,053
As at 31 December 2010 and 2012, included in above pledged assets are plant and machineries with a carrying
amount of RMB9,657,000 and RMB18,862,000, respectively, which were pledged to independent surety companies for
counter-guarantee in return for banking facilities granted to the Group by banks. There was no such arrangement as at 31
December 2011.
- I-42 -
APPENDIX I
38.
RETIREMENT BENEFIT SCHEMES
The employees of the Group in the PRC are members of the state-managed retirement benefit schemes operated
by the PRC government. The Group’s PRC companies are required to contribute certain percentage of their payroll to the
retirement benefit schemes to fund the benefits. The only obligation of the Group with respect to the retirement benefit
schemes is to make the required contributions under the schemes.
39.
RELATED PARTY DISCLOSURES
(a)
Related party transactions
During the Track Record Period, the Group had the following transactions with related party:
Name of related party
Mr. Sui He Zuo
Nature of
transaction
Rental
expenses
paid by the
Group
2010
2011
RMB’000
RMB’000
114
114
2012
RMB’000
114
The above transaction was discontinued after 31 December 2012.
Lease commitment in respect of the Group’s operating lease arrangement with Mr. Sui He Zuo is
disclosed in Note 35.
(b)
Related party balances
Details of the balances with related parties are set out in Notes 23, 27 and 28.
(c)
Compensation of key management personnel
The directors of the Company and the five highest paid employees are identified as key management
members of the Group. Details of their compensation during the Track Record Period are set out in Note 13.
- I-43 -
APPENDIX I
(e)
Other disclosures
During the year ended 31 December 2012, the Group obtained banking facilities amounting to
RMB4,000,000 and RMB20,000,000 which were secured by (i) a property located in the PRC and owned by
Ms. Leng Su Min, the wife of Mr. Zhu Xin Ming; and (ii) bank deposits amounted to RMB20,001,000 of Mr.
Zhu Xin Ming, respectively. These facilities were fully utilised by the Group during the year ended 31 December
2012. The pledge of the property was fully released in December 2012 while the pledge of bank deposits was
fully released in February 2013. There was no such arrangement as at 31 December 2010 and 2011.
B.
DIRECTORS’ REMUNERATION
Save as disclosed herein, no other remuneration has been paid or is payable by the Group to the
directors of the Company in respect of the Track Record Period.
C.
EVENTS AFTER THE REPORTING PERIOD
The following significant events took place subsequent to 31 December 2012:
(a)
Increase of authorised and issued share capital
Pursuant to the written resolutions of all the shareholders of the Company passed on [21 June
2013], (a) the authorised share capital was changed from USD50,000 divided into 50,000 shares of
USD1 each to HK$[390,000] divided into [3,900,000] shares of HK$[0.10] each; and (b) the
authorised share capital of the Company will be further increased from HK$[390,000] to HK$[•••] by
the creation of an additional [•••] shares of HK$0.1 each upon [•••].
D.
SUBSEQUENT FINANCIAL STATEMENTS
No audited financial statements have been prepared by the Company or any of the companies
comprising the Group in respect of any period subsequent to 31 December 2012.
Yours faithfully,
Deloitte Touche Tohmatsu
Certified Public Accountants
Hong Kong
- I-44 -
APPENDIX III
PROPERTY VALUATION REPORT
The texts of a letter, summary of values and valuation certificate, prepared for the purpose of
incorporation in this document, received from GA Valuation Limited, an independent valuer, in connection
with their valuation of our certain property interests as of 31 May 2013 are set out below.
20th Floor
Ka Wah Bank Centre
232 Des Voeux Road Central
Hong Kong
Date :
28 June 2013
The Board of Directors
Unit 1703-1704, 17th Floor
Block 3, Tins Centre
3 Hung Cheung Road
New Territories
Hong Kong
Dear Sirs,
INSTRUCTIONS
In accordance with the instructions to us to value certain property interests held by China Golden
Phoenix International (Holdings) Limited (the “Company”) and its subsidiaries (hereinafter together referred
to as the “Group”) in the People’s Republic of China (the “PRC”) (details of the properties are more
particularly listed in the Summary of Values of this report), we confirm that we have carried out inspections,
made relevant enquiries and searches and obtained such further information as we consider necessary for the
purpose of providing you with our opinion of the capital value of the property interests as at 31 May 2013
(the “date of valuation”).
PREMISES OF VALUE
The valuation is our opinion of market value which is defined by the International Valuation Standards
of the International Valuation Standards Council and followed by the Hong Kong Institute of Surveyors as
“the estimated amount for which an asset or liability should exchange on the valuation date between a willing
buyer and a willing seller in an arm’s-length transaction after proper marketing where the parties had each
acted knowledgeably, prudently and without compulsion”.
BASIS OF VALUATION
In valuing the property interests, we have complied with all the requirements contained in [•••], the
HKIS Valuation Standards (2012 Edition) published by the Hong Kong Institute of Surveyors and the
International Valuation Standards published by the International Valuation Standards Council, prevailing as at
the date of valuation.
- III-1 -
AA
Co III (34),(46)
App1A-51A
APPENDIX III
Our valuations exclude an estimated price inflated or deflated by special terms or circumstances such
as atypical financing, sale and leaseback arrangement, special considerations or concessions granted by
anyone associated with the sale, or any element of special value or costs of sale and purchase or offset for
any associated taxes.
CATEGORISATION OF PROPERTY INTERESTS
In the course of our valuation, the appraised property interests have been categorised according firstly
to type of interests held by the Company and then country where they are located, which in turn being
classified into the below group:
Group I
–
Property interests owned and occupied by the Group in the PRC
Group II
–
Property interests owned and held by the Group for future development in the
PRC
VALUATION METHODOLOGY
In the course of our valuation, unless otherwise stated, we have valued the properties in their
designated uses with the understanding that the properties will be used as such (hereafter referred to as
“continued uses”).
Due to the specific nature and uses of the buildings and structures of the property interests in Group I
that were designated and constructed and the particular location in which they are situated, there are unlikely
relevant market comparable sales readily available. The property interests have therefore been valued on the
basis of depreciated replacement cost.
We would define “depreciated replacement cost” to be our opinion of the market value of the land for
its existing use and an estimate of the new replacement costs of the buildings, structures and other site works,
including fees and finance charges, from which deductions are then made to allow for the age, condition and
obsolescences. The depreciated replacement cost approach generally provides the most reliable indication of
value for property in the absence of a known market based on comparable sales. However, it is subject to
adequate potential profitability of the business having due regard to the value of the total assets employed and
the nature of the operation and also the assumption of continued uses.
We have valued the property interests in Group II by using direct comparison approach assuming sale
of the property interests in its existing state and with the benefit of immediate vacant possession and by
making reference to comparable sale transactions as available in the relevant market.
TITLE INVESTIGATION
We have been provided by the Group with copy of extract of the title documents relating to the
property interests. Where possible, we have examined the original documents to verify the existing title to the
property interests in the PRC and any material encumbrances that might be attached to the property interests
or any amendments which may not appear on the copies handed to us. Due to the current registration system
of the PRC under which the registration information is not accessible to the public, no investigation has been
- III-2 -
APPENDIX III
made for the title of the property interests in the PRC and the material encumbrances that might be attached.
In the course of our valuation, we have relied considerably on the legal opinion given by Company’s PRC
legal adviser – 北京市天元律師事務所 (Tian Yuan Law Firm), concerning the validity of title of the
properties in the PRC.
SITE INVESTIGATION
We have inspected the exterior and, where possible, the accessible portions of the interior of the
properties being appraised. However, we have not been commissioned to carry out structural survey nor to
arrange for an inspection of the services. We are, therefore, not able to report whether the properties are free
of rot, infestation or any other structural defects. We formulate our view as to the overall conditions of the
properties taking into account the general appearance, the apparent standard and age of fixtures and fittings
and the existence of utility services. Hence it must be stressed that we have had regard to you with a view as
to whether the buildings are free from defects or as to the possibility of latent defects which might affect our
valuation. In the course of our inspection, we did not note any serious defects. No tests were carried out on
any of the services. Unless otherwise stated, we have assumed that utility services as deemed be necessary,
such as electricity, telephone, water, etc., are available and free from defect.
We have not arranged for any investigation to be carried out to determine whether or not high alumina
cement concrete or calcium chloride additive or pulverized fly ash, or any other deleterious material has been
used in the construction of the properties. We are therefore unable to report that the properties are free from
risk in this respect. For the purpose of this valuation, we have assumed that deleterious material has not been
used in the construction of the properties.
We have not been commissioned to carry out detailed site measurements to verify the correctness of
the land or building areas in respect of the properties but have assumed that the areas provided to us are
correct. Based on our experience of valuation of similar properties, we consider the assumptions so made to
be reasonable.
Moreover, we have not carried out any site investigation to determine the suitability of the ground
conditions or the services for any property development erected or to be erected thereon. Nor did we
undertake archaeological, ecological or environmental surveys for the property interests. Our valuation is
prepared on the assumption that these aspects are satisfactory and that no extraordinary expenses or delays
will be incurred during the construction period. Should it be discovered that contamination, subsidence or
other latent defects exists in the properties or on adjoining or neighbouring land or that the properties had
been or are being put to contaminated use, we reserve right to revise our opinion of value.
We have not investigated any industrial safety, environmental and health related regulations in
association with the existing and/or planned manufacturing process. It is assumed that all necessary licences,
procedures and measures were implemented in accordance with the Government legislation and guidance.
SOURCE OF INFORMATION
Unless otherwise stated, we shall rely to a considerable extent on the information provided to us by
you or your legal or other professional advisers on such matters as title, statutory notices, planning approval,
zoning, easements, completion date of building, development proposal, identification of property, particulars
- III-3 -
APPENDIX III
of occupancy, site areas, floor areas, matters relating to tenure, tenancies and all other relevant matters.
Dimensions, measurements and areas included in the valuation certificate are based on information contained
in the documents provided to us and are therefore approximations and for reference only. We have not
searched original plans, developer brochures and the like to verify them.
We have had no reason to doubt the truth and accuracy of the information provided to us by the
Group. We have also sought confirmation from the Company that no material factors have been omitted from
the information supplied. We consider that we have been provided with sufficient information to reach an
informed view and we have no reason to suspect that any material information has been withheld.
VALUATION ASSUMPTIONS
For the properties which are held under long term land use rights, we have assumed that transferable
land use rights in respect of the property interests at nominal land use fees has been granted and that any
premium payable has already been fully settled. Unless stated as otherwise, we have assumed that the
respective title owner of the properties have an enforceable title of the property interests and have free and
uninterrupted rights to occupy, use, sell, lease, charge, mortgage or otherwise dispose of the properties
without the need of seeking further approval from and paying additional premium to the Government for the
unexpired land use term as granted. Unless noted in the report, vacant possession is assumed for the property
concerned.
Continued uses assumes the properties will be used for the purposes for which the properties are
designed and built, or to which they are currently adapted. The valuation on the property in continued uses
does not represent the amount that might be realised from piecemeal disposition of the property in the open
market.
We have assumed that the design and construction of the properties are/will be in compliance with the
local planning regulations and requirements and had been/would have been duly examined and approved by
the relevant authorities.
No environmental impact study has been ordered or made. Full compliance with applicable national,
provincial and local environmental regulations and laws is assumed. Moreover, it is assumed that all required
licences, consents or other legislative or administrative authority from any local, provincial or national
government or private entity or organisation either have been or can be obtained or renewed for any use
which the report covers.
It is assumed that all applicable zoning and use regulations and restrictions have been complied with
unless nonconformity has been stated, defined and considered in the valuation report. In addition, it is
assumed that the utilisation of the land and improvements are within the boundaries of the properties
described and that no encroachment or trespass exists, unless noted in the report.
We have not undertaken a survey to determine whether the mechanical and electrical systems within
the properties (or the building(s) or development(s) in which they are located) will be adversely affected on
or after the year 2000 and as such have assumed that the properties and those systems are or will be
unaffected.
- III-4 -
APPENDIX III
No allowance has been made in our report for any charges, mortgages or amounts owing on any of the
property interests valued nor for any expenses or taxation which may be incurred in effecting a sale. Unless
otherwise stated, it is assumed that the properties are free from encumbrances, restrictions and outgoings of
an onerous nature, which could affect their values.
We have further assumed that the properties were not let, transferred or involved in any contentious or
non-contentious dispute as at the date of valuation. We have also assumed that there was not any material
change of the properties in between dates of our inspection and the date of valuation.
LIMITING CONDITIONS
Where the property is located in a relatively under-developed market, such as the PRC, those
assumptions are often based on imperfect market evidence. A range of values may be attributable to the
property depending upon the assumptions made. While the valuer has exercised his professional judgement in
arriving at the value, investors/report readers are urged to consider carefully the nature of such assumptions
that are disclosed in the valuation report and should exercise caution in interpreting the valuation report.
Wherever the content of this report is extracted and translated from the relevant documents supplied in
Chinese context and there are discrepancies in wordings, those parts of the original documents will take
prevalent.
CURRENCY
Unless otherwise stated, all amounts are denominated in Renminbi (RMB). Our valuations are
summarized below and the valuation certificate is attached.
Yours faithfully,
For and on behalf of
GA Valuation Limited
Sr K L Yuen
MRICS MHKIS
Registered Professional Surveyor
(General Practice)
General Manager – Real Estate
Note:
Mr. K L Yuen is a Chartered Valuation Surveyor and a Registered Professional Surveyor (General Practice), who has
more than 15 years’ experience in the valuation of properties in the PRC, Hong Kong and the South East Asia. Mr. K L
Yuen is also a valuer on the List of Property Valuers for Undertaking Valuations for Incorporation or Reference in [•••]
Particulars and Circulars and Valuations in Connection with Takeovers and Mergers published by the HKIS.
- III-5 -
APPENDIX III
SUMMARY OF VALUES
Group I
:
Property
Capital value in
existing state as at
31 May 2013
Interest
attributable
to the
Group
Capital value in
existing state
attributable to the
Group as at
31 May 2013
RMB
1.
4 parcels of land, various
buildings and structures located on
the south of X243 County Road,
near its junction with
X226 County Road,
Jin Shan Industrial Estate,
Hengfeng Town,
Yongxiu County,
Jiujiang Shi,
Jiangxi Province,
the PRC
127,600,000
100%
127,600,000
2.
buildings and structures located
on the north of Rong Qi Boulevard,
near its junction with Chang Jiu
Expressway,
Yun Shan Industrial Estate,
Yongxiu County,
Jiujiang Shi,
Jiangxi Province,
the PRC
120,200,000
100%
120,200,000
247,800,000
Sub-total:
247,800,000
Sub-total:
- III-6 -
APPENDIX III
Group II
:
Property interests owned and held by the Group for future development in the PRC
Capital value in
31 May 2013
Interest
attributable
to the
Group
Capital value in
existing state
attributable to the
Group as at
31 May 2013
RMB
12,770,000
100%
12,770,000
Sub-total:
12,770,000
Sub-total:
12,770,000
Grand-total:
260,570,000
Grand-total:
260,570,000
Property
3.
2 parcels of land located
on the east of Yun Shan Boulevard,
near its junction with
Rong Qi Boulevard,
Yun Shan Industrial Estate,
Yongxiu County,
Jiujiang Shi,
Jiangxi Province,
the PRC
- III-7 -
APPENDIX III
VALUATION CERTIFICATE
Group I
1.
:
Property
Description and tenure
Particular of occupancy
buildings and structures
located on the south of
X243 County Road,
near its junction with X226
County Road,
Jin Shan Industrial Estate,
Hengfeng Town,
Yongxiu County,
Jiujiang Shi,
Jiangxi Province,
the PRC
The property comprises 4 pieces of
industrial land of various sizes and has an
approximate total site area of 137,847.88
square metres (1,483,794.58 sq.ft.). It had
been erected with an industrial compound
which was completed by phases during the
years 2004 to 2012.
We have been informed
that save and except
portions of the land were
vacant and partly levelled
and partly unlevelled, the
property was occupied by
the Group primarily for
manufacturing of
crystallised stone,
godown, canteen,
dormitory and ancillary
office purposes, as at the
date of valuation.
The industrial compound primarily consists
of 1 block of 3-storey Office Building, 2
blocks of 3-storey Dormitory Building, 1
block of 2-storey Factory Building, 6 blocks
of single storey Factory Building, 5 blocks
of single storey Godown, 1 block of 2storey Canteen Complex, 4 blocks of single
storey Guard House, 3 blocks of single
storey Electricity Supply Room, 4 blocks of
single storey Toilet, 2 Sewage Treatment
Plants, a Water Pool, a Water Tank, 4
Chimneys, 3 single storey Gas Supply
Stations, a 2-storey Police Station, an antirain shed, 2 temporary sheds for motorcycle
parking, open car parking spaces and
fencing walls.
In accordance with the 33 building
ownership certificates in question, the
property extends to a total registered gross
floor area of approximately 46,195.10
square metres (497,244.06 sq.ft.).
Pursuant to the 4 state-owned land use
rights certificates in question dated 6
February 2010, 26 August 2010, 26 August
2010 and 26 August 2010 respectively, the
term of land use rights of substantial
portion of the property is till 1 February
2060 whilst the remaining portions are till
15 August 2060.
The permitted user of the land is industrial.
- III-8 -
Capital value in
31 May 2013
RMB
127,600,000
(See also Note 12
below)
(100% interest
attributable to the
Group: 127,600,000)
APPENDIX III
Notes:
Ownership of the property
1.
We have been advised by the Company’s PRC legal adviser that Jiujiang Golden Phoenix Decorate Material Co., Ltd
was the only legitimate holder of the property, as at the date of valuation.
Interests held by the Company in the property
2.
The land use rights of the property is held under 4 state-owned land use rights certificates issued by 永修縣人民政府
(Yongxiu County Municipal Government) to Jiujiang Golden Phoenix Decorate Material Co., Ltd.
According to 永國用（2010）字第065號 (State-owned Land Use Rights Certificate No. 065 of 2010) dated 6 February
2010, substantial portion of land of the property having a site area of 107,345.70 square metres is held by Jiujiang
Golden Phoenix Decorate Material Co., Ltd subject to, inter alia, the following terms:
(a)
(b)
(c)
Use of the Land
Land Area
Term
:
:
:
Industrial
107,345.70 square metres
till 1 February 2060
According to 永國用（2010）字第00119號、00120號及00121號 (State-owned Land Use Rights Certificate Nos. 00119,
00120 & 00121 of 2010) all dated 26 August 2010, the remaining 3 portions of land of the property having a total site
area of 30,502.18 square metres is held by Jiujiang Golden Phoenix Decorate Material Co., Ltd subject to, inter alia, the
following terms:
(a)
(b)
(c)
Use of the Land
Total Land Area
Term
:
:
:
Industrial
till 15 August 2060
- III-9 -
APPENDIX III
3.
4.
The building title of the property is held under 33 building ownership certificates issued by 永修縣人民政府 (Yongxiu
County Municipal Government) to Jiujiang Golden Phoenix Decorate Material Co., Ltd bearing 永房權證私字第
0023201號至0023211號、0023526號至0023533號、0024557號、0025261號、030248號、030249號、031098號至
031100號、031145號至031150號及031821號 (Building Ownership Certificate Nos. 0023201 to 0023211, 0023526 to
0023533, 0024557, 0025261, 030248, 030249, 031098 to 031100, 031145 to 031150 and 031821). Details are
summarised as follows:
No.
Building
Ownership
Certificate No.
Name of Building of the Property
1
2
3
4
5
6
7
8
0023201
0023202
0023203
0023204
0023205
0023206
0023207
0023208
3-storey Dormitory Building 1
2-storey Factory Building
Single storey Godown 1
Single storey Factory Building 1
3-storey Dormitory Building 2
Single storey Electricity Supply Room 1
3
2
1
1
1
1
3
1
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
0023209
0023210
0023211
0023526
0023527
0023528
0023529
0023530
0023531
0023532
0023533
0024557
0025261
030248
030249
031098
031099
031100
031145
031146
031147
031148
031149
031150
031821
2-storey Canteen Complex
Single storey Guard House 1
Single storey Toilet 1
3-storey Office Building 1
Sewage Treatment Control Building 1
Sewage Treatment Control Building 2
Single storey Gas Supply Station 1
2-storey Police Station
2
1
1
1
1
1
1
1
1
1
1
3
1
2
2
1
1
1
1
1
1
1
1
1
2
No. of
Storey
Designated Use
Gross Floor
Area
(square
metres)
Office
Factory
Godown
Factory
Factory
Godown
Dormitory
Electricity Supply
Room
Canteen
Guard House
Toilet
Guard House
Guard House
Godown
Godown
Godown
Factory
Factory
Factory
Office
Factory
Factory
Factory
Factory
Factory
Factory
Office
Office
Factory
Toilet
Factory
Factory
Residential
781.63
2,416.44
369.42
431.34
1,696.09
773.28
694.95
110.16
800.35
21.43
81.47
20.78
106.66
942.78
1,023.24
837.93
5,815.10
4,119.92
6,803.66
2,193.16
14,739.75
298.68
298.68
195.00
56.62
75.92
54.00
20.79
7.80
37.20
34.96
7.80
328.11
Total:
46,195.10
The legal title of the property is held by Jiujiang Golden Phoenix Decorate Material Co., Ltd which is an indirect
wholly-owned subsidiary of the Company.
- III-10 -
APPENDIX III
Material encumbrances
5.
We have been advised by the Company’s PRC legal adviser that the property was subject to the following material
encumbrances, as at the date of valuation:
(i)
A parcel of land of the property bearing 永國用（2010）字第065號 (State-owned Land Use Rights Certificate No.
065 of 2010) together with the 21 buildings erected thereon and bearing 永房權證私字第0023201號至0023211
號、0023526號至0023533號、0024557號及0025261號 (Building Ownership Certificate Nos. 0023201 to
0023211, 0023526 to 0023533, 0024557 & 0025261) had been pledged to 上海浦東發展銀行南昌分行
(Shanghai Pudong Development Bank (Nanchang Branch)) under Real Estate Maximum Amount Pledging
Contract Nos. ZD640820110000006-7 & ZD640820110000006 and Certificate of Land Encumbrance Rights
Nos. 002 & 003 of 2012. The pledging period is commencing from 10 January 2013 to 30 December 2013. The
amount of pledging loan is RMB55.9514 million.
(ii)
The single storey Factory Building 6 bearing 永房權證私字第0025261號 (Building Ownership Certificate No.
0025261) together with the portion of land where it is erected thereon had been pledged to 中國農業銀行永修
支行 (Agricultural Bank of China (Yongxiu Sub-branch)) under Pledging Contract Nos. 36100220110018117,
36100220110019848 & 36100220110020186 and Certificate of Building Encumbrance Rights No. 05283. The
pledging period is commencing from 24 May 2011 to 8 July 2016. The maximum amount of pledging loan is
RMB20 million.
(iii)
The 6 buildings bearing 永房權證私字第0023201號、0023204號、0023209號、0024557號、030248號及
030249號 (Building Ownership Certificate Nos. 0023201, 0023204, 0023209, 0024557, 030248 & 030249)
together with the portions of land where they are erected thereon had been pledged to 中國農業銀行永修支行
(Agricultural Bank of China (Yongxiu Sub-branch)) under Maximum Amount Pledging Contract No.
36100620130000459 and Certificate of Building Encumbrance Rights No. 08303. The pledging period is
commencing from 10 January 2013 to 9 January 2015. The maximum amount of pledging loan is RMB40
million.
(iv)
The remaining 3 parcels of land of the property bearing 永國用（2010）字第00119號、00120號及00121號
(State-owned Land Use Rights Certificate Nos. 00119, 00120 & 00121 of 2010) had been pledged to 九江銀行
永修支行 (Bank of Jiujiang (Yongxiu Sub-branch)) under Maximum Amount Pledging Contract No.
793020120417004 and Certificate of Land Encumbrance Rights No. 020 of 2012. The pledging period is
commencing from 18 April 2012 to 18 April 2015. The amount of pledging loan is RMB4 million.
(v)
Save and except as mentioned in (i), (ii), (iii) & (iv) above, the land use rights and building title of the property
did not subject to any assignment, lease, mortgage, compulsory acquisition, compulsory auction, third party
interests, litigation, dispute or other adverse material matters.
PRC legal opinion
6.
We have been provided with a legal opinion regarding the legality of title of the property issued by the Company’s PRC
legal adviser, which contains, inter alia, the followings:
(i)
Jiujiang Golden Phoenix Decorate Material Co., Ltd holds a good, legal and valid title to the land use rights of
the 4 parcels of land of the property and the building title of the 33 buildings (as mentioned in Note 3 above),
which can be freely used, transferred, leased, mortgaged or treated in any other ways by Jiujiang Golden
Phoenix Decorate Material Co., Ltd during the residual term of the land use rights in question in accordance
with the relevant PRC laws and the conditions of the respective pledging contracts.
- III-11 -
APPENDIX III
(ii)
The completion date as stated in the land use rights contract of 2 parcels of land bearing 永國用（2010）字第
00119號及00121號 (State-owned Land Use Rights Certificate Nos. 00119 & 00121 of 2010) had been extended
to not later than 31 December 2015. Hence, Jiujiang Golden Phoenix Decorate Material Co., Ltd does not breach
the completion requirement.
Land use zoning of the property
7.
In accordance with the subject 4 state-owned land use rights certificates dated 6 February 2010, 26 August 2010, 26
August 2010 and 26 August 2010 respectively, the permitted user of the property is industrial.
Status of major document relating to legality of the Company and property
8.
The status of the title and grant of major approvals in accordance with the information provided by the Group are as
follows:
Documents relating to Company’s legality:
Business Licence
Documents relating to property title:
State-owned Land Use Rights Certificate
Building Ownership Certificate
Obtained
Yes
Yes
Yes
(in respect of the buildings as mentioned in Note 3 above)
Inspection of the property
9.
The property was last inspected by Sr K L Yuen, MRICS MHKIS RPS(GP) on 27 & 28 June 2012.
10.
We have inspected the exterior and, where possible, the accessible portions of the interior of the property. However, we
have not been commissioned to carry out structural survey nor to arrange for an inspection of the services, but in the
course of our inspection, we did not note any serious defects. We are, therefore, not able to report whether the property
is free of rot, infestation or any other structural defects. We formulate our view as to the overall conditions of the
property taking into account the general appearance, the apparent standard and age of fixtures and fittings. In the course
of our valuation, we have assumed that the property is structural sound, free from defects or as to the possibility of latent
defects. No tests were carried out on any of the services. We have assumed that utility services, such as electricity,
telephone, water, etc., are also free from defect.
Date and cost of original acquisition
11.
We have been informed that the Group has acquired the 3 parcels of land of the property bearing 永國用（2010）字第
00119 號、00120 號及 00121 號 (State-owned Land Use Rights Certificate Nos. 00119, 00120 & 00121 of 2010) via
the 3 land use rights contracts in question on 5 May 2010 for total costs of RMB 7,099,443.
Remarks for valuation
12.
We have attributed no commercial value to the 3 single storey Gas Supply Stations, 3 of the 4 blocks single storey Toilet
and the 2-storey Police Station (excluding the portions of land where they were erected thereon) for the reasons as
informed by the Group that they had not yet obtained proper construction / development consent or title certificate as at
the date of valuation.
- III-12 -
APPENDIX III
2.
Property
2 parcels of land,
various buildings and
structures located on
the north of Rong Qi
Boulevard, near its
junction with Chang
Jiu Expressway,
Yun Shan Industrial
Estate,
Yongxiu County,
Jiujiang Shi,
Jiangxi Province,
the PRC
The property comprises 2 pieces of
adjoined land of various sizes and
has an approximate total site area of
81,999.99 square metres (882,647.89
sq.ft.). It had been erected with an
industrial compound which was
mainly completed in mid of 2012.
The industrial compound primarily
consists of 1 block of 3-storey
Office Building, 2 blocks of single
storey Factory Building, 1 block of
5-storey Dormitory Building, 1
block of single storey Electricity
Supply Room, 1 block of 2-storey
Repair and Maintenance Building, 2
blocks of single storey Guard
House, 2 blocks of single storey
Toilet, 1 Sewage Treatment Plant, 1
block of single storey Production
Control Room, open car parking
spaces and fencing walls.
In accordance with the 12 building
ownership certificates in question,
the property extends to a total
registered gross floor area of
approximately 39,702.87 square
metres (427,361.69 sq.ft.).
Pursuant to the 2 state-owned land
use rights certificates in question
both dated 19 October 2012, the
term of land use rights of the
property is till 30 November 2059.
The permitted user of the land is
industrial.
- III-13 -
Particular of
occupancy
We have been
informed that save
and except portion of
land was levelled
vacant site, the
property was
occupied by the
Group for
manufacturing of
crystallised stone,
godown, canteen,
dormitory and
ancillary office
purposes as at the
date of valuation.
Capital value in
existing state as
at 31 May 2013
RMB
120,200,000
(See also Note 12
below)
(100% interest
attributable to the
Group:
120,200,000)
APPENDIX III
Notes:
1.
We have been advised by the Company’s PRC legal adviser that 江西金鳳凰納米微晶有限公司 (Jiangxi Golden
Phoenix Nanocrystalised Stone Co., Ltd.) was the only legitimate holder of the property, as at the date of valuation.
2.
(Yongxiu County Municipal Government) to 江西金鳳凰納米微晶有限公司 (Jiangxi Golden Phoenix Nanocrystalised
Stone Co., Ltd.).
According to 永國用（2012）字第00121號 (State-owned Land Use Rights Certificate No. 00121 of 2012) dated 19
October 2012, portion of land of the property having a site area of 24,226.66 square metres is held by 江西金鳳凰納米
微晶有限公司 (Jiangxi Golden Phoenix Nanocrystalised Stone Co., Ltd.) via assignment grant and subject to, inter alia,
the following terms:
(a)
(b)
(c)
Use of the Land
Land Area
Term
:
:
:
Industrial
till 30 November 2059
October 2012, the remaining portion of land of the property having a site area of 57,773.33 square metres is held by 江
西金鳳凰納米微晶有限公司 (Jiangxi Golden Phoenix Nanocrystalised Stone Co., Ltd.) via assignment grant and
subject to, inter alia, the following terms:
(a)
(b)
(c)
Use of the Land
Land Area
Term
:
:
:
Industrial
till 30 November 2059
- III-14 -
APPENDIX III
3.
The building title of the property is held under 12 building ownership certificates issued by 永修縣人民政府 (Yongxiu
County Municipal Government) to 江西金鳳凰納米微晶有限公司 (Jiangxi Golden Phoenix Nanocrystalised Stone Co.,
Ltd.) bearing 永房權證私字第029949號、029950號、0029991號至0029995號、031096號、031097號、031101號、
031819號及031820號 (Building Ownership Certificate Nos. 029949, 029950, 0029991 to 0029995, 031096, 031097,
031101, 031819 and 031820). Details are summarised as follows:
No.
Building
Ownership
Certificate No.
Name of Building of the Property
1
2
3
4
5
029949
029950
0029991
0029992
0029993
2-storey Repair and Maintenance Building
5-storey Dormitory Building
Single storey Electricity Supply Room
2
1
5
1
1
6
7
8
0029994
0029995
031096
3
1
2
9
10
11
12
031097
031101
031819
031820
3-storey Office Building
2-storey Sewage Treatment Control
Building
Single storey Production Control Room
Factory
Guard House
Dormitory
Factory
Electricity Supply
Room
Office
Factory
Factory
1
1
1
1
Factory
Factory
Toilet
Toilet
No. of
Storey
Designated Use
1,791.72
77.16
4,467.60
13,470.60
608.00
2,123.99
16,608.00
272.35
118.80
28.73
78.12
57.80
Total:
4.
Gross Floor
Area
(square
metres)
39,702.87
The legal title of the property is held by 江西金鳳凰納米微晶有限公司 (Jiangxi Golden Phoenix Nanocrystalised Stone
Co., Ltd.) which is an indirect wholly-owned subsidiary of the Company.
5.
(i)
The 2 parcels of land of the property bearing 永國用（2012）字第00121及00122號 (State-owned and Use Rights
Certificate Nos. 00121 & 00122 of 2012) together with the single storey Factory Buildings 1 & 2, the 5-storey
Dormitory Building, the 3-storey Office Building and the single storey Electricity Supply Room erected thereon
and bearing 永房權證私字第0029991號至0029995號 (Building Ownership Certificate Nos. 0029991 to
0029995) had been pledged to 中國農業銀行永修支行 (Agricultural Bank of China (Yongxiu Sub-branch))
under Pledging Contract No. 36100220110026172 and Certificate of Land Encumbrance Rights No. 0030 of
2011. The pledging period is commencing from 5 August 2011 to 19 August 2017. The amount of pledging loan
is RMB22 million.
(ii)
The single storey Factory Buildings 1, the 5-storey Dormitory Building, the 3-storey Office Building and the
single storey Electricity Supply Room bearing 永房權證私字第0029991號至0029994號 (Building Ownership
Certificate Nos. 0029991 to 0029994) together with the portions of land where they are erected thereon had been
pledged to 九江銀行永修支行 (Bank of Jiujiang (Yongxiu Sub-branch)) under Maximum Amount Pledging
Contract No. 793020120417002 and Certificate of Building Encumbrance Rights No. 06784. The pledging
period is commencing from 18 April 2012 to 18 April 2015. The maximum amount of pledging loan is
RMB29.50 million.
- III-15 -
APPENDIX III
(iii)
Save and except as mentioned in (i) & (ii) above, the land use rights and building title of the property did not
subject to any assignment, lease, mortgage, compulsory acquisition, compulsory auction, third party interests,
litigation, dispute or other adverse material matters.
PRC legal opinion
6.
(i)
江西金鳳凰納米微晶有限公司 (Jiangxi Golden Phoenix Nanocrystalised Stone Co., Ltd.) holds a good, legal
and valid title to the land use rights of the 2 parcels of land of the property and the building title of the 12
buildings (as mentioned in Note 3 above), which can be freely used, transferred, leased, mortgaged or treated in
any other ways by 江西金鳳凰納米微晶有限公司 (Jiangxi Golden Phoenix Nanocrystalised Stone Co., Ltd.)
during the residual term of the land use rights in question in accordance with the relevant PRC laws and the
conditions of the respective pledging contracts.
(ii)
The completion date as stated in the 2 land use rights contracts in question had been extended to not later than
31 December 2015. Hence, 江西金鳳凰納米微晶有限公司 (Jiangxi Golden Phoenix Nanocrystalised Stone Co.,
Ltd.) does not breach the completion requirement.
7.
In accordance with the subject 2 state-owned land use rights certificates both dated 19 October 2012, the permitted user
of the property is industrial.
Status of major document relating to legality of the Company and property
8.
follows:
Business Licence
Building Ownership Certificate
Obtained
Yes
Yes
Yes
(in respect of the buildings as mentioned in Note 3 above)
9.
The property was last inspected by Sr K L Yuen, MRICS MHKIS RPS(GP) on 28 June 2012.
10.
We have inspected the exterior and, where possible, the accessible portions of the interior of the property. However, we
have not been commissioned to carry out structural survey nor to arrange for an inspection of the services, but in the
course of our inspection, we did not note any serious defects. We are, therefore, not able to report whether the property
is free of rot, infestation or any other structural defects. We formulate our view as to the overall conditions of the
property taking into account the general appearance, the apparent standard and age of fixtures and fittings. In the course
of our valuation, we have assumed that the property is structural sound, free from defects or as to the possibility of latent
defects. No tests were carried out on any of the services. We have assumed that utility services, such as electricity,
telephone, water, etc., are also free from defect.
- III-16 -
APPENDIX III
11.
We have been informed that the Group has acquired the 2 parcels of land of the property bearing 永國用（2012）字第
00121及00122號(State-owned and Use Rights Certificate Nos. 00121 & 00122 of 2012) via the 2 land use rights
contracts in question on 30 November 2009 for total costs of RMB19,085,662.
Remarks for valuation
12.
We have attributed no commercial value to the 2 blocks of single storey Toilet of the property (excluding the portions of
land where they were erected thereon) for the reasons as informed by the Group that they had not yet obtained proper
construction/development consent or title certificate as at the date of valuation.
- III-17 -
APPENDIX III
Group II
3.
:
Property interests owned and held by the Group for future development in the PRC
Property
2 parcels of land
located on the east
of Yun Shan
Boulevard, near its
junction with Rong
Qi Boulevard, Yun
Shan Industrial
Estate,
Yongxiu County,
Jiujiang Shi,
Jiangxi Province,
the PRC
The property comprises 2 pieces
of adjoined land of various sizes
and has an approximate total site
area of 61,565.78 square metres
(662,694.06 sq.ft.).
Particular of
occupancy
We have been
informed that the
property was vacant
and levelled land,
as at the date of
valuation.
Capital value
in existing state
as at
31 May 2013
RMB
12,770,000
(100% interest
attributable to
the Group:
12,770,000)
We have been advised by the
Group that the property has been
reserved for the Phase 2
extension of its industrial
compound in Yun Shan
Industrial Estate.
Pursuant to the 2 State-owned
Land Use Rights Certificates in
question both dated 19 October
2012, the term of land use rights
of the property is till 20 August
2061.
The permitted user of the land is
industrial.
Notes:
1.
We have been advised by the Company’s PRC legal adviser that 江西金鳳凰納米微晶有限公司 (Jiangxi Golden
Phoenix Nanocrystalised Stone Co., Ltd.) was the only legitimate holder of the property, as at the date of valuation.
2.
(Yongxiu County Municipal Government) to 江西金鳳凰納米微晶有限公司 (Jiangxi Golden Phoenix Nanocrystalised
Stone Co., Ltd.).
- III-18 -
APPENDIX III
October 2012, portion of land of the property having a site area of 33,566.06 square metres is held by 江西金鳳凰納米
微晶有限公司 (Jiangxi Golden Phoenix Nanocrystalised Stone Co., Ltd.) via assignment grant and subject to, inter alia,
the following terms:
(a)
(b)
(c)
Use of the Land
Land Area
Term
:
:
:
Industrial
till 20 August 2061
October 2012, the remaining portion of land of the property having a site area of 27,999.72 square metres is held by 江
西金鳳凰納米微晶有限公司 (Jiangxi Golden Phoenix Nanocrystalised Stone Co., Ltd.) via assignment grant and
subject to, inter alia, the following terms:
(a)
(b)
(c)
3.
Use of the Land
Land Area
Term
:
:
:
Industrial
till 20 August 2061
The legal title of the property is held by 江西金鳳凰納米微晶有限公司 (Jiangxi Golden Phoenix Nanocrystalised Stone
Co., Ltd.) which is an indirect wholly-owned subsidiary of the Company.
4.
(i)
A parcel of land of the property bearing 永國用（2012）字第00119號 (State-owned Land Use Rights Certificate
No. 00119 of 2012) had been pledged to 九江銀行永修支行 (Bank of Jiujiang (Yongxiu Sub-branch)) under
Maximum Amount Pledging Contract No. 793020120417003 and Certificate of Land Encumbrance Rights
No. 019 of 2012. The pledging period is commencing from 18 April 2012 to 18 April 2015. The maximum
amount of pledging loan is RMB 6.5 million.
(ii)
Save and except as mentioned in (i) above, the land use rights of the property did not subject to any assignment,
lease, mortgage, compulsory acquisition, compulsory auction, third party interests, litigation, dispute or other
adverse material matters which will be resulted in adverse repossession of land use rights of the property.
Development parameters of the property
5.
Pursuant to 國有建設用地土地使用權出讓合同編號201112-2 (State-owned Land Use Rights Grant Contract
No. 201112-2) made between 永修縣國土資源局 (Yongxiu County Land Resources Bureau) and Jiujiang Golden
Phoenix Decorate Material Co., Ltd on 27 July 2011, the property is subject to, inter alia, the following planning and
design requirements:–
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
Use of the Land
Land Area
Term
Maximum Gross Floor Area
Plot Ratio
Site Coverage
Landscape Ratio
Office and Service Facilities Ratio
:
:
:
:
:
:
:
:
industrial
50 years
49,255 square metres
not less than 0.8
not less than 35%
not greater than 20%
not greater than 7%
- III-19 -
APPENDIX III
6.
Pursuant to a letter issued by 永修縣國土資源局 (Yongxiu County Land Resources Bureau) jointly to Jiujiang Golden
Phoenix Decorate Material Co., Ltd and 江西金鳳凰納米微晶有限公司 (Jiangxi Golden Phoenix Nanocrystalised Stone
Co., Ltd.) on 5 December 2012, 永修縣國土資源局 (Yongxiu County Land Resources Bureau) had agreed the transfer
of the rights and duties as per 國有建設用地土地使用權出讓合同編號201112-2 (State-owned Land Use Rights Grant
Contract No. 201112-2) to 江西金鳳凰納米微晶有限公司 (Jiangxi Golden Phoenix Nanocrystalised Stone Co., Ltd.).
7.
In accordance with the subject 2 state-owned land use rights certificates both dated 19 October 2012, the permitted user
of the property is industrial.
Title and grant of major approvals of the property
8.
follows:
Business Licence
Obtained
Yes
State-owned Land Use Rights Grant Contract
Yes
Yes
PRC legal opinion
9.
(i)
江西金鳳凰納米微晶有限公司 (Jiangxi Golden Phoenix Nanocrystalised Stone Co., Ltd.) holds a good, legal
and valid title to the land use rights of the property, which can be freely used, transferred, leased, mortgaged or
treated in any other ways by 江西金鳳凰納米微晶有限公司 (Jiangxi Golden Phoenix Nanocrystalised Stone
Co., Ltd.) during the residual term of the land use rights in question in accordance with the relevant PRC laws
and the conditions of the respective pledging contracts.
(ii)
The completion date as stated in the land use rights contract in question had been extended to not later than 31
December 2015. Hence, 江西金鳳凰納米微晶有限公司 (Jiangxi Golden Phoenix Nanocrystalised Stone Co.,
Ltd.) does not breach the completion requirement as a result of deferred development on the property.
10.
The property was last inspected by Sr K L Yuen, MRICS MHKIS RPS(GP) on 28 June 2012.
11.
We have inspected the property. However, we have not been commissioned to carry out any site investigation to
determine the suitability of the ground conditions or the services for any property development erected or to be erected
thereon. Nor did we undertake archaeological, ecological or environmental surveys for the property interests. Our
valuation is prepared on the assumption that these aspects are satisfactory and that no extraordinary expenses or delays
will be incurred during the construction period. Should it be discovered that contamination, subsidence or other latent
defects exists in the property or on adjoining or neighbouring land or that the property had been or are being put to
contaminated use, we reserve right to revise our opinion of value.
12.
We have been informed that the Group has acquired the property via the land use rights contract in question on 27 July
2011 for total costs of RMB 14,329,558.
- III-20 -
APPENDIX IV
SUMMARY OF PRINCIPAL LEGAL AND
REGULATORY PROVISIONS
BB
This section sets out summaries of certain aspects of the PRC laws and regulations, which are relevant
to our Company’s operation and business.
PRC LAWS RELATING TO INVESTMENT IN THE CRYSTALISED STONE (微晶玻璃)
INDUSTRY-]
Under the Tentative Regulation to Promote the Adjustment of Industrial Structure (促進產業結構調整
暫行規定) issued on December 2, 2005 and Guiding Catalogue of Industrial Structure for Adjustment
(Version 2011) (產業結構調整指導目錄(2011年本)) issued on March 27, 2011 and effective as of June 1,
2011, the development and application of the technologies and equipment for glass processing [玻璃深加工
工藝裝備技術開發與應用] is listed as encouraged industries, for which the PRC Government will increase
its support.
BB1
According to the Catalogue for the Guidance of Foreign Investment Industries (amended in 2011) (外
商投資產業指導目錄(2011年修訂)) issued on 24 December 2011, effective on January 30, 2012 (the
“Catalogue”). The Catalogue is a long-standing tool that PRC policymakers have used to manage and direct
foreign investment. The Catalogue divides industries into three basic categories: encouraged industries,
restricted industries and prohibited industries. Industries not listed in the Catalogue are generally open to
foreign investment unless specifically barred in other PRC regulations. Foreign-invested enterprises in
encouraged industries are often permitted to establish wholly foreign-owned enterprises. Parts of industries in
the restricted category may be limited to equity or contractual joint ventures, in some cases with the Chinese
partner as the majority shareholder. Restricted category projects are also subject to higher-level government
approvals. Industries in the prohibited section are closed to foreign investment. Crystalised stone production
should belong to the encourage category.
BB2
PRC LAWS RELATING TO THE INDUSTRY
Relevant Industry Standards
According to the Interim Regulation on the Quality Supervision and Inspection of Building Material
Industrial Products (建築材料工業產品質量監督檢驗暫行條例) (“Interim Regulation”) promulgated by the
State Bureau of Building Materials Industry and implemented on 24 December 1987, an enterprise engaging
in the production of building materials shall have its products tested and shall exercise supervision over the
quality of its products. The Interim Regulation also stipulates that the State Bureau of Building Materials
Industry is responsible for the planning and establishment of national building materials supervision and
testing centres (the “Testing Centres”), which shall supervise and test building materials in accordance with
various national standards. According to the Administrative Regulations on the Authorization of National
Product Quality Supervision and Testing Centre (國家產品質量監督檢驗中心授權管理辦法) promulgated
by the Certification and Accreditation Administration of the PRC (國家認證認可監督管理委員會) in 2007,
agencies engaging in the testing of building materials on behalf of the Testing Centres shall be authorised by
the Certification and Accreditation Administration of the PRC and operate within their respective scope of
authority.
- IV-1 -
BB2.1
APPENDIX IV
On September 2, 2010, the General Administration of Quality Supervision, Inspection and Quarantine
of the People’s Republic of China (國家質量監督檢驗檢疫總局) and Standardisation Administration of the
People’s Republic of China (國家標準化管理委員會) jointly publicised a new national mandatory standard
GB6566-2010—Limitation for the Radioactive Nuclide from Building Materials (建築材料放射性核素限量),
which was implemented on July 1, 2011.
BB4
Regarding the materials used inside the building or on the exterior of the building, GB6566-2010
Limitation for the Radioactive Nuclide from Building Materials classifies them into A, B and C categories
from the lowest to the highest according to the level of radiation. The production, marketing and range of
usage of decoration materials under the category of A are not limited. The decoration materials under
category B can not be used on the interior finishes of civilian building of I Class (including residence, the
elderly’ apartment, nursery, hospital, school, office building and hotel). The decoration materials under
category C can be only used on exterior of the building or outside the building for other purposes.
BB5
Incorporation, Operation and Management of Wholly-Foreign Owned Enterprise
The incorporation, operation and management of a company in the PRC shall be subject to the
Company Law of the PRC (中華人民共和國公司法) (the “PRC Company Law”) which was promulgated
by the Standing Committee of the National People’s Congress (the “SCNPC”) on 29 December 1993 and
became effective on 1 July 1994 and was afterwards amended on 25 December 1999, 28 August 2004 and 27
October 2005 respectively. The PRC Company Law has mainly stipulated two kinds of corporations i.e.
limited liability company and joint stock limited company. Foreign investment company is also subject to the
PRC Company Law, unless it is otherwise provided by the foreign investment laws.
BB6
The establishment procedures, approval procedures, registered capital requirements, foreign exchange
control, accounting, tax, employment and all other relevant matters of wholly foreign-owed enterprise shall be
subject to the PRC Laws on Wholly Foreign Owned Enterprises (中華人民共和國外資企業法) promulgated
by the SCNPC on 12 April 1986 (which was amended on 31 October 2000) and the Implementation Rules of
the PRC Law on Wholly Foreign Owned Enterprises (中華人民共和國外資企業法實施細則) promulgated
by the State Council on 12 December 1990 and revised on 12 April 2001.
BB7
As at the Latest Practical Date, the PRC subsidiaries of our Group have obtained the relevant approval
and business licences for its incorporation and operation.
BB8
Taxation
Income tax
According to the PRC Enterprise Income Tax Law (中華人民共和國企業所得稅法) (the “EIT Law”),
which was promulgated on March 16, 2007 and became effective on January 1, 2008, the income tax rate for
both domestic and foreign-invested enterprises shall be 25% commencing from January 1, 2008. The EIT
Law provides certain transitional arrangements for the enterprises established prior to March 16, 2007 (i)
where the foreign-invested enterprises enjoyed reduced tax rates under the then effective laws and
regulations, such reduced tax rate shall be gradually increased to coincide with the Income Tax Law within
five years starting from 2008; and (ii) where the foreign-invested enterprises are entitled to tax holidays for a
- IV-2 -
BB9
APPENDIX IV
fixed period under the then effective laws and regulations, such tax holidays may continue calculation until
expiry. However, if the enterprise fails to enjoy the tax holiday due to a lack of profit, year of 2008 shall be
regarded as the first profit-making year and the tax holiday shall be calculated since 2008. In order to clarify
some provisions in the EIT Law, the Implementation Regulation of the Enterprise Income Tax Law of the
PRC (中華人民共和國企業所得稅法實施條例) was promulgated on December 6, 2007 and became
effective on January 1, 2008.
According to the Notice of the State Council on the Implementation of the Enterprise Income Tax
Transitional Preferential Policy (國務院關於實施企業所得稅過渡優惠政策的通知) issued on December 26,
2007, enterprises which previously enjoy the 15% preferential tax rate shall gradually transit from this
preferential tax rate to the unified 25% tax rate within five years commencing from January 1, 2008. The
transitional tax rates applied to such enterprises are 18% in 2008, 20% in 2009, 22% in 2010, 24% in 2011
and 25% in 2012. Enterprises which previously enjoy the 24% preferential tax rate shall apply the unified
25% tax rate from January 1, 2008.
BB10
Under the EIT Law and the Implementing Regulations, High-tech enterprises necessary to be
supported by the State on a priority basis are entitled to a preferential tax rate of 15% if they are satisfied
with certain conditions, including they own their core intellectual properties and their products or services fall
into the scope of certain State-supported high-tech industries specified by the government, etc., and obtain the
certificate of “High-tech enterprise” in accordance with the relevant regulations, specially according to the
Administrative Measures for Determination of High-tech Enterprises (高新技術企業認定管理辦法)
promulgated by the Ministry of Science and Technology, Ministry of Finance and the State
Administration on Taxation on April 14, 2008 with effect from January 1, 2008 and the Guidelines for
the Management of Recognition of High and New Technology Enterprise (高新技術企業認定管理工作指
引) issued on July 8, 2008, a High-tech enterprise shall meet the following conditions:
BB10.1
(a)
being an enterprise registered in China (excluding Hong Kong, Macao and Taiwan regions) and
owns the independent intellectual property rights in the core technology of its main products (or
services) through its own independent research and development, assignment, endowment,
mergers and acquisitions, etc. during the past three years, or through an exclusive license
therefor of at least five years;
(b)
its products (or services) falling within the scope specified in Hi-tech sectors Supported by the
State on a priority basis;
(c)
science and technology personnel who have received tertiary education or above accounted for
at least 30% of its total workforce during the years in question, and the research and
development personnel therein accounted for at least 10% of its total workforce during the years
in question;
(d)
engages in research and development activities on an ongoing basis in order to obtain new
scientific and technological (excluding humanities and social science) knowledge, creatively
apply new scientific and technological knowledge or substantively improve its technology,
- IV-3 -
APPENDIX IV
products (or services) and, during the most recent three financial years, the percentage of its
total sales revenues accounted for by its total research and development expenses should be in
line with the following requirements:
(i)
for an enterprise with sales revenue of less than RMB50 million during the most recent
year, a percentage of not less than 6%;
(ii)
for an enterprise with sales revenue of at least RMB50 million but less than RMB200
million during the most recent year, a percentage of not less than 4%;
(iii)
for an enterprise with sales revenue of at least RMB200 million during the most recent
year, a percentage of not less than 3%; furthermore, its total research and development
expenses incurred within territory of the PRC shall account for not less than 60% of the
total expenses of the research and development; in the event that the enterprise has been
incorporated for less than three years, the calculation shall be made in accordance with
the actual number of years it has been in operation;
(e)
the revenue from its hi-tech products (or services) accounted for at least 60% of its total
revenue for the year in question; and
(f)
its indicators such as the management level of its research and development organisation,
capacity to apply practically its scientific and technological achievements, the quantity of its
independent intellectual property rights, sales and total assets growth, etc., shall be in line with
the requirements set forth in the Guidelines for the Management of Recognition of High and
New Technology Enterprise, the aforesaid four indicators are used to evaluate the enterprise’s
technology resources for innovation, management innovation, innovation to achieve results,
etc., and to take a weighted scoring method that is required to achieve more than 70 points.
The validity period of the high-tech enterprise qualification shall be three years from the date of the
High-tech Enterprise Certificate. The enterprise may apply for an extension review within three months prior
to the expiration thereof.
BB10.2
In addition, according to the Notice of the SAT on the Issues Concerning Implementation of the
Preferential Income Tax for High-tech Enterprises 國家稅務總局關於實施高新技術企業所得稅優惠有關問
題的通知（國稅函[2009]203號）on April 22, 2009, notwithstanding the qualification of High-tech enterprise,
if an enterprise fails to comply with the requirements and conditions for High-tech enterprises specified in the
aforesaid regulations, it cannot enjoy the tax preference or the payable enterprise tax which has been reduced
or exempted due to such tax preference shall be recovered.
BB10.3
Value-added tax
Pursuant to the Provisional Regulations on Value-added Tax of the PRC (中華人民共和國增值稅暫
行條例), which was amended on November 5, 2008 and became effective on January 1, 2009, all entities or
individuals in the PRC engaged in the sales of goods, the processing services, repair and replacement
- IV-4 -
BB11
APPENDIX IV
services, and the importation of foods are required to pay value-added tax (the “VAT”). VAT payable is
calculated as “output VAT” minus “input VAT,” and the rate of VAT is 17% or in certain limited
circumstances, 13%, depending on the products concerned, and 3% as to the small-scale tax payer.
Foreign Currency Exchange and Dividend Distribution
Foreign currency exchange
Pursuant to the Foreign Exchange Administration Rules of the PRC (中華人民共和國外匯管理條例)
(the “Foreign Exchange Administration Rules”), which was promulgated by the State Council of the PRC (中
華人民共和國國務院) on January 8, 1996 and was amended on January 14, 1997 and August 1, 2008,
Renminbi is generally freely convertible for payments of current account items, such as trade and servicerelated foreign exchange transactions and dividend payments, but not freely convertible for capital account
items, such as capital transfer, direct investment, investment in securities, derivative products or loan unless
prior approval of the State Administration of Foreign Exchange (國家外匯管理局) (“SAFE”) is obtained.
The income of foreign exchange of domestic institutions or individuals can be transferred back into China or
deposited overseas. The specific requirements and term related to the transfer or deposit shall be prescribed
by the foreign exchange administration department of the State Council in light of the balance of international
payment and the status of foreign exchange administration.
BB12
Under the Foreign Exchange Administration Rules, foreign-invested enterprises in the PRC may
purchase foreign exchange without the approval of SAFE for paying dividends by providing certain
evidencing documents (board resolutions, tax certificates, etc.), or for trade and services-related foreign
exchange transactions by providing commercial documents evidencing such transactions. They are also
allowed to retain foreign currency transactions involving overseas direct investment or investment and
exchange in securities, derivative products aboard which are subject to registration with SAFE and approval
or file with the relevant governmental authorities (if necessary).
BB13
Dividend distribution
Before the promulgation of the EIT Law, the principal regulations governing distribution of dividends
paid by wholly foreign-owned enterprise include the Wholly Foreign-owned Enterprise Law and the
Implementation Regulation of the Wholly Foreign-owned Enterprise Law and the relevant rules issued by the
State Administration of Taxation (國家稅務總局). Under these regulations, wholly foreign-owned enterprise
in China may only pay dividends from accumulated after-tax profit, if any, determined in accordance with
PRC accounting standards and regulations. Dividends paid to its foreign investors are exempted from
withholding tax. However, this provision was revoked by the EIT Law. The EIT Law prescribes a standard
withholding tax rate of 20% on dividends and other China-sourced passive income of non-resident
enterprises. Subsequently, the Implementation Regulation of the Enterprise Income Tax Law of the PRC
reduced the rate from 20% to 10%, effective from January 1, 2008.
BB14
The PRC and the government of Hong Kong signed Arrangement between the Mainland of the PRC
and Hong Kong for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to
Taxes on Income (內地和香�特別行政區政府關於對所得稅避免雙重徵稅和防止偷漏稅的安排) (the
“Arrangement”) on August 21, 2006. According to the Arrangement, no more than 5% withholding tax
BB15
- IV-5 -
APPENDIX IV
rate applies to dividends paid by a PRC company to a Hong Kong resident, provided that the recipient is a
company that holds at least 25% of the capital of a PRC company. The 10% withholding tax rate applies to
dividends paid by a PRC company to a Hong Kong resident if the recipient is a company that holds less than
25% of the capital of the PRC company. Moreover, according to the Notice of the State Administration of
Taxation on the Issues Concerning the Application of the Dividend Clauses of Tax Agreements (國家稅務總
局關於執行稅收協定股息條款有關問題的通知) issued by the State Administration of Taxation in February
2009, if the main purpose of an offshore arrangement is to obtain preferential tax treatment, the PRC tax
authorities have the discretion to adjust the preferential tax rate for which an offshore entity would otherwise
be eligible.
Product Quality
The Interim Regulation of Supervision and Inspection for the Quality of Building Materials and
Industrial Products (建築材料工業產品質量監督檢驗暫行條例) (promulgated on December 24, 1987)
stipulates that the building material enterprise must, under the plant manager’s direct leadership, set up
independent, professional institutions for inspection of product quality, undertake the task of inspection
during the producing process and supervise the products manufactured by the enterprise. The enterprise
should perfect the quality inspection network which combines three-level inspection among administrative
office (or management), workshop and teams and groups with the self-inspection, mutual inspection, special
inspection, and should seriously implement the technical standards and inspection system to ensure product
quality.
BB16
The Product Quality Law of the PRC (中華人民共和國產品質量法) (the “Product Quality Law”) was
promulgated on 22 February 1993 and amended on 8 July 2000 and August 27, 2009.
BB17
Pursuant to the Product Quality Law, a seller is obliged:
•
to adopt a check-for-acceptance system for stock replenishment to examine the quality
certificates and other labels of such stock;
•
to take measures in keeping products for sale in good quality;
•
not to sell defective or deteriorated products or products which have been publicly ordered to
cease sales;
•
to sell products with labels that comply with the relevant provisions;
•
not to forge the origin of a product, or to forge or falsely use the name and address of another
producer;
•
not to forge or falsely use product quality marks such as authentication marks; and
•
not to mix impurities or imitations into the 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 in the sale of products.
- IV-6 -
APPENDIX IV
Pursuant to the Product Quality Law, a producer shall:
•
be responsible for the quality of products it produces;
•
not produce products that have been publicly ordered to cease production;
•
not forge the origin of a product, or to forge or falsely use the name and address of another
producer;
•
not forge or falsely use product quality marks such as authentication marks;
•
not mix impurities or imitations into the produces, 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 in
the production;
•
ensure that the marks on the products or the packaging of the products are true; and
•
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 packaging thereof must
meet the corresponding requirements, carry warning marks or warning written in Chinese or
draws attention to the method of handling in accordance with the relevant provisions of the
state.
Violations of the Product Quality Law may result in the imposition of fines. In addition, the seller or
producer may be ordered to suspend its operations and its business license may be revoked. Criminal liability
may incur in serious cases.
BB18
According to the Product Quality Law, consumer or other victims who suffer injury or property losses
due to product defects may demand compensation from the producer as well as the seller, Where the
responsibility lies with the producer, the seller shall, after settling compensation, have the right to recover
such compensation from the producer, and vice versa.
BB19
The Law of the PRC on Protection of the Rights and Interests of Consumers (中華人民共和國消費�
權益保護法) was promulgated on October 31, 1993 and amended on August 27, 2009 and became effective
on January 1, 1994 to protect consumers’ rights when they purchase or use goods or services. All business
operators must comply with this law when they manufacture or sell goods and/or provide services to
consumers.
BB20
The PRC Tort Liability Law (中華人民共和國侵權責任法), which became effective on July 1, 2010,
provides where a product endangers personal life or property due to its defect, the manufacturers and the
distributors shall bear liability in tort.
BB21
- IV-7 -
APPENDIX IV
Work Safety
The State Administration of Work Safety is the PRC government authority exercising control and
supervision of work safety nationwide. Pursuant to the PRC Work Safety Law (中華人民共和國安全生產
法), promulgated on June 29, 2002 and amended on August 27, 2009, an enterprise must meet the safety
production conditions as stipulated by the PRC laws and regulations and State or industry standards to
commence its operations. Any entities that do not comply with such safety conditions will not be allowed to
be engaged in any production or operating activities. Production and operating units should provide education
and training programs to their employees regarding production safety. The design, manufacturing,
installation, application, checking, maintenance, reforming and abandonment of safety facilities should
follow the national standards or industrial standards. In addition, production and operating units should
provide employees with protective equipment that meet national standards or industrial standards, and educate
and supervise them in strictly complying with the production rules and regulations and operation procedures
of the relevant units regarding safety.
BB22
Intellectual Property Rights
China has adopted comprehensive legislation governing intellectual property rights, including
trademarks, patents and copyrights. China has adhered to the main international conventions on
intellectual property rights and has become a member of the Agreement on Trade Related Aspects of
Intellectual Property Rights upon its accession to the World Trade Organisation in December 2001.
BB23
Patent Law
The National People’s Congress adopted the Patent Law of the PRC (中華人民共和國專利法) in
1984, and amended it in 1992, 2000 and 2008. The purpose of the Patent Law is to protect the lawful interest
of patentee and encourage invention, foster applications of invention and promote the development of science
and technology. A patentable invention or utility model must meet three conditions: novelty, inventiveness
and practical applicability. Patents cannot be granted for scientific discoveries, rules and methods for
intellectual activities, methods used to diagnose or treat diseases, animal and plant breeds or substances
obtained by means of nuclear transformation. The Patent Office under the State Council is responsible for
receiving, examining and approving patent applications. A patent is valid for a term of twenty years in the
case of an invention and a term of ten years in the case of a utility model and design, starting from the
application date. A third-party user must obtain consent or a proper license from the patent owner to use the
patent except for certain specific circumstances provided by law. Otherwise, the use will constitute an
infringement of the patent rights. Any contract for licensing of the exploitation of a patent is required to be
filed with the patent administration department under the State Council within three months from the date of
effectiveness.
BB24
Trademark Law
Registered trademarks are protected under the Trademark Law of the PRC (中華人民共和國商標法)
adopted in 1982 and amended in 1993 and 2001. The PRC Trademark Office of the States Administration of
Industry and Commerce (國家工商行政管理總局商標局) is responsible for the registration and
administration of trademarks throughout China. The PRC Trademark Law has adopted a “first-to-file”
- IV-8 -
BB25
APPENDIX IV
principle with respect to trademark registration. Where a trademark for which a registration application has
been made is identical or similar to another trademark which has already been registered or been subject to a
preliminary examination and approval for use on the same kind of or similar commodities or services, the
application for registration of such trademark may be rejected. Any person applying for the registration of a
trademark shall not prejudice the existing right of others obtained by priority, nor shall any person rush
register a trademark that has already been used by others and has become influential. After receiving an
application, the PRC Trademark Office will make a public announcement if the relevant trademark passes the
preliminary examination. Any person may, within three months after such public announcement, file an
opposition against a trademark that has passed a preliminary examination. The PRC Trademark Office’s
decisions on rejection, opposition or cancellation of an application may be appealed to the PRC Trademark
Review and Adjudication Board, whose decision may be further appealed through judicial proceedings. If no
opposition is filed within three months after the public announcement period or if the opposition has been
overruled, the PRC Trademark Office will approve the registration and issue a registration certificate, upon
which the trademark is registered and will be effective for a renewable ten-year period, unless otherwise
revoked.
Regulations on Domain Names
The Ministry of Information Industry of the PRC (中華人民共和國信息產業部), which has changed
to the Ministry Industry and Information Technology of the PRC (中華人民共和國工業和信息化部), repromulgated its Administrative Measures on China Internet Domain Names (中國互聯網絡域名管理辦法) in
2004. According to the measures, applicants for registration of domain names shall provide their true,
accurate and complete information of such domain names to and enter into registration agreements with
domain name registration service institution. The applicants could become the holder of such domain names
upon the completion of the registration procedure. The measures prohibit the registration and use of domain
names with any content that may:
•
violate the basic principles set forth in the Constitution Law of the PRC (中華人民共和國憲
法);
•
jeopardize state security, disclose any State secret, subvert state authority or harm national
unity;
•
damage national dignity or interests;
•
incite ethnic hatred or discrimination or damage ethnical unity;
•
harm State religious policies or advocate heresy or feudal superstition;
•
disseminate rumors, disrupt social order or sabotage social stability;
•
disseminate obscenity, pornography, gambling, violence, murder, terror or induce crimes;
•
humiliate or defame any other person, or infringe the legal interests of any other person; or
- IV-9 -
BB26
APPENDIX IV
•
be otherwise prohibited by the PRC laws and regulations.
Labor
Pursuant to the PRC Labor Law (中華人民共和國勞動法) effective as of January 1, 1995, the PRC
Labor Contract Law (中華人民共和國勞動合同法) effective as of January 1, 2008, and the Implementation
Regulations of the PRC Labor Contract Law (中華人民共和國勞動合同法實施條例) effective as of
September 18, 2008 (collectively, the “Labor Laws”), employers are obliged to enter into written labor
contracts with employees within one month from the date that they start employing the employees. The
employers shall comply with the Labor Laws in many aspects including with no limitation to compensating
their employees with wages in an amount equal to or above the local minimum wage standards, establishing
and perfecting a labor safety and sanitation system. Violations of the Labor Laws may result in the imposition
of fines or other administrative liabilities. Criminal liability may arise for serious violations.
BB27
Pursuant to the PRC Social Insurance Law (中華人民共和國社會保險法) (the “Social Insurance
Law”) promulgated on October 28, 2010 and effective as of July 1, 2011, employers in the PRC should
register social insurance with the social insurance authorities within 30 days from establishment and register
social insurance for their employees with the social insurance authorities within 30 days from the
employment. The employers should also make contributions to the basic medical insurance fund, basic
pension insurance fund, occupational injury insurance fund, maternity insurance fund and unemployment
insurance fund for their employees.
BB28
According to the Administrative Regulations on Housing Provident Funds (住房公積金管理條例)
promulgated by State Council and came into effect on 3 April 1999 and was afterwards amended on 24
March 2002, a unit (including a foreign investment enterprise) shall undertake the registration with the
administrative center of housing provident funds and make contributions for their staff.
BB29
Foreign Trade and Customs
Pursuant to the PRC Foreign Trade Law (中華人民共和國對外貿易法) (the “Foreign Trade Law”)
adopted on May 12, 1994 and amended on April 6, 2004 by the Standing Committee of the NPC and
effective as of July 1, 2004, the State allows free import and export of goods and technologies, unless it is
otherwise provided under the laws and administrative regulations. Any foreign trade business operator that is
engaged in the import and export of goods or technology shall be registered for archival purposes with the
administrative department of foreign trade of the State Council or the institution entrusted thereby, unless it is
otherwise provided for by any law, administrative regulation or the foreign trade department of the State
Council.
BB30
Pursuant to the PRC Regulations on the Administration of the Import and Export of Goods (中華人民
共和國貨物進出口管理條例) (the “Import and Export of Goods Regulations”), promulgated on December
10, 2001 and effective as of January 1, 2002, set out the detailed rules on the import and export of goods
system as provided for by the Foreign Trade Law. For goods subject to import quotas, enterprises shall
submit their applications for the intended import quotas for the year after in August each year. For goods
subject to export quotas, such application shall be submitted in the first half of November each year. The
BB31
- IV-10 -
APPENDIX IV
Import and Export of Goods Regulations further stipulates that the foreign trade department under the State
Council may implement an authorised dealer system for certain goods, according to which only authorised
dealers are allowed to engage in the import and export of the relevant goods.
Pursuant to the PRC Customs Law (中華人民共和國海關法) adopted on January 22, 1987 and
amended on July 8, 2000 by the Standing Committee of the NPC and effective as of January 1, 2001, unless
otherwise provided, all imported and exported goods shall be declared and duties on them shall be paid by
their consignor or consignee, or by a declaration enterprise entrusted by the consignor or consignee and
approved by and registered with the customs. No enterprises or persons can make declarations without
registering with customs or obtaining the relevant qualifications for declaration in accordance with the laws.
BB32
Environmental Protection
We are subject to various PRC environmental protection laws and regulations promulgated by the
central and local governments. These laws and regulations set out environmental protection measures in
construction projects, use, discharge and disposal of toxic and hazardous materials, discharge and disposal of
waste water, solid waste and waste gases, and control of industrial noise. The Ministry of Environmental
Protection (中華人民共和國環境保護部) is responsible for the overall supervision and administration of
environmental protection in the PRC.
BB33
According to the Environmental Protection Law of the PRC (中華人民共和國環境保護法) effective
as of December 26, 1989, units that cause environmental pollution and other public nuisances shall adopt
effective measures to avoid and control the pollution and any damage caused to the environment, such as
waste gas, waste water, waste residues, dust and noises generated during manufacturing or other activities.
Pollution prevention facilities in construction projects shall be designed, built and put into operation together
with the main part of the project. Construction projects can only be put into operation after the environmental
protection authority has examined and approved the pollution prevention facilities. Enterprises and
institutions discharging pollutants shall report to and register with the relevant authorities in accordance with
the provisions of the environmental protection authority under the State Council. Units which are involved in
manufacture, storage, transportation, sale and use of toxic chemicals and materials containing radioactive
substances shall comply with the relevant regulations to prevent environmental pollution. The relevant
authorities are authorised to impose various types of penalties on persons or entities in violation of the
environmental regulations. The penalties which could be imposed include issue of a warning, suspension of
operation or installation of facilities which are incomplete or fail to meet the prescribed standard,
reinstallation of preventive facilities which have been dismantled or left idle, administrative sanction against
office-in-charge, suspension of business operations or shut-down of the enterprise or institution. Fines could
also be levied together with these penalties.
BB34
According to the Law of the PRC on Appraising of Environment Impacts (中華人民共和國環境影�
評價法) which came into effect on September 1, 2003, the PRC government has set up a system to appraise
the environmental impact of construction projects, and to classify and administer environmental impact
appraisals in accordance with the degree of the environmental impact. If the construction project may result in
a material impact on the environment, an environmental impact report thoroughly appraising the potential
environmental impact is required. If the construction project may result in a slight impact on the environment,
an environmental impact record analysing or appraising the specific potential environmental impact is
BB35
- IV-11 -
APPENDIX IV
required. And if the construction project may result in minor impact on the environment, an environmental
impact appraisal is not required but an environmental impact form shall be filed. The report is prepared by
construction units and shall be approved by the relevant PRC authority before construction commences.
Other major environmental regulations applicable to our Group includes the Law of the PRC on
Prevention and Control of Water Pollution (中華人民共和國水污染防治法) together with the Law of the
PRC on the Prevention and Control of Environmental Pollution by Solid Wastes Pollution (中華人民共和國
固體廢物污染環境防治法), the Law of the PRC on the Prevention and Control of Air Pollution (中華人民
共和國大氣污染防治法) and the Law of the PRC on Prevention and Control of Environmental Noise
Pollution (中華人民共和國環境噪聲污染防治法).
- IV-12 -
BB36
APPENDIX V
SUMMARY OF THE CONSTITUTION OF OUR COMPANY
AND CAYMAN ISLANDS COMPANY LAW
Set out below is a summary of certain provisions of the Memorandum and Articles of Association of
the Company and of certain aspects of Cayman Islands company law.
The Company was incorporated in the Cayman Islands as an exempted company with limited liability
on 4 January 2011 under the Companies Law. The Company’s constitutional documents consist of its
Amended and Restated Memorandum of Association (the “Memorandum”) and the Amended and Restated
Articles of Association (the “Articles”).
1.
2.
MEMORANDUM OF ASSOCIATION
(a)
The Memorandum provides, inter alia, that the liability of members of the Company is limited
and that the objects for which the Company is established are unrestricted (and therefore
include acting as an investment company), and that the Company shall have and be capable of
exercising any and all of the powers at any time or from time to time exercisable by a natural
person or body corporate whether as principal, agent, contractor or otherwise and since the
Company is an exempted company that the Company will not trade in the Cayman Islands with
any person, firm or corporation except in furtherance of the business of the Company carried on
outside the Cayman Islands.
(b)
By special resolution the Company may alter the Memorandum with respect to any objects,
powers or other matters specified therein.
ARTICLES OF ASSOCIATION
The Articles were adopted on [24 June 2013] and effective on [•••]. The following is a summary of
certain provisions of the Articles:
(a)
Shares
(i)
Classes of shares
The share capital of the Company consists of ordinary shares.
(ii)
Share certificates
Every person whose name is entered as a member in the register of members shall be
entitled to receive a certificate for his shares. No shares shall be issued to bearer.
Every certificate for shares, warrants or debentures or representing any other form of
securities of the Company shall be issued under the seal of the Company, and shall be signed
autographically by one Director and the Secretary, or by 2 Directors, or by some other person(s)
appointed by the Board for the purpose. As regards any certificates for shares or debentures or
other securities of the Company, the Board may by resolution determine that such signatures or
either of them shall be dispensed with or affixed by some method or system of mechanical
signature other than autographic or may be printed thereon as specified in such resolution or
- V-1 -
CC
LR 19.08(3)
LR 19.10(2)
LR 8.14
APPENDIX V
that such certificates need not be signed by any person. Every share certificate issued shall
specify the number and class of shares in respect of which it is issued and the amount paid
thereon and may otherwise be in such form as the Board may from time to time prescribe. A
share certificate shall relate to only one class of shares, and where the capital of the Company
includes shares with different voting rights, the designation of each class of shares, other than
those which carry the general right to vote at general meetings, must include the words
“restricted voting” or “limited voting” or “non-voting” or some other appropriate designation
which is commensurate with the rights attaching to the relevant class of shares. The Company
shall not be bound to register more than 4 persons as joint holders of any share.
(b)
Directors
(i)
Power to allot and issue shares and warrants
Subject to the provisions of the Companies Law, the Memorandum and Articles and
without prejudice to any special rights conferred on the holders of any shares or class of shares,
any share may be issued with or have attached thereto such rights, or such restrictions, whether
with regard to dividend, voting, return of capital, or otherwise, as the Company may by
ordinary resolution determine (or, in the absence of any such determination or so far as the
same may not make specific provision, as the Board may determine). Any share may be issued
on terms that upon the happening of a specified event or upon a given date and either at the
option of the Company or the holder thereof, they are liable to be redeemed.
The Board may issue warrants to subscribe for any class of shares or other securities of
the Company on such terms as it may from time to time determine.
Where warrants are issued to bearer, no certificate thereof shall be issued to replace one
that has been lost unless the Board is satisfied beyond reasonable doubt that the original
certificate thereof has been destroyed and the Company has received an indemnity in such form
as the Board shall think fit with regard to the issue of any such replacement certificate.
Subject to the provisions of the Companies Law, the Articles and, where applicable, the
rules of any [•••] of the Relevant Territory (as defined in the Articles) and without prejudice to
any special rights or restrictions for the time being attached to any shares or any class of shares,
all unissued shares in the Company shall be at the disposal of the Board, which may offer, allot,
grant options over or otherwise dispose of them to such persons, at such times, for such
consideration and on such terms and conditions as it in its absolute discretion thinks fit, but so
that no shares shall be issued at a discount.
Neither the Company nor the Board shall be obliged, when making or granting any
allotment of, offer of, option over or disposal of shares, to make, or make available, any such
allotment, offer, option or shares to members or others whose registered addresses are in any
particular territory or territories where, in the absence of a registration statement or other special
- V-2 -
APPENDIX V
formalities, this is or may, in the opinion of the Board, be unlawful or impracticable. However,
no member affected as a result of the foregoing shall be, or be deemed to be, a separate class of
members for any purpose whatsoever.
(ii)
Power to dispose of the assets of the Company or any subsidiary
While there are no specific provisions in the Articles relating to the disposal of the assets
of the Company or any of its subsidiaries, the Board may exercise all powers and do all acts
and things which may be exercised or done or approved by the Company and which are not
required by the Articles or the Companies Law to be exercised or done by the Company in
general meeting, but if such power or act is regulated by the Company in general meeting, such
regulation shall not invalidate any prior act of the Board which would have been valid if such
regulation had not been made.
(iii)
Compensation or payments for loss of office
Payments to any present Director or past Director of any sum by way of compensation
for loss of office or as consideration for or in connection with his retirement from office (not
being a payment to which the Director is contractually or statutorily entitled) must be approved
by the Company in general meeting.
(iv)
Loans and provision of security for loans to Directors
There are provisions in the Articles prohibiting the making of loans to Directors and
their associates which are equivalent to provisions of Hong Kong law prevailing at the time of
adoption of the Articles.
The Company shall not directly or indirectly make a loan to a Director or a director of
any holding company of the Company or any of their respective associates, enter into any
guarantee or provide any security in connection with a loan made by any person to a Director
or a director of any holding company of the Company or any of their respective associates, or if
any one or more of the Directors hold (jointly or severally or directly or indirectly) a controlling
interest in another company, make a loan to that other company or enter into any guarantee or
provide any security in connection with a loan made by any person to that other company.
(v)
Disclosure of interest in contracts with the Company or with any of its subsidiaries
With the exception of the office of auditor of the Company, a Director may hold any
other office or place of profit with the Company in conjunction with his office of Director for
such period and, upon such terms as the Board may determine, and may be paid such extra
remuneration therefor (whether by way of salary, commission, participation in profits or
otherwise) in addition to any remuneration provided for by or pursuant to any other Articles. A
Director may be or become a director or other officer or member of any other company in
which the Company may be interested, and shall not be liable to account to the Company or the
members for any remuneration or other benefits received by him as a director, officer or
- V-3 -
APPENDIX V
member of such other company. The Board may also cause the voting power conferred by the
shares in any other company held or owned by the Company to be exercised in such manner in
all respects as it thinks fit, including the exercise thereof in favour of any resolution appointing
the Directors or any of them to be directors or officers of such other company.
No Director or intended Director shall be disqualified by his office from contracting with
the Company, either as vendor, purchaser or otherwise, nor shall any such contract or any other
contract or arrangement in which any Director is in any way interested be liable to be avoided,
nor shall any Director so contracting or being so interested be liable to account to the Company
for any profit realised by any such contract or arrangement by reason only of such Director
holding that office or the fiduciary relationship thereby established. A Director who is, in any
way, materially interested in a contract or arrangement or proposed contract or arrangement
with the Company shall declare the nature of his interest at the earliest meeting of the Board at
which he may practically do so.
There is no power to freeze or otherwise impair any of the rights attaching to any Share
by reason that the person or persons who are interested directly or indirectly therein have failed
to disclose their interests to the Company.
A Director shall not vote (nor shall he be counted in the quorum) on any resolution of
the Board in respect of any contract or arrangement or other proposal in which he or his
associate(s) is/are materially interested, and if he shall do so his vote shall not be counted nor
shall he be counted in the quorum for that resolution, but this prohibition shall not apply to any
of the following matters namely:
(aa)
the giving of any security or indemnity to the Director or his associate(s) in
respect of money lent or obligations incurred or undertaken by him or any of them
at the request of or for the benefit of the Company or any of its subsidiaries;
(bb)
the giving of any security or indemnity to a third party in respect of a debt or
obligation of the Company or any of its subsidiaries for which the Director or his
associate(s) has/have himself/themselves assumed responsibility in whole or in
part whether alone or jointly under a guarantee or indemnity or by the giving of
security;
(cc)
any proposal concerning an offer of shares or debentures or other securities of or
by the Company or any other company which the Company may promote or be
interested in for subscription or purchase, where the Director or his associate(s) is/
are or is/are to be interested as a participant in the [•••];
(dd)
any proposal or arrangement concerning the adoption, modification or operation
of a share option scheme, a pension fund or retirement, death or disability benefits
scheme or other arrangement which relates both to Directors, his associate(s) and
- V-4 -
App1A-7(1)
APPENDIX V
employees of the Company or of any of its subsidiaries and does not provide in
respect of any Director, or his associate(s), as such any privilege or advantage not
generally accorded to the employees to which such scheme or fund relates; or
(ee)
(vi)
any contract or arrangement in which the Director or his associate(s) is/are
interested in the same manner as other holders of shares or debentures or other
securities of the Company by virtue only of his/their interest in shares or
debentures or other securities of the Company.
Remuneration
The Directors shall be entitled to receive, as ordinary remuneration for their services,
such sums as shall from time to time be determined by the Board, or the Company in general
meeting, as the case may be, such sum (unless otherwise directed by the resolution by which it
is determined) to be divided amongst the Directors in such proportions and in such manner as
they may agree or failing agreement, equally, except that in such event any Director holding
office for only a portion of the period in respect of which the remuneration is payable shall only
rank in such division in proportion to the time during such period for which he has held office.
The Directors shall also be entitled to be repaid all travelling, hotel and other expenses
reasonably incurred by them in attending any Board meetings, committee meetings or general
meetings or otherwise in connection with the discharge of their duties as Directors. Such
remuneration shall be in addition to any other remuneration to which a Director who holds any
salaried employment or office in the Company may be entitled by reason of such employment
or office.
Any Director who, at the request of the Company performs services which in the opinion
of the Board go beyond the ordinary duties of a Director may be paid such special or extra
remuneration (whether by way of salary, commission, participation in profits or otherwise) as
the Board may determine and such extra remuneration shall be in addition to or in substitution
for any ordinary remuneration as a Director. An executive Director appointed to be a managing
director, joint managing director, deputy managing director or other executive officer shall
receive such remuneration (whether by way of salary, commission or participation in profits or
otherwise or by all or any of those modes) and such other benefits (including pension and/or
gratuity and/or other benefits on retirement) and allowances as the Board may from time to time
decide. Such remuneration shall be in addition to his ordinary remuneration as a Director.
The Board may establish, either on its own or jointly in concurrence or agreement with
other companies (being subsidiaries of the Company or with which the Company is associated
in business), or may make contributions out of the Company’s monies to, such schemes or
funds for providing pensions, sickness or compassionate allowances, life assurance or other
benefits for employees (which expression as used in this and the following paragraph shall
include any Director or former Director who may hold or have held any executive office or any
office of profit with the Company or any of its subsidiaries) and former employees of the
Company and their dependents or any class or classes of such persons.
- V-5 -
App1A-7(2)
Co III (5)
APPENDIX V
In addition, the Board may also pay, enter into agreements to pay or make grants of
revocable or irrevocable, whether or not subject to any terms or conditions, pensions or other
benefits to employees and former employees and their dependents, or to any of such persons,
including pensions or benefits additional to those, if any, to which such employees or former
employees or their dependents are or may become entitled under any such scheme or fund as
mentioned above. Such pension or benefit may, if deemed desirable by the Board, be granted to
an employee either before and in anticipation of, or upon or at any time after, his actual
retirement.
(vii)
Appointment, retirement and removal
At any time or from time to time, the Board shall have the power to appoint any person
as a Director either to fill a casual vacancy on the Board or as an additional Director to the
existing Board subject to any maximum number of Directors, if any, as may be determined by
the members in general meeting. Any Director appointed by the Board to fill a casual vacancy
shall hold office only until the first general meeting of the Company after his appointment and
be subject to re-election at such meeting. Any Director appointed by the Board as an addition to
the existing Board shall hold office only until the next following annual general meeting of the
Company and shall then be eligible for re-election.
At each annual general meeting, one third of the Directors for the time being will retire
from office by rotation. However, if the number of Directors is not a multiple of three, then the
number nearest to but not less than one third shall be the number of retiring Directors. The
Directors who shall retire in each year will be those who have been longest in the office since
their last re-election or appointment but as between persons who become or were last re-elected
Directors on the same day those to retire will (unless they otherwise agree among themselves)
be determined by lot.
App1A-7(4)
No person, other than a retiring Director, shall, unless recommended by the Board for
election, be eligible for election to the office of Director at any general meeting, unless notice
in writing of the intention to propose that person for election as a Director and notice in writing
by that person of his willingness to be elected shall have been lodged at the head office or at
the registration office. The period for lodgment of such notices will commence no earlier than
the day after the despatch of the notice of the meeting appointed for such election and end no
later than 7 days prior to the date of such meeting and the minimum length of the period during
which such notices to the Company may be given must be at least 7 days.
A Director is not required to hold any shares in the Company by way of qualification nor
is there any specified upper or lower age limit for Directors either for accession to the Board or
retirement therefrom.
- V-6 -
App1A-7(5)
Co III (5)
APPENDIX V
A Director may be removed by an ordinary resolution of the Company before the
expiration of his term of office (but without prejudice to any claim which such Director may
have for damages for any breach of any contract between him and the Company) and the
Company may by ordinary resolution appoint another in his place. The number of Directors
shall not be less than two.
In addition to the foregoing, the office of a Director shall be vacated:
(aa)
if he resigns his office by notice in writing delivered to the Company at the
registered office or head office of the Company for the time being or tendered at a
meeting of the Board;
(bb)
if he dies or becomes of unsound mind as determined pursuant to an order made
by any competent court or official on the grounds that he is or may be suffering
from mental disorder or is otherwise incapable of managing his affairs and the
Board resolves that his office be vacated;
(cc)
if, without special leave, he is absent from meetings of the Board for six (6)
consecutive months, and the Board resolves that his office is vacated;
(dd)
if he becomes bankrupt or has a receiving order made against him or suspends
payment or compounds with his creditors generally;
(ee)
if he is prohibited from being a director by law;
(ff)
if he ceases to be a director by virtue of any provision of law or is removed from
office pursuant to the Articles;
(gg)
if he has been validly required by [•••] of the Relevant Territory (as defined in the
Articles) to cease to be a Director and the relevant time period for application for
review of or appeal against such requirement has lapsed and no application for
review or appeal has been filed or is underway against such requirement; or
(hh)
if he is removed from office by notice in writing served upon him signed by not
less than three-fourths in number (or, if that is not a round number, the nearest
lower round number) of the Directors (including himself) then in office.
From time to time the Board may appoint one or more of its body to be managing
director, joint managing director, or deputy managing director or to hold any other employment
or executive office with the Company for such period and upon such terms as the Board may
determine and the Board may revoke or terminate any of such appointments. The Board may
also delegate any of its powers to committees consisting of such Director or Directors and other
person(s) as the Board thinks fit, and from time to time it may also revoke such delegation or
revoke the appointment of and discharge any such committees either wholly or in part, and
- V-7 -
APPENDIX V
either as to persons or purposes, but every committee so formed shall, in the exercise of the
powers so delegated, conform to any regulations that may from time to time be imposed upon it
by the Board.
(viii) Borrowing powers
Pursuant to the Articles, the Board may exercise all the powers of the Company to raise
or borrow money, to mortgage or charge all or any part of the undertaking, property and
uncalled capital of the Company and, subject to the Companies Law, to issue debentures,
debenture stock, bonds and other securities of the Company, whether outright or as collateral
security for any debt, liability or obligation of the Company or of any third party. The
provisions summarised above, in common with the Memorandum and Articles of Association in
general, may be varied with the sanction of a special resolution of the Company.
(ix)
App1A-7(3)
Co III (22)
Register of Directors and officers
Pursuant to the Companies Law, the Company is required to maintain at its registered
office a register of directors, alternate directors and officers which is not available for inspection
by the public. A copy of such register must be filed with the Registrar of Companies in the
Cayman Islands and any change must be notified to the Registrar within 30 days of any change
in such directors or officers, including a change of the name of such directors or officers.
(x)
Proceedings of the Board
Subject to the Articles, the Board may meet anywhere in the world for the despatch of
business and may adjourn and otherwise regulate its meetings as it thinks fit. Questions arising
at any meeting shall be determined by a majority of votes. In the case of an equality of votes,
the chairman of the meeting shall have a second or casting vote.
(c)
Alterations to the constitutional documents
To the extent that the same is permissible under Cayman Islands law and subject to the Articles,
the Memorandum and Articles of the Company may only be altered or amended, and the name of the
Company may only be changed by the Company by special resolution.
(d)
Variation of rights of existing shares or classes of shares
Subject to the Companies Law, if at any time the share capital of the Company is divided into
different classes of shares, all or any of the special rights attached to any class of shares may (unless
otherwise provided for by the terms of issue of the shares of that class) be varied, modified or
abrogated either with the consent in writing of the holders of not less than three-fourths in nominal
value of the issued shares of that class or with the sanction of a special resolution passed at a separate
general meeting of the holders of the shares of that class. To every such separate general meeting the
provisions of the Articles relating to general meetings shall mutatis mutandis apply, but so that the
necessary quorum (other than at an adjourned meeting) shall be not less than two persons together
- V-8 -
App1A-25(3)
APPENDIX V
holding (or in the case of a shareholder being a corporation, by its duly authorised representative) or
representing by proxy not less than one-third in nominal value of the issued shares of that class. Every
holder of shares of the class shall be entitled on a poll to one vote for every such share held by him,
and any holder of shares of the class present in person or by proxy may demand a poll.
Any special rights conferred upon the holders of any shares or class of shares shall not, unless
otherwise expressly provided in the rights attaching to the terms of issue of such shares, be deemed to
be varied by the creation or issue of further shares ranking pari passu therewith.
(e)
Alteration of capital
The Company may, by an ordinary resolution of its members, (a) increase its share capital by
the creation of new shares of such amount as it thinks expedient; (b) consolidate or divide all or any of
its share capital into shares of larger or smaller amount than its existing shares; (c) divide its unissued
shares into several classes and attach thereto respectively any preferential, deferred, qualified or special
rights, privileges or conditions; (d) subdivide its shares or any of them into shares of an amount
smaller than that fixed by the Memorandum; and (e) cancel shares which, at the date of the passing of
the resolution, have not been taken or agreed to be taken by any person and diminish the amount of its
share capital by the amount of the shares so cancelled; (f) make provision for the allotment and issue
of shares which do not carry any voting rights; (g) change the currency of denomination of its share
capital; and (h) reduce its share premium account in any manner authorised and subject to any
conditions prescribed by law.
Reduction of share capital – subject to the Companies Law and to confirmation by the court, a
company limited by shares may, if so authorised by its Memorandum and Articles of Association, by
special resolution, reduce its share capital in any way.
(f)
Special resolution – majority required
In accordance with the Articles, a special resolution of the Company must be passed by a
majority of not less than three-fourths of the votes cast by such members as, being entitled so to do,
vote in person or by proxy or, in the case of members which are corporations, by their duly authorised
representatives or, where proxies are allowed, by proxy at a general meeting of which not less than 21
clear days’ notice, specifying the intention to propose the resolution as a special resolution, has been
duly given. However, except in the case of an annual general meeting, if it is so agreed by a majority
in number of the members having a right to attend and vote at such meeting, being a majority together
holding not less than 95% in nominal value of the shares giving that right and, in the case of an annual
general meeting, if so agreed by all members entitled to attend and vote thereat, a resolution may be
proposed and passed as a special resolution at a meeting of which less than 21 clear days’ notice has
been given.
Under Companies Law, a copy of any special resolution must be forwarded to the Registrar of
Companies in the Cayman Islands within 15 days of being passed.
- V-9 -
App1A-7(6)
APPENDIX V
An “ordinary resolution”, by contrast, is defined in the Articles to mean a resolution passed by
a simple majority of the votes of such members of the Company as, being entitled to do so, vote in
person or, in the case of members which are corporations, by their duly authorised representatives or,
where proxies are allowed, by proxy at a general meeting of which not less than 14 clear days’ notice
has been given and held in accordance with the Articles. A resolution in writing signed by or on
behalf of all members shall be treated as an ordinary resolution duly passed at a general meeting of the
Company duly convened and held, and where relevant as a special resolution so passed.
(g)
Voting rights (generally and on a poll) and right to demand a poll
Subject to any special rights, restrictions or privileges as to voting for the time being attached to
any class or classes of shares at any general meeting on a show of hands, every member who is
present in person or by proxy or being a corporation, is present by its duly authorised representative
shall have one vote, and on a poll every member present in person or by proxy or, in the case of a
member being a corporation, by its duly authorised representative shall have one vote for every share
which is fully paid or credited as fully paid registered in his name in the register of members of the
Company but so that no amount paid up or credited as paid up on a share in advance of calls or
instalments is treated for the foregoing purpose as paid up on the share. Notwithstanding anything
contained in the Articles, where more than one proxy is appointed by a member which is a Clearing
House (as defined in the Articles) (or its nominee(s)), each such proxy shall have one vote on a show
of hands. On a poll, a member entitled to more than one vote need not use all his votes or cast all the
votes he does use in the same way.
At any general meeting a resolution put to the vote of the meeting is to be decided on a show of
hands unless (before or on the declaration of the result of the show of hands or on the withdrawal of
any other demand for a poll) a poll is demanded or otherwise required under the [•••] of the Relevant
Territory (as defined in the Articles). A poll may be demanded by:
(i)
the chairman of the meeting; or
(ii)
at least two members present in person or, in the case of a member being a corporation,
by its duly authorised representative or by proxy for the time being entitled to vote at the
meeting; or
(iii)
any member or members present in person or, in the case of a member being a
corporation, by its duly authorised representative or by proxy and representing not less
than one-tenth of the total voting rights of all the members having the right to vote at the
meeting; or
(iv)
a member or members present in person or, in the case of a member being a corporation,
by its duly authorised representative or by proxy and holding shares in the Company
conferring a right to vote at the meeting being shares on which an aggregate sum has
been paid equal to not less than one-tenth of the total sum paid up on all the shares
conferring that right.
- V-10 -
App1A-25(1)
App1A-25(2)
Co III (20)
APPENDIX V
Should a Clearing House or its nominee(s), be a member of the Company, such person or
persons may be authorised as it thinks fit to act as its representative(s) at any meeting of the Company
or at any meeting of any class of members of the Company provided that, if more than one person is
so authorised, the authorisation shall specify the number and class of shares in respect of which each
such person is so authorised. A person authorised in accordance with this provision shall be deemed to
have been duly authorised without further evidence of the facts and be entitled to exercise the same
rights and powers on behalf of the Clearing House or its nominee(s), as if such person were an
individual member including the right to vote individually on a show of hands.
Where the Company has knowledge that any member is, under [•••], required to abstain from
voting on any particular resolution of the Company or restricted to voting only for or only against any
particular resolution of the Company, any votes cast by or on behalf of such member in contravention
of such requirement or restriction shall not be counted.
(h)
Annual general meetings
The Company must hold an annual general meeting each year. Such meeting must be held not
more than 15 months after the holding of the last preceding annual general meeting, or such longer
period as may be authorised by [•••] at such time and place as may be determined by the Board.
(i)
Accounts and audit
The Board shall cause proper books of account to be kept of the sums of money received and
expended by the Company, and the matters in respect of which such receipt and expenditure take
place, and of the assets and liabilities of the Company and of all other matters required by the
Companies Law necessary to give a true and fair view of the state of the Company’s affairs and to
show and explain its transactions.
The books of accounts of the Company shall be kept at the head office of the Company or at
such other place or places as the Board decides and shall always be open to inspection by any
Director. No member (other than a Director) shall have any right to inspect any account or book or
document of the Company except as conferred by the Companies Law or ordered by a court of
competent jurisdiction or authorised by the Board or the Company in general meeting.
The Board shall from time to time cause to be prepared and laid before the Company at its
annual general meeting balance sheets and profit and loss accounts (including every document required
by law to be annexed thereto), together with a copy of the Directors’ report and a copy of the auditors’
report not less than 21 days before the date of the annual general meeting. Copies of these documents
shall be sent to every person entitled to receive notices of general meetings of the Company under the
provisions of the Articles together with the notice of annual general meeting, not less than 21 days
before the date of the meeting.
Subject to [•••] of the Relevant Territory (as defined in the Articles), the Company may send
summarised financial statements to shareholders who has, in accordance with [•••] of the Relevant
Territory (as defined in the Articles), consented and elected to receive summarised financial statements
- V-11 -
APPENDIX V
instead of the full financial statements. The summarised financial statements must be accompanied by
any other documents as may be required under [•••] of the Relevant Territory (as defined in the
Articles), and must be sent to the shareholders not less than 21 days before the general meeting to
those shareholders that have consented and elected to receive the summarised financial statements.
The Company shall appoint auditor(s) to hold office until the conclusion of the next annual
general meeting on such terms and with such duties as may be agreed with the Board. The auditors’
remuneration shall be fixed by the Company in general meeting or by the Board if authority is so
delegated by the members.
The auditors shall audit the financial statements of the Company in accordance with generally
accepted accounting principles of Hong Kong, the International Accounting Standards or such other
standards as may be permitted by [•••].
(j)
Notices of meetings and business to be conducted thereat
An annual general meeting and any extraordinary general meeting at which it is proposed to
pass a special resolution must be called by at least 21 days’ notice in writing, and any other
extraordinary general meeting shall be called by at least 14 days’ notice in writing. The notice shall be
exclusive of the day on which it is served or deemed to be served and of the day for which it is given,
and must specify the time, place and agenda of the meeting, and particulars of the resolution(s) to be
considered at that meeting, and, in the case of special business, the general nature of that business.
Except where otherwise expressly stated, any notice or document (including a share certificate)
to be given or issued under the Articles shall be in writing, and may be served by the Company on any
member either personally or by sending it through the post in a prepaid envelope or wrapper addressed
to such member at his registered address as appearing in the Company’s register of members or by
leaving it at such registered address as aforesaid or (in the case of a notice) by advertisement in the
newspapers. Any member whose registered address is outside Hong Kong may notify the Company in
writing of an address in Hong Kong which for the purpose of service of notice shall be deemed to be
his registered address. Where the registered address of the member is outside Hong Kong, notice, if
given through the post, shall be sent by prepaid airmail letter where available. Subject to the
Companies Law and [•••], a notice or document may be served or delivered by the Company to any
member by electronic means to such address as may from time to time be authorised by the member
concerned or by publishing it on a website and notifying the member concerned that it has been so
published.
Although a meeting of the Company may be called by shorter notice than as specified above,
such meeting may be deemed to have been duly called if it is so agreed:
(i)
in the case of a meeting called as an annual general meeting, by all members of the
Company entitled to attend and vote thereat; and
- V-12 -
APPENDIX V
(ii)
in the case of any other meeting, by a majority in number of the members having a right
to attend and vote at the meeting, being a majority together holding not less than 95% in
nominal value of the issued shares giving that right.
All business transacted at an extraordinary general meeting shall be deemed special business
and all business shall also be deemed special business where it is transacted at an annual general
meeting with the exception of the following, which shall be deemed ordinary business:
(k)
(aa)
the declaration and sanctioning of dividends;
(bb)
the consideration and adoption of the accounts and balance sheet and the reports of the
directors and the auditors;
(cc)
the election of Directors in place of those retiring;
(dd)
the appointment of auditors;
(ee)
the fixing of the remuneration of the Directors and of the auditors;
(ff)
the granting of any mandate or authority to the Board to offer, allot, grant options over,
or otherwise dispose of the unissued shares of the Company representing not more than
20% in nominal value of its existing issued share capital (or such other percentage as
may from time to time be specified in [•••]) and the number of any securities repurchased
by the Company since the granting of such mandate; and
(gg)
the granting of any mandate or authority to the Board to repurchase securities in the
Company.
Transfer of shares
Subject to the Companies Law, all transfers of shares shall be effected by an instrument of
transfer in the usual or common form or in such other form as the Board may approve provided always
that it shall be in such form prescribed by [•••] and may be under hand or, if the transferor or
transferee is a Clearing House or its nominee(s), under hand or by machine imprinted signature or by
such other manner of execution as the Board may approve from time to time.
Execution of the instrument of transfer shall be by or on behalf of the transferor and the
transferee provided that the Board may dispense with the execution of the instrument of transfer by the
transferor or transferee or accept mechanically executed transfers in any case in which it in its
discretion thinks fit to do so, and the transferor shall be deemed to remain the holder of the share until
the name of the transferee is entered in the register of members of the Company in respect thereof.
The Board may, in its absolute discretion, at any time and from time to time remove any share
on the principal register to any branch register or any share on any branch register to the principal
register or any other branch register.
- V-13 -
App1A-7(8)
APPENDIX V
Unless the Board otherwise agrees, no shares on the principal register shall be removed to any
branch register nor shall shares on any branch register be removed to the principal register or any other
branch register. All removals and other documents of title shall be lodged for registration and
registered, in the case of shares on any branch register, at the relevant registration office and, in the
case of shares on the principal register, at the place at which the principal register is located.
The Board may, in its absolute discretion, decline to register a transfer of any share (not being a
fully paid up share) to a person of whom it does not approve or any share issued under any share
option scheme upon which a restriction on transfer imposed thereby still subsists, and it may also
refuse to register any transfer of any share to more than four joint holders or any transfer of any share
(not being a fully paid up share) on which the Company has a lien.
The Board may decline to recognize any instrument of transfer unless a fee of such maximum
sum as [•••] may determine to be payable or such lesser sum as the Board may from time to time
require is paid to the Company in respect thereof, the instrument of transfer is properly stamped (if
applicable), is in respect of only one class of share and is lodged at the relevant registration office or
the place at which the principal register is located accompanied by the relevant share certificate(s) and
such other evidence as the Board may reasonably require to show the right of the transferor to make
the transfer (and if the instrument of transfer is executed by some other person on his behalf, the
authority of that person so to do).
The register of members may, subject to [•••] (as defined in the Articles), be closed at such time
or for such period not exceeding in the whole 30 days in each year as the Board may determine.
Fully paid shares shall be free from any restriction with respect to the right of the holder thereof
to transfer such shares (except when permitted by [•••]) and shall also be free from all liens.
(l)
Power of the Company to purchase its own shares
The Company is empowered by the Companies Law and the Articles to purchase its own shares
subject to certain restrictions and the Board may only exercise this power on behalf of the Company
subject to any applicable requirement imposed from time to time by the Articles, code, rules or
regulations issued from time to time by [•••].
Where the Company purchases for redemption a redeemable Share, purchases not made through
the market or by tender shall be limited to a maximum price, and if purchases are by tender, tenders
shall be available to all members alike.
(m)
Power of any subsidiary of the Company to own shares in the Company
There are no provisions in the Articles relating to the ownership of shares in the Company by a
subsidiary.
- V-14 -
App1A-7(9)
APPENDIX V
(n)
Dividends and other methods of distribution
The Company in general meeting may declare dividends in any currency to be paid to the
members but no dividend shall be declared in excess of the amount recommended by the Board.
Except in so far as the rights attaching to, or the terms of issue of, any share may otherwise
provide:
(i)
all dividends shall be declared and paid according to the amounts paid up on the shares
in respect whereof the dividend is paid, although no amount paid up on a share in
advance of calls shall for this purpose be treated as paid up on the share; and
(ii)
all dividends shall be apportioned and paid pro rata in accordance with the amount paid
up on the shares during any portion or portions of the period in respect of which the
dividend is paid. The Board may deduct from any dividend or other monies payable to
any member all sums of money (if any) presently payable by him to the Company on
account of calls, instalments or otherwise.
Where the Board or the Company in general meeting has resolved that a dividend should be
paid or declared on the share capital of the Company, the Board may resolve:
(aa)
that such dividend be satisfied wholly or in part in the form of an allotment of shares
credited as fully paid up, provided that the members entitled thereto will be entitled to
elect to receive such dividend (or part thereof) in cash in lieu of such allotment; or
(bb)
that the members entitled to such dividend will be entitled to elect to receive an
allotment of shares credited as fully paid up in lieu of the whole or such part of the
dividend as the Board may think fit.
Upon the recommendation of the Board, the Company may by ordinary resolution in respect of
any one particular dividend of the Company determine that it may be satisfied wholly in the form of
an allotment of shares credited as fully paid up without offering any right to members to elect to
receive such dividend in cash in lieu of such allotment.
Any dividend, bonus or other sum payable in cash to the holder of shares may be paid by
cheque or warrant sent through the post addressed to the holder at his registered address, but in the
case of joint holders, shall be addressed to the holder whose name stands first in the register of
members of the Company in respect of the shares at his address as appearing in the register, or
addressed to such person and at such address as the holder or joint holders may in writing so direct.
Every such cheque or warrant shall be made payable to the order of the person to whom it is sent and
shall be sent at the holder’s or joint holders’ risk and payment of the cheque or warrant by the bank on
which it is drawn shall constitute a good discharge to the Company. Any one of two or more joint
holders may give effectual receipts for any dividends or other monies payable or property distributable
in respect of the shares held by such joint holders.
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App1A-7(7)
APPENDIX V
Whenever the Board or the Company in general meeting has resolved that a dividend be paid or
declared, the Board may further resolve that such dividend be satisfied wholly or in part by the
distribution of specific assets of any kind.
The Board may, if it thinks fit, receive from any member willing to advance the same, and
either in money or money’s worth, all or any part of the money uncalled and unpaid or instalments
payable upon any shares held by him, and in respect of all or any of the monies so advanced may pay
interest at such rate (if any) not exceeding 20 % per annum, as the Board may decide, but a payment
in advance of a call shall not entitle the member to receive any dividend or to exercise any other rights
or privileges as a member in respect of the share or the due portion of the shares upon which payment
has been advanced by such member before it is called up.
All dividends, bonuses or other distributions unclaimed for one year after having been declared
may be invested or otherwise made use of by the Board for the benefit of the Company until claimed
and the Company shall not be constituted a trustee in respect thereof. All dividends, bonuses or other
distributions unclaimed for six years after having been declared may be forfeited by the Board and,
upon such forfeiture, shall revert to the Company.
No dividend or other monies payable by the Company on or in respect of any share shall bear
interest against the Company.
The Company may exercise the power to cease sending cheques for dividend entitlements or
dividend warrants by post if such cheques or warrants remain uncashed on two consecutive occasions
or after the first occasion on which such a cheque or warrant is returned undelivered.
(o)
Proxies
Any member of the Company entitled to attend and vote at a meeting of the Company is
entitled to appoint another person as his proxy to attend and vote instead of him. A member who is the
holder of two or more shares may appoint more than one proxy to represent him and vote on his
behalf at a general meeting of the Company or at a class meeting. A proxy need not be a member of
the Company and shall be entitled to exercise the same powers on behalf of a member who is an
individual and for whom he acts as proxy as such member could exercise. In addition, a proxy shall be
entitled to exercise the same powers on behalf of a member which is a corporation and for which he
acts as proxy as such member could exercise if it were an individual member. On a poll or on a show
of hands, votes may be given either personally (or, in the case of a member being a corporation, by its
duly authorised representative) or by proxy.
The instrument appointing a proxy shall be in writing under the hand of the appointor or of his
attorney duly authorised in writing, or if the appointor is a corporation, either under seal or under the
hand of an officer or attorney duly authorised. Every instrument of proxy, whether for a specified
meeting or otherwise, shall be in such form as the Board may from time to time approve, provided that
it shall not preclude the use of the two-way form. Any form issued to a member for use by him for
appointing a proxy to attend and vote at an extraordinary general meeting or at an annual general
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App1A-7(7)
APPENDIX V
meeting at which any business is to be transacted shall be such as to enable the member, according to
his intentions, to instruct the proxy to vote in favour of or against (or, in default of instructions, to
exercise his discretion in respect of) each resolution dealing with any such business.
(p)
Calls on shares and forfeiture of shares
The Board may from time to time make such calls as it may think fit upon the members in
respect of any monies unpaid on the shares held by them respectively (whether on account of the
nominal value of the shares or by way of premium) and not by the conditions of allotment thereof
made payable at fixed times. A call may be made payable either in one sum or by instalments. If the
sum payable in respect of any call or instalment is not paid on or before the day appointed for
payment thereof, the person or persons from whom the sum is due shall pay interest on the same at
such rate not exceeding 20% per annum as the Board shall fix from the day appointed for the payment
thereof to the time of actual payment, but the Board may waive payment of such interest wholly or in
part. The Board may, if it thinks fit, receive from any member willing to advance the same, either in
money or money’s worth, all or any part of the money uncalled and unpaid or instalments payable
upon any shares held by him, and in respect of all or any of the monies so advanced the Company
may pay interest at such rate (if any) not exceeding 20% per annum as the Board may decide.
If a member fails to pay any call or instalment of a call on the day appointed for payment
thereof, the Board may, at any time thereafter during such time as any part of the call or instalment
remains unpaid, serve not less than 14 days’ notice on him requiring payment of so much of the call or
instalment as is unpaid, together with any interest which may have accrued and which may still accrue
up to the date of actual payment. The notice will name a further day (not earlier than the expiration of
14 days from the date of the notice) on or before which the payment required by the notice is to be
made, and it shall also name the place where payment is to be made. The notice shall also state that, in
the event of non-payment at or before the time appointed, the shares in respect of which the call was
made will be liable to be forfeited.
If the requirements of any such notice are not complied with, any share in respect of which the
notice has been given may at any time thereafter, before the payment required by the notice has been
made, be forfeited by a resolution of the Board to that effect. Such forfeiture will include all dividends
and bonuses declared in respect of the forfeited share and not actually paid before the forfeiture.
A person whose shares have been forfeited shall cease to be a member in respect of the
forfeited shares but shall, nevertheless, remain liable to pay to the Company all monies which, at the
date of forfeiture, were payable by him to the Company in respect of the shares together with (if the
Board shall in its discretion so require) interest thereon from the date of forfeiture until payment at
such rate not exceeding 20% per annum as the Board may prescribe.
(q)
Inspection of corporate records
Members of the Company have no general right under the Companies Law to inspect or obtain
copies of the register of members or corporate records of the Company. However, the members of the
Company will have such rights as may be set forth in the Articles. The Articles provide that for so
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APPENDIX V
long as any part of the share capital of the Company is [•••], any member may inspect any register of
members of the Company maintained in Hong Kong (except when the register of member is closed)
without charge and require the provision to him of copies or extracts thereof in all respects as if the
Company were incorporated under and were subject to the Hong Kong Companies Ordinance.
An exempted company may, subject to the provisions of its articles of association, maintain its
principal register of members and any branch registers at such locations, whether within or outside the
Cayman Islands, as its directors may, from time to time, think fit.
(r)
Quorum for meetings and separate class meetings
No business shall be transacted at any general meeting unless a quorum is present when the
meeting proceeds to business, and continues to be present until the conclusion of the meeting.
The quorum for a general meeting shall be two members present in person (or in the case of a
member being a corporation, by its duly authorised representative) or by proxy and entitled to vote. In
respect of a separate class meeting (other than an adjourned meeting) convened to sanction the
modification of class rights the necessary quorum shall be two persons holding or representing by
proxy not less than one-third in nominal value of the issued shares of that class.
(s)
Rights of minorities in relation to fraud or oppression
There are no provisions in the Articles concerning the rights of minority members in relation to
fraud or oppression. However, certain remedies may be available to members of the Company under
Cayman Islands law, as summarised in paragraph 3(f) of this Appendix.
(t)
Procedures on liquidation
A resolution that the Company be wound up by the court or be wound up voluntarily shall be a
special resolution.
Subject to any special rights, privileges or restrictions as to the distribution of available surplus
assets on liquidation for the time being attached to any class or classes of shares:
(i)
if the Company shall be wound up and the assets available for distribution amongst the
members of the Company shall be more than sufficient to repay the whole of the capital
paid up at the commencement of the winding up, then the excess shall be distributed pari
passu amongst such members in proportion to the amount paid up on the shares held by
them respectively; and
(ii)
if the Company shall be wound up and the assets available for distribution amongst the
members as such shall be insufficient to repay the whole of the paid-up capital, such
assets shall be distributed so that, as nearly as may be, the losses shall be borne by the
members in proportion to the capital paid up, on the shares held by them respectively.
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APPENDIX V
In the event that the Company is wound up (whether the liquidation is voluntary or compelled
by the court) the liquidator may, with the sanction of a special resolution and any other sanction
required by the Companies Law divide among the members in specie or kind the whole or any part of
the assets of the Company whether the assets shall consist of property of one kind or shall consist of
properties of different kinds and the liquidator may, for such purpose, set such value as he deems fair
upon any one or more class or classes of property to be divided as aforesaid and may determine how
such division shall be carried out as between the members or different classes of members and the
members within each class. The liquidator may, with the like sanction, vest any part of the assets in
trustees upon such trusts for the benefit of members as the liquidator shall think fit, but so that no
member shall be compelled to accept any shares or other property upon which there is a liability.
(u)
Untraceable members
The Company may exercise the power to cease sending cheques for dividend entitlements or
dividend warrants by post if such cheques or warrants remain uncashed on two consecutive occasions
or after the first occasion on which such a cheque or warrant is returned undelivered.
In accordance with the Articles, the Company is entitled to sell any of the shares of a member
who is untraceable if:
(v)
(i)
all cheques or warrants, being not less than three in total number, for any sum payable in
cash to the holder of such shares have remained uncashed for a period of 12 years;
(ii)
upon the expiry of the 12 years and 3 months period (being the 3 months notice period
referred to in sub-paragraph (iii)), the Company has not during that time received any
indication of the existence of the member; and
(iii)
the Company has caused an advertisement to be published in accordance with [•••] of the
Relevant Territory (as defined in the Articles) giving notice of its intention to sell such
shares and a period of three months has elapsed since such advertisement and [•••] of the
Relevant Territory (as defined in the Articles) has been notified of such intention. The
net proceeds of any such sale shall belong to the Company and upon receipt by the
Company of such net proceeds, it shall become indebted to the former member of the
Company for an amount equal to such net proceeds.
Subscription rights reserve
Pursuant to the Articles, provided that it is not prohibited by and is otherwise in compliance
with the Companies Law, if warrants to subscribe for shares have been issued by the Company and the
Company does any act or engages in any transaction which would result in the subscription price of
such warrants being reduced below the par value of the shares to be issued on the exercise of such
warrants, a subscription rights reserve shall be established and applied in paying up the difference
between the subscription price and the par value of such shares.
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APPENDIX V
3.
CAYMAN ISLANDS COMPANY LAW
LR 19.10(3)
The Company was incorporated in the Cayman Islands as an exempted company on 4 January 2011
subject to the Companies Law. Certain provisions of Cayman Islands company law are set out below but this
section does not purport to contain all applicable qualifications and exceptions or to be a complete review of
all matters of the Companies Law and taxation, which may differ from equivalent provisions in jurisdictions
with which interested parties may be more familiar.
(a)
Company operations
As an exempted company, the Company must conduct its operations mainly outside the
Cayman Islands. Moreover, the Company is required to file an annual return each year with the
Registrar of Companies of the Cayman Islands and pay a fee which is based on the amount of its
authorised share capital.
(b)
Share capital
In accordance with the Companies Law, a Cayman Islands company may issue ordinary,
preference or redeemable shares or any combination thereof. The Companies Law provides that where
a company issues shares at a premium, whether for cash or otherwise, a sum equal to the aggregate
amount or value of the premiums on those shares shall be transferred to an account, to be called the
“share premium account”. At the option of a company, these provisions may not apply to premiums on
shares of that company allotted pursuant to any arrangements in consideration of the acquisition or
cancellation of shares in any other company and issued at a premium. The Companies Law provides
that the share premium account may be applied by the company subject to the provisions, if any, of its
memorandum and articles of association, in such manner as the company may from time to time
determine including, but without limitation, the following:
(i)
paying distributions or dividends to members;
(ii)
paying up unissued shares of the company to be issued to members as fully paid bonus
shares;
(iii)
any manner provided in section 37 of the Companies Law;
(iv)
writing-off the preliminary expenses of the company; and
(v)
writing-off the expenses of, or the commission paid or discount allowed on, any issue of
shares or debentures of the company.
Notwithstanding the foregoing, the Companies Law provides that no distribution or dividend
may be paid to members out of the share premium account unless, immediately following the date on
which the distribution or dividend is proposed to be paid, the company will be able to pay its debts as
they fall due in the ordinary course of business.
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APPENDIX V
It is further provided by the Companies Law that, subject to confirmation by the court, a
company limited by shares or a company limited by guarantee and having a share capital may, if
authorised to do so by its articles of association, by special resolution reduce its share capital in any
way.
The Articles include certain protections for holders of special classes of shares, requiring their
consent to be obtained before their rights may be varied. The consent of the specified proportions of
the holders of the issued shares of that class or the sanction of a resolution passed at a separate
meeting of the holders of those shares is required.
(c)
Financial assistance to purchase shares of a company or its holding company
There are no statutory prohibitions in the Cayman Islands on the granting of financial assistance
by a company to another person for the purchase of, or subscription for, its own, its holding
company’s or a subsidiary’s shares. Therefore, a company may provide financial assistance provided
the directors of the company when proposing to grant such financial assistance discharge their duties
of care and acting in good faith, for a proper purpose and in the interests of the company. Such
assistance should be on an arm’s length basis.
(d)
Purchase of shares and warrants by a company and its subsidiaries
A company limited by shares or a company limited by guarantee and having a share capital
may, if so authorised by its articles of association, issue shares which are to be redeemed or are liable
to be redeemed at the option of the company or a member and, for the avoidance of doubt, it shall be
lawful for the rights attaching to any shares to be varied, subject to the provisions of the company’s
articles of association, so as to provide that such shares are to be or are liable to be so redeemed. In
addition, such a company may, if authorised to do so by its articles of association, purchase its own
shares, including any redeemable shares. Nonetheless, if the articles of association do not authorize the
manner and terms of purchase, a company cannot purchase any of its own shares without the manner
and terms of purchase first being authorised by an ordinary resolution of the company. A company
may not redeem or purchase its shares unless they are fully paid. Furthermore, a company may not
redeem or purchase any of its shares if, as a result of the redemption or purchase, there would no
longer be any issued shares of the company other than shares held as treasury shares. In addition, a
payment out of capital by a company for the redemption or purchase of its own shares is not lawful
unless immediately following the date on which the payment is proposed to be made, the company
shall be able to pay its debts as they fall due in the ordinary course of business.
Under Section 37A(1) the Companies Law, shares that have been purchased or redeemed by a
company or surrendered to the company shall not be treated as cancelled but shall be classified as
treasury shares if (a) the memorandum and articles of association of the company do not prohibit it
from holding treasury shares; (b) the relevant provisions of the memorandum and articles of
association (if any) are complied with; and (c) the company is authorised in accordance with the
company’s articles of association or by a resolution of the directors to hold such shares in the name of
- V-21 -
APPENDIX V
the company as treasury shares prior to the purchase, redemption or surrender of such shares. Shares
held by a company pursuant to section 37A(1) of the Companies Law shall continue to be classified as
treasury shares until such shares are either cancelled or transferred pursuant to the Companies Law.
A Cayman Islands company may be able to purchase its own warrants subject to and in
accordance with the terms and conditions of the relevant warrant instrument or certificate. Thus there
is no requirement under Cayman Islands law that a company’s memorandum or articles of association
contain a specific provision enabling such purchases. The directors of a company may under the
general power contained in its memorandum of association be able to buy and sell and deal in personal
property of all kinds.
Under Cayman Islands law, a subsidiary may hold shares in its holding company and, in certain
circumstances, may acquire such shares.
(e)
Dividends and distributions
With the exception of sections 34 and 37A(7) of the Companies Law, there are no statutory
provisions relating to the payment of dividends. Based upon English case law which is likely to be
persuasive in the Cayman Islands, dividends may be paid only out of profits. In addition, section 34 of
the Companies Law permits, subject to a solvency test and the provisions, if any, of the company’s
memorandum and articles of association, the payment of dividends and distributions out of the share
premium account (see sub-paragraph 2(n) of this Appendix for further details). Section 37A(7)(c) of
the Companies Law provides that for so long as a company holds treasury shares, no dividend may be
declared or paid, and no other distribution (whether in cash or otherwise) of the company’s assets
(including any distribution of assets to members on a winding up) may be made to the company, in
respect of a treasury share.
(f)
Protection of minorities and shareholders’ suits
It can be expected that the Cayman Islands courts will ordinarily follow English case law
precedents (particularly the rule in the case of Foss v. Harbottle and the exceptions thereto) which
permit a minority member to commence a representative action against or derivative actions in the
name of the company to challenge:
(i)
an act which is ultra vires the company or illegal;
(ii)
an act which constitutes a fraud against the minority and the wrongdoers are themselves
in control of the company; and
(iii)
an irregularity in the passing of a resolution the passage of which requires a qualified (or
special) majority which has not been obtained.
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APPENDIX V
Where a company (not being a bank) is one which has a share capital divided into shares, the
court may, on the application of members thereof holding not less than one-fifth of the shares of the
company in issue, appoint an inspector to examine the affairs of the company and, at the direction of
the court, to report thereon.
Moreover, any member of a company may petition the court which may make a winding up
order if the court is of the opinion that it is just and equitable that the company should be wound up.
In general, claims against a company by its members must be based on the general laws of
contract or tort applicable in the Cayman Islands or be based on potential violation of their individual
rights as members as established by a company’s memorandum and articles of association.
(g)
Disposal of assets
There are no specific restrictions in the Companies Law on the power of directors to dispose of
assets of a company, although it specifically requires that every officer of a company, which includes a
director, managing director and secretary, in exercising his powers and discharging his duties must do
so honestly and in good faith with a view to the best interest of the company and exercise the care,
diligence and skill that a reasonably prudent person would exercise in comparable circumstances.
(h)
Accounting and auditing requirements
Section 59 of the Companies Law provides that a company shall cause proper records of
accounts to be kept with respect to (i) all sums of money received and expended by the company and
the matters with respect to which the receipt and expenditure takes place; (ii) all sales and purchases of
goods by the company and (iii) the assets and liabilities of the company.
Section 59 of the Companies Law further states that proper books of account shall not be
deemed to be kept if there are not kept such books as are necessary to give a true and fair view of the
state of the company’s affairs and to explain its transactions.
If the Company keeps its books of account at any place other than at its registered office or at
any other place within the Cayman Islands, it shall, upon service of an order or notice by the Tax
Information Authority pursuant to the Tax Information Authority Law (2009 Revision) of the Cayman
Islands, make available, in electronic form or any other medium, at its registered office copies of its
books of account, or any part or parts thereof, as are specified in such order or notice.
(i)
Exchange control
There are no exchange control regulations or currency restrictions in effect in the Cayman
Islands.
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APPENDIX V
(j)
Taxation
Pursuant to section 6 of the Tax Concessions Law (2011 Revision) of the Cayman Islands, the
Company has applied for and is expected to obtain an undertaking from the Governor-in-Cabinet:
(i)
that no law which is enacted in the Cayman Islands imposing any tax to be levied on
profits or income or gains or appreciation shall apply to the Company or its operations;
and
(ii)
in addition, that no tax be levied on profits, income gains or appreciations or which is in
the nature of estate duty or inheritance tax shall be payable by the Company:
(aa)
on or in respect of the shares, debentures or other obligations of the Company; or
(bb)
by way of withholding in whole or in part of any relevant payment as defined in
section 6(3) of the Tax Concessions Law (2011 Revision).
The undertaking for the Company will be for a period of twenty years from the date of issue of
the certificate of the undertaking.
The Cayman Islands currently levy no taxes on individuals or corporations based upon profits,
income, gains or appreciations and there is no taxation in the nature of inheritance tax or estate duty.
There are no other taxes likely to be material to the Company levied by the Government of the
Cayman Islands save certain stamp duties which may be applicable, from time to time, on certain
instruments.
(k)
Stamp duty on transfers
There is no stamp duty payable in the Cayman Islands on transfers of shares of Cayman Islands
companies save for those which hold interests in land in the Cayman Islands.
(l)
Loans to directors
The Companies Law contains no express provision prohibiting the making of loans by a
company to any of its directors. However, the Articles provide for the prohibition of such loans under
specific circumstances.
(m)
Inspection of corporate records
The members of the company have no general right under the Companies Law to inspect or
obtain copies of the register of members or corporate records of the company. They will, however,
have such rights as may be set out in the company’s articles of association.
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App1A-10
APPENDIX V
(n)
Register of members
A Cayman Islands exempted company may maintain its principal register of members and any
branch registers in any country or territory, whether within or outside the Cayman Islands, as the
company may determine from time to time. The Companies Law contains no requirement for an
exempted company to make any returns of members to the Registrar of Companies in the Cayman
Islands. The names and addresses of the members are, accordingly, not a matter of public record and
are not available for public inspection. However, an exempted company shall make available at its
registered office, in electronic form or any other medium, such register of members, including any
branch register of member, as may be required of it upon service of an order or notice by the Tax
Information Authority pursuant to the Tax Information Authority Law (2009 Revision) of the Cayman
Islands.
(o)
Winding up
A Cayman Islands company may be wound up either by (i) an order of the court; (ii)
voluntarily by its members; or (iii) under the supervision of the court.
The court has authority to order winding up in a number of specified circumstances including
where, in the opinion of the court, it is just and equitable that such company be so wound up.
A voluntary winding up of a company occurs where the Company so resolves by special
resolution that it be wound up voluntarily, or, where the company in general meeting resolves that it
be wound up voluntarily because it is unable to pay its debt as they fall due; or, in the case of a
limited duration company, when the period fixed for the duration of the company by its memorandum
or articles expires, or where the event occurs on the occurrence of which the memorandum or articles
provides that the company is to be wound up. In the case of a voluntary winding up, such company is
obliged to cease to carry on its business from the commencement of its winding up except so far as it
may be beneficial for its winding up. Upon appointment of a voluntary liquidator, all the powers of the
directors cease, except so far as the company in general meeting or the liquidator sanctions their
continuance.
In the case of a members’ voluntary winding up of a company, one or more liquidators shall be
appointed for the purpose of winding up the affairs of the company and distributing its assets.
As soon as the affairs of a company are fully wound up, the liquidator must make a report and
an account of the winding up, showing how the winding up has been conducted and the property of
the company has been disposed of, and thereupon call a general meeting of the company for the
purposes of laying before it the account and giving an explanation thereof.
When a resolution has been passed by a company to wind up voluntarily, the liquidator or any
contributory or creditor may apply to the court for an order for the continuation of the winding up
under the supervision of the court, on the grounds that (i) the company is or is likely to become
insolvent; or (ii) the supervision of the court will facilitate a more effective, economic or expeditious
liquidation of the company in the interests of the contributories and creditors. A supervision order
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APPENDIX V
shall take effect for all purposes as if it was an order that the company be wound up by the court
except that a commenced voluntary winding up and the prior actions of the voluntary liquidator shall
be valid and binding upon the company and its official liquidator.
For the purpose of conducting the proceedings in winding up a company and assisting the
court, there may be appointed one or more persons to be called an official liquidator or official
liquidators; and the court may appoint to such office such person or persons, either provisionally or
otherwise, as it thinks fit, and if more than one persons are appointed to such office, the court shall
declare whether any act required or authorised to be done by the official liquidator is to be done by all
or any one or more of such persons. The court may also determine whether any and what security is to
be given by an official liquidator on his appointment; if no official liquidator is appointed, or during
any vacancy in such office, all the property of the company shall be in the custody of the court.
(p)
Reconstructions
Reconstructions and amalgamations are governed by specific statutory provisions under the
Companies Law whereby such arrangements may be approved by a majority in number representing
75% in value of members or creditors, depending on the circumstances, as are present at a meeting
called for such purpose and thereafter sanctioned by the courts. Whilst a dissenting member would
have the right to express to the court his view that the transaction for which approval is being sought
would not provide the members with a fair value for their shares, nonetheless the courts are unlikely to
disapprove the transaction on that ground alone in the absence of evidence of fraud or bad faith on
behalf of management and if the transaction were approved and consummated the dissenting member
would have no rights comparable to the appraisal rights (i.e. the right to receive payment in cash for
the judicially determined value of their shares) ordinarily available, for example, to dissenting
members of a United States corporation.
(q)
Take-overs
Where an offer is made by a company for the shares of another company and, within four
months of the offer, the holders of not less than 90% of the shares which are the subject of the offer
accept, the offeror may at any time within two months after the expiration of the said four months, by
notice require the dissenting members to transfer their shares on the terms of the offer. A dissenting
member may apply to the court of the Cayman Islands within one month of the notice objecting to the
transfer. The burden is on the dissenting member to show that the court should exercise its discretion,
which it will be unlikely to do unless there is evidence of fraud or bad faith or collusion as between
the offeror and the holders of the shares who have accepted the offer as a means of unfairly forcing
out minority members.
(r)
Indemnification
Cayman Islands law does not limit the extent to which a company’s articles of association may
provide for indemnification of officers and directors, save to the extent any such provision may be
held by the court to be contrary to public policy, for example, where a provision purports to provide
indemnification against the consequences of committing a crime.
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APPENDIX V
4.
GENERAL
Appleby, the Company’s legal adviser on Cayman Islands law, has sent to the Company a letter of
advice which summarises certain aspects of the Cayman Islands company law. This letter, together with a
copy of the Companies Law, is available for inspection as referred to in the paragraph headed “Documents
Available for Inspection” in Appendix VII. Any person wishing to have a detailed summary of Cayman
Islands company law or advice on the differences between it and the laws of any jurisdiction with which he is
more familiar is recommended to seek independent legal advice.
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APPENDIX VI
A
STATUTORY AND GENERAL INFORMATION
FURTHER INFORMATION ABOUT OUR COMPANY AND OUR SUBSIDIARIES
1.
App1A-28(2)
Incorporation
Our Company was incorporated in the Cayman Islands under the Companies Law as an
exempted company with limited liability on 4 January 2011. Our Company has established a principal
place of business in Hong Kong at Unit 1703-1704, 17th Floor, Block 3, Tins Centre, 3 Hung Cheung
Road, New Territories, Hong Kong and was registered with the Registrar of Companies in Hong Kong
as a non-Hong Kong company under Part XI of the Hong Kong Companies Ordinance on 21 June
2013. Sze Shun Pan has been appointed as the authorised representative of our Company for
acceptance of service of process and notices on behalf of our Company in Hong Kong.
DD1
App1A-5
App1A-6
Co III (29)
LR 8.02
LR 19.05(2)
As our Company was incorporated in the Cayman Islands, it operates subject to the Companies
Law and its constitution which comprises the Memorandum and Articles of Association. A summary
of certain provisions of our Company’s constitution and relevant aspects of the Companies Law is set
out in Appendix V to this document.
DD2
2.
Co III (11)
Changes in share capital of our Company and our subsidiaries
As at the date of incorporation, the authorised share capital of our Company was US$50,000
divided into 50,000 shares of US$1.00 each. One share of US$1.00 was allotted and issued to the
subscriber for cash at par.
On 28 January 2011, the subscriber transferred its one share to Global Ally for cash at par.
DD3
DD4
On 15 February 2011, our Company allotted and issued 40,999 shares of US$1.00 each to
Hong Kong Golden Phoenix for cash at par and 9,000 shares of US$1.00 each to Hong Kong Dragon
Yu for cash at par.
DD5
Pursuant to a written resolution of our Shareholders passed on 21 June 2013, (a) our authorised
share capital was changed from US$50,000 divided into 50,000 shares of US$1.00 each to
HK$390,000 divided into 3,900,000 shares of HK$0.10 each; and (b) the authorised share capital of
our Company was increased from HK$390,000 to HK$[•••] by the creation of an additional [•••]
Shares.
DD6
Save for aforesaid and as mentioned in the paragraph headed “Resolutions in writing of our
Shareholders passed on 22 June 2013” below, there has been no alteration in the share capital of our
Company since its incorporation.
DD7
3.
Resolutions in writing of our Shareholders passed on 22 June 2013
On 22 June 2013, resolutions in writing were passed by our Shareholders, pursuant to which,
among other things:
(a)
our Company approved and adopted its new Memorandum and Articles of Association;
- VI-1 -
DD8
APPENDIX VI
4.
B
Corporate reorganisation
Details of the Reorganisation are set forth in the section headed “Reorganisation” of this
document.
DD9
5.
App1A-29(i)
Changes in share capital of subsidiaries of our Group
Subsidiaries of our Company are referred to in the Accountants’ Report, the text of which is set
out in Appendix I to this document.
DD10
CoIII(29)
Save as disclosed in the section headed “History and development – Corporate history” and the
section headed “Reorganisation” of this document, there are no changes in the registered capital of our
subsidiaries during the two years preceding the date of this document.
DD11
FURTHER INFORMATION ABOUT THE BUSINESS OF OUR GROUP
1.
Summary of material contracts
App1A-52
Co III (17)
The following contracts (not being contracts in the ordinary course of business) have been
entered into by our Company or any of our subsidiaries within the two years preceding the date of this
document and are or may be material:
(a)
an equity interests transfer agreement dated 30 June 2011 and entered into by China
Galaxy and Mr. Sui, pursuant to which China Galaxy transferred 100% equity interests
in Jiujiang Golden Phoenix to Mr. Sui at nil consideration;
(b)
an equity interests transfer agreement dated 5 March 2012 and entered into by Mr. Sui
and China Galaxy, pursuant to which Mr. Sui transferred 100% equity interests in
Jiujiang Golden Phoenix to China Galaxy at nil consideration;
(c)
a confirmation dated 24 December 2012 and entered into by (i) Global Ally; (ii) City
Expert, Goldyield, Grand City; (iii) Hong Kong Dragon Yu; and (iv) our Company
whereby the parties thereto confirmed that the agreement dated 15 February 2011 was
terminated in its entirety;
(d)
the deed of indemnity dated 22 June 2013 entered into between (i) Mr. Sui, Mr. Zhu,
Hong Kong Golden Phoenix and Hong Kong Dragon Yu; and (ii) our Company,
pursuant to which Mr. Sui, Mr. Zhu, Hong Kong Golden Phoenix and Hong Kong
Dragon Yu agreed to give, among others, certain indemnities in favour of our Group
subject to and in accordance with the terms and conditions set out therein; and
- VI-2 -
DD16
DD16.1
DD16.2
APPENDIX VI
2.
Intellectual property rights of our Group
(a)
App1A-28(4)
Trademarks
(i)
As of the Latest Practicable Date, our Group has the following registered
trademarks, which are material to our business and operations:
Registration
number
Class
1.
3703175
2.
DD17
Registered
owner
Effective period
19
Jiujiang Golden
Phoenix
2006.04.142016.04.13
PRC
DD17.1
8169261
39
Jiujiang Golden
Phoenix
2011.04.072021.04.06
PRC
DD17.2
3.
8164980
15
Jiujiang Golden
Phoenix
2011.04.072021.04.06
PRC
DD17.3
4.
8161175
14
Jiujiang Golden
Phoenix
2011.04.072021.04.06
PRC
DD17.4
5.
8161025
9
Jiujiang Golden
Phoenix
2011.04.072021.04.06
PRC
DD17.5
6.
8169271
40
Jiujiang Golden
Phoenix
2011.04.282021.04.27
PRC
DD17.6
7.
8172408
42
Jiujiang Golden
Phoenix
2011.04.142021.04.13
PRC
DD17.7
8.
8169242
35
Jiujiang Golden
Phoenix
2011.04.212021.04.20
PRC
DD17.8
9.
8169255
37
Jiujiang Golden
Phoenix
2011.04.282021.04.27
PRC
DD17.9
10.
8169247
36
Jiujiang Golden
Phoenix
2011.04.282021.04.27
PRC
DD17.10
11.
8155504
19
Jiujiang Golden
Phoenix
2011.05.212021.05.20
PRC
DD17.11
12.
8172432
19
Jiujiang Golden
Phoenix
2011.05.212021.05.20
PRC
DD17.12
Trademark
- VI-3 -
Place of
registration
APPENDIX VI
Registration
number
Registered
owner
Class
Effective period
13.
8155527
19
Jiujiang Golden
Phoenix
2011.05.212021.05.20
PRC
DD17.13
14.
8155532
19
DD17.14
8160837
4
2011.06.072021.06.06
2011.06.142021.06.13
PRC
15.
Jiujiang Golden
Phoenix
Jiujiang Golden
Phoenix
PRC
DD17.15
16.
8160853
5
Jiujiang Golden
Phoenix
2011.06.142021.06.13
PRC
DD17.16
17.
8155470
25
Jiujiang Golden
Phoenix
2011.06.142021.06.13
PRC
DD17.17
18.
8172417
43
Jiujiang Golden
Phoenix
2011.08.282021.08.27
PRC
DD17.18
19.
8160951
7
Jiujiang Golden
Phoenix
2011.09.072021.09.06
PRC
DD17.19
20.
8161079
10
Jiujiang Golden
Phoenix
2011.09.072021.09.06
PRC
DD17.20
21.
8161150
12
Jiujiang Golden
Phoenix
2011.09.072021.09.06
PRC
DD17.21
22.
8160988
8
Jiujiang Golden
Phoenix
2011.10.142021.10.13
PRC
DD17.22
23.
8165008
16
Jiujiang Golden
Phoenix
2011.11.282021.11.27
PRC
DD17.23
24.
8165115
20
Jiujiang Golden
Phoenix
2011.12.142021.12.13
PRC
DD17.24
25.
8155566
1
Jiujiang Golden
Phoenix
2011.12.212021.12.20
PRC
DD17.25
26.
8160913
6
Jiujiang Golden
Phoenix
2012.02.282022.02.27
PRC
DD17.26
27.
8155579
2
Jiujiang Golden
Phoenix
2012.03.142022.03.13
PRC
DD17.27
Trademark
- VI-4 -
Place of
registration
APPENDIX VI
Registration
number
Registered
owner
Class
Effective period
28.
8169176
28
Jiujiang Golden
Phoenix
2012.08.142022.08.13
PRC
DD18.4
29.
6209087
19
Jiujiang Golden
Phoenix
2012.08.142022.08.13
PRC
DD18.6
30.
8165186
23
Jiujiang Golden
Phoenix
2012.08.282022.08.27
PRC
DD18.5
31.
8161121
11
Jiujiang Golden
Phoenix
2012.09.212022.09.20
PRC
DD18.3
32.
8169204
30
Jiujiang Golden
Phoenix
2012.10.282022.10.27
PRC
DD18.8
33.
6427378
19
Jiujiang Golden
Phoenix
2012.11.282022.11.27
PRC
DD18.1
34.
6371516
19
Jiujiang Golden
Phoenix
2012.11.282022.11.27
PRC
DD18.2
35.
6153275
19
Jiujiang Golden
Phoenix
2012.12.282022.12.27
PRC
DD18.7
36.
8165218
26
Jiujiang Golden
Phoenix
2013.02.072023.02.06
PRC
DD18.9
37.
302404737
16
China Galaxy
2012.10.122022.10.11
Hong Kong
DD18.9.1
Trademark
- VI-5 -
Place of
registration
APPENDIX VI
(ii)
As of the Latest Practicable Date, our Group has applied for registration of the
following trademarks, which are material to our business and operations
Trademark
Name of
Applicant
Class
Application
Number
Application Date
Place of
Application
DD18
1.
Jiujiang Golden
Phoenix
19
100323066
2011.09.21
PRC
DD18.10
2.
Jiujiang Golden
Phoenix
21
8165136
2010.03.30
PRC
DD18.11
3.
Jiujiang Golden
Phoenix
29
8169186
2010.03.31
PRC
DD18.12
4.
Jiujiang Golden
Phoenix
34
8169226
2010.03.31
PRC
DD18.13
5.
Jiujiang Golden
Phoenix
19
11526522
2012.09.21
PRC
DD18.14
6.
Jiujiang Golden
Phoenix
19
6427377
2007.12.10
PRC
DD18.16
7.
Jiujiang Golden
Phoenix
18
8155491
2010.03.26
PRC
DD18.17
8.
Jiujiang Golden
Phoenix
22
8165163
2010.03.30
PRC
DD18.18
9.
Jiujiang Golden
Phoenix
27
8165232
2010.03.30
PRC
DD18.19
10.
Jiujiang Golden
Phoenix
32
8169212
2010.03.31
PRC
DD18.20
- VI-6 -
APPENDIX VI
(b)
Patents
(i)
As of the Latest Practicable Date, our Group has the following registered patents:
Patent
(c)
Inventor
Patent owner
Type of
patent
Patent
number
Date of
application
Date of
publication
Place of
registration
DD19
1.
A kind of
Mr. Zhu
decoration
material and its
preparation
method (一種
裝飾材料及其
制備方法)
Jiujiang Golden
Phoenix
Invention
patent
ZL2005 1
2005.07.11
0082981.X
2009.11.25
PRC
DD19.1
2.
On-line plateshearing
machine (在線
斷板機)
Mr. Zhu
Jiujiang Golden
Phoenix
Utility model ZL2010 2
2010.08.25
0504638.6
2011.09.21
PRC
DD19.2
3.
Claw type
thicknessing
machine (爪式
定厚機)
Mr. Zhu
Jiujiang Golden
Phoenix
Utility model ZL2010 2
2010.08.25
0504636.7
2011.10.05
PRC
DD19.3
Particulars of our Directors’ service contracts
App1A-46(1)
Each of the executive Directors has entered into a service contract with our Company for
a term of three years commencing from 22 June 2013, which may be terminated by not less
than three months’ notice in writing served by either party on the other and is subject to
termination provisions therein and provisions on retirement by rotation of our Directors as set
out in the Memorandum and Articles of Association.
DD23
Each of the executive Directors is entitled to a director’s fee. Each executive Director
shall be paid a remuneration on the basis of twelve months in a year. In addition, each of the
executive Directors is also entitled to bonus as determined by our Board. The current annual
director’s fees of the executive Directors under the service contracts are as follows:
DD24
Approximate annual
director’s fee
DD25
Name of directors
Mr. Sui
Mr. Zhu
Zeng Xiao Ying
Lin Ren Ze
Sze Shun Pan
HK$360,000
HK$240,000
HK$120,000
HK$120,000
HK$120,000
The independent non-executive Directors have been appointed for a term of three years.
Our Company intends to pay a director’s fee of HK$120,000 per annum to each of the
independent non-executive Directors.
- VI-7 -
DD26
APPENDIX VI
Under the arrangement currently in force, the aggregate amount of emoluments payable
by our Group to our Directors for the year ending 31 December 2013 will be approximately
HK$1,253,235.3.
D
DD27
OTHER INFORMATION
2.
Estate duty, tax and other indemnities
Our Controlling Shareholders, Mr. Zhu and Hong Kong Dragon Yu have entered into a deed of
indemnity with and in favour of our Group (being the contract referred to in paragraph (d) of the
section headed “Summary of material contracts” in this Appendix) to provide indemnities on a joint
and several basis in respect of, among other matters, Hong Kong estate duty which might be payable
by any member of our Group, by reason of any transfer of property (within the meaning of Section 35
of the Estate Duty Ordinance, Chapter 111 of the Laws of Hong Kong), to any member of our Group
on or before [•••] (the “Effective Date”).
DD75
App1A-10
The deed of indemnity also contain, amongst other things, indemnities given by our Controlling
Shareholders, Mr. Zhu and Hong Kong Dragon Yu in respect of taxation resulting from income,
profits or gains earned, accrued or received as well as any property claim to which our Company may
be subject on or before the Effective Date which might be payable by any member of our Group.
DD76
3.
App1A-40
Litigation
As of the Latest Practicable Date, no member of our Group was engaged in any litigation or
arbitration of material importance and, so far as our Directors are aware, no litigation or claim of
material importance is pending or threatened by or against any member of our Group.
- VI-8 -
DD78

China Golden Phoenix International (Holdings) Limited 中國金鳳凰

Transcription

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