The Stock Exchange of Hong Kong Limited and Securities and Futures Commission take no responsibility for the contents of
this Application Proof, make no representation as to its accuracy or completeness and expressly disclaim any liability
whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this Application
Proof.
Cenmingtang Holding Limited
岑銘堂控股有限公司
(a company incorporated under the laws of the Cayman Islands with limited liability)
WARNING
The publication of this Application Proof is required by The Stock Exchange of Hong Kong Limited (the
“Exchange”) / the Securities and Futures Commission (the “Commission”) solely for the purpose of
providing information to the public in Hong Kong.
This Application Proof is in draft form. The information contained in it is incomplete and is subject to
change which can be material. By viewing this document, you acknowledge, accept and agree with
Cenmingtang Holding Limited (岑銘堂控股有限公司) (the “Company”), its sponsor, advisers or members
of the underwriting syndicate that:
(a)
this document is only for the purpose of providing information about the Company to the public in
Hong Kong and not for any other purposes. No investment decision should be based on the
information contained in this document;
(b)
the publication of this document or supplemental, revised or replacement pages on the Exchange’s
website does not give rise to any obligation of the Company, its sponsor, advisers or members of the
underwriting syndicate to proceed with an offering in Hong Kong or any other jurisdiction. There is
no assurance that the Company will proceed with any offering;
(c)
the contents of this document or any supplemental, revised or replacement pages may or may not be
replicated in full or in part in the actual final listing document;
(d)
the Application Proof is not the final listing document and may be updated or revised by the Company
from time to time in accordance with the Rules Governing the Listing of Securities on The Stock
Exchange of Hong Kong Limited;
(e)
this document does not constitute a prospectus, offering circular, notice, circular, brochure or
advertisement offering to sell any securities to the public in any jurisdiction, nor is it calculated to
invite offers by the public to subscribe for or purchase any securities;
(f)
this document must not be regarded as an inducement to subscribe for or purchase any securities, and
no such inducement is intended;
(g)
neither the Company nor any of its affiliates, advisers or members of the underwriting syndicate is
offering, or is soliciting offers to buy, any securities in any jurisdiction through the publication of this
document;
(h)
no application for the securities mentioned in this document should be made by any person nor would
such application be accepted;
(i)
the Company has not and will not register the securities referred to in this document under the United
States Securities Act of 1933, as amended, or any state securities laws of the United States;
(j)
as there may be legal restrictions on the distribution of this document or dissemination of any
information contained in this document, you agree to inform yourself about and observe any such
restrictions applicable to you; and
(k)
the application to which this document relates has not been approved for listing and the Exchange and
the Commission may accept, return or reject the application for the subject public offering and/or
listing.
If an offer or an invitation is made to the public in Hong Kong in due course, prospective investors are
reminded to make their investment decision solely based on the Company’s prospectus registered with the
Registrar of the Companies in Hong Kong, copies of which will be distributed to the public during the offer
period.
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
IMPORTANT
If you are in any doubt about any of the contents of this document, you should seek independent professional advice.
Cenmingtang Holding Limited
岑銘堂控股有限公司
(Incorporated in the Cayman Islands with limited liability)
[REDACTED]
Number of [REDACTED]
:
Number of [REDACTED]
:
Number of [REDACTED]
:
Maximum [REDACTED]
Nominal value
Stock code
:
:
:
[REDACTED] Shares (subject to the
[REDACTED])
[REDACTED] Shares (subject to
reallocation)
[REDACTED] Shares (subject to
reallocation and the [REDACTED])
[REDACTED]
US$0.01 per Share
[REDACTED]
Sole Sponsor
[REDACTED], [REDACTED] and [REDACTED]
[REDACTED]
Hong Kong Exchanges and Clearing Limited, The Stock Exchange of Hong Kong Limited and Hong Kong Securities Clearing Company Limited take no
responsibility for the contents of this document, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever
for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this document.
A copy of this document, having attached thereto the documents specified in the section headed “Documents Delivered to the Registrar of Companies and
Available for Inspection” in Appendix VI, has been registered by the Registrar of Companies in Hong Kong as required by Section 342C of the Companies
(Winding Up and Miscellaneous Provisions) Ordinance (Chapter 32 of the laws of Hong Kong). The Securities and Futures Commission and the Registrar
of Companies in Hong Kong take no responsibility for the contents of this document or any other document referred to above.
The [REDACTED] is expected to be determined by agreement among the Sole Sponsor, the [REDACTED] (on behalf of the [REDACTED]) and our Company
(for itself and on behalf of the [REDACTED]) on or around [REDACTED] and, in any event, not later than [REDACTED]. The [REDACTED] will be not
more than HK$[REDACTED] per Share and is currently expected to be not less than HK$[REDACTED] per Share, unless otherwise announced. Applicants
for [REDACTED] are required to pay, upon application, the maximum [REDACTED] of HK$[REDACTED] per Share for each [REDACTED] together with
brokerage of 1%, SFC transaction levy of 0.0027% and Stock Exchange trading fee of 0.005%, subject to refund if the [REDACTED] as finally determined
is less than HK$[REDACTED] per Share.
If, for any reason, the [REDACTED] is not agreed by [REDACTED] among the Sole Sponsor, the [REDACTED] (for itself and on behalf of the
[REDACTED]) and our Company (for itself and on behalf of the [REDACTED]), the [REDACTED] will not proceed and will lapse.
The Sole Sponsor and the [REDACTED] (on behalf of the [REDACTED]) may, where considered appropriate and with our consent, reduce the number of
[REDACTED] and/or the indicative [REDACTED] below that stated in this document at any time prior to the morning of the last day for lodging applications
under the [REDACTED]. In such a case, notices of the reduction in the number of [REDACTED] and/or the indicative [REDACTED] will be published in
the [South China Morning Post (in English) and the Hong Kong Economic Times (in Chinese)] as soon as practicable following the decision to make such
reduction, and in any event not later than the morning of the day which is the last day for lodging applications under the [REDACTED]. Such notices will
also be available on the website of the Stock Exchange at www.hkexnews.hk and on the website of our Company at www.cenmingtang.net. Further details
are set forth in the sections headed “Structure of the [REDACTED]” and “How to Apply for [REDACTED]” in this document. If applications for
[REDACTED] have been submitted prior to the day which is the last day for lodging applications under the [REDACTED], in the event that the number
of [REDACTED] and/or the indicative [REDACTED] is so reduced, such applications can subsequently be withdrawn.
Prior to making an [REDACTED] decision, prospective [REDACTED] should consider carefully all of the information set out in this document, including
the risk factors set out in the section headed “Risk Factors” in this document.
Prospective [REDACTED] of the [REDACTED] should note that the obligations of the [REDACTED] under the [REDACTED] to subscribe, and to procure
subscribers for, the [REDACTED], are subject to termination by the Sole Sponsor and the [REDACTED] (for itself and on behalf of the [REDACTED]) if
certain grounds arise prior to 8:00 a.m. on the [REDACTED]. Such grounds are set out in the section headed “[REDACTED] — [REDACTED] Arrangements
and Expenses — [REDACTED] — [REDACTED] — Grounds for Termination” in this document. It is important that you refer to that section for further
details.
The [REDACTED] have not been and will not be registered under the U.S. Securities Act or any state securities law in the United States and may not be
[REDACTED], sold, pledged or transferred within the United States except that the [REDACTED] may be [REDACTED], sold or delivered outside the
United States in offshore transactions in accordance with Regulation S or another exemption from the registration requirements of the U.S. Securities Act.
[REDACTED]
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
EXPECTED TIMETABLE
[REDACTED]
— i —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
EXPECTED TIMETABLE
[REDACTED]
— ii —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
EXPECTED TIMETABLE
[REDACTED]
— iii —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
CONTENTS
IMPORTANT NOTICE TO [REDACTED]
This document is issued by our Company solely in connection with the [REDACTED] and the
[REDACTED] and does not constitute an [REDACTED] to sell or a solicitation of an
[REDACTED] to buy any securities other than the [REDACTED] [REDACTED] by this document
pursuant to the [REDACTED]. This document may not be used for the purpose of, and does not
constitute, an [REDACTED] or invitation in any other jurisdiction or in any other circumstances.
No action has been taken to permit a [REDACTED] of the [REDACTED] in any jurisdiction other
than Hong Kong and no action has been taken to permit the distribution of this document in any
jurisdiction other than Hong Kong. The distribution of this document and the [REDACTED] of the
[REDACTED] in other jurisdictions are subject to restrictions and may not be made except as
permitted under the applicable securities laws of such jurisdictions pursuant to registration with
or authorization by the relevant securities regulatory authorities or an exemption therefrom.
You should rely only on the information contained in this document and the [REDACTED] to
make your [REDACTED] decision. We have not authorized anyone to provide you with information
that is different from what is contained in this document. Any information or representation not
made in this document must not be relied on by you as having been authorized by us, the Sole
Sponsor, the [REDACTED], the [REDACTED], the [REDACTED] and the [REDACTED], any of
our or their respective directors or any other person or party involved in the [REDACTED].
Page
Expected Timetable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
i
Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
iv
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11
Glossary
................................................................
22
Forward-Looking Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
26
Waivers from Strict Compliance with the Listing Rules . . . . . . . . . . . . . . . . . . . . . . . . . . .
55
Information about this Document and the Global Offering . . . . . . . . . . . . . . . . . . . . . . . . .
57
Directors and Parties Involved in the Global Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . .
62
Corporate Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
65
Industry Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
67
Regulatory Overview
85
......................................................
History, Reorganization and Group Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
— iv —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
CONTENTS
Page
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
Directors and Senior Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163
Relationship with Our Controlling Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176
Substantial Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183
Share Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184
Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187
Future Plans and Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233
Underwriting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 235
Structure of the Global Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 246
How to Apply for Hong Kong Offer Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 257
Appendix I
—
Accountants’ Report of the Company . . . . . . . . . . . . . . . . . . . . . . . . .
Appendix II
—
Unaudited Pro Forma Financial Information . . . . . . . . . . . . . . . . . . . II-1
Appendix III
—
Property Valuation Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-1
Appendix IV
—
Summary of the Constitution of Our Company and
Cayman Companies Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV-1
Appendix V
—
Statutory and General Information . . . . . . . . . . . . . . . . . . . . . . . . . . V-1
Appendix VI
—
Documents delivered to the Registrar of Companies and
Available for Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VI-1
— v —
I-1
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
SUMMARY
This summary aims to give you an overview of the information contained in this document.
As it is a summary, it does not contain all the information that may be important to you and is
qualified in its entirety by, and should be read in conjunction with, the full text of this document.
You should read the whole document before you decide to [REDACTED] in the [REDACTED].
There are risks associated with any [REDACTED]. Some of the particular risks in [REDACTED]
in the [REDACTED] are set forth in the section headed “Risk Factors” in this document. You
should read that section carefully before you decide to [REDACTED] in the [REDACTED].
OUR BUSINESS
Overview
We are one of the leading snack food and beverage producers in Hubei and Henan. Although our
Company was established in 2012 and began commercial production of our products in 2013, we have
quickly become a household brand in the consumer markets we target, namely the third- and
fourth-tier cities and rural areas in central China. In terms of sales value and according to the CRI
Report, by the end of 2015 we have become:
•
the largest beverage producer in third- and fourth-tier cities and rural areas in each of Hubei
and Henan, and in particular, (i) the largest plant-based and milk beverage producer and (ii)
the largest fruit and vegetable beverage producer in third- and fourth-tier cities and rural
areas in each of Hubei and Henan;
•
the third and second largest bread, cakes and pastries producer in third- and fourth-tier
cities and rural areas in Hubei and Henan, respectively; and
•
the third largest puffed foods producer in third- and fourth-tier cities and rural areas in each
of Hubei and Henan.
Our Group’s market leading position is founded upon the success of our products, effective
distribution network, efficient inventory management and successful marketing strategies. Our
product portfolio is comprised of over 100 different product varieties. We target consumers in thirdand fourth-tier cities and rural areas where the addressable market size has been larger than that of
first- and second-tier cities for the past five years and is expected to grow at a higher rate for the
foreseeable future, according to the CRI Report. We distribute our products exclusively through our
extensive distribution network substantially covering third- and fourth-tier cities and rural areas in
Hubei, Henan, Yunnan, Shaanxi, Guizhou, Sichuan, Jiangxi and Chongqing.
During the Track Record Period and according to the CRI Report, we grew at a faster pace than
the industry average in our target markets in Hubei and Henan. Our revenue increased from RMB109.0
million in 2013 to RMB742.1 million in 2014 and further increased to RMB1,482.4 million in 2015,
representing a CAGR of 268.8%. Our gross profit increased from RMB24.3 million in 2013 to
RMB195.1 million in 2014 and further increased to RMB435.6 million in 2015, representing a CAGR
of 323.1%.
— 1 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
SUMMARY
OUR PRODUCTS AND BRANDS
We operate our business in two segments: snack foods and beverages. Our product portfolio is
broadly classified into two main categories of snack foods and four main categories of beverage
products. We commenced production of our snack food products in 2013 and subsequently entered the
beverage market in 2014. All of our products are marketed under a single unified brand
“CENMINGTANG” which we believe helps raise awareness of our brand and enhances consumer
loyalty. Despite our relatively short operating history, “CENMINGTANG” was awarded the “2015
Famous Brand Award in the Chinese Beverages Industry” at the Fourth Chinese Brand Annual
Conference, which was jointly held by several large national media outlets in China.
Our diversified product portfolio provides us with multiple growth drivers across various product
categories, as demonstrated by our sales growth CAGR of 268.8% from 2013 to 2015.
Please see the section headed “Business — Our Products” starting on page 119 of this document
for further details.
The following table sets forth our revenue by segment and product category for the periods
indicated:
For the year ended December 31,
2013
2014
2015
RMB’000
% of total
revenue
RMB’000
% of total
revenue
RMB’000
% of total
revenue
Shaped Cakes . . . . . . .
26,991
24.8
64,405
8.7
86,986
5.9
Pork Floss Pies . . . . . .
27,127
24.9
71,568
9.6
80,981
5.5
Swiss Rolls . . . . . . . .
19,861
18.2
34,321
4.6
58,314
3.9
Soft Bread . . . . . . . . .
15,129
13.9
33,170
4.5
45,978
3.1
Dorayaki . . . . . . . . . .
13,144
12.1
26,702
3.6
40,945
2.8
Custard Pies . . . . . . . .
6,713
6.1
12,394
1.7
26,337
1.8
Subtotal . . . . . . . . . . . .
108,965
100.0
242,560
32.7
339,541
23.0
Potato Snacks . . . . . . .
—
—
8,942
1.2
54,821
3.7
Segment Total . . . . . . . . . .
108,965
100.0
251,502
33.9
394,362
26.7
Snack Food
Bread, Cakes and Pastries
Puffed Foods
Beverage
Plant-based and Milk
Beverages . . . . . . . . . .
—
—
192,989
26.0
627,457
42.3
Fruit and Vegetable
Beverages . . . . . . . . . .
—
—
102,585
13.8
220,874
14.9
Ready-to-drink Tea . . . . . .
—
—
121,294
16.4
164,928
11.1
Other Beverages . . . . . . .
—
—
73,752
9.9
74,737
5.0
Segment Total . . . . . . . . . .
—
—
490,620
66.1
1,087,996
73.3
Total . . . . . . . . . . . . . . . .
108,965
100.0
742,122
100.0
1,482,358
100.0
— 2 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
SUMMARY
SALES AND DISTRIBUTION NETWORK
Our snack food and beverage products are sold exclusively through our cooperative distributors,
who in turn sell our products through various sales channels such as supermarkets, convenience stores,
retailers and sub-distributors. By cooperating with distributors during the early stages of our
development, we managed to quickly expand into our target markets with relatively low investment
costs. Furthermore, although we sell our products to distributors on a per purchase order basis, we also
enter into framework agreements with each of our distributors which sets out the basic terms and
conditions of our cooperation, such as geographical constraints on distribution areas, pricing policies
and obligations to assist us with marketing and promotional campaigns.
In a typical transaction, our distributors pay us 50% of the purchase price of our products before
we even begin to manufacture any goods and then pay us another 30% of the purchase price before
we make any delivery of such goods, enabling us to minimize inventory turnover.
The table below sets forth the breakdown of our distributors and their sales by geographic
coverage for the periods indicated:
For the year ended December 31,
Provinces
Henan . . . . . . .
2013
2014
2015
Number of Sales (RMB
% of total
Number of Sales (RMB
% of total
Number of Sales (RMB
% of total
Distributors in Million)
revenue
Distributors in Million)
revenue
Distributors in Million)
revenue
20
44.2
40.7
72
196.1
26.4
102
435.7
29.3
Hubei . . . . . . .
8
20.6
18.9
55
197.1
26.6
79
404.2
27.3
Yunnan . . . . . .
10
21.1
19.3
39
139.1
18.7
51
248.7
16.8
Shaanxi . . . . . .
6
12.8
11.7
32
116.9
15.8
41
229.7
15.5
Guizhou . . . . . .
5
10.3
9.4
30
92.9
12.5
41
164.1
11.1
Total . . . . . . .
49
109.0
100.0
228
742.1
100.0
314
1,482.4
100.0
We have maintained stable business relationships with our distributors during the Track Record
Period. As of December 31, 2013, 2014 and 2015, we had 49, 228 and 311 distributors, respectively.
On December 31, 2015, we terminated our cooperation with three of our distributors, due to their
non-payment of our trade receivables of approximately RMB0.1 million in total. Revenue generated
by these terminated distributors for the years ended December 31, 2013, 2014 and 2015 were nil,
RMB3.4 million and RMB4.5 million respectively, accounting for nil, 0.5% and 0.3% of total revenue
in such periods respectively. The turnover rate of our distributors were approximately nil, nil, and
1.1% respectively for the years ended December 31, 2013, 2014 and 2015. For the years ended
December 31, 2013, 2014 and 2015, sales to our five largest distributors was less than 30% of our total
revenue, accounting for 14.4%, 6.6% and 12.0% of our total revenue, respectively, and sales to our
largest distributor accounted for 3.2%, 1.6% and 2.4% of our total revenue, respectively.
Please see the section headed “Business — Sales and Distribution Network” starting on page 127
of this document for further details.
— 3 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
SUMMARY
OUR PRODUCTION FACILITIES
We manufacture all of our products in-house, which allows us to maximize our control over
product quality and food safety. Our self-owned production base is strategically located in Anlu,
Hubei, within a relatively close proximity of our distributors and our sources of our various raw
materials, which helps us reduce our transportation costs and delivery times. As of the Latest
Practicable Date, we had ten production workshops, including seven snack food production workshops
and three beverage production workshops, equipped with an aggregate of 25 production lines.
Please see the section headed “Business — Production — Our Production Facilities” starting on
page 136 of this document for further details.
RAW MATERIALS AND SUPPLIERS
We use a centralized system to manage the procurement of our raw materials and packaging
materials. The primary raw materials that we use for our snack foods are eggs, flour, sugar and palm
oil and the primary raw materials for our beverages are sugar, peanuts, milk powder and concentrated
fruit juice. Other important raw materials used in our production process include edible flavoring
essences, edible spices, seasoning powder, cheese powder and water. In addition, we also use large
quantities of packaging materials including polyester chips, cardboard boxes, tin cans and aseptic
packs.
We generally cooperate with large reputable domestic suppliers to secure the key raw materials
used in our production process. In selecting our suppliers, we consider their reputation, scale, and
product quality, among other factors. Before entering into a contract with a new supplier, we will
inspect its production facilities and test its sample materials to ensure they meet the food safety
standards set by the PRC Government. For the three years ended December 31, 2013, 2014 and 2015,
the cost of our raw materials represented 51.5%, 37.1% and 41.3% of our cost of sales, and the cost
of packaging materials represented 26.1%, 43.7% and 42.3% of our cost of sales, respectively.
Please see the section headed “Business — Raw Materials, Packaging Materials and Suppliers”
starting on page 149 of this document for further details.
OUR COMPETITIVE STRENGTHS
•
A major snack food and beverage brand in central China targeting markets with great
growth potential
•
Extensive and fast-growing distribution network in seven provinces and one municipality
in China
•
Strategic location in Hubei for low manufacturing costs and convenient transportation
•
Strong research and development capabilities and responsive to evolving consumer tastes
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HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
SUMMARY
•
Competent management team with solid industry experience
OUR COMPETITIVE STRATEGIES
•
Strengthen our brand recognition and diversify our marketing strategies
•
Further expand our sales regions and distribution network
•
Increase our investments in research and development
•
Expand the production capacity of our Company
SUMMARY OF COMBINED FINANCIAL INFORMATION
The following is a summary of our combined financial information as of and for the years ended
December 31, 2013, 2014 and 2015. We have derived the summary from our combined financial
information set forth in the Accountants’ Report in Appendix I to this document. The following
summary should be read together with the combined financial information in Appendix I to this
document, including the accompanying notes and the information set forth in “Financial Information”
in this document. Our combined financial information was prepared in accordance with HKFRSs.
Summary of Combined Statements of Profit or Loss and Other Comprehensive Income
The following table sets forth a summary of our results of operations for the periods indicated.
For the year ended December 31,
2013
2014
2015
RMB’000
RMB’000
RMB’000
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
108,965
742,122
1,482,358
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(84,635)
(546,992)
(1,046,807)
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24,330
195,130
435,551
46
122
256
Other income
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(8,639)
(69,514)
(131,934)
Administrative and other operating expenses . . . . . . . . . . . . . . . .
(5,429)
(16,314)
(20,825)
Profit before income tax . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,308
109,424
283,048
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2,577)
(28,387)
(73,482)
Profit and total comprehensive income for the year . . . . . . . . . .
7,731
81,037
209,566
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HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
SUMMARY
Summary of Combined Statements of Financial Position
As of December 31,
2013
2014
2015
RMB’000
RMB’000
RMB’000
Total Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
58,833
89,154
169,303
Total Current Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . .
(268,340)
(288,041)
(401,033)
Net Current Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(209,507)
(198,887)
(231,730)
Key Financial Ratios
As of/for the year ended December 31,
2013
2014
2015
Return on equity (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13.4%
58.4%
213.2%
Return on assets (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.4%
19.0%
42.0%
Current ratio (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.2
0.3
0.4
(4)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.2
0.1
0.2
Gearing Ratio (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
332.3%
48.5%
—
Quick ratio
Notes:
(1)
Equals profit for the year divided by the total equity as of the respective financial year-end date and multiplied by 100%.
(2)
Equals profit for the year divided by the total assets as of the respective financial year-end date and multiplied by 100%.
(3)
Equals current assets divided by current liabilities as of the respective financial year-end date.
(4)
Equals current assets less inventories and divided by current liabilities as of the respective financial year-end date.
(5)
Equals total debt divided by total equity as of the respective financial year-end date and multiplied by 100%.
OUR CONTROLLING SHAREHOLDERS AND [REDACTED] INVESTORS
Controlling Shareholders
Immediately after completion of the [REDACTED] and the [REDACTED] (assuming the
[REDACTED] is not exercised and excluding any Shares which may be allotted and issued pursuant
to the exercise of the options which may be granted under the Share Option Scheme), indirectly
through Min Yu, an investment holding company, Mr. Shi, will own [REDACTED]% of the issued
share capital of the Company. Accordingly, Mr. Shi and Min Yu will continue to be the Controlling
Shareholders.
[REDACTED] Investors
As part of our Reorganization, we have introduced four [REDACTED] investors to our Group,
namely the First [REDACTED] Investor, the Second [REDACTED] Investor, the Third [REDACTED]
Investor and the Fourth [REDACTED] Investor on March 29, 2016, May 26, 2016, May 27, 2016 and
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HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
SUMMARY
May 27, 2016 at cash considerations of RMB839,510, HK$200,000,000, RMB7l,820,000 and
US$4,082,384, respectively. Immediately following completion of the [REDACTED] and the
[REDACTED] (assuming the [REDACTED] is not exercised and excluding any Shares which may be
allotted and issued pursuant to the exercise of the options which may be granted under the Share
Option Scheme), the entire issued share capital of our Company will be owned by the First
[REDACTED] Investor, Second [REDACTED] Investor, Third-[REDACTED] Investor and Fourth
[REDACTED] Investor will be [REDACTED], [REDACTED], [REDACTED] and [REDACTED],
respectively.
Please see the section headed “History, Reorganization and Group Structure — [REDACTED]
Investments” starting on page 107 of this document for further details.
DIVIDEND POLICY
Hubei Cenmingtang declared dividends of nil, nil and RMB250.0 million to its then shareholders
for the years ended December 31, 2013, 2014 and 2015, respectively. All these dividend payables have
been settled. Any future declaration of dividends may or may not reflect our prior declarations of
dividends and any dividend recommendation will be at the discretion of our Board, subject to the
Cayman Companies Law. We may declare dividends in the future after taking into account our results
of operations, total equity, business strategies, capital expenditure needs, impacts of the dividend
distribution on our working capital and financial position, and other factors as our Directors may deem
relevant at such time. Subject to the aforementioned factors and the limitations described in the
section headed “Financial Information — Dividend Policy and Distributable Reserves” starting on
page 229 of this document, going forward, our Company expects to maintain a dividend policy that
no less than 15% of the Group’s profit after taxation for each financial year may be distributed to
Shareholders as dividends, commencing from the [REDACTED].
RECENT DEVELOPMENTS
Starting from January 1, 2016 and up to the Latest Practicable Date, we had entered into
distribution agreements with 85 new distributors, which were mainly located in Sichuan, Jiangxi and
Chongqing. As we penetrate into new regions and continuously expand the size and scope of our
production, our total sales volume for the five months ended May 31, 2016 increased significantly
compared to the same period in 2015.
To further enhance our liquidity position, we signed a letter of intent with a PRC state-owned
bank on June 15, 2016 with the intent to obtain a long-term credit facility in the amount of RMB250.0
million, and as of the Latest Practicable Date, we were in the process of formalizing this financing
arrangement.
Our Directors confirm that since December 31, 2015 and up to the date of this document, there
has been no material change in our business, financial condition and results of operations and no event
has occurred that would materially affect the information shown in the Accountants’ Report set out in
Appendix I to this document.
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HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
SUMMARY
RISK FACTORS
There are certain risks involved in our operations and in connection with the [REDACTED],
many of which are beyond our control. These risks can be categorized into (i) risks relating to our
business, (ii) risks relating to our industry, (iii) risks relating to China, and (iv) risks relating to the
[REDACTED]. Among these risks, the ones that we believe could be relatively material to us include:
•
We only rely on third-party distributors to place our products into the market and face
certain risks relating to our distributors, their sub-distributors and retailers.
•
We operate in a highly competitive and fragmented industry and may face increased
competition in the future.
•
Any health or food safety problems, negative publicity or media reports related to our raw
materials, our products or the general snack food and beverage industry could adversely
affect our reputation and our ability to sell our products.
•
Our business largely depends on the strength of our reputation. If we fail to maintain or
enhance our brand and reputation due to our failure to maintain effective quality control
systems for our products, consumers’ recognition of and trust in us and our products may
be materially and adversely affected.
A detailed discussion of all the risk factors involved are set forth in the section headed “Risk
Factors” starting on page 26 of this document and you should read the whole section carefully before
you decide to [REDACTED] in the [REDACTED].
[REDACTED] STATISTICS
[REDACTED]
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HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
SUMMARY
Based on an
[REDACTED] of
HK$[REDACTED]
Market capitalization of our Shares (1) . . . . . . . . . . . . . HK$[REDACTED]
Unaudited pro forma adjusted combined net
tangible asset value per Share (2) . . . . . . . . . . . . . . . . HK$[REDACTED]
Based on an
[REDACTED] of
HK$[REDACTED]
HK$[REDACTED]
HK$[REDACTED]
Notes:
(1)
The calculation of market capitalization is based on [REDACTED] Shares expected to be in issue following the
[REDACTED] and the [REDACTED], assuming the [REDACTED] is not exercised and excluding any Shares which may
be allotted and issued pursuant to the exercise of options which may be granted under the Share Option Scheme.
(2)
The unaudited pro forma adjusted combined net tangible asset per Share is calculated after making the adjustments
referred to in Appendix II “Unaudited Pro Forma Financial Information” to this document and on the basis that
[REDACTED] Shares are issued immediately following the completion of the [REDACTED] and the [REDACTED],
assuming the [REDACTED] is not exercised and excluding any Shares which may be allotted and issued pursuant to the
exercise of options which may be granted under the Share Option Scheme.
USE OF PROCEEDS
Assuming an [REDACTED] of HK$[REDACTED] per [REDACTED] (being the mid-point of the
[REDACTED] stated in this document) and no exercise of the [REDACTED], we estimate that (i) the
gross proceeds of the [REDACTED] that we will receive will be approximately HK$[REDACTED],
and (ii) the net proceeds of the [REDACTED] that we will receive, after the deduction of
[REDACTED] fees and commissions and estimated expenses payable by us in connection with the
[REDACTED], will be approximately HK$[REDACTED].
We intend to use the net proceeds of the [REDACTED], assuming the [REDACTED] is not
exercised, for the following purposes:
•
approximately 45%, or HK$[REDACTED], will be used for expanding our production
capacity. Please see the section headed “Business — Production — Our Production
Expansion Plan” starting on page 142 of this document for further details.
•
approximately 15%, or HK$[REDACTED], will be used for enhancing our brand
recognition and diversify our marketing strategies.
•
approximately 15%, or HK$[REDACTED], will be used for expanding of our geographical
coverage and distribution network.
•
approximately 15%, or HK$[REDACTED], will be used for strengthening our research and
development.
•
approximately 10%, or HK$[REDACTED], will be used for supplementing our working
capital.
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HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
SUMMARY
Please see the section headed “Future Plans and Use of Proceeds” starting on page 233 of this
document for further details.
If the [REDACTED] is exercised in full, we estimate that the net proceeds of the [REDACTED]
to the [REDACTED] to be approximately HK$[REDACTED] (based on the mid-point of the
[REDACTED] stated in this document), after deducting the [REDACTED] fees payable by the
[REDACTED] in relation to the [REDACTED]. The [REDACTED] will be responsible for the
[REDACTED] fees for the [REDACTED], and the expenses incurred in relation to the [REDACTED]
will be borne by us. We will not receive any proceeds from the sale of [REDACTED] by the
[REDACTED] from the exercise of the [REDACTED].
[REDACTED] EXPENSES
We did not incur any [REDACTED] expenses during the Track Record Period. Assuming an
[REDACTED] of HK$[REDACTED] per [REDACTED] (being the mid-point of the [REDACTED]
stated in this document) and no exercise of the [REDACTED], we expect to incur approximately
RMB[REDACTED] of [REDACTED] expenses after the Track Record Period, of which approximately
RMB[REDACTED] will be recognized as expenses in the combined statements of profit or loss and
other comprehensive income for the year ending December 31, 2016 and the remaining (predominantly
related to [REDACTED] commission expenses will be fully capitalized after the [REDACTED].
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HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
DEFINITIONS
In this document, unless the context otherwise requires, the following expressions shall have
the following meanings.
“affiliate(s)”
any other person, directly or indirectly, controlling or
controlled by or under direct or indirect common control with
such specified person
[REDACTED]
“Articles of Association”
the articles of association of the Company conditionally
adopted on [●] and which will become effective upon the
[REDACTED], as amended from time to time, a summary of
which is set out in the section headed “Appendix IV —
Summary of the Constitution of the Company and Cayman
Companies Law” to this document
“associate(s)”
has the meaning ascribed thereto under the Listing Rules
“Audit Committee”
the audit committee of the Board
“Board” or “Board of Directors”
our board of Directors
“Business Day(s)” or “business
day(s)”
a day on which banks in Hong Kong are generally open for
normal banking business to the public and which is not a
Saturday, Sunday or public holiday in Hong Kong
“BVI”
the British Virgin Islands
[REDACTED]
“Cayman Companies Law” or
“Companies Law”
the Companies Law, Cap.22 (Law 3 of 1961, as consolidated
and revised) of the Cayman Islands
[REDACTED]
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THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
DEFINITIONS
[REDACTED]
“Cenmingtang Hong Kong”
Cenmingtang Food Limited (岑銘堂食品有限公司), a limited
liability company incorporated in Hong Kong on April 13,
2016, a wholly-owned subsidiary of the Company
“Chairman”
the chairman of the Board
“China” or “PRC”
the People’s Republic of China excluding, for the purpose of
this document, Hong Kong, Macau and Taiwan
“close associate(s)”
has the meaning ascribed thereto under the Listing Rules
“Companies Ordinance”
the Companies Ordinance (Chapter 622 of the laws of Hong
Kong), as amended, supplemented or otherwise modified from
time to time
“Companies (Winding Up and
Miscellaneous Provisions)
Ordinance”
the Companies (Winding Up and Miscellaneous Provisions)
Ordinance (Chapter 32 of the laws of Hong Kong), as
amended, supplemented or otherwise modified from time to
time
“Company” or “our Company”
Cenmingtang Holding Limited (岑銘堂控股有限公司), an
exempted company incorporated in the Cayman Islands with
limited liability on March 29, 2016
“connected person”
has the meaning ascribed thereto in the Listing Rules
“Controlling Shareholder(s)”
has the meaning ascribed thereto in the Listing Rules and,
unless the context requires otherwise, refers to Mr. Shi and
the company through which he holds interest in our Company,
namely, Min Yu
“core connected person(s)”
has the meaning ascribed thereto under the Listing Rules
“CRI”
China Research and Intelligence Co. Ltd., a global market
research and consulting company, which is an independent
third party
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THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
DEFINITIONS
“CRI Report”
the report, written by CRI as commissioned by the Company
containing an analysis of China’s snack food and beverage
market, as referred in the section headed “Industry Overview”
in this document
“CSRC”
China Securities Regulatory Commission (中國證券監督管理
委員會)
“Deed of Indemnity”
a deed of indemnity dated [●], 2016 entered into by each of
the Controlling Shareholders in favour of the Company for
itself and as trustees for the benefit of each of its subsidiaries
from time to time as described in paragraph headed “D. Other
Information — 3. Tax and Other Indemnity” in Appendix V to
this document
“Deed of Non-competition”
a deed of non-competition undertakings dated [●], 2016
entered into by each of the Controlling Shareholders in favor
of the Company (for itself and as trustee for the benefit of
each of its subsidiaries from time to time) as described in the
section headed “Relationship with Controlling Shareholders
— Non-Competition Undertaking” in this document
“Director(s)”
director(s) of our Company
“Fujian Gongyuan”
Fujian Gongyuan Foods Limited Company (福建公元食品有
限公司), a company established in the PRC on July 19, 2004,
an independent third party
“EIT Law”
the PRC (Enterprise Income Tax Law) promulgated on March
16, 2007 and became effective as of January 1, 2008
“First [REDACTED] Investor”
Mr. Michael Young (楊祖榜先生), the owner of the entire
issued share capital in Ruby City which is a Shareholder
“Fourth [REDACTED] Investor”
Power Touch Global Limited, a company incorporated in the
BVI with limited liability on May 9, 2016 which is a
Shareholder and wholly-owned by Mr. Wu Yuchan
(吳郁展先生)
“GDP”
gross domestic product
[REDACTED]
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HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
DEFINITIONS
“Group”, “our Group”, “we” or
“us”
our Company and its subsidiaries or, where the context so
requires in respect of the period before our Company became
the holding company of our present subsidiaries, the entities
which carried on the business of the present Group at the
relevant time
“HK$” or “Hong Kong dollar(s)”
or “HKD” or “cents”
Hong Kong dollars and cents respectively, the lawful currency
for the time being of Hong Kong
[REDACTED]
“HKFRSs”
Hong Kong Financial Reporting Standards
[REDACTED]
“Hong Kong” or “HK”
the Hong Kong Special Administrative Region of the PRC
[REDACTED]
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THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
DEFINITIONS
[REDACTED]
“Hubei Cenmingtang”
Hubei Cenmingtang Food Limited Liability Company (湖北岑
銘堂食品有限責任公司), formally known as Hubei Zhumu
Langma Food Limited Liability Company (湖北珠穆朗瑪食品
有限責任公司), a limited liability company established under
the laws of the PRC on August 10, 2012 and an indirect
wholly-owned subsidiary of our Company
“independent third party(ies)”
an individual(s) or a company(ies) who or which is/are not a
connected person(s) of our Company under the Listing Rules
[REDACTED]
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HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
DEFINITIONS
“Latest Practicable Date”
June 24, 2016, being the latest practicable date prior to the
date of this document for the purpose of ascertaining certain
information contained in this document
[REDACTED]
“Listing Committee”
the Listing Committee of the Stock Exchange
[REDACTED]
“Listing Rules”
the Rules Governing the Listing of Securities on the Stock
Exchange
“Macau”
the Macau Special Administrative Region of the PRC
“M&A Rules”
the Rules on the Merger and Acquisition of Domestic
Enterprises by Foreign Investors (關於外國投資者併購境內
企業的規定)
“Main Board”
the stock market (excluding the option market) operated by
the Stock Exchange which is independent from and operated
in parallel with the Growth Enterprise Market of the Stock
Exchange
“Memorandum of Association” or
“Memorandum”
the memorandum of association of our Company adopted on
March 29, 2016, as amended from time to time, a summary of
which is set out in Appendix IV to this document
“MOFCOM”
the Ministry of Commerce of the PRC (中華人民共和國商務
部)
“Min Yu”
Min Yu Group Limited (閔譽集團有限公司), a company
incorporated in the BVI on January 5, 2016, and wholly
owned by Mr. Shi
“Mr. Shi”
Mr. Shi Qingchi (施清池先生), the Chairman of our Group, an
executive Director and a Controlling Shareholder of our
Company
“Mr. Zhang”
Mr. Zhang Xuezhi (張學智先生), an executive Director and
the chief executive officer of our Company
“Nomination Committee”
the nomination committee of the Board
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HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
DEFINITIONS
“Non-PRC Resident Enterprise”
as defined under the current PRC income tax laws, means
companies established pursuant to a non-PRC law with their
de facto management conducted outside the PRC, but which
have established organizations or premises in the PRC, or
which have generated income within the PRC without having
established organizations or premises in the PRC
“NPC”
the National People’s Congress
[REDACTED]
“PRC Government” or “State”
the central government of the PRC, including all
governmental subdivisions (including provincial, municipal
and other regional or local government entities) and its organs
or, as the content requires, any of them
“PRC Legal Advisers”
Jingtian & Gongcheng
“[REDACTED] Investments”
the [REDACTED] investments of the [REDACTED] Investors
in our Company, details of which are set out in the section
headed “History, Reorganization and Group Structure —
[REDACTED] Investments” in this document
“[REDACTED] Investors”
the First [REDACTED] Investor, the Second [REDACTED]
Investor, the Third [REDACTED] Investor and the Fourth
[REDACTED] Investor
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HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
DEFINITIONS
[REDACTED]
“province”
the administrative regions at the provincial level in the PRC
“Regulation S”
Regulation S under the U.S. Securities Act
“Remuneration Committee”
the remuneration committee of the Board
“Reorganization”
the reorganization of the companies undergone by our Group
in preparation for the [REDACTED] as set out in the section
headed “History, Reorganization and Group Structure —
Reorganization” in this document
“RMB” or “Renminbi”
the lawful currency of the PRC
“Ruby City”
Ruby City Investments Limited, a company incorporated
under the laws of BVI with limited liability on March 15,
2016, and wholly-owned by the First [REDACTED] Investor
“SAFE”
State Administration of Foreign Exchange of the PRC
(中國國家外匯管理局)
“SASAC”
State-owned Assets Supervision and Administration
Commission of the State Council (國務院國有資產監督管理
委員會)
“SAIC”
State Administration of Industry and Commerce of the PRC
(中華人民共和國國家工商行政管理總局)
“SAT”
State Administration of Taxation of the PRC (中國國家稅務總
局)
[REDACTED]
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DEFINITIONS
“Second [REDACTED] Investor”
Rich Loads Limited (多富有限公司), a company incorporated
in the BVI with limited liability on November 23, 2015 which
is a substantial Shareholder upon [REDACTED] and
wholly-owned by Mr. Cheung Wah Fung, Christopher
(張華峯先生)
[REDACTED]
“SFC”
the Securities and Futures Commission of Hong Kong
“SFO”
the Securities and Futures Ordinance (Chapter 571 of the
Laws of Hong Kong), as amended or supplemented from time
to time
“Share(s)”
shares in the capital of our Company with a nominal value of
US$0.01 each
“Share Option Scheme”
the share option scheme conditionally approved and adopted
by the written resolutions of all Shareholders passed on [●],
a summary of the principal terms of which is set forth in
“Appendix V — Statutory and General Information — D.
Other Information — 1. Share Option Scheme” to this
document
“Shareholder(s)”
holder(s) of our Shares
[REDACTED]
“Sole Sponsor”
China Investment Securities International Capital Limited, a
licensed corporation under the SFO to carry on type 6
(advising on corporate finance) regulated activity, acting as
the sole sponsor to our Company’s application for the
[REDACTED]
[REDACTED]
“State Council”
State Council of the PRC (中華人民共和國國務院)
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HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
DEFINITIONS
[REDACTED]
“Stock Exchange”
The Stock Exchange of Hong Kong Limited
“subsidiaries”
has the meaning ascribed thereto under the Listing Rules,
unless the context otherwise requires
“substantial shareholder(s)”
has the meaning ascribed thereto in the Listing Rules
“Third [REDACTED] Investor”
Cheerful Rise Investment Ltd., a company incorporated in the
BVI with limited liability on January 18, 2010 which is a
Shareholder and wholly-owned by Ms. Ng Choi Fung
(吳彩鳳女士)
“this document”
this document
[REDACTED]
“Track Record Period”
the period comprising the years ended December 31, 2013,
2014 and 2015
being
issued
in
connection
with
the
[REDACTED]
“U.S.” or “United States”
the United States of America, its territories, its possessions
and all areas subject to its jurisdiction
“US$” or “U.S. dollars”
United States dollars, the lawful currency of the United States
“U.S. Securities Act”
the U.S. Securities Act of 1933, as amended and
supplemented or otherwise modified from time to time, and
the rules and regulations promulgated thereunder
[REDACTED]
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DEFINITIONS
“Zhen Lian”
Zhen Lian Investments Limited (臻聯投資有限公司), a
company incorporated in the BVI with limited liability on
January 5, 2016, which is a Shareholder and wholly owned by
Mr. Zhang
“%”
per cent
Certain amounts and percentage figures included in this document have been subject to rounding
adjustments. Accordingly, figures shown as totals in certain tables may not be on arithmetic
aggregation of the figures preceding them.
The English translation of the PRC entities, enterprises, nationals, facilities, regulations in
Chinese or another language included in this document is for identification purposes only. To the
extent there is any inconsistency between the Chinese names of the PRC entities, enterprises,
nationals, facilities, regulations and their English translations, the Chinese names shall prevail.
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HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
GLOSSARY
This glossary contains certain definitions and technical terms used in this document in
connection with our Company and our business. As such, some terms and definitions may not
correspond to standard industry definitions or usage of such terms.
“Aseptic Cold Filling”
a bottling technology that briefly heats the products to 135˚C
and then cools such products down to 25˚C prior to filling
“CAGR”
compound
V (tn)
(V
)
1
tn - t0
annual
growth
rate,
calculated
as
- 1 , V(t 0): start value, V(t n): finish value, t n-t 0:
(to)
number of years
“CAN”
beverage can, a metal container designed to hold a fixed
portion of liquid
“Coagulation”
a process whereby chemicals (a coagulant) is added to
wastewater causing solids in the wastewater to destabilize and
cling together, forming a larger solid, which can be easily
removed
“GB 317-2006”, “GB
19644-2010” and “GB
15680-2009”
the respective PRC industry standards for white sugar, milk
powder and palm oil
“GB/T”
the PRC national recommended standard for quality assurance
in design, development, production, installation and servicing
“GMP”
Good Manufacturing Practice
“HACCP”
Hazard Analysis and Critical Control Points, a systematized
preventive approach to food safety from hazards in
production processes
“ISO”
the International Organization for Standardization, a
non-governmental organization having a central secretariat
based in Geneva, Switzerland, which gives world-class
specifications for products, services and systems to ensure
quality, safety and efficiency
“kilo”
kilogram
“m 3 ”
cubic meters
“mu”
measurement of area, equivalent to approximately 666.67
sq.m
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GLOSSARY
“NY/T 1039-2014”
the PRC agricultural industry standard for starch and starch
products
“PET” or “polyester chips”
polyethylene terephthalate, a raw material used in the bottling
process of our non-alcoholic beverages
“SBR”
Sequential Batch Reactor, a wastewater treatment system
which employs microorganisms in sequential time-based
repetitive cycles of aeration, settlement and decantation to
break down biological contaminants contained in the
wastewater
“SB/T 10277”
the PRC domestic trade industry standard for fresh hen eggs
“SSOP”
Sanitation Standard Operating Procedures, sanitation
procedures in food production plants, which is one of the
prerequisite programs of HACCP
“sq.m”
square meter(s)
“TP”
Tetra Pak, a kind of carton package using a system of plastic
and aluminum coated paperboard combined with an aseptic
filling system that allows liquid food to be packaged in
aseptic condition
“VAT”
value-added tax
“˚C”
Celsius, a degree on the centigrade scale of temperature
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FORWARD-LOOKING STATEMENTS
This document contains certain forward-looking statements and information relating to our
Company and our subsidiaries that are based on the beliefs of our management as well as assumptions
made by and information currently available to our management. When used in this document, the
words “aim”, “anticipate”, “believe”, “could”, “expect”, “going forward”, “intend”, “may”, “ought
to”, “plan”, “project”, “seek”, “should”, “will”, “would” and the negative of these words and other
similar expressions, as they relate to our Group or our management, are intended to identify
forward-looking statements. Such statements reflect the current views of our management with respect
to future events, operations, liquidity and capital resources, some of which may not materialize or may
change. These statements are subject to certain risks, uncertainties and assumptions, including the
other risk factors as described in this document. You are strongly cautioned that reliance on any
forward-looking statements involves known and unknown risks and uncertainties. The risks and
uncertainties facing our Company which could affect the accuracy of forward-looking statements
include, but are not limited to, the following:
•
our business prospects;
•
future developments, trends and conditions in the industry and markets in which we
operate;
•
our business strategies and plans to achieve these strategies;
•
general economic, political and business conditions in the markets in which we operate;
•
changes to the regulatory environment and general outlook in the industry and markets in
which we operate;
•
the effects of the global financial markets and economic crisis;
•
our ability to reduce costs;
•
our dividend policy;
•
the amount and nature of, and potential for, future development of our business;
•
capital market developments;
•
the actions and developments of our competitors; and
•
change or volatility in interest rates, foreign exchange rates, equity prices, volumes,
operations, margins, risk management and overall market trends.
Subject to the requirements of applicable laws, rules and regulations, we do not have any and
undertake no 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
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FORWARD-LOOKING STATEMENTS
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 in this document are
qualified by reference to the cautionary statements in this section.
In this document, statements of or references to our intentions or those of the Directors are made
as of the date of this document. Any such information may change in light of future developments.
All forward-looking statements contained in this document are qualified by reference to the
cautionary statements set out in this section.
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HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
RISK FACTORS
You should carefully consider all the information in this document, including the risks and
uncertainties described below and our financial statements and the related notes, prior to
[REDACTED] in our Shares. The risk factors relating to our business, industry and China may not
typically be associated with [REDACTED] in equity securities of similar companies from other
jurisdictions. Our business, financial condition, results of operations and cash flows could be
materially and adversely affected by any of these risks. The trading price of our Shares could
decrease due to any of these risks and you may lose all or part of your [REDACTED].
We believe that there are certain risks and uncertainties involved in our operations, some of
which are beyond our control. These risk factors can be broadly categorized into: (i) risks relating to
our business; (ii) risks relating to our industry; (iii) risks relating to China; and (iv) risks relating to
the [REDACTED].
RISKS RELATING TO OUR BUSINESS
We only rely on third-party distributors to place our products into the market and face certain
risks relating to our distributors, their sub-distributors and retailers.
We sell all our snack food and beverage products to our distributors in China, who then resell
our products to their sub-distributors, retailers, supermarkets or end-consumers. We rely on the
distribution network of our distributors to secure our geographical coverage and achieve market
penetration in their respective designed geographic regions in China.
We may not be able to successfully maintain our existing distributors or establish relationships with
new distributors.
As of the Latest Practicable Date, we had engaged 394 distributors across seven provinces and
one municipality including Henan, Hubei, Yunnan, Shaanxi, Guizhou, Sichuan, Jiangxi and
Chongqing. Purchases by distributors accounted for all of our sales. However, we cannot assure you
that we will always be able to attract a sufficient number of quality distributors to maintain or extend
the breadth of our distributors’ geographic coverage. There is also no assurance that we will be able
to maintain our relationships with existing distributors or to develop relationships with replacement
distributors on favorable terms. Moreover, as we seek to expand into new regions and to increase our
market penetration in our existing regions, there is no assurance that we will be successful in
establishing relationships with new distributors in these regions on favorable terms. In addition, as we
only sell and distribute our products through distributors, any one of the following events could cause
declines in our revenue and could have an adverse effect on our financial condition and results of
operations: (i) reduction, delay or cancellation of orders from one or more of our distributors; (ii)
selection or increased sales by our distributors of our competitors’ products; (iii) failure to renew
distribution agreements and maintain relationships with our existing distributors; (iv) failure to
establish relationships with new distributors on favorable terms; and (v) inability to timely identify
and appoint additional or replacement distributors upon the loss of one or more of our distributors.
During the Track Record Period, none of our distributors terminated its cooperative relationship with
us. We terminated our cooperation with three of our distributors on December 31, 2015, due to their
non-payment of approximately RMB0.1 million trade receivables in total. We terminated two
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RISK FACTORS
additional distributors in April 2016 because they switched their business to other industries. We may
lose more distributors due to various reasons in the future. We may even lose some of our distributors
to our competitors, which may result in the termination of our relationships with other distributors.
We may not be able to accurately track our distributors’ sales and inventory levels of our products.
Our distributors may be unable or unwilling to provide us with information in relation to their
inventory levels and sales of our products in a timely manner, or at all. As we have no control over
the inventory and sales data belonging to our distributors, we can only rely on information provided
to us by our distributors. As a result, our ability to accurately track the sales of our products by and
the inventory level of our distributors is limited. Our sales to distributors may not be reflective of
actual sales trends to end-consumers, and we may not be able to timely gather sufficient information
and data regarding the market demand and consumers’ preferences for our products. Failure to
accurately track sales and inventory levels of our distributors and timely gather market information
may cause us to incorrectly predict sales trends and impede us from quickly aligning our marketing
and product strategies in response to market changes. Moreover, if the sales volumes of our products
to our consumers are not maintained at a satisfactory level or if distributor orders fail to track
end-consumer demand, our distributors may not place orders for new products from us, which may
decrease the quantity of their usual orders or may ask for discounts on the purchase price.
We may not be able to successfully manage the sales practices of the sub-distributors or retailers
of our distributors as we have limited control over them.
We do not have any contractual arrangements with any sub-distributors or retailers of our
distributors, and we rely only on our distributors to manage their sales practices. As a result, we have
limited control over the ultimate sales by these sub-distributors or retailers. There may be instances
when these sub-distributors or retailers take actions which are not consistent with our business
strategies, such as failure to follow our pricing policy, failure to sell our products within the
designated geographical areas or failure to participate in our marketing and promotional activities.
These factors may in turn adversely affect our business, financial condition and performance.
We may not be able to effectively implement the terms and conditions under our distribution
agreements with our distributors.
We face certain risks relating to the distribution arrangement between our distributors and us. We
typically enter into standardized distribution agreements with our distributors for a term of one year,
and have a set of internal policies regarding the management and regular monitoring of our
distributors’ compliance with these distribution agreements. However, we have no ownership or
managerial control over any of our distributors, and we generally depend on our sales staff to follow
up with the distributors to ensure their on-going compliance with the distribution agreements.
Therefore, we cannot assure you that our distributors will, at all times, strictly adhere to the terms and
conditions under our distribution agreements. In particular, our geographic limitation provision limits
each of our distributors to carry out their distribution of our products within designated geographic
area, and our suggested sales price provision requires each of our distributors to resell our products
at prices conforming to our suggested sales prices. Furthermore, since the distribution agreements do
not include any exclusivity clause to prohibit our distributors from selling competing products, we
cannot
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RISK FACTORS
assure you that we will be able to compete successfully against larger and better-funded sales and
marketing campaigns of some of our current or future competitors, in particular if these competitors
provide our distributors with more favorable arrangements. For more details on our distribution
agreements, please refer to the section headed “Business — Sales and Distribution Network —
Standardized Distribution Agreement” in this document. Non-compliance by our distributors with the
provisions of their distribution agreements could, among other things, negatively affect our brand and
image, demand for our products and our relationships with other distributors.
The occurrence of any of the events above could result in a significant decrease in the sales
volume of our products and therefore adversely affect our financial condition and results of
operations.
Our sales are geographically concentrated in a few regional markets in China.
Our sales for the years ended December 31, 2013, 2014 and 2015 originating from Hubei, Henan
and Yunnan, accounted for approximately 78.9%, 71.7% and 73.4% of our total sales in those
respective years. Since January 1, 2016 and up to the Latest Practicable Date, we have expanded our
distribution network to include Sichuan, Jiangxi and Chongqing. However, we expect our sales in the
regions of Hubei, Henan and Yunnan to continue to account for significant portions of our total sales
of products in the near future, and we may thus continue to depend heavily on the general economic
conditions and consumer preferences in these regions. In the case that there is any material adverse
change in the economic and social conditions or sudden change in consumer preferences in these
regions, where we are unable to divert our sales to other regions in China in a timely manner, our
business, financial condition and results of operations may be materially adversely affected.
We recorded significant growth during the Track Record Period and there can be no assurance
that we will be able to maintain or increase our historical levels of revenue, profitability or
growth.
During the Track Record Period, we recorded significant growth, as our revenue grew from
RMB109.0 million in 2013 to RMB1,482.4 million in 2015, representing a CAGR of 268.8%.
However, our financial growth may be negatively affected by risks and uncertainties described in this
document or otherwise. There can be no assurance that we will sustain our financial growth rate at
historical levels or that we will be able to manage our growth successfully. In particular, the
considerable gross profit margin of 29.4% for our products in 2015 and the significant increase in
revenue during the Track Record Period may not be sustainable in the future. In addition, the growth
rate of our net profit from 2013 to 2015 at a CAGR of 420.6% may not be sustained in 2016 or in the
future, given our relatively large net profit in 2015 and due to risk factors and uncertainties, such as
uncertainty relating to our ability to continue introducing new popular products and uncertainty
relating to our ability to continue strengthening our market penetration through traditional distributors
or exploring other sales channels. Should any of the risks in relation to our growth strategy
materialize, we may not be able to take advantage of market opportunities, execute our business plans
or appropriately respond to market challenges, and our business, financial condition, results of
operations and growth prospects may be materially and adversely affected.
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RISK FACTORS
It may be difficult to evaluate our business and prospects due to our short operating history.
Established in August 2012, we only commenced commercial production of our snack food and
beverage products in September 2013 and January 2014, respectively. In this regard, we have a limited
operating history and accordingly, we may not be able to achieve similar operating results or business
growth as illustrated in our financial reports in future periods. For more details on the history and
development of our business, please refer to the section headed “History, Reorganization and Group
Structure” in this document.
As part of our business development strategy, we intend to strengthen our research and
development efforts and launch new snack food and beverage products to meet the changing tastes and
preferences of our end-consumers. The new snack food and beverage products we may offer in the
future will present further operating and marketing risks and challenges to our business. Considering
that we may not have sufficient experience to address the risks and challenges frequently encountered
by companies operating in the same industry, it may not be easy for us to evaluate our business
prospects. You should consider our future prospects in light of the risks and challenges encountered
by a company with a limited operating history. In the event that we are unable to successfully address
these risks and difficulties, our business, financial condition and results of operations could be
materially and adversely affected.
We operate in a highly competitive and fragmented industry and may face increased competition
in the future.
We operate in the snack food and beverage industry in China where we generally face strong
competition from our competitors in terms of, among other things, brand recognition, reputation,
product quality and variety, flavor and convenient availability of products. Competitors in certain
regional markets may benefit from raw material supplies or production facilities that are
geographically closer to these markets. Some of our competitors may have been in their respective
businesses longer than we have and thus they may have comparatively greater financial, personnel,
research and development and other resources than us. There is also no assurance that our current or
potential competitors will not market products comparable or superior to those we produce or adapt
more quickly to evolving market trends or changing industry requirements than we do. It is also
possible that there will be consolidation in the snack food and beverage industry, and even integration
of upstream and downstream businesses or alliances among our competitors and distributors, where
significant market share can be rapidly acquired by such entities, according to the CRI Report. Any
such events may materially and adversely affect our market share, business, financial condition and
results of operations.
In addition, according to the CRI Report, the PRC snack food and beverage market is highly
fragmented, with most product manufacturers focusing only on a few key products. As a result, the
individual market share of the majority of each of the market players is generally very low. We cannot
assure you that we would be able to expand our market share gradually as planned or even maintain
our current market share in the future. If we are unable to achieve our business target with respect to
our market share, or our market share shrinks as a result of various unexpected reasons, our market
share, business and results of operations, financial condition could be materially and adversely
affected.
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HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
RISK FACTORS
Any health or food safety problems, negative publicity or media reports related to our raw
materials, our products or the general snack food and beverage industry could adversely affect
our reputation and our ability to sell our products.
We are subject to risks affecting the food and beverage industry generally, including risks posed
by (i) any food and beverage contamination; (ii) contamination of raw materials; (iii) spoilage of raw
materials; (iv) consumer product liability claims; (v) product tampering; (vi) product mishandling;
(vii) product labeling errors; (viii) the cost and possible unavailability of product liability insurance;
and (ix) the potential cost and disruption of product recalls. If our raw materials or products are found
to be spoiled, contaminated, tampered with, mishandled, incorrectly labeled or reported to be
associated with any such incidents, our reputation, prospects, business, financial condition and results
of operations could be materially and adversely affected.
The snack food and beverage industry in China has experienced problems involving
contamination and relating to food safety due to supplies of substandard raw materials and inadequate
enforcement of food safety regulations and inspection procedures. Though these events may not have
any direct relation to us in any respect, they may nevertheless negatively influence consumer
confidence in us and reduce demand for our products, which could adversely affect our sales of
products and results of operations.
Moreover, there can be no assurance that contamination of our raw materials or products will not
occur during the production, distribution, transportation or sales processes due to reasons unknown to
us or are out of our control. Negative media coverage regarding the quality, health issues, safety or
nutritional value of our products could materially and adversely affect consumer recognition of and
consumer confidence in us and our products. Occasionally, we and our products may be the subject
of news reports and allegations related to product quality and safety. Moreover, any negative claim
against us, even if meritless or unsuccessful, could divert our management’s attention and other
resources from other business concerns, which may adversely affect our business and results of
operations. Furthermore, adverse publicity about regulatory or legal action against us could undermine
our customers’ and end-consumers’ confidence in us and our products, damage our reputation and
brand image, and reduce long-term demand for our products, even if the regulatory or legal action is
unfounded or immaterial to our operations. In addition to the risks caused by our production process
and the subsequent handling of our products, we may encounter the same risks if a third party tampers
with our products or other similar situations which are out of our control. Any product contamination
caused in this regard could also subject us to adverse publicity and government scrutiny, investigation
or intervention, product returns or recalls as well as product liability claims, resulting in increased
costs while having a material and adverse impact on our reputation, prospects, brand image, business,
financial condition and results of operations.
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RISK FACTORS
Our business largely depends on the strength of our reputation. If we fail to maintain or enhance
our brand and reputation due to our failure to maintain effective quality control systems for our
products, consumers’ recognition of and trust in us and our products may be materially and
adversely affected.
We believe that our brand “CENMINGTANG” is being gradually recognized for quality and
reliability among consumers in the areas our distribution network covers. As one of the leading snack
food and beverage producers in Hubei and Henan, we rely heavily on the strength of our reputation
in marketing our products and retaining the loyalty of our end-consumers. Nevertheless, our brand and
reputation as well as the success of our business largely depends on the quality and safety of our
products. The consistency of our product quality relies significantly on the effectiveness of our quality
control system, which in turn depends on a number of factors, including without limitation the design
of our quality control systems and our ability to ensure that our employees adhere to and implement
those quality control policies and guidelines. Though our quality control system covers the majority
of our operational phases including but not limited to procurement, production and inventory
processes, we cannot assure you that our quality control systems will prove to be and remain effective.
Any significant failure or deterioration of our quality control systems could materially and adversely
affect our reputation, business, financial condition and results of operations.
Our success depends on our ability to attract and retain our core management team and other
key personnel for our operations.
Our business performance and future prospects depend significantly on the continued service and
performance of our Directors and senior management, who have been in charge of formulating and
implementing our overall business strategy and corporate development as well as directing our
operations. In particular, we are reliant on our Chairman, Mr. Shi, who has approximately 18 years of
working experience in the snack food and beverage production related industry and developed our
business from a local food enterprise to one of the leading regional snack food and beverage producers
in Hubei and Henan. For more details on Mr. Shi’s background please refer to the section headed
“Directors and Senior Management — Board of Directors — Executive Directors” in this document.
If Mr. Shi or any of our Directors and/or any members of senior management were to terminate their
employment with us, we may not be able to find suitable replacements in a timely manner, at
acceptable cost or at all, which may disrupt or affect our business operations as significant time will
be required to identify suitable Directors or to train or hire suitable senior management personnel. In
addition, competition for qualified and experienced personnel in China is intense and the availability
of suitable candidates is limited. The loss of services of key personnel or the inability to identify,
attract, hire, train or retain such personnel could materially and adversely affect our prospects,
business, financial condition and results of operations.
We relied significantly on advances from our Shareholders for the sufficiency of our working
capital during the Track Record Period.
During the Track Record Period, we have relied significantly on our Shareholders to fund our
liquidity and capital requirements through their capital contributions and advances. As of December
31, 2013 and 2014, the amounts due to our Shareholders was RMB191.8 million and RMB67.3 million,
respectively, while our cash and cash equivalents only amounted to RMB29,000 and RMB19,000. The
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RISK FACTORS
advances from our Shareholders were non-trade in nature and were unsecured, interest-free, without
fixed repayment terms and have all been settled as of the Latest Practicable Date. For more
information on the advances from our Shareholders, please see Financial Information — Certain
Statement of Financial Position Items — Related Party Transactions. Meanwhile, during the Track
Record Period, we did not obtain any loans from any commercial bank. Therefore, the sufficiency of
our working capital for the years ended December 31, 2013 and 2014 depended significantly on the
loans from our Shareholders. On June 15, 2016, we signed a letter of intent with PRC state-owned
bank with the intent to obtain a long-term credit facility in the amount of RMB250.0 million, the final
approval of which would be subject to our completion of the bank’s formal assessment procedures as
well as complying with its terms and conditions. We cannot assure you that we will be able to
successfully secure substitutive financing sources such as loans from commercial banks. Any inability
to continue to obtain financing from our Shareholders or any failure to obtain new financing from
other financial institutes such as commercial banks for the sufficiency of our working capital in the
future could materially and adversely affect our business, financial condition and results of operations.
We had net current liabilities as of December 31, 2013, 2014 and 2015 and May 31, 2016 and we
cannot assure you that we will not continue to record net current liabilities.
We recorded net current liabilities of RMB209.5 million, RMB198.9 million, RMB231.7 million
and RMB91.3 million, respectively, as of December 31, 2013, 2014 and 2015 and May 31, 2016. Our
net current liabilities were primarily due to the outstanding advances of RMB191.8 million from
Fujian Gongyuan, the then immediate holding company of us, for funding our purchases of land,
properties and production facilities at the ramp-up stage of our business, then as of December 31,
2013, our trade payables to third parties of RMB103.4 million and deposits from customers of
RMB86.0 million as a result of our expanded business, as of December 31, 2014, our dividends
payable of RMB200.0 million, as of December 31, 2015 and our deposits from customers of
RMB127.0 million and trade payables of RMB169.9 million as a result of our expanded business, as
of May 31, 2016. For more details regarding our net current liabilities, please refer to the section
headed “Financial Information — Certain Statement of Financial Position Items — Net Current
Liabilities” in this document. There is no assurance that we will not experience and record net current
liabilities in the future. We may not have sufficient working capital to meet our current liabilities or
expand our operations as anticipated. The existence of significant net current liabilities could restrain
our operational flexibility and adversely affect our ability to expand our business. In the case that we
do not generate sufficient cash flow from our operations to meet our present and future financial
needs, we may need to resort to external funding. If adequate external funds are not available on
commercially reasonable terms or at all, we may face liquidity difficulties. As a result, our business,
financial condition and results of operations may be materially and adversely affected.
Our historical financial results may have been impacted by the change of control during the
Track Record Period.
Hubei Cenmingtang came under the control of our Group on June 16, 2014 pursuant to the
Reorganization as more fully explained in the section headed “History, Reorganization and Group
Structure — The Reorganization” in this document. The Reorganization has not resulted in any
changes of economic substance and therefore, our Group is considered as a continuation of Hubei
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RISK FACTORS
Cenmingtang. The financial information of our Group for the Track Record Period has been derived
from the financial statements of Hubei Cenmingtang for all the periods presented. For more details
regarding the presentation of our Group’s financial information, please refer to the section headed
“Financial Information — Basis of Presentation” in this document.
Immediately prior to and after the Reorganization, the operations of our Group were conducted
by Hubei Cenmingtang. Since its establishment on August 10, 2012, Hubei Cenmingtang has
undergone a change of control. On June 16, 2014, Mr. Shi and Mr. Zhang acquired from Fujian
Gongyuan, 70.0% and 30.0% equity interest in Hubei Cenmingtang at a consideration of RMB52.9
million and RMB22.7 million, respectively. For more details regarding the share transfers, please refer
the section headed “History, Reorganization and Group Structure — Our Corporate Development” in
this document.
The change of control during the Track Record Period may have had impacts on the operations
of Hubei Cenmingtang and the financial results of our Group. [REDACTED] should thus exercise
caution when evaluating our historical financial results, which were based on the financial information
of Hubei Cenmingtang.
Our production depends on a stable and adequate supply of raw materials and packaging
materials. Inadequate or interrupted supply and price fluctuation of our raw materials and
packaging materials could adversely affect our profitability.
Production volumes and production costs of our products depend upon our ability to source raw
materials and packaging materials at acceptable prices and maintain a stable and sufficient supply of
our major raw materials, including sugar, eggs, peanuts and milk powder as well as packaging
materials such as polyester chips. Our costs of raw materials and packaging materials accounted for
77.6%, 80.8% and 83.6% of our cost of sales for the years ended December 31, 2013, 2014 and 2015,
respectively.
The prices of raw materials and packaging materials we use are subject to volatility caused by
a number of external conditions, such as commodity price fluctuations, supply and demand dynamics,
logistics and processing costs, our bargaining power with the suppliers, inflation, and governmental
regulations and policies. During the Track Record Period, the average purchase prices of our major
packaging materials and two out of our four main raw material ingredients, sugar and peanuts, were
generally stable, while that of milk powder and eggs showed relatively wide fluctuations. For more
details regarding the fluctuations of the prices of milk powder and eggs, please refer to the section
headed “Industry Overview — Overview of major raw materials” in this document.
Moreover, it is estimated that our raw material and packaging material prices will continue to
fluctuate and be affected by inflation and other factors over which we have no control over.
Historically, we have not hedged against changes in commodity prices and we do not intend to enter
into any hedging arrangements in the future. In this regard, commodity price increases may result in
unexpected increases in our raw material and packaging material costs, and if we are unable to manage
these costs or to increase the prices of our products to offset these increased costs, our margins and
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RISK FACTORS
overall profitability may suffer significant decreases. For more details regarding the sensitivity
analysis illustrating the impact of hypothetical fluctuations in our average unit purchase prices for
certain of our major raw materials on our net profit during the Track Record Period, please refer to
the section headed “Financial Information — Description of Selected Income Statement Line Items —
Cost of Sales” in this document.
Furthermore, as we source all of our raw materials and packaging materials from third party
suppliers, we rely significantly on the performance of our suppliers for their adequate and stable
supply of both of these two types of materials. However, our raw material and packaging material
suppliers could fail to meet our needs for various reasons, such as fires, natural disasters, weather,
manufacturing problems, disease, crop failure, strikes, transportation interruptions, government
regulation, political instability or terrorism. A shortage or complete lack of supply could also occur
due to suppliers’ financial difficulties, including bankruptcy. Nevertheless, changing our raw material
or packaging material suppliers may require significant time. We may thus not be able to locate
alternative suppliers in sufficient quantities, of suitable quality, in a timely manner or at an acceptable
price. If all or a significant number of our suppliers for any particular raw material or packaging
material are unable or unwilling to meet our requirements, we could suffer shortages or significant
cost increases. Continued supply disruptions could exert pressure on our costs, and we cannot assure
you that all or part of any increased costs can be passed along to our customers in a timely manner
or at all, which could materially and adversely affect our overall business, financial condition and
results of operations.
We may not be able to receive compensation from suppliers for contaminated ingredients used
in our products and indemnity provisions in our supply contracts may not be sufficient.
If we become subject to food safety claims caused by contaminated or otherwise defective
ingredients or raw materials from our suppliers, we can attempt to seek compensation from the
relevant suppliers under the relevant supply contracts. However, indemnity provisions in our supply
contracts may be insufficient to cover lost profits and indirect or consequential losses. In the event that
no claim can be asserted against a supplier or the amounts that we claim cannot be recovered from the
supplier, to the extent that our insurance coverage is insufficient, we may be required to bear such
losses and liability on our own. This could cause material adverse effects on our business, financial
conditions and results of operations.
We rely on third party logistics service providers to deliver our products and our sales and
reputation may be adversely affected by delays in delivery or poor handling by such third party
logistics service providers.
According to the relevant sales contracts, we are responsible for delivering our products to our
customers and we rely on independent third party logistics service providers to provide such services.
As of December 31, 2015, we had five logistics service providers. As we do not have any direct
control over these logistics service providers, we cannot guarantee their quality of services. If there
is any delay in delivery, damage to products or any other issue, we may lose consumers and sales and
our brand image may be tarnished. Various reasons beyond our control exist that could cause delays
in delivery, such as natural disasters and extreme weather, labor strikes and road maintenance
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disruptions. Third-party logistics service providers may also cause damage to or lose our products. If
our products are not delivered on time or are damaged during the course of transportation, we may
breach our distribution agreements and have to pay compensation to our distributors accordingly. Most
importantly, this may adversely affect our reputation and cause further loss of distributors and market
share, which could materially adversely affect our business, financial condition and results of
operations.
In addition, there can be no assurance that we can continue or renew relationships with our
current logistics service providers on terms acceptable to us, or that we will be able to establish
relationships with new logistics service providers to ensure accurate, timely and cost-effective
delivery services. If we are unable to maintain or develop good relationships with logistics service
providers, it may inhibit our ability to offer products in sufficient quantities, on a timely basis or at
prices acceptable to our customers. If there is any breakdown in our relationships with our preferred
logistics service providers, we cannot guarantee that no interruptions to our business operations would
occur or that they would not materially adversely affect our prospects, business, financial condition
and results of operations.
Moreover, as we expanded our distribution network into other regions coupled with the increase
in sales of our products, our cost of transportation increased significantly from RMB6.1 million in
2013 to RMB37.7 million in 2014, representing a year on year increase of 518.0%, and further to
RMB76.9 million in 2015, representing a CAGR of 254.8% from 2013 to 2015. If our transportation
cost keeps increasing at a high rate, our profits may be materially adversely affected and our gross
profit-related financial ratios, such as return on equity and return on assets, will correspondingly be
adversely affected. Furthermore, if we further expand our sales network to remote areas, we may need
to establish new production facilities in places closer to our customers, in which case large amounts
of capital investment may be incurred, which may in turn materially and adversely affect our business,
prospects and results of operations.
Our efforts in introducing and promoting new products may not be successful.
The snack food and beverage industry in China is highly competitive and susceptible to fast
changing consumer tastes and preferences. Consumers are tempted to shift their choices and
preference whenever new products are launched or introduced by various marketing and pricing
campaigns of different brands. In light of the highly competitive and fickle environment, our future
growth depends on our ability to continue to successfully introduce new products, flavors and
packaging. Developing and introducing new products can be risky and expensive, and our new
products or flavors may not be able to gain market acceptance or meet the particular tastes or
preferences of consumers. We cannot assure you that the sales of new products we introduce will be
fast-growing and/or can generate acceptable operating margins. Additionally, we may fail to reduce
production of our products that have fallen out of favor with our consumers in a timely and
cost-effective manner. Our market share and financial performance would be negatively affected if we
are unable to execute our strategy of continuously introducing new products, improving our product
offering and satisfying changing customers’ tastes.
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Our advertising, promotion and exhibition costs amounted to RMB0.4 million, RMB14.2 million,
and RMB17.7 million for the years ended December 31, 2013, 2014 and 2015, respectively.
Competition may cause our competitors to substantially increase their advertising expenditures and
promotional activities or to engage in irrational or predatory pricing behavior. An increase in
competition could require us to continue to increase our promotion and advertising expenditures,
which might place pressure on our gross profit margins and affect our profitability. Nevertheless, we
cannot assure you that our marketing efforts will be sufficient to compete with our competitors, and
competition may result in loss of market share for us, any of which could have an adverse impact on
our business, financial condition and results of operations. Furthermore, we cannot assure you that our
competitors will not actively engage in activities, whether legal or illegal, designed to undermine our
brand or to influence consumer confidence in our products.
We rely heavily on a single production facility in Anlu, Hubei, and any disruption to our
production at this production facility could materially and adversely affect our business,
financial condition and results of operations.
We manufacture all of our products in our self-owned production facility in Anlu, Hubei. We rely
heavily on this production facility, which could be substantially damaged by natural or other disasters,
such as floods, fires, earthquakes and typhoons, where the restoration work could be costly and
time-consuming and which could disrupt our business operations. We may thus incur additional costs
and may also experience a disruption in the supply of products to our customers until necessary repairs
are completed and normal production is restored. The potential disruptions could impair our ability to
meet the demand of our customers and adversely impact our overall reputation in the market. In such
cases, our business, financial condition and results of operations could be materially adversely
affected.
We may not be able to effectively and adequately manage our future growth and expansion.
Our future growth largely relies on entering new markets or establishing new sales channels,
constructing new production facilities, upgrading our production capacity, improving our production
know-how, introducing new products and expanding our sales and distribution network. For example,
we plan to purchase eight snack food production lines and ten beverage production lines by 2017.
However, our ability to retain and achieve continuous growth is subject to a wide range of factors,
including, among other things, (i) competing with existing companies in our markets, (ii) expanding
our sales network, (iii) enhancing our research and development capabilities, (iv) hiring and training
qualified personnel, (v) controlling our costs and maintaining sufficient liquidity, (vi) prioritizing our
financial and management controls in an efficient and effective manner, (vii) exercising effective
quality control, (viii) managing our various suppliers and leveraging our purchasing power, (ix)
maintaining our high food-safety standards, and (x) strengthening our existing relationships with our
distributors.
We confront more risks when we enter new markets, as new markets and sales channels may have
different regulatory requirements and competitive conditions, from our existing markets and sales
channels. We may be unable to identify suitable business opportunities, to obtain governmental and
other third-party consents, permits and licenses to utilize our management and financial resources
efficiently, and we may find it more difficult to hire, train and retain qualified employees in these new
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markets. In addition, we may have difficulty in identifying and establishing relationships with reliable
suppliers with adequate supplies of ingredients and raw materials that meet our quality standards or
distributors with efficient distribution networks on favorable terms, which are essential to our success.
As a result, we may incur more capital expenditures than anticipated when introducing any products
in new markets and may take longer to reach expected sales and profit levels than in our existing
markets, which could affect the viabilities of these new operations or our results of operations.
Our managerial, operational and financial resources could also be strained by our expansion
plans and business growth. We cannot assure you that our personnel, systems, procedures and controls
will be adequate to support our future growth. Failure to effectively manage our expansion may lead
to increased costs and reduced profitability and may adversely affect our growth prospects. At the
same time, as we expand our operations, we may encounter regulatory, personnel and other difficulties
that may also increase our costs of operations.
Our business is subject to changes in consumer preferences, perceptions and spending patterns.
Our business depends substantially on factors such as consumer income, consumer preferences
and tastes, consumer spending patterns, consumer perceptions of and confidence in our product safety
and quality as well as consumer awareness of health issues. A decline in the demand for our products
could occur as a result of a change in any of the factors described above at any time, and our future
success will depend partly on our ability to anticipate, identify or adapt to such changes and to timely
offer new advertising and promotion strategies that can attract consumers to our products. Consumers
in new markets and sales channels are likely to be unfamiliar with our brand and products and we may
need to build or increase brand awareness in the relevant markets and sales channels by increasing
investments in advertising and promotional activities more than we originally planned. Moreover,
consumer perceptions of our products may change, due to, among other things, the marketing efforts
of competitors and media reports regarding the taste, safety, quality or ingredients of our products as
well as products similar to our products. We may from time to time fail to adapt our products, product
portfolio as well as marketing and pricing strategies to changes in seasons, food and beverage trends
or shifts in consumer preferences and tastes. We cannot assure you that we will be able to introduce
new products that are in faster-growing and more profitable product categories or reduce our
production of products in categories experiencing consumption declines. Furthermore, trends and
shifts in consumer preferences and tastes may apply downward pressure on our sales and pricing or
lead to increased levels of sales and promotional expenses. Any of the aforementioned factors could
have a material adverse impact on our business, financial condition and results of operations.
We do not typically enter into long-term arrangements with our suppliers or distributors.
To retain flexibility in our operation, we usually do not enter into long-term arrangements with
our suppliers or distributors, and instead enter into or renew agreements with them annually. Our
suppliers and/or distributors therefore may reduce or cease purchasing products from us or reduce or
cease supplying raw materials to us at any time, which could adversely affect our business and results
of operations. There is no guarantee that our current or future contracts can be negotiated on terms
and prices equivalent to or better than current terms and prices. In addition, if we face increased costs
from our suppliers, we may not be able to pass on these higher costs along to our distributors, which
may materially and adversely affect our business, financial condition and results of operations.
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Sales of some of our products are subject to seasonality and fluctuations.
The sales of some of our products are subject to seasonality and fluctuations. Historically, we
have experienced higher sales of beverage products during the summer months and stronger demand
for certain snack food products during traditional Chinese holidays, such as the Chinese New Year and
the Mid-Autumn Festival. Sales can also fluctuate during the course of a financial year for other
reasons such as the launch of new products or advertising campaigns. Consequently, sales and
operating results for any particular period will not necessarily be indicative of our results for the full
year or future periods. Moreover, the seasonal and fluctuating nature of the sales of some of our
products may also affect our free cash flows.
We may not be able to protect our intellectual property rights and industrial know-how, and our
ability to compete could be harmed if our intellectual property rights are infringed by or our
industrial know-how is disclosed to third parties.
We have developed trademarks, industrial know-how, product formula, production processes,
technologies and other intellectual property rights that are of significant value to us. As of the Latest
Practicable Date, we had 23 registered trademarks in China, all of which were transferred from Fujian
Gongyuan, and had applied for 47 trademark registrations in the PRC and one trademark registration
in Hong Kong. Our products are marketed under our trademarks and brand name, which are critical
to our continued success and growth, including, in particular, our brand “CENMINGTANG”.
According to media reports, counterfeiting and imitations of popular branded products occurs in China
from time to time. We cannot assure you that we will be able to promptly detect the presence of
counterfeited products in the market. Occurrence of counterfeiting or imitations could impact our
reputation and brand, which may lead to loss of consumer confidence, reduced sales or higher
administrative costs in respect of detection and prosecution. In addition, there can be no assurance that
any of our intellectual property rights will not be challenged, misappropriated or circumvented by
third parties.
China’s legal regime governing intellectual property is still evolving and the level of protection
of intellectual property rights in China may differ from those in other jurisdictions, which results in
a higher degree of uncertainty as to interpretation and enforcement and may limit our legal protection.
Litigation to protect intellectual property rights, in particular industrial know-how, may also be
difficult, expensive and ineffective.
We rely on trade secrets to protect and secure our product formulas and production processes. We
utilize a combination of contractual responsibilities and confidentiality restrictions in our agreements
with our employees and distributors to prevent the disclosure of our trade secrets, and legal and
statutory protections to safeguard our proprietary rights, including the ingredients and product
formulas. Any breach of confidentiality by our employees or distributors having access to our
formulas and other trade secrets could result in third parties, including our competitors, gaining access
to such formulas and trade secrets. If our competitors are able to substantially copy our product
formulas and/or our product packaging and manage to provide comparable products at competitive
prices, our market share may decrease.
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In the case that the steps we have taken and the protection provided by law do not adequately
safeguard our intellectual property rights and industrial know-how, we could suffer losses in profits
due to the sales of competing products, which exploit our intellectual property rights and industrial
know-how. We may also be subject to disputes, claims or litigation involving our intellectual property
rights or third-party intellectual property rights and we may be accused of infringing the intellectual
property rights of others. Any of these developments could disrupt our business, divert our resources
and management’s attention from our operations and materially adversely affect our prospects,
business, financial condition and results of operations.
Claims from third parties for possible infringement of their intellectual property rights could
materially and adversely affect our business, financial conditions and results of operations.
Third parties, including our competitors, may claim that one or more of our products infringe
their intellectual property rights. In the case that a third party asserts that our products are infringing
upon their intellectual property rights, this could cause added expenses and, if successfully asserted
against us, could require us to pay substantial damages and/or prevent us from selling our products.
Although we may succeed in defending against these claims, any litigation regarding intellectual
property rights could be costly and time-consuming, and could divert the attention of our management
and key personnel from our business operations.
Litigation or legal proceedings could expose us to liability, divert our management’s attention
and negatively impact our reputation.
We may be involved in litigation or legal proceedings during the ordinary course of business
operations related to, among other things, product or other types of liability, labor disputes or contract
disputes that could have a material adverse effect on the financial condition of our business
operations. These actions could also expose us to negative publicity, which might adversely affect our
brand, reputation and consumer preference for our products. If we become involved in any litigation
or other legal proceedings in the future, the outcome of these types of proceedings could be uncertain
and could result in settlements or outcomes that adversely affect our financial condition. In addition,
any litigation or legal proceedings could incur substantial legal expenses as well as require significant
time and attention of our management, diverting their attention from our business and operations.
Our operations may be interrupted by production difficulties due to mechanical failures, utility
shortages or stoppages, fire, acts of god or other calamities at or near our facilities.
Machines and equipment are of material importance for our business as we rely on them to
achieve mass production of our products. Any mechanical failures or breakdown could materially
disrupt our production and cause us to incur additional costs to repair or replace the affected
mechanical system. We may experience problems with our machines and equipment or we may not be
able to address any such problems or obtain replacements in a timely manner. Any problems with key
machines and equipment in one or more of our production facilities may affect our production ability
or cause us to incur significant repair or replacement costs. Any of these incidents could have a
material adverse effect on our prospects, business, financial condition, results of operations.
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RISK FACTORS
Moreover, a continuous and adequate supply of utilities, including electricity, water and gas are
of paramount importance for our production capabilities and operations. In the case of any shortages
of power, water, gas or other utilities, the Chinese authorities may require our production facilities to
be shut down periodically. Any disruption in the supply of electricity, water or gas at our production
facilities would disrupt our production, and could cause deterioration or loss of our products, which
could adversely affect our ability to fulfill our sales orders and consequently may have an adverse
effect on our business and operations.
Additionally, our operations and facilities are subject to various risks, such as fire, earthquakes,
natural disasters, pandemic or extreme weather, including droughts, floods, excessive cold or heat,
typhoons or other storms, which could cause power outages, gas or water shortages, damage to our
production and processing facilities or disruption of transportation channels, significantly interfering
with our operations. Any failure to take adequate steps to mitigate the potential impact of
unforeseeable events, or to effectively respond to such events, could adversely affect our business,
financial condition and results of operations.
Our performance relies on favorable labor relations with our employees, and any deterioration
in labor relations, shortage of labor or material increase in wages may adversely affect our
business operations.
Favorable labor relations are considered a significant factor that can affect our business
performance and operating results. In this regard, any deterioration of our labor relations could cause
labor disputes, resulting in the disruption of our production and business operations.
Labor costs in China have significantly increased as a result of China’s rapid economic growth
since its reform and opening up in the late 1970s. Average labor wages in China are expected to
experience continual increases. We may also need to increase our total compensation packages to
attract and retain experienced personnel who are required for the achievement of our business
objectives. Any material increase in our labor costs resulting from factors including but not limited
to the aforesaid may have an adverse effect on our business, financial condition and results of
operations.
Our employees are subject to risks of serious injury caused by the use of production equipment
and machinery.
Heavy machinery and equipment such as industrial mixing, rolling and compressing machines
and cutting equipment are used during our production process, which are potentially dangerous and
may cause industrial accidents and personal injury to our employees. Any significant accident caused
by the use of this equipment or machinery could interrupt our production and result in legal and
regulatory liabilities. Although we have purchased labor injury insurance for our employees, insurance
coverage related to accidents resulting from the use of our equipment or machinery may be inadequate
to offset losses arising from claims related to such accidents. In this regard, we cannot assure you that
accidents will not happen in the future. Moreover, potential industrial accidents leading to significant
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property loss or personal injury may subject us to claims and lawsuits, and we may be liable for
medical expenses and other payments to the employees and their families as well as fines or penalties.
As a result, our reputation, brand, business, financial condition, and results of operations may be
materially and adversely affected.
Our insurance coverage may not be adequate to cover all the risks.
During the Track Record Period, we have maintained insurance coverage including medical,
unemployment, pension, maternity and labor injury insurance for our employees, property insurance
and auto liability. For more details regarding our insurance coverage, please refer to the section
headed “Business — Insurance” in this document. However, we do not maintain insurance policies
against certain potential liabilities, such as product liability, interruptions to business operations, third
party liability claims against personal injury or environmental liabilities. If we are exposed to the
liabilities in respect of any of the uninsured risks, or if we do not have adequate insurance coverage,
our prospects, business, financial condition and results of operations could be materially adversely
affected.
Substantial investment and upgrading may be required for our facilities and operations as we
continue to develop new products and optimize production processes.
We have a dedicated research and development team to develop new products as well as new
production technologies to help improve our existing production capabilities and processes.
Substantial investment and upgrading may be required for our facilities and operations in order to
implement our research results or to expand our production capacity or optimize our existing
production capability. Substantial costs are expected to be incurred for upgrading our facilities and
equipment. In the event that the upgrading costs exceed the anticipated costs or the upgrade does not
lead to increase in revenue as anticipated, our business, financial condition and results of operations
could be materially adversely affected.
Our business operations could be severely disrupted by failures or security breaches of our
information technology systems where additional maintenance costs will be generated.
Information technology systems are utilized by us to monitor our production process, increase
the efficiency of our facilities and inventory management, and manage and analyze our operations and
financial information. However, our information technology system could be vulnerable to various
threats including but not limited to intentional alteration of data, acts of nature, system configuration
error, unauthorized disclosure of information, cyber-attacks, electrical disruption and
telecommunication malfunction. Our protection schemes for our information technology system may
not be sufficient and any serious system failure or system malfunction could negatively impact on our
operations and reputation. Furthermore, any unauthorized disclosure of information could cause a leak
of trade secrets, confidential information and customer information, which could adversely affect our
reputation, business, financial condition and results of operations.
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RISK FACTORS
Our business and results of operations could be adversely affected by the outbreak of any
uncontrolled severe contagious diseases.
The outbreaks of contagious diseases, such as Severe Acute Respiratory Syndrome, or SARS,
influenza A (including H1N1, H7N9 and H10N8) and Ebola that spread across China and the world
in recent years, if uncontrolled, could materially and adversely affect our business and results of
operations. While we did not suffer any material loss resulting from the contagious diseases during the
Track Record Period, if a similar disaster were to occur in the regions where we operate, our
operations could be materially and adversely affected as a result of loss of personnel, damages to
property or decreased demand for our snack food and beverage products. Moreover, in the case that
any of our employees is infected or affected by any severe communicable diseases, it could adversely
affect or disrupt our production at the relevant production facility and may materially disrupt our
business operations if we are required to close such production facilities to prevent the spread of the
relevant diseases. Additionally, the spread of any severe communicable disease in China may also
affect the operations of our suppliers and/or distributors, which could in turn adversely affect our
business and operating results.
RISKS RELATING TO OUR INDUSTRY
China’s food and beverage industry is affected by fluctuations in the domestic and global
economy and financial markets.
Our business operations depend on the conditions and overall activity levels in the food and
beverage industry, which may be adversely affected by changes in national or global economic
conditions and local economic conditions in the markets in which we operate. These types of changes
could include GDP growth, inflation, interest rates, availability of and access to capital markets,
consumer spending rates and the effects of governmental initiatives to manage economic conditions.
Weak economic conditions could harm our business by contributing to reductions in demand,
insolvency of key suppliers, potential customer and counterparty insolvencies, and increased
challenges in conducting our operations. For example, the global economic slowdown and turmoil in
the global financial markets that started in the fourth quarter of 2008 resulted in a general credit
crunch, higher level of commercial and consumer delinquencies, lack of consumer confidence and
increased market volatility. Moreover, with the lowest economic growth rate in 25 years, China’s
economic growth began to experience a slowdown since 2015. Any slowdown in global, regional or
national economies could cause a drop in consumer confidence and the level of disposable income,
which would result in lower demand for our products, affecting our business, financial condition and
results of operations.
In addition, the general lack of available credit and confidence in the financial markets
associated with any market volatility or downturn could adversely affect our access to capital as well
as our suppliers’ and customers’ access to capital, which in turn could adversely affect our ability to
fund our working capital requirements and capital expenditures.
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We may not be able to obtain or renew the necessary licenses and permits for our business or
maintain our existing standard certifications.
In accordance with Chinese laws and regulations, we are required to obtain and maintain various
licenses and permits in order to operate our business at each of our production facilities including,
without limitation, the Food Production Permit (食品生產許可證). We are also required to comply
with applicable Chinese health and hygiene and production safety standards in relation to our
production processes. Our production facilities are subject to regular inspections by the regulatory
authorities for compliance with the relevant laws and regulations in China, including the Food Safety
Law of the PRC (中華人民共和國食品安全法). For further details relating to the licenses and permits
required on conducting our business in China, please refer to the section headed “Regulatory
Overview” in this document. Failure to pass these inspections, or the loss of or failure to obtain or
renew our licenses and permits when they expire, could result in us temporarily or permanently
suspending some or all of our production activities, which could disrupt our operations and adversely
affect our business.
Our environmental related costs may increase if the Chinese environmental protection laws
become m ore onerous, and non-compliance with relevant environmental protection laws could
lead to imposition of fines and penalties and harm our business.
Our business is subject to China’s environmental protection laws and regulations. These laws and
regulations require us to adopt effective measures to control and properly dispose of waste materials,
waste water and other environmental waste materials, as well as fee payments from manufacturers
discharging waste substances. Fines may be levied against us if we cause pollution in excess of
permitted levels. If we fail to comply with such laws or regulations results in environmental pollution,
the administrative department for environmental protection can levy fines. If the circumstances of the
breach are serious, the PRC Government may suspend or close any operation failing to comply with
such laws or regulations. Any environmental non-compliance incidents could materially adversely
affect our business, financial condition and results of operations.
There can also be no assurance that the PRC Government will not change the existing laws or
regulations or impose additional or stricter laws or regulations, compliance with which may cause us
to incur significant capital expenditure and which may as a result materially adversely affect our
business.
In addition, many countries have introduced recycling fees on the use of certain containers,
particularly those made from glass, plastic or tin. Currently, there are no statutes or regulations
requiring payment of these types of fees in China. However, if these types of fees were to be
introduced in China, particularly with regard to the PET bottles we use to package our beverage
products, they could have a material adverse effect on our results of operations to the extent that we
are unable to fully pass the relevant costs on to our customers, or that these types of regulations deter
consumers from purchasing these products.
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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
RISK FACTORS
Changes in food-safety laws may affect our business.
As a manufacturer of products intended for direct human consumption, we are subject to
extensive food-safety laws and regulations of China and other countries to which we distribute our
products. For instance, Chinese food-safety laws set out standards with respect to food and food
additives, packaging and containers, information to be disclosed on packaging as well as hygiene
requirements for food production and sites, facilities and equipment used for the transportation and
sale of food. In addition, recent amendments to the Food Safety Law of the PRC (中華人民共和國食
品安全法) became effective on October 1, 2015. For more details regarding these laws and
regulations, please refer to the section headed “Regulatory Overview” in this document.
If we fail to comply with food-safety laws in China or other jurisdictions in which we distribute
our products, we may be subject to fines, suspension of operations, loss of food production licenses
and, in more extreme cases, criminal proceedings against us and our management. Any of these events
would have an adverse impact on our production, business, financial condition and results of
operations.
There can be no assurance that the PRC Government or the governmental authorities of other
jurisdictions in which we distribute or sell our products to will not impose additional or stricter laws
or regulations on food safety, providing for stricter and more comprehensive monitoring and
regulation of food manufacturers and distributors in areas including food production and distribution,
which may lead to an increase in our costs of complying with such laws or regulations. We may be
unable to pass these additional costs on to our customers, which may result in an adverse effect on
our results of operations.
RISKS RELATING TO CHINA
Changes in political, social and economic policies in China may materially and adversely affect
our prospects, business, financial condition and results of operations.
Our operating subsidiary is located in China and all of our business activities are conducted in
China. Accordingly, changes in political, social and economic policies in China may materially affect
our results of operations and business prospects. The Chinese economy differs from the economies in
most developed countries in many aspects, including the level of government involvement, degree of
development, economic growth rate, control of foreign exchange and allocation of resources. Since
1978, the PRC Government has implemented many economic and social reform measures. As a result,
China is experiencing a transition from a planned economy to a more market-oriented economy and
have been widely credited with contributing to the country’s economic development. Many of the
reforms are exploratory or experimental, and they are expected to be modified as the economic and
social situation develops. This refining and adjustment process may not necessarily have a positive
effect on our operations and business development. Although China has experienced rapid economic
growth over the past decades, its continued growth has been facing downward pressure since the
second half of 2008 and its annual GDP growth rate has declined from 9.5% in 2011 to 7.7% in 2012
and from 7.7% in 2013 to 7.3% in 2014 and further declined to 6.9% in 2015, according to National
Bureau of Statistics of China (中華人民共和國國家統計局). There is no assurance that future growth
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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
RISK FACTORS
will be sustained at similar rates or at all or whether future changes in political, social and economic
policies will benefit China’s overall economy. Our business, financial position, results of operations
and prospects may be adversely affected by the PRC Government’s political, economic and social
policies affecting our industries.
Uncertainties in the Chinese legal system may adversely affect our business and limit the legal
protection available to you.
Our operating subsidiary and business operations are mainly located in China and are subject to
the laws and regulations of China. The Chinese legal system is a civil law system based on written
statutes. Unlike the common law legal system, prior court decisions in a civil law system have little
precedential value and can only be used as a reference. Furthermore, China’s statutes are subject to
the interpretation by the legislative bodies, the judicial authorities and the enforcement bodies, which
increases the uncertainty regarding their definitive meaning, scope and application. Since 1978, when
the PRC Government started implementing economic reforms, China has promulgated laws and
regulations in relation to economic matters such as foreign investment, corporate organization and
governance, commercial transactions, taxation and trade. Many of these laws and regulations are
relatively new and subject to frequent changes and uncertainties in implementation and interpretation.
There may also be new laws and regulations to cover new economic activities in China. We cannot
predict the future developments in the Chinese legal system. These uncertainties in the Chinese legal
system may adversely affect our business and limit the legal protection available to you.
As a holding company, we rely on the distribution by our Chinese subsidiary for funding.
We are a holding company incorporated in the Cayman Islands and we operate our business
through our operating subsidiary located in China. We rely on the distribution to us by our Chinese
subsidiary for funding, including payment of dividends to our Shareholders and to service any debt
we may incur. Chinese laws permit dividends to be paid by our PRC subsidiary only out of their
distributable profits determined in accordance with the PRC generally accepted accounting principles
(the “PRC GAAP”), which differ from the accounting principles and standards generally accepted in
many other jurisdictions. The Chinese laws also require our Chinese subsidiary to maintain a general
reserve fund of 10% of its after-tax profits based on PRC GAAP, up to a maximum of 50% of its
registered capital. Our Chinese subsidiary that is a foreign invested enterprise may also be required
to set aside individual funds for staff welfare, bonuses and development in accordance with Chinese
laws. These reserve funds are not available for distribution as cash dividends. Additionally, factors
such as cash flows, restrictions in debt instruments, withholding tax and other arrangements may
restrict our Chinese subsidiary’s ability to pay dividends to us and in turn restrict our ability to pay
dividends to our Shareholders. Distributions by our Chinese subsidiary to us in forms other than
dividends may also be subject to government approvals and taxes.
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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
RISK FACTORS
The Chinese tax authorities have strengthened their scrutiny over transfers of equity interests in
a PRC resident enterprise by a non-resident enterprise, which may negatively affect our business
and our ability to conduct mergers, acquisitions or other investments and the value of your
[REDACTED] in our Company.
On February 3, 2015, the PRC State Administration of Taxation issued the Announcement on
Several Issues Concerning Enterprise Income Tax for Indirect Transfer of Assets by Non-Resident
Enterprises (關於非居民企業間接轉讓財產企業所得稅若干問題的公告) (the “Circular 7”). This
regulation repealed certain provisions in the Notice on Strengthening the Administration of Enterprise
Income Tax on Non-Resident Enterprises (關於加強非居民企業股權轉讓企業所得稅管理的通知) (the
“Circular 698”) and certain rules clarifying Circular 698. Circular 698 was issued by the PRC State
Administration of Taxation on December 10, 2009. Circular 7 provides comprehensive guidelines
relating to, and heightened the Chinese tax authorities’ scrutiny on, indirect transfers by a non-resident
enterprise of assets (including equity interests) of a PRC resident enterprise (the “PRC Taxable
Assets”). For example, when a non-resident enterprise transfers equity interests in an overseas holding
company that directly or indirectly holds certain PRC Taxable Assets and if the transfer is believed
by the Chinese tax authorities to have no reasonable commercial purpose than to evade enterprise
income tax, Circular 7 allows the Chinese tax authorities to reclassify this indirect transfer of PRC
Taxable Assets into a direct transfer and impose on the non-resident enterprise a 10% rate of PRC
enterprise income tax. Circular 7 exempts this tax, for example, (i) where a non-resident enterprise
derives income from an indirect transfer of PRC Taxable Assets by acquiring and selling shares of a
listed overseas holding company in the public market, and (ii) where a non-resident enterprise
transfers PRC Taxable Assets that it directly holds and an applicable tax treaty or arrangement exempts
this transfer from PRC enterprise income tax. It remains unclear whether any exemptions under
Circular 7 will be applicable to any future mergers, acquisitions or other investments that we may
make outside China involving PRC Taxable Assets or to transfers of our Shares by our Shareholders.
If the Chinese tax authorities impose PRC enterprise income taxes on these activities, our ability to
expand our business or seek financing through these transactions and the value of your [REDACTED]
in our Shares may be adversely affected.
We may be deemed as a PRC tax resident under the EIT Law and be subject to PRC taxation on
our worldwide income.
Under the EIT Law, enterprises established under the laws of a jurisdiction other than China may
be considered as a PRC tax resident provided that their “de facto management body” are located within
China. Supplementary rules of the EIT Law interprets “de facto management body” as a body that
exercises substantial management or control over the business, personnel, finance and properties of
an enterprise. Through a circular promulgated in April 2009, the PRC State Administration of Taxation
further clarified the criteria for determining whether an enterprise has a “de facto management body”
within China. As most of our management is currently based in China and many may remain in China
in the future, we and our non-PRC subsidiary may be treated as PRC tax residents and a number of
unfavorable tax consequences could follow. We may be subject to enterprise income tax at a rate of
25% on our worldwide taxable income and to PRC enterprise income tax reporting obligations. Any
income sourced by us from outside China, such as interest on [REDACTED] proceeds held outside
China, would be subject to PRC enterprise income tax at a rate of 25%. While the EIT Law provides
that dividend income between “qualified resident enterprises” is exempt from PRC enterprise income
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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
RISK FACTORS
tax, it is not clear whether our Company and our non-PRC subsidiary would be eligible for such
exemption even if we were considered to be PRC tax residents. In addition, if we are treated as PRC
tax residents under Chinese laws, capital gains realized from sales of our Shares and dividends we pay
to non-PRC resident Shareholders may be treated as income sourced within China. Accordingly,
dividends we pay to non-PRC resident Shareholders and transfers of Shares by these Shareholders may
be subject to PRC income tax. The tax on this income of non-PRC resident enterprise Shareholders
would be imposed at a rate of 10% (and may be imposed at a rate of 20% in the case of non-PRC
resident individual Shareholders), subject to the provisions of any applicable tax treaty. If we are
required to withhold PRC income tax on dividends payable to you, or if you are required to pay PRC
income tax on the transfer of our Shares, the value of your [REDACTED] in our Shares may be
materially and adversely affected.
Dividends paid to our [REDACTED] are subject to PRC withholding taxes.
Under the EIT Law and its implementation rules, a 10% withholding tax is applicable to the
profit of a foreign invested enterprise distributed to its immediate holding company outside of China
to the extent the distributed profit is sourced from China, (i) if the immediate holding company is
neither a PRC-resident enterprise nor has any establishment or place of business in China, or (ii) if
the immediate holding company has an establishment or place of business in China but the relevant
income is not effectively connected with the establishment or place of business. Pursuant to a special
arrangement between Hong Kong and China, this rate will be lowered to 5% if a Hong Kong resident
enterprise directly owns over 25% of the Chinese company. According to the Announcement on
Issuing the Measures for the Administration of Non-Resident Taxpayers’ Enjoyment of the Treatment
under Tax Agreements (關於發佈非居民納稅人享受稅收協定待遇管理辦法的公告), which became
effective on November 1, 2015, where non-resident taxpayers are eligible for the preferential
treatment under these tax agreements, they may, when filling tax returns, or when withholding agents
make withholding declaration, enjoy the preferential treatment under agreements at their own
discretion and be subject to the follow-up administration by tax authorities. Approvals from competent
local tax authorities are required before an enterprise can enjoy the relevant tax treatments relating to
dividends under the taxation treaties. In addition, according to a tax circular issued by the PRC State
Administration of Taxation in January 2009, if the main purpose of an offshore arrangement is to
obtain a preferential tax treatment, Chinese tax authorities have the discretion to adjust the tax rate
enjoyed by the relevant offshore entity. We cannot assure you that Chinese tax authorities will
determine that the 5% tax rate applies to dividends received by our subsidiary in Hong Kong from our
Chinese subsidiary or that Chinese tax authorities will not levy a higher withholding tax rate on these
dividends in the future.
Failure by our Shareholders or beneficial owners who are PRC residents to make required
applications and filings pursuant to regulations relating to offshore investment activities by PRC
residents may prevent us from distributing dividends and could expose us and our Shareholders
who are PRC residents to liability under Chinese laws.
The Circular on Relevant Issues concerning Foreign Exchange Administration of Overseas
Investment and Financing and Return Investments Conducted by Domestic Residents through
Overseas Special Purpose Vehicles (關於境內居民通過特殊目的公司境外投融資及返程投資外匯管理
有關問題的通知) (the “Circular 37”), which was promulgated by SAFE and became effective on July
14, 2014, requires a PRC individual resident (the “PRC Resident”) to register with the local SAFE
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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
RISK FACTORS
branch before he or she contributes assets or equity interests in an overseas special purpose vehicle
(the “Offshore SPV”) that is directly established or controlled by the PRC Resident for the purpose
of conducting investment or financing activities. Following the initial registration, the PRC Resident
is also required to register with the local SAFE branch for any major change in respect of the Offshore
SPV, including, among other things, any major change of a PRC Resident shareholder, name or term
of operation of the Offshore SPV, or any increase or reduction of the Offshore SPV’s registered
capital, share transfer or swap, merger or division. Failure to comply with the registration procedures
of Circular 37 may result in penalties and sanctions, including the imposition of restrictions on the
ability of the Offshore SPV’s Chinese subsidiary to distribute dividends to its overseas parent.
As Circular 37 was recently promulgated, it is unclear how this regulation and any future
regulation concerning offshore or cross-border transactions will be interpreted, amended or
implemented by the relevant government authorities. We cannot predict how these regulations will
affect our business operations or future strategies. As of the Latest Practicable Date and to the best
knowledge of our Directors, our PRC Resident Shareholders with offshore investments in our Group
had registered with SAFE as to their offshore investments in accordance with Circular 37. Any failure
by our PRC Resident Shareholders or beneficial owners to make the registrations or updates with
SAFE may subject the relevant PRC Resident shareholders or beneficial owners to penalties, restrict
our overseas or cross-border investment activities, limit our Chinese subsidiary’s ability to make
distributions or pay dividends, or affect our ownership structure and capital inflow from our offshore
holding companies. As such, our business, financial condition, results of operations and liquidity as
well as our ability to pay dividends or make other distributions to our Shareholders may be materially
and adversely affected.
Current Chinese regulations on loans provided by, and foreign direct investment by, an offshore
holding company to Chinese companies may delay or prevent us from using the proceeds from
the [REDACTED] to fund our business operations in China.
Any loans or capital contributions that we, as an offshore entity, make to our Chinese subsidiary
that is a foreign-invested enterprise, including with the proceeds of the [REDACTED], are subject to
Chinese laws and regulations. Foreign-invested enterprises in the PRC must register with SAFE or its
local counterpart in order to obtain shareholder loans from its foreign investors. The aggregate amount
of these foreign loans must not exceed statutory limits. Furthermore, the foreign-invested enterprises
must also register with SAFE or its local counterpart for repayment of the foreign loans. In addition,
foreign investors must obtain approvals from MOFCOM or its local counterpart and register with
SAIC or its local counterpart to make capital contributions to the foreign-invested enterprises. We
cannot assure you that we can obtain the required government approvals or registrations on a timely
basis, or at all, with respect to loans or capital contributions that we may make to our Chinese
subsidiary. If we fail to obtain the approvals or registrations, our ability to use the proceeds from the
[REDACTED] to fund our operations in China would be negatively affected, which would materially
and adversely affect our liquidity and our ability to expand or run our business.
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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
RISK FACTORS
PRC Government control of currency conversion and fluctuation in the exchange rates of the
Renminbi may adversely affect our business and results of operations and our ability to remit
dividends.
All of our revenue, operating costs and operating accounts are denominated in Renminbi. The
PRC Government imposes controls on the convertibility of the Renminbi into foreign currencies and,
in certain cases, the remittance of currency out of China. Under existing PRC foreign exchange
regulations, payments of current account items, including dividend payments, interest payments and
expenditures from trade-related transactions, can be made in foreign currencies without prior approval
from SAFE by complying with certain procedural requirements. However, approval from SAFE is
required for foreign currency conversions for payment under capital account items such as equity
investments. The PRC Government may also at its discretion restrict our access in the future to foreign
currencies for current account transactions. Under our current corporate structure, our revenue is
primarily derived from dividend payments from our PRC subsidiary. Shortages in the availability of
foreign currency may restrict the ability of our PRC subsidiary to remit sufficient foreign currency to
pay dividends or other payments to us, or otherwise satisfy their foreign currency-denominated
obligations. If the foreign exchange control system prevents us from obtaining sufficient foreign
currency to satisfy our currency demands, we may not be able to pay dividends in foreign currencies
to our Shareholders. In addition, since all of our future cash flows from operations are expected to be
denominated in Renminbi, any existing and future restrictions on currency exchange may limit our
ability to purchase goods and services outside of China or otherwise fund our business activities that
are conducted in foreign currencies.
The exchange rates of the Renminbi against foreign currencies, including the Hong Kong dollar,
are affected by, among other things, changes in China’s political and economic conditions. Any
fluctuations in exchange rates of the Renminbi against the U.S. dollar, Euro or other foreign currencies
may cause our costs for importing raw materials and equipment and our revenue from exporting our
food and beverage products to be volatile. In addition, to the extent that we need to convert Hong
Kong dollars that we will receive from the [REDACTED] into Renminbi for our operations,
appreciation of Renminbi against the Hong Kong dollar would have an adverse effect on the amount
of Renminbi that we will receive. Conversely, if we decide to convert our Renminbi into Hong Kong
dollars for the purpose of making dividend payments on our Shares or for other business purposes
appreciation of the Hong Kong dollar against Renminbi would reduce the Hong Kong dollar amount
available to us.
You may encounter difficulty in effecting service of legal process upon us, our Directors and
senior management and enforcing foreign judgments against us, our Directors and senior
management.
We are a company incorporated in the Cayman Islands with substantial assets located within
China. All of our Directors and senior management reside in China and a majority of their assets are
within China. As a result, it may not be possible for you to effect service of legal process within China
on us or our Directors or senior management.
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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
RISK FACTORS
Judgments of courts of another jurisdiction may be reciprocally recognized or enforced if the
jurisdiction has a treaty stipulating that with China. Currently, China does not have treaties providing
for the reciprocal enforcement of judgments of courts with Japan, the United States, the United
Kingdom or most other western countries. On July 14, 2006, Hong Kong and China entered into the
Arrangement on Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial
Matters by the Courts of the Mainland and of Hong Kong. Pursuant to Choice of Court Agreements
Between Parties Concerned (the “Arrangement”), pursuant to which reciprocal recognition and
enforcement of the judgment may be possible between these two jurisdictions provided that the
judgment is rendered by a final court of these two jurisdictions and the parties have an agreement
containing a provision expressly providing for a choice of court. It may be difficult or impossible for
you to enforce judgment between these jurisdictions if you have not agreed on a sole jurisdiction with
the other party. In addition, Hong Kong has no arrangement for reciprocal enforcement of judgments
with the United States and certain other jurisdictions. As a result, you may encounter difficulty in
enforcing foreign judgments against us, our directors or senior management.
RISKS RELATING TO THE [REDACTED]
As there has been no prior public market for our Shares, their market price may be volatile and
an active trading market in our Shares may not develop.
Prior to the [REDACTED], there was no public market for our Shares. The [REDACTED] of our
Shares is the result of negotiations among us, the Sole Sponsor and the [REDACTED] (on behalf of
the [REDACTED]), and the [REDACTED] may differ significantly from the market price for our
Shares following the [REDACTED]. There is no guarantee that an active trading market for our Shares
will develop, or, if it does develop, that it will sustain or that the market price of our Shares will not
decline after the [REDACTED].
The market price and trading volume of our Shares may be volatile, which may result in
substantial losses for [REDACTED] in our Shares.
The price and trading volume of our Shares may fluctuate widely in response to factors beyond
our control. The factors that could cause significant market price change include but do not limit to
the following:
•
changes in our results of operations, earnings and cash flows, and securities analysts’
estimates of our financial performance;
•
changes in the competitive landscape of our industries, including strategic alliances,
acquisitions or joint ventures by us or our competitors;
•
changes in general economic conditions affecting us or our industries;
•
regulatory developments, and our inability to obtain or renew necessary licenses and
permits;
•
changes in our senior management;
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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
RISK FACTORS
•
fluctuations of the general stock market, particularly fluctuations in stock prices of other
companies in our industry or companies that operate mainly in China and are [REDACTED]
on the Stock Exchange; and
•
material litigation or regulatory investigations affecting us or our senior management.
There will be a time gap of several business days between the pricing of and the trading of our
Shares [REDACTED] in the [REDACTED]. The market price of the Shares after trading begins
could be lower than the [REDACTED].
The [REDACTED] of our Shares will be determined on the [REDACTED]. However, our Shares
will not commence trading on the Stock Exchange until they are delivered, which is expected to be
several Business Days after the [REDACTED]. [REDACTED] are unlikely to be able to sell or
otherwise deal in our Shares before they commence trading. Accordingly, holders of our Shares are
subject to the risk that the price of our Shares after trading begins could be lower than the
[REDACTED] as a result of adverse market conditions or any other adverse development that may
occur between the [REDACTED] and the time trading begins.
Control by our Controlling Shareholders of a substantial percentage of our Company’s share
capital after the completion of the [REDACTED] may limit your ability to influence the outcome
of decisions requiring the approval of Shareholders and the interests of our Controlling
Shareholders may not be aligned with those of our other Shareholders.
Upon the completion of the [REDACTED], approximately [REDACTED]% of our Shares will be
held by our Controlling Shareholders, assuming that the [REDACTED] is not exercised. After the
completion of the [REDACTED], our Controlling Shareholders will continue to have significant
influence on us regarding various important corporate actions requiring the approval of Shareholders,
such as mergers, disposal of assets, election of Directors, and timing and amount of dividends and
other distributions. There may be a conflict between our Controlling Shareholders’ interests and your
interests. Control by our Controlling Shareholders of a substantial percentage of our Shares may have
the effect of delaying, discouraging or preventing a change in control of us, which may deprive you
of opportunities to receive premiums for your Shares and may reduce the price of the Shares. If our
Controlling Shareholders cause us to pursue strategic objectives that would conflict with your
interests, you may also be left in a disadvantaged position.
Future sales or major divestment of our Shares by any of our Controlling Shareholder or
[REDACTED] investors could adversely affect the prevailing market price of our Shares.
The market price of our Shares may be adversely affected by future sales of a significant number
of our Shares in the public market after the [REDACTED], or the possibility of such sales, by our
Controlling Shareholder or [REDACTED] investors. The Shares held by our Controlling Shareholder
are subject to certain lock-up arrangements. For more details on the lock-up arrangements, please refer
to the sections headed “[REDACTED] — [REDACTED] Arrangements and Expenses — Undertakings
Pursuant to the [REDACTED]” in this document. After the restrictions of the lock-up arrangements
expire, our Controlling Shareholder may dispose of our Shares. Sales of a substantial amount of our
Shares could adversely affect the market price of our Shares, which could negatively affect our ability
to raise equity capital.
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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
RISK FACTORS
Our future financing may cause dilution of your shareholding or place restrictions on our
operations.
In order to raise capital and expand our business, we may consider [REDACTED] and issuing
additional Shares or other securities convertible into or exchangeable for our Shares in the future other
than on a pro rata basis to our then existing Shareholders. As a result, the shareholdings of those
Shareholders may be diluted in net asset value per Share. If additional funds are to be raised through
debt financing, certain restrictions may be imposed on our operations, which may:
•
further limit our ability or discretion to pay dividends;
•
increase our risks in adverse economic conditions;
•
adversely affect our cash flows; or
•
limit our flexibility in business development and strategic plans.
You will experience immediate and substantial dilution in the book value of your [REDACTED]
as a result of the [REDACTED].
The [REDACTED] of our Shares is higher than our net tangible book value per Share
immediately prior to the [REDACTED]. Therefore, purchasers of our Shares will experience an
immediate dilution in pro forma net tangible book value per Share. Our existing Shareholders will,
however, receive an increase in pro forma net tangible book value per Share with respect to their
Shares. In addition, if the [REDACTED] exercises the [REDACTED], holders of our Shares may
experience further dilution.
There is no assurance that whether and when we will pay dividends. Dividends declared in the
past may not be indicative of our dividend policy in the future.
During the Track Record Period, Hubei Cenmingtang declared dividends of RMB50.0 million
and RMB200.0 million on April 30, 2015 and December 31, 2015, respectively, and fully paid and
settled these dividends by using cash from our operations on May 12, 2015, and on January 28, 2016
and March 28, 2016, respectively. We cannot guarantee when, if or in what form and amount dividends
will be paid on our Shares following the [REDACTED]. Distribution of dividends must be proposed
by our Board and is subject to a number of factors, including the results of operations, cash flows,
financial situation and capital expenditure requirements of our Group, distributable profits of our
operating subsidiary and dividends they pay to us, our future plans and business prospects, market
conditions, our Articles of Association, regulatory restrictions and our contractual obligations. As a
result, our historical dividend distributions are not indicative of dividends that we may pay in the
future. For more details on our dividend policy, please refer to the section headed “Financial
Information — Dividend Policy and Distributable Reserves” in this document.
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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
RISK FACTORS
You may experience difficulties in enforcing your Shareholder rights because we incorporated in
the Cayman Islands, and the Cayman Islands law is different from the laws of Hong Kong and
other jurisdictions in terms of minority shareholders’ protection.
We are an exempted company incorporated in the Cayman Islands with limited liability. Cayman
Islands law differs in some respects from the laws of Hong Kong and other jurisdictions where
[REDACTED] may be located. Our corporate affairs are governed by our Memorandum and Articles
of Association, the Cayman Companies Law and the common law of the Cayman Islands. The rights
of our Shareholders to take legal actions against us and our Directors, actions by minority shareholders
and the fiduciary duties of our Directors to us under Cayman Islands law are to a large extent governed
by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part
from comparatively limited judicial precedents in the Cayman Islands, and from English common law,
which has persuasive but not binding authority on a court in the Cayman Islands. The rights of our
Shareholders and the fiduciary duties of our Directors under the Cayman Islands law may not be as
clearly established as they would be under statutes or judicial precedents in Hong Kong, the United
States or other jurisdictions where [REDACTED] may be located. In particular, the Cayman Islands
has a less developed body of securities law. As a result, our Shareholders may have more difficulty
in protecting their interests in the face of actions taken by our management, Directors or Controlling
Shareholders than they would as shareholders of a Hong Kong company, a United States company or
companies incorporated in other jurisdictions.
Dilution effect of issuance of new securities of our Company
Our Group may need to raise additional funds in the future to finance expansion or new
developments relating to our operations or new acquisitions. If additional funds are raised through the
issue of new equity or equity-linked securities of our Company other than on a pro rata basis to
existing Shareholders, the percentage ownership of the Shareholders in the Company may be reduced
and the Shareholders may experience dilution in their percentage shareholdings in our Company. In
addition, any such new securities may have preferred rights, options or pre-emptive rights that make
them more valuable than or senior to the Shares.
RISKS RELATING TO STATEMENTS MADE IN THIS DOCUMENT
Certain facts, forecasts and other statistics contained in this document are obtained from
government sources and other third parties and may not be accurate or reliable or up to date,
and statistics in the document provided by CRI are subject to assumptions and methodologies set
forth in the “Industry Overview” section of this document.
In this document, certain facts, forecasts and other statistics concerning China, its economic
conditions and the industries are derived from publications of PRC Government agencies or industry
associations, or an industry report commission by us. Although we have taken reasonable care in
extracting those facts, forecasts and statistics, they have not been independently verified by us, the
[REDACTED], the Sole Sponsor, the [REDACTED], the [REDACTED], any of our or their respective
directors, officers or representatives or any other person involved in the [REDACTED]. We
— 53 —
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HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
RISK FACTORS
cannot assure you that those facts, forecasts and statistics are accurate, reliable and up to date. We
cannot assure you that they are stated or compiled on the same basis or with the same degree of
accuracy in other jurisdictions. You should consider carefully that how much weight you should place
on those facts, forecasts and statistics.
This document contains forward-looking statements relating to our plans, objectives,
expectations and intentions, which may not represent our overall performance for periods of time
to which such statements relate.
This document contains certain future plans and forward-looking statements about us that are
made based on the information currently available to our management. The forward-looking
information contained in this document is subject to certain risks and uncertainties. Whether we
implement those plans, or whether we can achieve the objective described in this document, will
depend on various factors including the market conditions, our business prospects, actions by our
competitors and the global financial situations.
[REDACTED] should read the entire document carefully and should not place any reliance on
any information contained in press articles or other media in making any [REDACTED] decision
relating to the [REDACTED].
Prior or subsequent to the publication of this document, there may have been press and media
coverage regarding us and the [REDACTED], which includes certain information about us that does
not appear in, or is different from what is contained in, this document. We have not authorized the
disclosure of any such information in the press or media. The financial information, financial
projection, valuation and other information about us contained in such unauthorized press or media
coverage may not truly reflect what is disclosed in the document or the actual circumstances. We do
not accept any responsibility for such unauthorized press and media coverage or the accuracy or
completeness of any such information. We make no representation as to the appropriateness, accuracy,
completeness or reliability of any such information. To the extent that any information appearing in
the press and media is inconsistent or conflicts with the information contained in this document, we
disclaim it. [REDACTED] should rely only on the information contained in this document in making
any [REDACTED] decision relating to the [REDACTED].
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HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
WAIVERS FROM STRICT COMPLIANCE WITH THE LISTING RULES
In preparation for the [REDACTED], our Company has sought the following waiver from strict
compliance with the relevant provisions of the Listing Rules.
MANAGEMENT PRESENCE IN HONG KONG
Pursuant to Rule 8.12 of the Listing Rules, we must have sufficient management presence in
Hong Kong. This normally means that at least two of the executive Directors must be ordinary
residents in Hong Kong. Our Group’s principal business and operations are located, managed and
conducted in the PRC through our PRC operating subsidiary, Hubei Cenmingtang. The entire turnover
of our Company is generated from the PRC, and none of our executive Directors is a Hong Kong
permanent resident or is ordinarily based in Hong Kong and they will continue to be based in the PRC
after [REDACTED]. As a result, our Company does not, and will not, in the foreseeable future, have
a sufficient management presence in Hong Kong as required under Rule 8.12 of the Listing Rules.
Further, it would be impractical and commercially unnecessary for our Company to appoint additional
executive Directors who are ordinary residents in Hong Kong or to relocate its existing PRC based
executive Directors to Hong Kong.
Accordingly, we have applied to the Stock Exchange for, and [the Stock Exchange has agreed]
to grant, a waiver from strict compliance with the requirements under Rule 8.12 of the Listing Rules.
In order to maintain regular and effective communication with the Stock Exchange, we put in place
the following measures:
(i)
we have appointed two authorized representatives pursuant to Rule 3.05 of the Listing
Rules, who will act as our principal channel of communication with the Stock Exchange.
The two authorized representatives of our Company are Mr. Shi, our Chairman and
executive Director, and Mr. Yeung Wai Leung (楊偉樑先生) (“Mr. Yeung”), our chief
financial officer and company secretary. Mr. Yeung is an ordinary resident in Hong Kong;
(ii)
any meeting between the Stock Exchange and the Directors will be arranged through the
authorized representatives or the compliance adviser of our Company or directly with the
Directors within a reasonable time frame. We will inform the Stock Exchange promptly in
respect of any changes in our authorized representatives and our compliance adviser;
(iii) each of the authorized representatives of our Company will be available to meet with the
Stock Exchange within a reasonable period of time upon the request of the Stock Exchange
and will be readily contactable by telephone, facsimile and email;
(iv) each of the authorized representatives of our Company has means to contact all members
of the Board (including the independent non-executive Directors) promptly at all times as
and when the Stock Exchange wishes to contact the Directors for any matters. To enhance
the communication between the Stock Exchange, the authorized representatives and the
Directors, we have implemented a policy that (a) each Director will provide their respective
office phone numbers, mobile phone numbers, facsimile numbers and email addresses to the
authorized representatives, and (b) all the Directors and authorized representatives will
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HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
WAIVERS FROM STRICT COMPLIANCE WITH THE LISTING RULES
provide, if available, their office phone numbers, mobile phone numbers, facsimile numbers
and email addresses to the Stock Exchange. In the event that a Director expects to travel
or is out of office, he/she will provide the phone number of the place of his/her
accommodation to our authorized representatives;
(v)
the Directors, who are not ordinary residents in Hong Kong, have confirmed that they
possess or can apply for valid travel documents to visit Hong Kong and are able to meet
with the Stock Exchange within a reasonable period of time;
(vi) we have, in compliance with Rule 3A.19 of the Listing Rules, appointed China Investment
Securities International Capital Limited as our compliance adviser who will, among other
things, in addition to the two authorized representatives of our Company, act as the
additional channel of communication with the Stock Exchange for the period commencing
from the [REDACTED] and ending on the date on which our Company complies with Rule
13.46 of the Listing Rules in respect of its financial results for the first full financial year
commencing after the [REDACTED]. China Investment Securities International Capital
Limited will have full access at all times to the authorized representatives of our Company
and the Directors; and
(vii) we will also retain legal advisers to advise on on-going compliance requirements as well
as other issues arising under the Listing Rules and other applicable laws and regulations of
Hong Kong after [REDACTED].
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INFORMATION ABOUT THIS DOCUMENT AND THE GLOBAL OFFERING
[REDACTED]
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INFORMATION ABOUT THIS DOCUMENT AND THE GLOBAL OFFERING
[REDACTED]
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INFORMATION ABOUT THIS DOCUMENT AND THE GLOBAL OFFERING
[REDACTED]
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HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
INFORMATION ABOUT THIS DOCUMENT AND THE GLOBAL OFFERING
[REDACTED]
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INFORMATION ABOUT THIS DOCUMENT AND THE GLOBAL OFFERING
[REDACTED]
— 61 —
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THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
DIRECTORS AND PARTIES INVOLVED IN THE GLOBAL OFFERING
DIRECTORS
Name
Residential Address
Nationality
Mr. Shi Qingchi (施清池)
Room 305, Building E2
No. 116 Biyun East Road
Anlu City
Hubei
PRC
Chinese
Mr. Zhang Xuezhi (張學智)
Room 201, Building E2
No. 116 Biyun East Road
Anlu City
Hubei
PRC
Chinese
Mr. Wang Dongwei (王冬偉)
Room 301, Building E2
No. 116 Biyun East Road
Anlu City
Hubei
PRC
Chinese
Executive Directors
Independent Non-executive Directors
Mr. Chen Kewen (陳科文)
Room 3604, Unit 1
Building No. 5
Xiangjiang Haoting
Jinma Road
Kaifu District
Changsha City
Hunan
PRC
Chinese
Mr. Chong Man Hung Jeffrey
(莊文鴻)
Flat E, 48/F, Tower 15
88 O King Road
Phase 3, Ocean Shores
Tseung Kwan O
New Territories
Hong Kong
Chinese
Ms. Zou Jianjun (鄒建軍)
Room 508, Unit 4, Building 3
Xiangji Garden
Tubei New Village
Tianxin District
Changsha City
Hunan
PRC
Chinese
Further information about the Directors and other senior management members are set out in the
section headed “Directors and Senior Management” in this document.
— 62 —
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HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
DIRECTORS AND PARTIES INVOLVED IN THE GLOBAL OFFERING
PARTIES INVOLVED
Sole Sponsor
China Investment Securities International
Capital Limited
63rd Floor, Bank of China Tower
1 Garden Road
Central
Hong Kong
[REDACTED]
Auditors and Reporting accountants
Grant Thornton Hong Kong Limited
Level 12
28 Hennessy Road
Wanchai
Hong Kong
Property valuer
Jones Lang LaSalle Corporate
Appraisal and Advisory Limited
6th Floor Three Pacific Place
1 Queen’s Road East
Admiralty
Hong Kong
Legal advisers to our Company
As to Hong Kong and U.S. laws:
Paul Hastings
21st-22nd Floor, Bank of China Tower
1 Garden Road
Hong Kong
As to PRC law:
Jingtian & Gongcheng
34th Floor, Tower 3, China Central Place
77 Jianguo Road
Chaoyang District
Beijing, 100025
PRC
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HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
DIRECTORS AND PARTIES INVOLVED IN THE GLOBAL OFFERING
As to Cayman Islands law:
Maples and Calder
53rd Floor, The Center
99 Queen’s Road Central
Hong Kong
Legal advisers to the Sole
Sponsor and the [REDACTED]
As to Hong Kong laws:
P. C. Woo & Co.
12th Floor, Prince Building
10 Chater Road
Central
Hong Kong
As to PRC law:
Tian Yuan Law Firm
10th Floor, China Pacific Insurance Plaza
28 Fengsheng Hutong
Xicheng District
Beijing, 100032
PRC
Industry consultant
China Research and Intelligence Co., Ltd.
7K, West Building
668 Beijing East Road
Huangpu
Shanghai, 200001
PRC
Compliance adviser
China Investment Securities International
Capital Limited
63rd Floor, Bank of China Tower
1 Garden Road
Central
Hong Kong
[REDACTED]
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CORPORATE INFORMATION
Registered office
NovaSage Incorporations (Cayman) Limited
Floor 4, Willow House
Cricket Square, P.O. Box 2582
Grand Cayman KY1-1103
Cayman Islands
Headquarters and Principal Place of
Business in the PRC
Shi Li Village
Economic Development District
Anlu
Xiaogan, Hubei
PRC
Place of business in
Hong Kong
Room 1501 (721), 15/F, SPA Centre
53-55 Lockhart Road
Wanchai
Hong Kong
Company’s website
http://www.cenmingtang.net
(The information on the website does not form part of
this document)
Company Secretary
Mr. Yeung Wai Leung (楊偉樑), HKICPA
Flat B, 47/F, Block 6, Metro Harbour View
Tai Kok Tsui, Kowloon
Hong Kong
Authorized representatives
Mr. Shi Qingchi (施清池)
Room 305, Building E2
No. 116 Biyun East Road
Anlu City
Hubei
PRC
Mr. Yeung Wai Leung (楊偉樑), HKICPA
Flat B, 47/F, Block 6, Metro Harbour View
Tai Kok Tsui, Kowloon
Hong Kong
Audit Committee
Mr. Chong Man Hung Jeffrey (莊文鴻) (Chairman)
Mr. Chen Kewen (陳科文)
Ms. Zou Jianjun (鄒建軍)
Nomination Committee
Mr. Shi Qingchi (施清池) (Chairman)
Mr. Chen Kewen (陳科文)
Ms. Zou Jianjun (鄒建軍)
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CORPORATE INFORMATION
Remuneration Committee
Mr. Chen Kewen (陳科文) (Chairman)
Ms. Zou Jianjun (鄒建軍)
Mr. Zhang Xuezhi (張學智)
[REDACTED]
Principal bank
Industrial and Commercial Bank of China (Asia) Limited
33/F, ICBC Tower
3 Garden Road
Central
— 66 —
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HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
INDUSTRY OVERVIEW
The information and statistics presented in this section and elsewhere in this document,
unless otherwise indicated, is derived from various official government publications and other
publications and from the market research report prepared by CRI, which was commissioned by
us. We believe that the information has been derived from appropriate sources and we have taken
reasonable care in extracting and reproducing the information and statistics. We have no reason
to believe that the information is false or misleading in any material respect or that any fact has
been omitted that would render the information false or misleading in any material respect. The
information has not been independently verified by us, the Sole Sponsor or any of our or their
respective directors, officers or representatives or any other person involved in the [REDACTED]
nor is any representation given as to its accuracy or completeness. The information and statistics
contained in this section may not be consistent with other information and statistics compiled
within or outside of China.
REPORT COMMISSIONED FROM CRI
In connection with the [REDACTED], we have commissioned CRI, an independent third party,
to prepare a detailed industry report that analyzed and studied the overall snack food and beverage
industry in China. CRI is a market research consulting firm focusing on various industries and markets
including, amongst others, clothing, toys, food and paper. CRI provides customized industry and
market research services for [REDACTED], corporate mergers and acquisitions, business
development, market launch and financing for clients varying from state-owned and private companies
to the government departments. The CRI Report was prepared based on a broad top-down approach,
starting from the wider macro economy of China, to the snack food and beverage industry, and finally
to the market segments in which our Group operates in. As confirmed by CRI, the information
contained in the CRI Report was derived from qualitative and quantitative market data and intelligence
collected from various sources which include first-hand interviews with various industry participants
such as snack food and beverage producers and relevant academic institutions, and second-hand
research results such as statistics published by government agencies and regulators, data published by
industry related organizations, independent industry research publications, annual reports published
by the snack food and beverage market stakeholders as well as data generated from CRI’s in-house
analysis.
The sources of data and statistics contained in the CRI Report include official data from the
National Bureau of Statistics of China, associations and other authoritative organizations in
connection with the snack food and beverage industry. CRI advised us that it had independently
analyzed the information collected, which it assumed is accurate and complete. Any projections in the
CRI Report were doing utilizing a mix of both qualitative and quantitative analysis. Whenever
applicable, a set of historical data is used as a basis for its projections, and if necessary, adjustments
are subsequently made for projection purposes and to ensure data relevancy. In compiling and
preparing the CRI Report, CRI has assumed that over the next five years: (i) the Chinese economy
maintains an annual growth rate of more than 6.0%, (ii) the consumption ability of Chinese residents
continues to increase, and (iii) the consumption of snack food and beverage products will keep
increasing in China. The total fee we paid for the CRI Report was RMB200,000.
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INDUSTRY OVERVIEW
As of the Latest Practicable Date and based on the overall information collected and analyzed,
CRI believed that the snack food and beverage industry in China would benefit from the continued
growth of China’s economy. Our Directors confirm that, after making reasonable and due enquiries,
there has been no adverse change in the market information since the date of the CRI Report which
may limit, contradict or affect the information in this section.
OVERVIEW OF CHINA’S ECONOMY
Continued economic growth
China is the world’s second largest economy in terms of nominal GDP and currently only behind
the United States. According to the National Bureau of Statistics of China, China’s nominal GDP
reached RMB67,670.8 billion in 2015, with a year-on-year growth rate of 6.9%. With the continued
development of the PRC economy, the CRI Report forecasts the China’s nominal GDP will continue
to increase from RMB72,204.7 billion in 2016 to RMB92,714.5 billion in 2020, representing a CAGR
of 6.4%.
GDP and GDP growth rate of China from (2011-2020E)
RMB billion
9.5%
100,000
%
92,714.5
87,219.6
90,000
7.7%
80,000
7.7%
67,670.8
70,000
60,000
50,000
7.3%
48,412.4
53,412.3
58,801.9
63,591.0
6.9%
72,204.7
76,970.3
6.6%
9
81,973.3
8
6.4%
6.7%
10
6.3%
6.5%
7
6
5
40,000
4
30,000
3
20,000
2
10,000
1
0
0
2011
2012
2013
2014
GDP
2015
2016E
2017E
Year-on-year growth
Source: National Bureau of Statistics of China, CRI Report
— 68 —
2018E
2019E
2020E
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HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
INDUSTRY OVERVIEW
Increased Purchasing Power of Chinese households
In line with China’s continued economic growth, the average income of Chinese households has
also steadily increased across the country. According to the National Bureau of Statistics of China, the
annual per capita disposable income of urban households almost doubled between 2009 and 2015,
increasing from RMB17,175.0 to RMB31,195.0, representing a CAGR of 10.5%. Similarly, the annual
per capita disposable income of rural households also showed corresponding growth, almost doubling
between 2009 and 2015, increasing from RMB5,627.0 to RMB11,422.0, representing a CAGR of
12.5%.
Annual per capita disposal income of urban and rural households in China (2009-2015)
RMB
35,000
30,000
26,955.0
Urban
10.5%
Rural
12.5%
21,810.0
17,175.0
19,109.0
15,000
10,000
5,000
2009-2015
24,565.0
25,000
20,000
28,844.0
CAGR
31,195.0
5,627.0
6,452.0
7,596.0
8,573.0
9,482.0
10,489.0
11,422.0
0
2009
2010
2011
2012
2013
2014
2015
Source: National Bureau of Statistics of China
CHINA’S SNACK FOOD AND BEVERAGE INDUSTRY
Snack food is defined as small portions of conveniently packaged foods that can be eaten in place
of, in between or as a complement to meals. They can generally be consumed immediately, are
portable and have a shelf-life of at least two days. Beverage is naturally or artificially flavored
compound drinks typically packaged in glass, plastic or other containers. Such drinks usually contain
sweeteners, edible acids and contain less than 0.5% alcohol by volume, and are commonly referred to
within the beverage industry as ‘soft’ drinks as opposed to ‘hard’ alcoholic drinks.
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INDUSTRY OVERVIEW
Market size and Opportunity
China’s economic development has provided Chinese households with increased spending power,
driving demand for food and beverage products. Additionally, the consumption of more convenient
forms of foods and beverages such as snack foods and packaged drinks has also increased as
consumers have become accustomed to busier and faster-paced lifestyles. Greater market penetration
and the ready-availability of snack food and beverage products have also made them more accessible
and increasingly accepted by the consumer population.
The sales value of snack food and beverage products increased from RMB784.5 billion in 2011
to RMB1,195.9 billion in 2015, representing a CAGR of 11.1%. The CRI Report forecasts the sales
value of snack food and beverage products will continue to increase from RMB1,322.3 billion in 2016
to RMB1,987.3 billion in 2020, representing a CAGR of 10.7%. The following graph shows the growth
in sales value of snack food and beverage products in China for the periods indicated.
Sales value of snack food and beverage products in China (2011-2020E)
CAGR = 10.7%
RMB billion
CAGR = 11.1%
2,500
1,987.3
2,000
1,794.5
1,463.8
1,500
1,000
784.5
871.5
987.1
1,103.0
1,195.9
2014
2015
1,620.7
1,322.3
500
0
2011
2012
2013
Snack food
2016E
2017E
2018E
2019E
2020E
Beverage
Source: CRI Report
Snack Food Market
The snack food market generally consists of products such as bread, cakes, pastries, puffed
foods, nut, dried fruits, confectionary and various processed meats. Market demand for snack foods
continues to increase, largely driven by China’s economic growth, increasing population, rising
disposable income and changing consumption habits. Since retail price of snack food is relatively
cheap, snack food is one of the main food product that consumers tend to purchase with marginal
increases in disposable income, whether for convenience, as a luxury or otherwise. This trend is more
pronounced in third- and fourth-tier cities and rural areas where disposable incomes are lower and the
sales of snack foods tend to spike during traditional Chinese holidays and festive seasons as they are
often purchased as gifts in local and regional cultures.
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INDUSTRY OVERVIEW
The following table sets forth sales value of snack food by product category for the periods
indicated:
Product breakdown by sales value of the snack food in China (2011-2020E, in RMB billion)
2011 2012 2013 2014 2015
2011-2015
CAGR
2016E 2017E 2018E 2019E 2020E
2016E-2020E
CAGR
Confectionery . . . . . 80.6 93.0 103.5 116.7 128.0
Bread, Cakes and
Pastries . . . . . . . . 44.3 56.8 72.8 80.8 89.8
Nuts . . . . . . . . . . . 44.4 51.2 57.0 64.3 70.5
Dried Fruits . . . . . . . 37.8 43.7 48.6 54.8 60.1
Puffed Foods . . . . . . 18.6 22.5 27.8 33.1 39.1
Meat, Poultry and Fish 23.0 26.6 29.6 33.4 36.6
Others. . . . . . . . . . . 116.8 105.9 97.7 94.7 98.4
12.3%
140.2 153.5 168.1 184.1 201.5
9.5%
19.3%
12.3%
12.3%
20.4%
12.3%
-4.2%
99.2 109.6 121.1 133.8 147.9
78.0 86.1 95.2 105.2 116.2
37.8 43.7 48.6 54.8 60.1
20.4 24.7 30.4 36.3 42.9
22.4 27.1 33.5 39.9 47.2
176.9 189.5 202.8 217.9 236.1
10.5%
10.5%
12.3%
20.4%
20.5%
7.5%
Total . . . . . . . . . . . 365.5 399.7 437.0 477.8 522.5
9.3%
574.9 634.2 699.7 772.0 851.9
10.3%
Source: CRI Report
In 2015, total sales value of the snack food market in the PRC was RMB522.5 billion,
representing a CAGR of 9.3% from 2011 to 2015. Confectionery accounted for the largest share of
China’s snack food market by total sales value, which was 24.5% in 2015. Bread, cakes and pastries
ranked second and nuts ranked third by total sales value, with market shares of 17.2% and 13.5% in
2015, respectively.
With the development of the PRC economy, the CRI Report forecasts that the market demand for
snack food will continue to increase and grow at an expected CAGR of 10.3% from 2016 to 2020. It
is estimated that in 2020, the market size of snack food will reach RMB851.9 billion. However, as the
domestic market becomes increasingly health-conscious, it is expected that demand for puffed food
market will grow at a more moderate pace.
— 71 —
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INDUSTRY OVERVIEW
Beverage Market
The beverage market includes many varieties of packaged drink products, including but not
limited to concentrate juice products, pulp beverage products, carbonated beverages, fruit juice
beverage products, vegetable juice products as well as mixed fruit and vegetable juice products. In
recent years, growth and demand in the beverage market remains relatively robust as a result of the
continued development of the PRC economy and increased consumer spending power. New beverage
products consistently being introduced to the market and novel industry trends have helped support
growth in the beverage industry over the past decade. For example, carbonated drinks dominated the
beverage market in the 1980s, but other beverage varieties such as tea drinks, juice, herbal teas and
milk have since been brought to the market. Currently there is a growing industry trend whereby
consumers are favoring beverages with a health-focused aspect as the population has generally become
more aware of health-related issues and actively pursues healthy lifestyles. As a result, CRI believes
that the beverage industry still holds potential for further development and growth, particularly with
regard to plant-based and milk beverages, juice and juice related drinks as well as energy drinks.
The following table sets forth sales value of beverage by product category for the periods
indicated:
Product breakdown by sales value of the beverage in China (2011-2020E, in RMB billion)
2011 2012 2013 2014 2015
2011-2015
CAGR
97.4 110.2 129.4 147.8 160.1
13.2%
182.5
207.8
237.5
270.2
308.6
14.0%
64.0 72.6 85.7 98.6 107.4
73.2 76.6 100.4 105.8 87.5
13.8%
4.6%
122.9
92.8
141.1
98.3
160.8
104.2
183.3
110.5
208.9
117.1
14.2%
6.0%
184.4 212.4 234.6 273.0 318.4
14.6%
349.2
382.4
418.4
458.5
500.8
9.4%
Total . . . . . . . . . 419.0 471.8 550.1 625.2 673.4
12.6%
747.4
829.6
920.9 1,022.5 1,135.4
11.0%
Fruit and Vegetable
Juice . . . . . . .
Plant-based and
Milk . . . . . . .
Carbonated . . . . .
Tea Drinks and
Others . . . . . .
2016E-2020E
2016E 2017E 2018E 2019E 2020E
CAGR
Source: CRI Report
In 2015, total sales of the beverage market in the PRC was RMB673.4 billion, representing a
CAGR of 12.6% from 2011 to 2015. By the end of 2015, there were over 2,900 fruit and vegetable
juice and beverage product producers in China. Sales of fruit and vegetable juice beverages accounted
for the largest proportion of beverages sold in China by sales value in 2015 and the total sales of fruit
and vegetable juice beverages reached RMB160.1 billion, accounting for approximately 23.8% of
market share in 2015, which also represents a CAGR of 13.2% from 2011 to 2015. In contrast, the total
sales of carbonated beverages in China increased from RMB73.2 billion in 2011 to RMB87.5 billion
in 2015, representing only a CAGR of 4.6% from 2011 to 2015, with a corresponding decrease in
market share of the beverage industry from 17.5% in 2011 to 13.0% in 2015.
— 72 —
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HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
INDUSTRY OVERVIEW
The CRI Report forecasts that the market demand for beverages will continue to increase in line
with the overall PRC economy. It is estimated that in 2020, the market size of the PRC beverage
industry will grow to RMB1,135.4 billion. Similar to industry trends witnessed in the snack food
market, it is expected that the demand for more health-conscious drinks such as fruit and vegetable
juice beverages as well as plant-based and milk beverages will continue to grow with a CAGR of
14.0% and 14.2% from 2016 to 2020, respectively, compared with the lower CAGR of 6.0% for
carbonated beverages from 2016 to 2020, which are not perceived to be healthy.
Snack Food Market and Beverage Market in China’s Third- and Fourth Tier Cities and Rural
Areas
Snack Food Market
Most snack food producers located in third- and fourth-tier cities and rural areas are small and
medium-sized enterprises. Benefiting from their local distribution networks, familiarity with local
culture as well as competitive prices, small and medium-sized enterprises account for the largest
market share of snack food sales in China in terms of sales value.
The following graph shows sales value of the snack food market in China by cities tier for the
periods indicated:
Sales value of the snack food market in China (2011-2020E)
CAGR
RMB billion
600
2011-2015
2016E-2020E
562.8
507.0
500
456.7
411.5
370.7
400
337.0
306.0
300
252.2
229.0
200
136.6
277.8
147.5
159.2
171.8
185.6
204.1
222.7
242.9
265.0
First- and second-tier cities
8.0%
9.1%
Third-and fourth-tier cities and rural areas
10.1%
11.0%
289.1
100
0
2011
2012
2013
2014
2015
2016E
2017E
2018E
2019E
2020E
Source: CRI Report
Snack foods are mainly categorized as foods purchased for self-consumption or gifts for
household or tourism purposes. Over the years, sales of snack foods have maintained steady growth
in third- and fourth-tier cities and rural areas. In 2015, the total sales of snack foods reached
RMB337.0 billion in the third- and fourth-tier cities and rural areas, with a CAGR of approximately
10.1% from 2011 to 2015, higher than that in the first- and second-tier cities with a CAGR of only
8.0%.
— 73 —
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HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
INDUSTRY OVERVIEW
According to the CRI Report, the number of snack food enterprises will continue to increase
steadily. In first- and second-tier cities, the market position of snack food enterprises with
international brands or with leading domestic positions will remain relatively entrenched as they are
well-established in those cities. However, in third- and fourth-tier cities, localized small and medium
sized snack food enterprises will retain competitive advantages over non-localized competitors
through their greater familiarity with the local culture and accordingly, regional leading enterprises
will gradually become more dominant and obtain greater market share. The CRI Report forecasts that
the market demand for snack food in third- and fourth-tier cities and rural areas will continue to
increase and grow at an expected CAGR of 11.0% from 2016 to 2020, higher than that in first- and
second-tier cities with a CAGR of only 9.1%.
Beverage Market
According to the CRI Report, the major players in the beverage industry in third- and fourth-tier
cities and rural areas are regional enterprises who compete for market share through pricing strategies
and brand marketing, made achievable through disciplined cost control and consistent brand building.
Unlike the typical resident living in first- and second-tier cities, residents in the third- and fourth-tier
cities and rural areas tend to have lower disposable income due to less economic activity. As a result,
beverage choice in third- and fourth-tier cities and rural areas is closely correlated to personal income
levels as consumers tend to be more cost conscious and prioritize the prices of products over other
considerations when making purchasing decisions.
The following graph shows sales value of the beverage market in China by cities tiers for the
periods indicated:
Sales value of the beverage market in China (2011-2020E)
CAGR
RMB billion
800
700
645.3
576.2
600
514.5
459.3
500
400
300
2011-2015 2016E-2020E
722.8
377.0
329.0
278.9
245.1
200 173.9
193.0
221.1
248.2
410.1
263.3
288.1
315.2
344.8
377.2
412.6
First- and second-tier cities
10.9%
9.4%
Third- and fourth-tier cities and rural areas
13.7%
12.0%
100
0
2011
2012
2013
2014
2015
2016E
2017E
2018E
2019E
2020E
Source: CRI Report
With rising income levels and increasing consumer spending habits, the demand for beverages
in third- and fourth-tier cities and rural areas has maintained a relatively high growth rate over the past
five years. Both the total sales value and the growth rate of the demand for beverages in the third- and
fourth-tier cities and rural areas are higher than the respective rates in the first- and second-tier cities.
In 2015, the total sales value of beverages was RMB410.1 billion in third- and fourth-tier cities and
rural areas and RMB263.3 billion in first- and second-tier cities, with corresponding CAGR of 13.7%
and 10.9% from 2011 to 2015, respectively.
— 74 —
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HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
INDUSTRY OVERVIEW
The CRI Report estimates that the CAGR of the total sales value of beverages in third- and
fourth-tier cities and rural areas from 2016 to 2020 will be approximately 12.0%, while the
corresponding CAGR for first- and second-tier cities would only reach 9.4%.
Snack Food Market and Beverage Market in Hubei and Henan’s Third- and Fourth-Tier Cities
and Rural Areas
Snack Food Market in Hubei and Henan’s Third- and Fourth-tier Cities and Rural Areas
Purchase behavior is closely related to product pricing in third- and fourth-tier cities and rural
areas of Hubei and Henan, therefore snack foods in such areas mainly consist of mid to low-end
products. However, with the rapidly developing economy development and the high growth rate of
residents’ disposable income in these areas, the demand for snack food products is expected to grow
steadily in the coming years.
The following graphs show sales value of snack foods in Hubei and Henan for the periods
indicated.
Sales value of snack foods in Hubei (2011-2020E)
RMB billion
CAGR
70
2011-2015 2016E-2020E
58.3
60
52.1
46.5
50
41.5
40
30
23.6
20.3
20
First- and second-tier cities
9.6%
7.5%
13.0%
12.0%
25.3
23.5
21.9
20.3
18.9
17.6
16.5
15.1
13.9
12.2
37.1
33.1
30.0
26.4
Third-and fourth-tier cities and rural areas
10
0
2011
2012
2013
2014
2015
2016E
2017E
2018E
2019E
2020E
Source: CRI Report
Sales value of snack foods in Henan (2011-2020E)
RMB billion
CAGR
70
2011-2015 2016E-2020E
64.2
57.6
60
51.7
46.3
50
41.6
40
30
27.0
23.2
37.3
33.8
29.8
First- and second-tier cities
20
10
7.2
8.1
8.6
9.3
9.9
10.5
11.1
11.8
12.6
13.4
0
2011
2012
2013
2014
2015
2016E
2017E
2018E
2019E
2020E
Source: CRI Report
— 75 —
Third-and fourth-tier cities and rural areas
8.0%
6.3%
12.6%
11.5%
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HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
INDUSTRY OVERVIEW
In 2015, the total sales of snack foods in third- and fourth-tier cities and rural areas in Hubei and
Henan amounted to RMB33.1 billion and RMB37.3 billion, respectively. Furthermore, as illustrated
by the graphs above, third- and fourth-tier-cities and rural areas had both higher total sales value as
well as higher CAGR from 2011 to 2015.
Based on the market size from 2011 to 2015, the growing market trend and taking into account
the economic development of the Hubei and Henan, the CRI Report forecasts that by 2020, the total
sales value of the snack food market in the third- and fourth-tier cities and rural areas in Hubei and
Henan will reach RMB58.3 billion and RMB64.2 billion, respectively, with respective CAGR of
12.0% and 11.5% from 2016 to 2020.
Beverage Market in Hubei and Henan’s Third- and Fourth-tier Cities and Rural Areas
As with the snack foods situation in third- and fourth-tier cities and rural areas of Hubei and
Henan, purchase behavior is also closely related to product pricing and therefore snack foods sold in
such areas mainly consist of mid to low-end products. However, with rapid economic development and
the high growth rate of residents’ disposable income in these areas, the demand for beverages is
expected to grow significantly in the coming years. Furthermore, there is huge market potential for
beverages as the general population is becoming increasingly health conscious, driving demand for
healthy drinks.
The following graphs show sales value of beverages in Hubei and Henan for the periods
indicated.
Sales value of beverages in Hubei (2011-2020E)
RMB billion
CAGR
40
35
31.8
28.3
30
25.1
25
20
15
10
2011-2015 2016E-2020E
35.8
13.8
12.1
7.3
16.2
8.1
9.2
10.2
22.3
19.9
18.6
10.6
11.6
First- and second-tier cities
12.7
13.9
15.2
Third-and fourth-tier cities and rural areas
5
0
2011
2012
2013
2014
2015
2016E
2017E
2018E
2019E
9.6%
9.4%
13.2%
12.5%
16.6
2020E
Source: CRI Report
— 76 —
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HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
INDUSTRY OVERVIEW
Sales value of beverages in Henan (2011-2020E)
RMB billion
CAGR
2011-2015 2016E-2020E
60
51.3
50
45.4
40.2
40
35.6
30
10
19.4
17.0
20
5.3
5.8
6.4
7.0
31.5
27.9
25.5
22.3
7.4
8.0
First- and second-tier cities
8.6
9.4
10.1
11.0
Third-and fourth-tier cities and rural areas
8.5%
8.3%
13.1%
13.0%
0
2011
2012
2013
2014
2015
2016E
2017E
2018E
2019E
2020E
Source: CRI Report
In 2015, the total sales value of beverages in third- and fourth-tier cities and rural areas in Hubei
and Henan amounted to RMB19.9 billion and RMB27.9 billion, respectively. Furthermore, as
illustrated by the graphs above, third- and fourth-tier-cities and rural areas had both higher total sales
value as well as higher CAGRs from 2011 to 2015.
It is forecasted that by 2020, the size of the beverage market in third- and fourth-tier cities and
rural areas of Hubei and Henan will reach RMB35.8 billion and RMB51.3 billion, respectively. The
CAGR of the total sales value of beverages from 2016 to 2020 is expected to be approximately 12.5%
and 13.0% in Hubei and Henan, respectively.
Barriers of Entry
Generally, the barriers to of entry into the snack food and beverage industry are relatively low,
especially for small and medium-sized enterprises that mainly manufacture and sell products within
the immediate vicinity of where they are based. However, the barriers of entry are raised significantly
if a market participant desires to expand their business and operate across multiple markets and
locations.
In an industry with countless homogenized products, branding plays a vital role in influencing
consumer spending decisions. However, building a brand requires long-term unremitted efforts in
product quality control, safety control and marketing. The cost of establishing a brand is often several
times that of maintaining one. Entrenched market participants also benefit from established research
and development capabilities, sales channels, distributor relationships, vertical integration and
economies of scale, which enable them to develop new products more efficiently, distribute products
more rapidly, exercise greater overall cost control and respond to market changes more quickly. Lastly,
significant capital expenditure is required for larger scale operations as substantial funding is needed
for scaling up various operational aspects, such as constructing or acquiring new manufacturing
facilities, logistics and distribution points, information systems as well as hiring more employees,
hence acting as a further barrier to entry.
— 77 —
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HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
INDUSTRY OVERVIEW
COMPETITIVE LANDSCAPE
According to the CRI Report, the snack food and beverage industry is highly fragmented in the
PRC market with over 10,000 such enterprises. In 2015, the top 10 players only accounted for less than
10% of the total market in the PRC in terms of total sales value. Competition in first- and second-tier
cities is more intense as many larger domestic enterprises or international brands entered the market
earlier and have more capital to fund greater marketing campaigns and sales efforts, providing little
room for potential market entrants. In comparison, competition in third- and fourth-tier cities and rural
areas is less intense as the market is predominately occupied by localized small and medium-sized
enterprises which lack the funding and market coverage of their counterparts in first- and second-tier
cities. Furthermore, CRI expects, there is more potential for future growth in third- and fourth-tier
cities and rural areas for the snack food and beverage industry. From 2011 to 2015, the CAGR of the
total sales of snack foods was 10.1% in third- and fourth-tier cities and rural areas, whereas the
corresponding CAGR in first- and second-tier cities was 8.0%. During the same period, the CAGR of
the total sales of beverages was 13.7% in third- and fourth-tier cities and rural areas and the
corresponding CAGR for first- and second-tier cities was 10.9%.
Within the third- and fourth-tier cities and rural areas that our Group operates in, we have a
logistical advantage over many of our competitors by strategically locating our facilities and
warehouses approximately 110km from Wuhan. Wuhan is a major transportation hub and regional
center in central China and providing our Group access to the central China market, with a population
of approximately 300 million, quickly and efficiently. Our strategic location shortens the
transportation time needed for distributing products to our target market and acquiring raw materials
and supplies, which according to the CRI Report, allows us to achieve a logistics cost lower than the
industry’s average which is typically around 8.0% of an enterprise’s total costs. Additionally, our
strategic location brings us closer to our customers and keeps us better informed of market trends. To
that end, we adopt a centralized management and production system, enabling us to manufacture all
our products in-house as well as quickly adjust to market trends. For example, when our Group entered
the beverage market in 2014, we recognized that consumer preferences for carbonated beverages high
in calories but low in nutritional value were declining whereas plant-based and milk beverages as well
as fruit and vegetable juice rich in nutritional value were becoming more popular. Consequently, our
beverage products prominently featured plant-based and milk beverages as well as fruit and vegetable
juice beverages high in nutritional value.
In light of the abovementioned market opportunities and strategies, we believe we have
successfully capitalized on such opportunities and have quickly established a niche for our snack food
and beverage products in our target markets. For example, according to the CRI Report, our group
grew at a dramatically rate higher than the industry average in our target markets in Hubei and Henan
in terms of total sales during the Track Record Period.
— 78 —
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HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
INDUSTRY OVERVIEW
Year-on-year sales growth rates of our Group compared to the top five regional competitors
by sales, in third- & fourth-tier cities and rural areas of China
Growth rate
Categories
Puffed Food . . . . . . . . .
Regions
Enterprises
2012-2013
2013-2014
Hubei
Enterprise A1
12.1%
9.1%
11.1%
Enterprise A2
13.0%
9.4%
14.3%
Our Group
N/A
N/C
673.9%
Enterprise A3
13.5%
15.3%
10.3%
Enterprise A4
10.0%
10.1%
10.1%
Enterprise B1
15.0%
13.2%
16.3%
Enterprise B2
6.5%
(9.0%)
(13.0%)
Our Group
N/A
N/C
600.8%
Enterprise B3
10.3%
9.7%
5.3%
Enterprise B4
7.5%
(4.7%)
2.7%
Enterprise A2
15.1%
12.3%
16.8%
Enterprise C1
10.5%
9.1%
12.5%
Our Group
N/C
203.0%
45.0%
Enterprise A1
16.0%
15.2%
5.3%
Enterprise C2
0.0%
0.0%
0.0%
Enterprise D1
10.0%
12.5%
11.1%
Henan
2014-2015
Bread, Cakes and
Pastries . . . . . . . . . .
Hubei
Henan
Beverages . . . . . . . . . .
Hubei
Henan
Our Group
N/C
30.6%
97.2%
Enterprise D2
10.0%
11.1%
10.0%
Enterprise D3
10.0%
11.9%
6.0%
Enterprise B2
(11.5%)
(9.1%)
(15.0%)
Our Group
N/A
N/C
125.4%
Enterprise E1
23.0%
(6.9%)
(2.8%)
Enterprise E2
5.0%
(5.0%)
(2.4%)
Enterprise E3
15.2%
11.1%
5.3%
Enterprise E4
5.1%
5.1%
5.3%
Our Group
N/A
N/C
124.8%
Enterprise F1
4.5%
4.6%
2.0%
Enterprise F2
2.7%
(12.7%)
5.1%
Enterprise F3
6.5%
2.8%
9.6%
Enterprise F4
10.0%
5.3%
2.0%
Source: CRI Report
Notes:
(1)
N/A stands for “not applicable” as we have not yet entered the relevant market.
(2)
N/C stands for “not calculatable” as we only entered the relevant market this year and therefore have no reference sales
value for the prior financial year to calculate the year-on-year growth rate.
— 79 —
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THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
INDUSTRY OVERVIEW
Snack Foods: Puffed Foods, and Bread, Cakes and Pastries
Within the three years since our Group entered the market in third- and fourth-tier cities and rural
areas in Hubei and Henan, sales of our puffed foods products as well as bread, cakes and pastries
products have ranked within the top three enterprises in terms of total sales in 2015. Furthermore,
among the top five market participants, our market share of puffed foods or bread, cakes and pastries
products in terms of sales value has been increasing within the last three years in third- and fourth-tier
cities and rural areas of Hubei and Henan.
(i)
Puffed foods
Top five puffed foods enterprises in third- and fourth-tier cities and
rural areas of Hubei and Henan (2013-2015)
Hubei
Ranking
Enterprises
Sales value
Market share (by sales value)
(in RMB million)
2013
2014
2015
2013
2014
2015
7.4%
6.7%
1
Enterprise A1
66.0
72.0
80.0
8.3%
2
Enterprise A2
32.0
35.0
40.0
4.0%
3.6%
3.4%
3
Our Group
—
2.1
16.0
—
0.2%
1.4%
4
Enterprise A3
11.8
13.6
15.0
1.5%
1.4%
1.3%
5
Enterprise A4
9.9
10.9
12.0
1.2%
1.1%
1.0%
Source: CRI Report
Henan
Ranking
Enterprises
Sales value
Market share (by sales value)
(in RMB million)
2013
2014
2015
2013
2014
2015
1
Enterprise B1
38.0
43.0
50.0
3.5%
3.2%
3.1%
2
Enterprise B2
44.3
40.3
35.0
4.0%
3.0%
2.2%
3
Our Group
—
2.6
18.2
—
0.2%
1.1%
4
Enterprise B3
10.3
11.3
11.9
0.9%
0.8%
0.7%
5
Enterprise B4
11.7
11.1
11.4
1.1%
0.8%
0.7%
Source: CRI Report
— 80 —
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THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
INDUSTRY OVERVIEW
(ii)
Bread, cakes and pastries
Top five bread, cakes and pastries enterprises in third- and fourth-tier cities and
rural areas of Hubei and Henan (2013-2015)
Hubei
Ranking
Enterprises
Sales value
Market share (by sale vale)
(in RMB million)
2013
2014
2015
1
2
3
4
5
Enterprise A2
Enterprise C1
Our Group
Enterprise A1
Enterprise C2
122.0
110.0
20.9
66.0
45.0
137.0
120.0
63.3
76.0
45.0
160.0
135.0
91.8
80.0
45.0
2013
2014
2015
5.8%
5.2%
1.0%
3.1%
2.1%
5.7%
5.0%
2.7%
3.2%
1.9%
5.9%
5.0%
3.4%
2.9%
1.7%
Source: CRI Report
Henan
Ranking
Enterprises
Sales value
Market share (by sale value)
(in RMB million)
2013
2014
2015
1
2
3
4
5
Enterprise D1
Our Group
Enterprise D2
Enterprise D3
Enterprise B2
128.0
44.7
45.0
42.0
44.3
144.0
58.4
50.0
47.0
40.3
160.0
115.2
55.0
50.0
35.0
2013
2014
2015
4.4%
1.6%
1.6%
1.5%
1.5%
4.4%
1.8%
1.5%
1.4%
1.2%
4.3%
3.1%
1.5%
1.4%
0.9%
Source: CRI Report
Beverages
Within the two years since our Group entered the market in third- and fourth-tier cities and rural
areas in Hubei and Henan, we have become the market leader for beverages in terms of sales value
in 2015. In 2015, the total sales of our beverages surpassed that of our nearest competitor by more than
20% in both Hubei and Henan. Particularly, by concentrating on beverages with health benefits, our
plant-based and milk beverages and fruit and vegetable juice beverages have also become the market
leaders in third- and fourth-tier cities and rural areas in both Hubei and Henan in 2015.
Top five beverage enterprises in third- and fourth-tier cities and
rural areas in Hubei and Henan (2013-2015)
Hubei
Ranking
Enterprises
Sales value
Market share (by sales value)
(in RMB million)
2013
2014
2015
1
2
3
4
5
Our Group
Enterprise E1
Enterprise E2
Enterprise E3
Enterprise E4
—
274.0
221.0
171.0
45.2
Source: CRI Report
— 81 —
134.4
255.0
210.0
190.0
47.5
302.3
248.0
205.0
200.0
50.0
2013
2014
2015
—
1.7%
1.4%
1.1%
0.3%
0.7%
1.4%
1.1%
1.0%
0.3%
1.5%
1.3%
1.0%
1.0%
0.3%
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
INDUSTRY OVERVIEW
Henan
Ranking
Enterprises
Sales value
Market share (by sales value)
(in RMB million)
2013
2014
2015
1
2
3
4
5
Our Group
Enterprise F1
Enterprise F2
Enterprise F3
Enterprise F4
—
238.0
134.0
71.0
67.5
137.8
249.0
117.0
73.0
71.1
308.3
254.0
123.0
80.0
72.5
2013
2014
2015
—
1.1%
0.6%
0.3%
0.3%
0.5%
1.0%
0.5%
0.3%
0.3%
1.1%
0.9%
0.4%
0.3%
0.3%
Source: CRI Report
(i)
Plant-based and milk beverages
Top five enterprises of plant-based and milk beverages in third- and
fourth-tier cities and rural areas of Hubei and Henan (2013-2015)
Hubei
Ranking
Enterprises
Sales value
Market share (by sales value)
(in RMB million)
2013
2014
2015
1
2
3
4
5
Our Group
Enterprise G1
Enterprise G2
Enterprise G3
Enterprise G4
—
191.8
66.3
42.0
42.0
54.3
178.5
63.0
50.0
47.0
173.6
161.2
61.5
60.0
50.0
2013
2014
2015
—
7.6%
2.6%
1.7%
1.7%
1.9%
6.1%
2.2%
1.7%
1.6%
5.5%
5.1%
1.9%
1.9%
1.6%
Source: CRI Report
Henan
Ranking
Enterprises
Sales value
Market share (by sales value)
(in RMB million)
2013
2014
2015
2013
2014
2015
1
Our Group
—
54.4
174.3
—
1.4%
3.9%
2
Enterprise H1
138.0
144.0
147.0
4.0%
3.6%
3.3%
3
Enterprise H2
134.0
117.0
123.0
3.9%
2.9%
2.8%
4
Enterprise H3
32.0
33.0
36.0
0.9%
0.8%
0.8%
5
Enterprise H4
16.5
18.2
20.0
0.5%
0.5%
0.5%
Source: CRI Report
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INDUSTRY OVERVIEW
(ii)
Fruit and vegetable juice beverages
Top five enterprises of fruit and vegetable juice beverages in third- and
fourth-tier cities and rural areas of Hubei and Henan (2013-2015)
Hubei
Ranking
Enterprises
Sales value
Market share (by sales value)
(in RMB million)
2013
2014
2015
2013
2014
2015
—
27.3
63.7
—
0.6%
1.4%
1
Our Group
2
Enterprise I1
45.2
47.5
50.0
1.2%
1.1%
1.1%
3
Enterprise I2
44.2
42.0
41.0
1.2%
1.0%
0.9%
4
Enterprise I3
29.8
32.5
35.4
0.8%
0.7%
0.8%
5
Enterprise I4
27.2
28.5
30.0
0.7%
0.7%
0.6%
Source: CRI Report
Henan
Ranking
Enterprises
Sales value
Market share (by sales value)
(in RMB million)
2013
2014
2015
2013
2014
2015
—
30.5
62.1
—
0.5%
0.9%
1
Our Group
2
Enterprise J1
54.0
56.8
58.0
1.0%
0.9%
0.9%
3
Enterprise J2
20.0
21.0
24.0
0.4%
0.4%
0.4%
4
Enterprise J3
25.7
23.2
22.0
0.5%
0.4%
0.3%
5
Enterprise J4
9.0
10.0
10.8
0.2%
0.2%
0.2%
Source: CRI Report
Key Drivers of growth in the Snack Food and Beverage Industry in China
•
Rising consumer spending. The increasing population, rising standards of living and
increased spending power will continue to spur demand for snack food and beverage
products.
•
Food safety and brand loyalty. In the wake of numerous food and drink related industry
scandals, consumers are paying more attention to food safety and quality. Manufacturers
transparent with their production process and ingredients can build consumer trust and help
drive the long-term prospects of the industry.
•
More health conscious consumers. Consumers are nowadays more educated and health
conscious, driving demand for snack food and beverage products with health benefits and
better nutritional value.
•
Product innovation and convenience. With higher living standards and generally faster
paced lifestyles, consumers are increasingly demanding a wider variety of products, better
refined tastes and more convenient packaging.
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INDUSTRY OVERVIEW
•
Market access, distribution networks and geographical expansion. Greater market
coverage through wider distribution networks and specialized sales channels increases
consumer exposure to snack food and beverage products, which in turn creates more
demand for such products.
Overview of major raw materials
For snack food and beverage producers in China, the major raw materials consist of sugar, eggs,
peanuts and milk powder. The charts below illustrate the price trends of the aforementioned key raw
materials for the three years ended December 31, 2015.
Price trend of sugar, eggs and peanuts in China and
global price trend of whole milk powder (2013-2015)
RMB per ton
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
2013Q1 2013Q2 2013Q3 2013Q4 2014Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4
Refined sugar
Egg
Peanut
Whole milk powder
Source: Ministry of Agriculture of PRC; Global Dairy Trade; CRI Report
According to the CRI Report, both egg and peanut prices have experience notable fluctuations
during the past three years. Egg prices increased substantially between 2013Q2 and 2014Q3 due to the
outbreak of avian influenza A (H7N9) affecting the poultry raising industry in China and then
decreased sharply between 2014Q3 and 2015Q2 due to cheaper poultry feed prices. The oversupply
of peanuts caused peanut prices to plunge between 2013Q1 and 2014Q1, but subsequent widespread
drought and waterlogging damaging peanut crops caused prices to rebound between 2014Q1 and
2014Q4.
According to the CRI Report, both sugar and milk powder prices have generally been on a
downward trend over the past three years. Sugar prices gradually decreased between 2013Q1 and
2014Q3 due to oversupply, but prices have rebounded slightly between 2014Q3 and 2015Q2. However
sugar prices are expected to remain stable going forward as large sugar inventories in China will
continue to suppress its price. Milk prices have trended downward since 2013Q2 due to the oversupply
of cheap milk powder imported from New Zealand and Australia, both which generally have
comparatively cheaper production costs.
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REGULATORY OVERVIEW
SUMMARY OF PRINCIPAL LEGAL AND REGULATORY PROVISIONS
Our business operations are based in China and are subject to extensive regulation and
supervision by the PRC Government. This section summarizes the main laws, rules and regulations
which affect certain key aspects of our business.
Production and Sales of Snack Food and Beverage Products
Licensing System for Food Production and Trading
Pursuant to Regulations on the Food Safety Law of the PRC (中華人民共和國食品安全法) (the
“Food Safety Law”), which was promulgated on February 28, 2009, became effective from June 1,
2009, amended on April 24, 2015 and then came into force on October 1, 2015, and the Implementing
Rules on the Food Safety Law of the PRC (中華人民共和國食品安全法實施條例) (the “Implementing
Rules on the Food Safety Law”), which was promulgated and became effective on July 20, 2009, and
as amended on February 6, 2016, the PRC establishes a licensing system for the production of certain
products, stipulates the procedures for obtaining the relevant licenses as well as sets out the legal
liability for the breach of such licenses. To engage in food production, sale of food and catering
services shall legally obtain a permit. The supervision of the quality and safety of food produced or
processed by enterprises is carried out by the PRC General Administration of Quality Supervision,
Inspection and Quarantine (國家質量監督檢驗檢疫總局) (the “AQSIQ”).
In accordance with the Measures for the Administration of Food Production Licensing
(食品生產許可管理辦法), which was promulgated on April 7, 2010, came into effect on 1 June, 2010,
and provided that any enterprise engaged in the production of food products must obtain a food
production license. A food production license is valid for a term of three years. Enterprises looking
to renew their food production licenses are required to file an application for renewal of the license
with the original licensing authority within six months prior to the expiry of the food production
license.
On August 31, 2015, the new Measures for the Administration of Food Production Licensing
were promulgated and came into effect on October 1, 2015. According to the new Measures for the
Administration of Food Production Licensing, the term of validity for a food production license has
been extended to five years and applications for the renewal of such licenses shall be filed with the
respective food and drug administrative authorities which issued the original license 30 working days
before its expiry. Furthermore according to Decision of the State Council on Amending Certain
Administrative Regulations (2016) (國務院關於修改部分行政法規的決定 (2016)) promulgated and
became effective on 6 February, 2016, a Food Production and Operating Licensing shall be valid for
three years.
Personnel Health Management System
In accordance with the Food Safety Law as well as the Implementing Rules on the Food Safety
Law, food producers and traders are required to adopt a management system of personnel health.
Employees suffering from dysentery, typhoid, viral hepatitis type A, viral hepatitis type E or any other
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REGULATORY OVERVIEW
infectious disease of the digestive tract or suffering from active tuberculosis, purulent or seeping skin
disease or any other disease that affects the food safety shall not engage in work that involves contact
with ready-to-eat food. Food producers and traders shall arrange physical examinations for their
employees each year and shall obtain health certificates for employees prior to working.
Quality Assurance
According to the Implementation Rules for the Supervision and Administration on the Quality
Safety of the Food Manufacturing and Processing Enterprises (For Trial) (食品生產加工企業質量安
全監督管理實施細則（試行）) promulgated by AQSIQ on September 1, 2005 and effective from the
same date, the market access symbol for food quality safety (i.e. the symbol for a food manufacturing
permit), is a symbol of quality, and shall be represented by the English abbreviation of quality safety
(hereinafter referred to as the “QS”). The QS symbol shall be printed (or pasted) on the packaging or
label of food subjected to the market access system for food quality safety before leaving a production
facility. Products without the QS symbol shall not leave the production facility for sale. Food products
bearing the QS symbol indicate that they promise to have passed the inspection requirements and meet
the basic PRC standards of food quality and safety. Where a quality issue arises in relation to food
products printed (pasted) with a QS symbol before its expiry date, the manufacturer and the seller shall
assume liabilities in accordance with their respective duties.
Food Safety
Pursuant to the Food Safety Law as well as the Implementing Rules on the Food Safety Law, food
producers and food trading entities shall engage in production and trading activities in accordance
with the laws, regulations and food safety standards. Additionally, they shall be responsible to society
and the public to ensure the safety of the food products they produce and/or trade. The regulatory
scope under the Food Safety Law is expanded to include food-related products, catering service
providers as well as food storage and transportation.
The Packaging of Pre-packed Food
Under the Food Safety Law as well as the Implementing Rules on the Food Safety Law, the
packaging of pre-packed food shall bear informative labels. The labels shall contain the following
pieces of information, such as name, specifications, net content and date of production, list of
ingredients or components, producer’s name, address and contact methods, expected shelf life, product
standard code, storage conditions, the common name of the food additives used in accordance with
national standards, category number of food production license number, and other items that must be
indicated according to laws, regulations or food safety standards. Additionally, the Food Safety Law
also contains additional labeling requirements for a broader range of food products such as health
foods as well as foods targeting infants and young children. For example, food labels on staple and
supplementary foods made exclusively for infants shall also indicate the principal ingredients and
their contents. Furthermore, where the national food safety standards provide otherwise for matters to
be indicated on labels, such provisions shall also apply.
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REGULATORY OVERVIEW
Food Recall System
Under the Food Safety Law as well as the Implementing Rules on the Food Safety Law, the PRC
has an established food recall system. Where a food producer discovers that any food produced by it
does not meet the food safety standards or there is evidence that the food is potentially hazardous to
human health, it shall immediately cease production of the food, recall all such food already on the
market, notify the relevant producers, traders, and consumers, and record the recall and notification.
Where a food trader discovers that any food that it deals in falls under either of the aforementioned
circumstances, it shall immediately cease dealing in the food, notify the relevant producers, traders,
and consumers, and record the cessation of dealing in the food and notification. If the food producer
deems it necessary to recall the food, it shall recall the food immediately. If any food that a food trader
deals in falls under either of the abovementioned circumstances and it is caused by the food trader,
the food trader shall recall the food. A food producer or trader shall take measures such as innocuous
disposal and destruction of the recalled food to prevent such food from entering the market again.
However, a food producer may continue to sell food which is recalled if the food’s labels, marks, or
instructions fail to meet the food safety standards, provided that it has taken remedial measures and
is able to ensure food safety, and for the sale of such food, it shall expressly indicate to consumers
the remedial measures taken. A food producer or food trader shall report information regarding a recall
and the disposal of such food to the food and drug administrative department of the local people’s
government at the county level. If it needs to make any innocuous disposal of or destroy the recalled
food, it shall report the time and location in advance, and the food and drug administrative department
may, as it deems necessary, oversee the disposal or destruction on the site. Where a food producer or
food trader fails to recall any food or stop dealing in any food as required under this Article, the food
and drug administrative department of the people’s government at or above the county level may order
it to recall the food or cease dealing in the food. On March 11, 2015, the China Food and Drug
Administration promulgated the Administrative Measures for Food Recall (食品召回管理辦法), which
became effective on September 1, 2015 which provides detailed procedures, rules and regulations
regarding the implementation of the abovementioned food recall system.
Procurement Record Checking System and Food Ex-factory Checking Record System
According to the Food Safety Law as well as the Implementing Rules on the Food Safety Law,
food producers purchasing food raw materials, food additives and food-related products shall check
the licenses and food eligibility certification documents of their suppliers. The raw food materials
whose eligibility certification documents are unavailable shall be checked in accordance with the food
safety standards. No raw food materials, food additives or other food-related products inconsistent
with the food safety standards may be procured or used.
Food production enterprises shall establish a procurement record checking system of raw food
materials, food additives and food-related products which contains detailed information of their
supplies, including without limitation, the names and contact information of suppliers, specifications,
quantities and the dates of purchase of raw food materials, food additives and food-related products.
The procurement records of raw food materials, food additives and food-related products shall be true,
and shall be kept for at least two years.
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REGULATORY OVERVIEW
Food production enterprises shall establish a food production record checking system, to check
the inspection certificates and the safety conditions of food produced which contains detailed
information of their products produced, including without limitation, the names, specifications,
quantities, dates of production, production lot numbers, numbers of inspection certificates, names and
contact methods of purchasers and dates of sales, of food products. The food production checking
records shall be true, and shall be kept for at least two years.
Under the Food Safety Law as well as the Implementing Rules on the Food Safety Law, food
production and trading enterprises may either carry out food production inspections themselves or
entrust the inspection responsibilities to a food inspection institution in compliance with the
provisions of this Law.
Food Labeling and Identification Management System
Pursuant to the Food Identification Management Requirement (食品標識管理規定) promulgated
by AQSIQ on August 27, 2007 which became effective from September 1, 2008, and the amendments
dated October 22, 2009, food identification labels should state the name, place and date of production,
expiry date, net content, list of ingredients, names and addresses and contact information of producers,
and shall carry the product standard number held by the producers. Food ingredients or components
are required to be disclosed on food labels. Nutritional components and their respective daily
percentage intakes shall labeled with respect to staple and supplementary food for babies, infants or
other target consumers. Food labels containing words such as “nutrition” or “strengthened” in their
names or descriptions are required to state the nutrition and calories of such food in accordance with
the relevant national standards and comply with the quantity identification required by the national
standards. Food which is under the production licensing management scheme are required to display
its food production license number and a QS mark on its food label.
Supervision on the Use of Food Additives
Pursuant to the Food Safety Law, no food additives may be used in food unless it is technically
considered necessary and has been proven to be safe and reliable after passing certain safety risk
assessments. The health administrative department of the State Council shall, on the basis of the
technical requirements and the results of the food safety risk assessments, revise the varieties, scope
of use and standards regarding the permissible amounts of food additives in a timely manner. A food
producer should use food additives in accordance with the food safety standards in relation to the
varieties, scope of use and permissible amounts, and should not, during the food production process,
use any chemical substances other than permissible food additives or any other substances which may
cause potential harm to human health.
A food producer should inspect the license and product compliance certification document from
the supplier when purchasing raw materials for producing food, food additives and food-related
products. For any supplier who is unable to provide a compliance certification document, an
inspection on the raw materials for producing food shall be implemented in accordance with the food
safety standards. No raw ingredient for food, food additives or food-related products with which the
food safety standards have not been complied with shall be purchased or used.
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REGULATORY OVERVIEW
Product Quality and Protection of Consumers
Product liability claims may arise if the products sold have any harmful effects on consumers.
The injured party may claim for damages or compensation. The General Principles of the Civil Law
of the PRC (中華人民共和國民法通則), which was promulgated by the NPC on April 12, 1986 and
became effective on January 1, 1987, was amended on August 27, 2009, states that manufacturers and
sellers of defective products causing property damage or injury shall incur civil liabilities.
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 by the Standing Committee of the NPC on February 22, 1993 and became
effective from September 1, 1993, and as amended on July 8, 2000 and August 27, 2009, regulates the
quality control of products and protects consumers’ rights. Under this law, manufacturers and
operators who produce and sell defective products may be subject to the confiscation of earnings from
such sales, the revocation of business licenses and imposition of fines, and in severe circumstances,
may be subject to criminal liability.
The Consumer Protection Law of the PRC (中華人民共和國消費者權益保護法) (the “Consumer
Protection Law”), was promulgated on October 31, 1993 and became effective from January 1, 1994,
amended on October 25, 2013 and became effective on March 15, 2014 sets out standards of behavior
for business operators in their dealings with consumers, including, among others, the (i) compliance
of goods and services with the Consumer Protection Law and other relevant laws and regulations, (ii)
provision of accurate information and advertising concerning goods and services and the quality and
use of such goods and services, (iii) issuance of receipts to consumers in accordance with relevant
national regulations, business practices or upon customer request, (iv) ensuring of the actual quality
and functionality of goods or services are consistent with advertising materials, product descriptions
or samples, (v) assumption of the responsibilities related to repairing, replacing, returning or other
liability in accordance with national regulations or any agreements with the consumer, and (vi)
stipulation of not unreasonable or unfair terms for consumers as well as not excluding themselves from
civil liability to undermine the legal rights and interests of consumers. Any seller which violates the
Consumer Protection Law may be subject to fines, suspension of its business operations or revocation
of its business license. A seller which violates the Consumer Protection Law may also be subject to
criminal liabilities. According to the Consumer Protection Law, a consumer whose legal rights and
interests are harmed during the purchase or use of goods may claim compensation from the seller.
Where the liability lies with the manufacturer or supplier, the seller, after settling compensation with
the consumer, has the right to recover such compensation from that manufacturer or seller as the case
may be. Consumers or other parties who suffer injury or property losses arising from product defects
may claim compensation from the manufacturer or the seller. Where the liability lies with the
manufacturer, the seller has the right to recover such compensation from the manufacturer after
compensating the consumer.
On December 26, 2009, the Standing Committee of the NPC promulgated the PRC Tort Liability
Law (中華人民共和國侵權責任法), which became effective from July 1, 2010, pursuant to which
producers shall bear liability for damage caused to others by their defective products, and for such
damage, the injured party may seek compensation from either the producer or the seller. Where the
product defect is caused by the manufacturer, the seller may, after paying compensation, claim against
the manufacturer for the same. Where the product defect is caused by the seller, the manufacturer may,
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REGULATORY OVERVIEW
after paying compensation, claim against the seller for the same. With respect to the environment, this
law PRC Tort Liability Law provides that polluters assume liability in respect of environmental harm
caused by their pollution.
PRODUCT PRICING
Anti-Monopoly Law
Pursuant to the Anti-Monopoly Law of the PRC (中華人民共和國反壟斷法) (the
“Anti-Monopoly Law”), which was promulgated on August 30, 2007 and became effective from
August 1, 2008, “dominant market position” shall refer to a position where in an operator may
manipulate the price, volume and other trade conditions of commodity on relevant market, or may
obstruct or otherwise effect the entrance of other operators into relevant markets. Operators who hold
a dominant market position shall be prohibited from engaging in such practices which may be
classified as an abuse of said position as: (a) selling products at unfairly high or unfairly low prices,
(b) selling products at a price lower than cost without legitimate grounds, (c) refusing to trade with
the other trading party without legitimate grounds, (d) forcing the other trading party to trade only
with said operator or other operators specified by said operator without legitimate grounds, (e)
conducing tie-in sales or adding other unreasonable conditions on a deal without legitimate grounds,
(f) discriminating among trading parties of the same qualifications with regards to trade price, etc.
without legitimate grounds, or (g) other practices recognized by the Anti-Monopoly Law enforcement
authorities as an abuse of dominant market position. Furthermore, where an operator violates the
provisions of the Anti-Monopoly Law by abusing its dominant market position, Anti-Monopoly Law
enforcement authorities shall order a halt to the offending behavior, confiscate the illegal earnings,
and impose a fine of up to 1% to 10% of the previous year’s sales revenue.
Competition Law
Competition among business operators is generally governed by the Law of the PRC for
Anti-Unfair Competition (中華人民共和國反不正當競爭法) (the “Anti-Unfair Competition Law”),
which was promulgated on September 2, 1993 and came into effect on December 1, 1993. According
to the Anti-Unfair Competition Law, when trading on the market, operators shall abide by the
principles of voluntaries, equality, fairness, honesty and credibility, and observe generally recognized
business ethics. Acts of operators which contravene the provisions of Anti-Unfair Competition Law,
result in the damaging of the lawful rights and interests of other operators or disturb socio-economic
order shall constitute unfair competition. When the lawful rights and interests of an operator are
damaged by the acts of unfair competition, it may institute proceedings in court. Where an operator
commits unfair competition in contravention of the provisions of the Anti-Unfair Competition law and
causes damage to another operator, it or he shall bear the responsibility for compensating for such
damages. Where the losses suffered by the injured operator are difficult to calculate, the amount of
damages shall be the profit gained by the infringer during the period of infringement through the
infringing act. The infringer shall also bear all reasonable costs incurred by the injured operator in
investigating the acts of unfair competition committed by the operator.
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REGULATORY OVERVIEW
Pricing of Products
Pursuant to the Price Law of the PRC (中華人民共和國價格法) (the “Price Law”), which was
promulgated on December 29, 1997 and with effect from May 1, 1998, operators shall, in determining
prices, not only conform with the law, but also abide by the principles of fairness, honesty and
credibility. Production and management costs as well as market supply and demand shall be the
fundamental basis for the determination of prices.
Operators shall, in selling, procuring commodities and providing services, display the clearly
marked price in accordance with the provisions of the competent departments in charge of price of the
government. Commodities and services shall not be sold with additional costs beyond the marked price
and no other fees not indicated shall be collected. Furthermore, operators shall not commit unfair price
acts such as manipulating market prices in collusion to the detriment of the lawful rights and interests
of other operators or consumers. Any operator who commits an unfair price act prescribed under the
Price Law shall be ordered to make rectifications, have such illegal gains confiscated and may be
concurrently subject to a fine of no more than five times the illegal gains. Where the circumstances
are serious, an order shall be issued for the suspension of business operations or the revocation of the
business license by the agency of industry and commerce administration. Furthermore, any operator
who causes consumers or other operators to pay higher prices as a result of illegal price acts shall
refund the portion overpaid. Where damage has been caused, liability for compensation shall be
determined according to law. Any operator who violates the requirements of clearly marking prices
shall be ordered to make a rectifications, have such illegal gains confiscated and may be concurrently
subject to a fine of no more than RMB5,000.
Workplace Safety
Pursuant to the PRC Production Safety Law (中華人民共和國安全生產法) (the “Production
Safety Law”) which was promulgated on June 29, 2002, amended on August 27, 2009 and August 31,
2014 and came into effect on December 1, 2014, the State Administration of Work Safety
(國家安全生產監督管理總局) is in charge of the overall administration of production safety. The PRC
Production Safety Law provides that any entity engaging in manufacturing must meet national or
industry standards regarding safety production and provide qualified working conditions required by
laws, administrative rules and the national or industry standards. The entity engaging in manufacturing
must install prominent warning signs at or on the relevant dangerous operation sites, facilities and
equipment. The design, production, installment, use, test, maintenance, upgrade and disposal of safety
equipment must comply with national and industry standards.
LABOR AND SOCIAL SECURITY
The Labor Law of the PRC (中華人民共和國勞動法) was promulgated by the Standing
Committee of the NPC on July 5, 1994 and became effective on January 1, 1995 and was amended on
August 27, 2009. The Labor Contract Law of the PRC (中華人民共和國勞動合同法) was promulgated
on June 29, 2007 and amended on December 28, 2012 by the Standing Committee of the NPC and
became effective on January 1, 2008. Pursuant to these laws, labor contracts shall be evidenced in
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writing if labor relationships are to be or have been established between enterprises and employees.
The salaries paid by enterprises to their employees shall not be lower than the local minimum salary
standards. Overtime payments shall be made by enterprises in accordance with the relevant laws and
regulations if employees are made to work overtime. Enterprises shall establish and perfect a system
of workplace safety and sanitation, strictly abide by national rules and standards on workplace safety
and sanitation, and educate employees for workplace safety and sanitation. Enterprises shall maintain
workplace safety and sanitation conditions in compliance with relevant laws and regulations.
Employers in the PRC are required to make contributions to various social insurance funds
(including medical, pension, unemployment, work-related injury and maternity) and the housing fund
for employees in accordance with the Social Insurance Law of the PRC (中華人民共和國社會保險法)
adopted by the Standing Committee of the NPC on October 28, 2010 and became effective on July 1,
2011, Regulations on Work-Related Injury Insurance (工傷保險條例) promulgated on August 27,
2003, effective on January 1, 2004 and as amended on December 20, 2010 and made effective on
January 1, 2011, the Interim Measures Concerning Maternity Insurance for Employees in Enterprises
(企業職工生育保險試行辦法) promulgated on December 14, 1994 and made effective on January 1,
1995, the Interim Regulations Concerning Collection and Payment of Social Insurance Premiums (社
會保險費徵繳暫行條例) promulgated and made effective on January 22, 1999, the Interim Measures
on Administration of Social Insurance Registration (社會保險登記管理暫行辦法) promulgated and
made effective on March 19, 1999 and the Regulations Concerning Housing Fund Administration (住
房公積金管理條例) promulgated and made effective on April 3, 1999 and as amended on March 24,
2002.
ENVIRONMENTAL PROTECTION LAWS
The Environmental Protection Law of the PRC (中華人民共和國環境保護法) (the
“Environmental Protection Law”), which was promulgated by the Standing Committee of the NPC
on December 26, 1989, and came into effect on the same day, and was amended on April 24, 2014 and
then came into effect on January 1, 2015, provides a regulatory framework to protect and develop the
environment, prevent and reduce pollution and other public hazards as well as safeguard human
health. The environmental protection department of the State Council is in charge of promulgating
national standards for environmental protection. The Environmental Protection Law requires that any
facility producing pollutants or other hazards adopt environmental protection measures in its
operations and establish an environmental protection responsibility system. Enterprises violating the
Environmental Protection Law may be subject to a warning, payment of damages, imposition of a fine,
or the limitation or suspension of production in accordance with the seriousness of the situation. If a
criminal offense is committed, the offender may be subject to criminal liabilities.
The Ministry of Environmental Protection of the PRC (中華人民共和國環境保護部) (the
“Ministry of Environmental Protection”) has formulated a series of supporting regulations to ensure
effective enforcement of the new environmental protection law.
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Disclosure of Environmental Information by Enterprises and Public Institutions (企業事業單位
環境信息公開辦法) (the “Measures”) promulgated on December 19, 2014 and came into effect on
January 1, 2015. The Measures specify the units and scope of the environmental information
disclosed, method of disclosure, credit evaluation system and legal liability. The Measures also
specify subjects which require the environmental protection authorities to draw up a list of key
pollutant-discharging units and to supervise and guide the units to carry out the work. As for the
content of disclosure, the environmental protection authorities are liable to monitor the disclosed
contents according to the Measures. On December 19, 2014, the Ministry of Environmental Protection
promulgated the Measures for the Imposition of Consecutive Punishments on a Daily Basis by
Environmental Protection Authorities (環境保護主管部門實施按日連續處罰辦法), which was
promulgated on December 19, 2014 and came into effect on January 1, 2015. The Measures specify
the basis, principle, scope, procedure and the method for calculating the consecutive punishments on
a daily basis.
On December 19, 2014, the Ministry of Environmental Protection promulgated the Measures for
the Imposition of Sealing up and Detaining by Environmental Protection Authorities (環境保護主管
部門實施查封、扣押辦法), which came into effect on January 1, 2015. These measures specify the
definition, scope of application, concrete object of sealing up and detaining, and the implementing
procedures such as inspection, evidence collection, examination and approval, penalty decision
enforcement, implementing period, retention and release.
On December 19, 2014, the Ministry of Environmental Protection promulgated the Measures for
the Imposition of Restrictions on Production and Cessation of Production for Rectification by
Environmental Protection Authorities (環境保護主管部門實施限制生產、停產整治辦法), which came
into effect on January 1, 2015. Environmental protection authorities at or above the county level shall
take measures such as restricting production, suspending production for rectification and severely
disciplining enterprises discharging pollutants exceeding the pollutant discharge standard or the
controlling indicators for total emission volume of major pollutants.
Enterprises in the PRC must comply with the Law of the PRC on the Prevention and Control of
Water Pollution (中華人民共和國水污染防治法), which was promulgated on February 28, 2008 and
came into effect on June 1, 2008, the Law of the PRC on the Prevention and Control of Atmospheric
Pollution (中華人民共和國大氣污染防治法), which was promulgated on August 29, 2015 and came
into effect on January 1, 2016 and the Law of the PRC on the Prevention and Control of Pollution from
Environmental Noise (中華人民共和國環境噪聲污染防治法), which was promulgated on October 29,
1996 and came into effect on March 1, 1997. These laws regulate extensive issues relating to
environment protection including waste water discharge, air pollution control and noise emission.
Pursuant to these laws, all the enterprises that may cause environmental pollution in the course of their
production and business operations shall introduce environmental protection measures in their
facilities and establish a reliable system for environmental protection. Enterprises are required to
adopt effective measures to prevent and control the level of environmental pollution and hazards
produced during the production process, construction or other activities. Enterprises must obtain
licenses for the discharge of wastewater and atmospheric pollutants and the discharged wastewater and
atmospheric pollutants shall comply with applicable State and local standards.
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Environmental Protection Regulations for Construction Projects
The Administrative Regulations on the Environmental Protection of Construction Projects
(建設項目環境保護管理條例) were promulgated by the State Council on November 29, 1998 and
became effective on the same date. The Law of the PRC on Environmental Impact Assessment
(中華人民共和國環境影響評價法) was adopted by the Standing Committee of the NPC and became
effective on September 1, 2003. The law and regulations require an environmental impact assessment
to be completed prior to the construction of a project and establish a three-tier system for the
environmental impact assessments. In the case of a construction project that may cause significant
environmental impact, an environmental impact report shall be completed by a qualified institution
and include a full assessment of environmental impacts. In the case of a construction project that may
cause a slight environmental impact, a report shall be completed by a qualified institution and include
an analysis or special assessment of the environmental impact. In the case of a construction project
that may cause very little environmental impact, an environmental impact assessment is unnecessary,
but an environmental impact form shall be filed. The catalogue for the classification and management
of environmental impact assessments for construction projects is formulated and issued by the
environmental protection administration department of the State Council. The environmental impact
assessment documents shall be submitted to the competent administrative department responsible for
environmental protection for review and approval. In the absence of such approval, permission for
construction of the project will not be granted and the construction is not allowed to be commenced.
Pursuant to the Administrative Regulations on the Environmental Protection of Construction
Projects and the Administrative Measures on Environmental Protection Inspection and Acceptance for
Completion of Construction Projects (建設項目竣工環境保護驗收管理辦法) issued by the Ministry of
Environmental Protection on December 27, 2001, effective from February 1, 2002 and amended on
December 22, 2010, once a construction project is completed, the entity responsible for its
construction shall apply to the competent environmental protection administration authority for the
inspection and acceptance of the project. The entity is required to provide the authority with an
application report, application form or registration form, together with the applicable environmental
protection monitoring or investigation document, depending upon the type of the environmental
impact assessment document applicable to it. The authority will carry out the inspection and
acceptance within the prescribed time limit and grant its approval if the construction project satisfies
the conditions for acceptance set forth in the aforesaid rules. In the absence of such approval, the
completed construction project shall not be put into production or operation.
PRC LAND AND BUILDING USE RIGHTS
Land Use Rights
Pursuant to the Land Administration Law of the PRC (2004 Amendment) (中華人民共和國土地
管理法 (2004修正)) promulgated on June 25, 1986 and made effective on January 1, 1987, and
amended on December 29, 1988, August 29, 1998 and August 28, 2004, then made effective on August
28, 2004 and the Regulation on the Implementation of the Land Administration Law of the PRC (中
華人民共和國土地管理法實施條例) promulgated on January 4, 1991 and made effective on February
1, 1991, and amended on December 27, 1998, January 8, 2011 and July 29, 2014, land owned by the
State and land collectively owned by peasants may be allocated to be used by units or individuals
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according to the law. Units or individuals using land shall be responsible for the protection,
management and a rational use of the land. The people’s government at the country level shall register
and put on record the uses of State-owned land being used by units or individuals and issue certificates
to certify the right of use. The State Council shall designate specific units to register and put on record
State-owned land used by central government organizations. Any change of ownership or use of land
must go through the land alteration registration procedures. Any person transferring any fixtures,
structures or construction attached to the land which also causes a change in land ownership and land
use rights as a result of such transfer, must file an application for change in land registration with the
competent department of land administration of the people’s government above the county level of the
locality wherein the land is located, and the original land registration registrar shall effect the change
in registration of land ownership and land use rights. The change in land ownership and use rights take
effect as of the date of change in registration.
Pursuant to the Property Law of the PRC (中華人民共和國物權法) (the “Property Law”)
promulgated on March 16, 2007 and made effective on October 1, 2007, the holder of the right to use
land for construction shall be entitled to possess, use and seek proceeds from the land owned by the
state, and be entitled to make use of the land for constructing buildings, fixtures and their secondary
facilities. The right to use land for construction may be established by various means, including
transfer or allotment. Where the right to use land for construction is established by means of auction,
bid invitation, or agreement, the parties involved shall enter into a written contract for the transfer of
the right to use land for construction. The holder of the right to use land for construction shall pay
transfer fees and other fees according to the legal provisions and the contract.
Building Use Rights
Pursuant to the Property Law, a legal person (including an enterprise) has the right to possess,
use, seek profits from and dispose of any real property or movable property it owns in accordance with
the laws, administrative regulations and its articles of association. The creation, change, transfer or
elimination of the real right of a real property shall become effective after it is registered according
to law, and it shall have no effect if it is not registered according to law, except as prescribed by any
other law.
Pursuant to Measures for Building Registration (房屋登記辦法) promulgated on February 15,
2008 and made effective on July 1, 2008, the building registration as mentioned in these measures
refers to the conduct of a building registration authority, which must legally record the rights in a
building and other matters in the building register book. The building registration shall adhere to the
principle of consistency between the building ownership and the subject holding the right to use the
land within the context as occupied by the building. The building registration authority shall write out
and issue the certificates of ascription to the right holder of rights in a building, in accordance with
the record in the building register book. The certificates of ascription of a right in a building
(including a certificate of ownership of a building or a certificate of other rights in a building), shall
be proof of a right holder’s enjoyment of rights in a building.
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INTELLECTUAL PROPERTY RIGHTS
Copyright
According to the Copyright Law of the PRC (中華人民共和國著作權法) (the “Copyright Law”),
which was promulgated on September 7, 1990, made effective on June 1, 1991, and was amended on
October 27, 2001 and February 26, 2010 and became effective on April 1, 2010, copyrights include
personal rights such as the right of publication and attribution as well as property rights such as the
right of production and distribution. Reproducing, distributing, performing, projecting, broadcasting
or compiling a work or communicating the same to the public via an information network without
permission from the owner of the copyright therein, unless otherwise provided under the Copyright
Law, shall constitute a copyright infringement. Infringers shall amongst other things, according to the
circumstances of the case, undertake to cease the infringement, take remedial action, offer an apology
and pay damages.
Trademark
Pursuant to the Trademark Law of the PRC (中華人民共和國商標法) (the “Trademark Law”),
which was promulgated on August 23, 1982, became effective on March 1, 1983, and amended on
February 22, 1993, October 27, 2001 and revised on August 30, 2013 and with effect from May 1,
2014, the right to the exclusive use of a registered trademark shall be limited to trademarks which have
been approved for registration and to goods for which the use of such trademark has been approved.
The validity period of a registered trademark shall be ten years, starting from the day the registration
is approved. According to the Trademark Law, using a trademark that is identical with or similar to
a registered trademark, in connection with the same or similar goods without authorization from the
owner of the registered trademark, constitutes an infringement of the exclusive right to use the
registered trademark. Where a dispute arises after a party commits any of the acts infringing upon
another party’s exclusive right to use a registered trademark as enumerated in Trademark Law, the
parties involved shall settle the dispute through consultation. Where the parties refuse to pursue
consultation or where consultation has failed, the trademark registrant or any interested party may
institute legal proceedings with the People’s Court or ask the administrative authorities for industry
and commerce to handle the matter upon determining that trademark infringement has occurred.
Patents
Pursuant to the Patent Law of the PRC (中華人民共和國專利法) (the “Patent Law”), which was
promulgated on March 12, 1984, and became effective on April 1, 1985, and was amended on
September 4, 1992, August 25, 2000 and revised on December 27, 2008 and with effect from October
1, 2009, the term “invention” used in it refers to any new technical solution relating to a product, a
process or improvement thereof, and the term “utility model” used therein refers to any new technical
solution relating to the shape, the structure, or their combination, of a product, which is fit for
practical use, while the term “design” used therein refers to any new design of the shape, pattern or
their combination and the combination of color and shape or pattern, of a product, which creates an
aesthetic feeling and is fit for industrial application.
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REGULATORY OVERVIEW
After the grant of the patent right for an invention or utility model, except where otherwise
provided for under the Patent Law, no entity or individual may, without the authorization of the patent
owner, exploit the patent, that is to, make, use, offer to sell, sell or import the patented product, or
use the patented process, or use, offer to sell, sell or import any product which is created as a direct
result of the use of the patented process, for production or business purposes. Furthermore, after a
patent right is granted for a design, no entity or individual shall, without the permission of the patent
owner, exploit the patent, that is to, manufacture, offer to sell, sell, or import any product containing
the patented design for production or business purposes.
The duration of a patent right for inventions shall be 20 years and the duration of patent right
for utility models and designs shall be ten years, both commencing on the date the respective patent
application is approved. Furthermore, where a dispute arises as a result of the exploitation of a patent
without the authorization of the patentee, that is, the infringement of the patent right of the patentee,
it shall be settled through consultation by the parties. Where the parties are not willing to consult with
each other or where the consultation fails, the patent owner or any interested party may institute legal
proceedings with the people’s court, or request the administrative authority for patent affairs to handle
the matter.
TAXATION
Enterprise Income Tax
According to the Enterprise Income Tax Law of the PRC (中華人民共和國企業所得稅法)
promulgated on March 16, 2007 and the Implementation Regulations of Enterprise Income Tax Law
of the PRC (中華人民共和國企業所得稅法實施條例) promulgated on December 6, 2007, and both of
which became effective on January 1, 2008, enterprises in the PRC, including domestic and foreign
invested enterprises, shall pay an enterprise income tax at the unified rate of 25%.
Value-added Tax
Provisional Regulations of the PRC on Value-added Tax (中華人民共和國增值稅暫行條例) (the
“Provisional Regulations”) were promulgated by the State Council on December 13, 1993 and came
into effect on January 1, 1994. The Provisional Regulations were amended on November 10, 2008 and
the amended Provisional Regulations came into effect on January 1, 2009. The Detailed Rules for the
Implementation of the Provisional Regulations of the PRC on Value-added Tax (Revised in 2011) (中
華人民共和國增值稅暫行條例實施細則（2011年修訂）were promulgated by the Ministry of Finance
and the SAT on October 28, 2011 and came into effect on November 1, 2011 (collectively, the “VAT
Law”). According to the VAT Law, all enterprises and individuals that engage in the sale of goods, the
provision of processing, repair and replacement services, and the importation of goods within the PRC
must pay VAT.
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REGULATIONS ON FOREIGN EXCHANGE
Foreign Exchange Administration
The principal law governing foreign currency exchange in the PRC is the Foreign Exchange
Administration Regulations (外匯管理條例) (the “Foreign Exchange Administration Regulations”).
The Foreign Exchange Administration Regulations were enacted by the State Council on January 29,
1996 and implemented on April 1, 1996. On January 14, 1997 and August 5, 2008, the State Council
amended the Foreign Exchange Administration Regulations. According to the Foreign Exchange
Administration Regulations currently in effect, foreign exchange activities are classified into two
categories, “current accounts” and “capital accounts”. International payments in foreign currencies
and the transfer of foreign currencies under current accounts are not restricted. Foreign currency
transactions under capital accounts are still subject to limitations and require approvals from, or
registration with, the SAFE and other relevant PRC governmental authorities. Pursuant to the
Regulation of Settlement, Sale and Payment of Foreign Exchange (結匯、售匯及付匯管理規定),
promulgated on June 20, 1996 by the People’s Bank of China and which became effective on July 1,
1996, Foreign-Invested Enterprises (individually each a “FIE”), may only buy, sell or remit foreign
currencies at those banks authorized to conduct foreign exchange business after providing valid
supporting commercial documents and, in the case of capital account item transactions, obtaining
certain approvals from the SAFE.
On August 29, 2008, SAFE promulgated the Notice of the General Affairs Department of the
SAFE on the Relevant Operating Issues concerning the Improvement of the Administration of Payment
and Settlement of Foreign Currency Capital of Foreign-invested Enterprises (國家外匯管理局綜合司
關於完善外商投資企業外匯資本金支付結匯管理有關業務操作問題的通知) (the “Circular 142”)
regulating the conversion by a FIE of its foreign currency registered capital into Renminbi. Circular
142 provides that the Renminbi funds converted from the foreign currency registered capital of a FIE
may only be used for purposes within the business scope approved by the applicable governmental
authority and may not be used for other equity investments within the PRC. The use of such Renminbi
funds may not be altered without approval, and such Renminbi funds may not in any case be used to
repay any Renminbi loans unless the relevant FIE can provide a statement proving that the loan has
been utilized according to the provisions of the relevant loan agreement and is also within the scope
of the FIE’s approved business scope. Violations of Circular 142 could result in severe monetary
penalties. On March 30, 2015, the SAFE promulgated the Circular on Reforming the Management
Approach regarding the Settlement of Foreign Exchange Capital of Foreign-invested Enterprises (關
於改革外商投資企業外匯資本金結匯管理方式的通知) (the “Circular 19”), which became effective
on June 1, 2015 and replaced Circular 142. Under Circular 19, the restriction on the use of Renminbi
funds converted from foreign currency registered capital of FIEs for equity investments within the
PRC was abolished. However, the use of such Renminbi funds should still comply with restrictions,
such that it cannot be directly or indirectly applied towards payments outside the business scope of
the enterprises or for payments prohibited by national laws and regulations, investment in securities
unless otherwise provided by laws and regulations, granting of entrustment loans in Renminbi (unless
permitted by the scope of business), repaying inter-enterprise borrowings (including advances by the
third party) or repaying bank loans in Renminbi which have been sub-loaned to third parties, and
paying expenses related to purchases of real estate not intended for self-use (except for real estate
focused FIEs).
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Circular 37
SAFE promulgated Circular 37 on July 4, 2014 which rescinded the Circular on Relevant Issues
Concerning Foreign Exchange Administration for Domestic Residents to Engage in Financing and in
Return Investment via Overseas Specie Purpose Companies (國家外匯管理局關於境內居民透過境外
特殊目的公司融資及返程投資外匯管理有關問題的通知). Subject to Circular 37, domestic residents,
individuals or institutions, are required to register with the bureau of foreign exchange administration
before they invest in special purpose vehicles with legitimate assets or equity interests inside and
outside the PRC. Failure to comply with the registration procedures set forth in Circular 37 may result
in restrictions imposed on the subsequent foreign exchange activities of the relevant domestic
residents, including the remittance of dividends and profits. Domestic residents who invest special
purpose vehicles with legitimate assets or equity interests inside and outside the PRC prior to the
implementation of the Circular 37, but fail to conduct the foreign exchange registration of overseas
investments shall submit an explanatory statement and state the reasons to the bureau of foreign
exchange administration for failing to do so. The bureau of foreign exchange administration may allow
complementary registration under the principles of legality and legitimacy. In the event of any
violation of foreign exchange regulations by domestic residents who apply for the foresaid
complementary registration, an administrative penalty would be imposed in accordance with relevant
laws. According to the Circular on Further Simplifying and Improving the Direct Investment-related
Foreign Exchange Administration Policies (關於進一步簡化和改進直接投資外匯管理政策的通知)
which was promulgated on February 13, 2015 and made effective on June 1, 2015, the above
mentioned registration under Circular 37 will be handled directly by the bank which obtained the
financial institution identification codes issued by the foreign exchange regulatory authorities and has
opened a capital account information system at the foreign exchange regulatory authority in the place
where it is located. Foreign exchange regulatory authorities shall indirectly regulate the direct
investment-related foreign exchange registration via such banks.
Dividend Distribution
According to the Enterprise Income Tax Law of the PRC (中華人民共和國企業所得稅法) and the
Implementation Regulations 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), the profits of a FIE which are distributed to its immediate holding company outside
the PRC are subject to a withholding tax rate of 10%.
The PRC and the government of Hong Kong SAR signed the Arrangement between the Mainland
of the PRC and Hong Kong SAR for the Avoidance of Double Taxation and the Prevention of Fiscal
Evasion with respect to Taxes on Income (內地和香港特別行政區關於對所得稅避免雙重徵稅和防止
偷漏稅的安排) on August 21, 2006 (the “Arrangement”), which became effective on December 8,
2006. According to the Arrangement, the withholding tax rate 5% applies to dividends paid by a PRC
company to a Hong Kong resident, provided that such Hong Kong resident directly holds at least 25%
of the equity interests of the PRC company. The 10% withholding tax rate applies to dividends paid
by a PRC company to a Hong Kong resident if such Hong Kong resident holds less than 25% of the
equity interests of the PRC company.
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Pursuant to the Circular of the State Administration of Taxation on Relevant Issues relating to
the Implementation of Dividend Clauses in Tax Treaty 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), which was promulgated and effective on 20 February 2009, all of the
following requirements should be satisfied where a fiscal resident of the other party to the tax
agreement needs to be entitled to such tax agreement treatment as being taxed at a tax rate specified
in the tax agreement for the dividends paid to it by a Chinese resident company: (i) such a fiscal
resident who receives dividends should be a company as provided in the tax agreement; (ii) owner’s
equity interests and voting shares of the Chinese resident company directly owned by such a fiscal
resident reaches a specified percentage; and (iii) the equity interests of the Chinese resident company
directly owned by such a fiscal resident, at any time during the twelve months prior to the obtainment
of the dividends, reaches a percentage specified in the tax agreement.
According to the Administrative Measures for the Administration of Non-Resident Taxpayers’
Enjoyment of the Treatment under Tax Agreements (非居民納稅人享受稅收協定待遇管理辦法) which
was promulgated on August 27, 2015, and made effective on November 1, 2015, where non-resident
taxpayers are eligible for the treatment under agreements, they may, when filing tax returns, or when
withholding agents make withholding declaration, enjoy the treatment under agreements at their own
discretion and be subject to the follow-up administration by tax authorities.
FOREIGN INVESTMENT
The current Catalogue for the Guidance of Foreign Investment Industries (2015 Revision)
(外商投資產業指導目錄（2015年修訂）(the “Catalogue”) was issued by the National Development
and Reform Commission and MOFCOM on March 10, 2015 and became effective on April 10, 2015.
Pursuant to the Catalogue, foreign invested projects in the PRC are divided into four categories:
encouraged, permitted, restricted and prohibited. According to the current business license of the
Company, the scope of business is the manufacture and sale of baked pastry, canned food (other
canned goods), drinks (protein drinks, fruit juice, vegetable juice, tea drinks and other drinks) and
puffed food (fried foods), which falls within the encouraged and permitted category under the
Catalogue, and is in compliance with the foreign investment industry policy of the PRC.
Pursuant to the Interim Provisions on the Domestic Investment of Foreign-funded Enterprises
(關於外商投資企業境內投資的暫行規定), which was promulgated by the Ministry of Foreign Trade
and Economic Cooperation and the SAIC on July 25, 2000, made effective on September 1, 2000, and
was amended on May 26, 2006 and made effective on October 28, 2015, foreign-funded enterprises
may invest in the encouraged and permitted category, and shall not invest in the prohibited category.
Domestic investment in the restricted category by foreign-funded enterprises shall be approved by the
approving authority and registered with relevant administration for industry and commerce.
Pursuant to the PRC Law on Foreign Invested Enterprises (中華人民共和國外資企業法)
promulgated and effective on April 12, 1986, and as amended and made effective on October 31, 2000
and the Detailed Rules for the Implementation of the Law of the PRC on Wholly Foreign-owned
Enterprises (中華人民共和國外資企業法實施細則) promulgated and made effective on December 12,
1990, amended and made effective on April 12, 2001, and further amended and made effective on
February 19, 2014, the establishment and subsequent changes of a wholly foreign owned enterprise is
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HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
REGULATORY OVERVIEW
subject to the approval by the authority in charge of commerce or foreign trade and investment and
registration with the relevant administration for industry and commerce. The investor of the wholly
foreign owned enterprise must make payments of the registered capital it subscribes according to its
Articles of Association.
M&A RULES
Under the M&A Rules, issued and promulgated by MOFCOM, SASAC, SAT, SAIC, the China
Securities Regulatory Commission and SAFE on August 8, 2006, and became effective on September
8, 2006 and further amended on June 22, 2009 by MOFCOM, a foreign investor is required to obtain
necessary approvals when (i) a foreign investor acquires equity in a domestic non-foreign invested
enterprise thereby converting it into a foreign-invested enterprise, or subscribes for new equity in a
domestic enterprise via an increase of registered capital thereby converting it into a foreign-invested
enterprise, or (ii) a foreign investor establishes a foreign-invested enterprise which purchase and
operates the assets of a domestic enterprise, or which purchases the assets of a domestic enterprise and
injects those assets to establish a foreign-invested enterprise. According to Article 11 of M&A Rules,
where a domestic company or enterprise, or a domestic natural person, through an overseas company
established or controlled by it/him, acquires a domestic company which is related to or connected with
it/him, approval from MOFCOM is required.
— 101 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
HISTORY, REORGANIZATION AND GROUP STRUCTURE
HISTORY AND DEVELOPMENT
Overview
Our Group primarily comprises of our Company and Hubei Cenmingtang. Our Company was
incorporated in the Cayman Islands with limited liability on March 29, 2016 and became the holding
company of our subsidiaries as part of the Reorganization and for the purpose of the [REDACTED].
We are one of the leading snack food and beverage producers in Hubei and Henan, focusing on the
market of third- and fourth-tier cities and rural areas in a total of seven provinces and one municipality
in China and marketing under our own brand “CENMINGTANG”. Hubei Cenmingtang is an onshore
operating subsidiary of our Group in the PRC.
Our Milestones
The following is a summary of our Group’s development milestones:
Year
Milestone Event
2012
•
Hubei Cenmingtang was established in Hubei.
•
We started the construction of our factory complex in Anlu, Hubei.
2013
•
We obtained our National Production Licenses for Industrial Products (全國工業
產品生產許可證) for the production of breads, cakes and pastry products in
September 2013 and started the production of snack food under our
“CENMINGTANG” brand.
2014
•
We diversified our products portfolio and started the production of our beverages
and puffed foods.
•
We adopted various technologies in our production lines for our beverages,
including but not limited to, Aseptic Cold Filling technology.
2015
•
We were recognized as a “2015 Famous Brand Award in the Chinese Beverages
Industry” (2015年度中國飲料行業知名品牌獎) at the Fourth Chinese Brand
Annual Conference (第四屆中國品牌年會).
2016
•
We expanded our markets to three more areas in the PRC, as a result of which our
distribution networks cover a total of seven provinces and one municipality,
namely, Sichuan, Jiangxi, Henan, Hubei, Yunnan, Shaanxi, Guizhou and
Chongqing.
•
We successfully launched our soymilk product.
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HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
HISTORY, REORGANIZATION AND GROUP STRUCTURE
Our History and Development
The origins of our Group trace back to the establishment of Hubei Cenmingtang by Mr. Xu Jincen
(許金岑先生) (“Mr. Xu”) and Ms. Lin Bi (林碧女士) (“Ms. Lin”), the founders of our Group, in 2012.
At the time of the establishment, Hubei Cenmingtang had a registered capital of RMB50,000,000 and
was owned by Mr. Xu and Ms. Lin as to 70% and 30%, respectively, who funded their respective
capital contribution to Hubei Cenmingtang using their personal funds. The entire equity interest of
Hubei Cenmingtang was subsequently transferred to Fujian Gongyuan in October 2013, a company
indirectly owned by Mr. Xu and Ms. Lin as to 75% and 25%, respectively.
Mr. Zhang, one of our Shareholders, our executive Director and chief executive officer, served
as the special assistant for the chairman of the board at Fujian Gongyuan for four years prior to joining
Hubei Cenmingtang in August 2012, where he began his involvement in the business of snack food
and beverage manufacturing. Mr. Zhang became acquainted with Mr. Shi, our Controlling Shareholder,
our Chairman and executive Director in 2008 through prior business relationships in the PRC food and
beverage industry. Prior to acquiring the equity interest in Hubei Cenmingtang in June 2014, Mr. Shi
was involved in the business of snack food production and distribution of pre-packaged food. For more
details of Mr. Shi and Mr. Zhang’s biography, please see the section headed “Directors and Senior
Management — Board of Directors — Executive Directors”.
In June 2014, to further tap into the beverage and snack food industry and with accumulated
business management experience, Mr. Shi and Mr. Zhang decided to acquire 70% and 30% equity
interest in Hubei Cenmingtang from Fujian Gongyuan, respectively, at a total consideration of
RMB75,600,000, which was determined with reference to the net asset value of Hubei Cenmingtang
as at May 31, 2014 based on its unaudited management accounts for the five months ended May 31,
2014 (being the latest management accounts available before the acquisition). Mr. Shi acquired the
equity interest in Hubei Cenmingtang with his personal funds accumulated over the years, which was
derived mainly from income Mr. Shi earned while serving at Xiamen Baoshang Sugar Business
Limited Company (廈門市寶商糖業有限公司), while Mr. Zhang’s source of funding for the
acquisition was generated from his personal funds mainly accumulated from his other former
businesses and personal income from Fujian Gongyuan. After completion of the acquisition on June
16, 2014, Hubei Cenmingtang was owned by Mr. Shi and Mr. Zhang as to 70% and 30%, respectively.
Save for the relationships disclosed above, our Group does not have other relationship with Mr. Xu,
Ms. Lin and Fujian Gongyuan and they have become independent third parties after disposal of their
equity interest in Hubei Cenmingtang.
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HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
HISTORY, REORGANIZATION AND GROUP STRUCTURE
OUR CORPORATE DEVELOPMENT
Our Principal Subsidiary
Hubei Cenmingtang
Hubei Cenmingtang was established on August 10, 2012 (which was then known as Hubei Zhumu
Langma Food Limited Liability Company (湖北珠穆朗瑪食品有限責任公司)) with a registered capital
of RMB50,000,000 and was owned by Mr. Xu and Ms. Lin as to 70% and 30%, respectively.
On October 28, 2013, Mr. Xu and Ms. Lin transferred their respective equity interest in Hubei
Cenmingtang to Fujian Gongyuan (a company indirectly owned by Mr. Xu and Ms. Lin as to 75% and
25%, respectively) at a consideration of RMB35,000,000 and RMB15,000,000, respectively. The
considerations of such acquisitions were determined based on the then registered capital of Hubei
Cenmingtang. As a result of such transfers, Hubei Cenmingtang became wholly-owned by Fujian
Gongyuan.
On June 16, 2014, to further tap into the beverage and snack food industry, Mr. Shi and Mr.
Zhang acquired from Fujian Gongyuan 70% and 30% equity interest in Hubei Cenmingtang at a
consideration of RMB52,920,000 and RMB22,680,000, respectively. The considerations of such
acquisitions were determined with reference to the then net asset value of Hubei Cenmingtang based
on its unaudited management accounts as of May 31, 2014 and were settled in cash on June 25, 2014.
As a result of such acquisitions, Hubei Cenmingtang became owned by Mr. Shi and Mr. Zhang as to
70% and 30%, respectively.
As advised by our PRC Legal Advisers, the above transfers of equity interest were properly and
legally completed.
As part of the Reorganization, Hubei Cenmingtang became a wholly-owned subsidiary of
Cenmingtang Hong Kong on May 4, 2016. For more details regarding our Reorganization, please refer
to the section headed “History, Reorganization and Group Structure — The Reorganization” in this
document.
— 104 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
HISTORY, REORGANIZATION AND GROUP STRUCTURE
THE REORGANIZATION
As part of our restructuring in contemplation of the [REDACTED], we have implemented the
Reorganization which was completed on May 4, 2016. Following completion of the Reorganization,
our Company became the holding company of all our subsidiaries. The following chart sets forth the
shareholding structure of our Group immediately before the Reorganization.
Mr. Shi
Mr. Zhang
70%
30%
Hubei Cenmingtang
(PRC)
The Offshore Reorganization
(i)
Incorporation of our Company and our offshore subsidiary
The Company
On March 29, 2016, our Company was incorporated in the Cayman Islands as an exempted
company with limited liability. At the time of its incorporation, the authorized share capital of the
Company was US$50,000 divided into 50,000 ordinary shares with a par value of US$1.00 each. Upon
incorporation of our Company, one subscriber share was allotted and issued to NovaSage
Incorporations (Cayman) Limited, our initial subscriber, who then transferred such share to Min Yu
on the same date.
On March 29, 2016, our Company allotted and issued 6,999 shares, 2,850 shares and 150 shares,
with a par value of US$1.00 each, at par to Min Yu, Zhen Lian and Ruby City, respectively. Upon
completion of the above allotments and issues, our Company was held as to 70.0%, 28.5% and 1.5%
by Min Yu, Zhen Lian and Ruby City, respectively.
Pursuant to the [REDACTED] Investments, Zhen Lian transferred 1,400 Shares, 378 Shares and
140 Shares to the Second [REDACTED] Investor, the Third [REDACTED] Investor and the Fourth
[REDACTED] Investor, respectively, details of which are set out in the sub-section headed
“[REDACTED] Investments” below.
— 105 —
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THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
HISTORY, REORGANIZATION AND GROUP STRUCTURE
On June 27, 2016, in preparation for the [REDACTED], each share of a par value of US$1.00
in the authorized share capital of the Company was subdivided into 100 Shares of a par value of
US$0.01 each. As a result of the share sub-division, the authorized share capital of the Company
became US$50,000 divided into 5,000,000 ordinary Shares of a par value of US$0.01 each.
Cenmingtang Hong Kong
On April 13, 2016, Cenmingtang Hong Kong was incorporated in Hong Kong. At the time of its
incorporation, Cenmingtang Hong Kong allotted and issued 10,000 ordinary shares to the Company at
a consideration of HK$10,000 and became wholly-owned by the Company.
(ii)
Acquisition of Hubei Cenmingtang
On May 4, 2016, Cenmingtang Hong Kong acquired 70.0%, 28.5% and 1.5% equity interest in
Hubei Cenmingtang from Mr. Shi, Mr. Zhang and the First [REDACTED] Investor, respectively, at a
total consideration of RMB55,967,300, which was determined with reference to the agreed assessment
of the net asset value of Hubei Cenmingtang as of December 31, 2015. Following the acquisition,
Hubei Cenmingtang became a wholly foreign-owned enterprise of Cenmingtang Hong Kong. For
details of Hubei Cenmingtang, please see the sub-section headed “— Our Corporate Development —
Our Principal Subsidiary — Hubei Cenmingtang” above.
The Onshore Reorganization
(i)
Conversion of Hubei Cenmingtang into a sino foreign-owned joint venture enterprise
On April 14, 2016, the First [REDACTED] Investor acquired 1.5% equity interest in Hubei
Cenmingtang from Mr. Zhang at a consideration of RMB839,510, which was determined with
reference to the agreed assessment of the net asset value of Hubei Cenmingtang as of December 31,
2015. Following the transfer of the equity interest, Hubei Cenmingtang became a sino foreign-owned
joint venture enterprise owned as to 70.0%, 28.5% and 1.5% by Mr. Shi, Mr. Zhang and the First
[REDACTED] Investor, respectively.
(ii)
Conversion of Hubei Cenmingtang into a wholly foreign-owned enterprise
On May 4, 2016, Cenmingtang Hong Kong acquired 70.0%, 28.5% and 1.5% equity interest in
Hubei Cenmingtang from Mr. Shi, Mr. Zhang and the First [REDACTED] Investor, respectively.
Following the acquisition, Hubei Cenmingtang became a wholly foreign-owned enterprise. For details
of the share acquisition of Hubei Cenmingtang by Cenmingtang Hong Kong, please see the sub-section
headed “— The Reorganization — the Offshore Reorganization — (ii) Acquisition of Hubei
Cenmingtang” above.
— 106 —
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THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
HISTORY, REORGANIZATION AND GROUP STRUCTURE
[REDACTED] INVESTMENTS
The First [REDACTED] Investor
On March 10, 2016, Mr. Zhang and the First [REDACTED] Investor entered into an equity
transfer agreement pursuant to which Mr. Zhang agreed to transfer to the First [REDACTED] Investor
1.5% equity interest in Hubei Cenmingtang at a consideration of RMB839,510. The consideration was
determined with reference to the agreed assessment of the net asset value of Hubei Cenmingtang as
of December 31, 2015. Upon completion of the equity transfer, Hubei Cenmingtang was held as to
70.0%, 28.5% and 1.5% by Mr. Shi, Mr. Zhang and the First [REDACTED] Investor, respectively.
As the First [REDACTED] Investor was initially a shareholder of Hubei Cenmingtang prior to
the Reorganization, to replicate his initial shareholding interest in the Group at the Company level,
on March 29, 2016, our Company allot and issue 150 shares with a par value of US$1.00 each,
representing 1.5% of the then issued share capital of our Company, at a consideration of US$150 to
Ruby City, an investment holding company wholly-owned by the First [REDACTED] Investor. Other
than in respect of its shareholding in our Company, Ruby City and the First [REDACTED] Investor
are independent third parties.
The Second [REDACTED] Investor
On May 23, 2016, Zhen Lian entered into a sale and purchase agreement with the Second
[REDACTED] Investor (the “Second [REDACTED] Sale and Purchase Agreement”), pursuant to
which Zhen Lian agreed to transfer 1,400 shares with a par value of US$1.00 each, representing 14%
of the then issued share capital of our Company, to the Second [REDACTED] Investor at a
consideration of HK$200,000,000. The consideration was determined after arm’s length negotiation
between the parties with reference to the net profit of our Group for the year ended 31 December 2015.
The Second [REDACTED] Investor is a limited liability Company incorporated in the BVI and
an investment holding company wholly owned by Mr. Cheung Wah Fung, Christopher, S.B.S, JP who
is the responsible officer of Christfund Securities Limited. He is currently the member of Legislative
Council (Functional Constituency-Financial Services) of Hong Kong. In addition, he serves as a
member of the National Committee of the Chinese People’s Political Consultative Conference and
member of the 49 th standing committee of the Hong Kong Chinese General Chamber of Commerce.
The Third [REDACTED] Investor
On May 27, 2016, Zhen Lian transferred 378 shares with a par value of US$1.00 each to the Third
[REDACTED] Investor, representing 3.8% of the then issued share capital of our Company, at a
consideration of RMB71,820,000. The consideration was determined after arm’s length negotiation
between the parties with reference to the net profit of our Group for the year ended 31 December 2015.
The Third [REDACTED] Investor is a limited liability company incorporated in the BVI and an
investment-holding company wholly owned by Ms. Ng Choi Fung (吳彩鳳女士). Other than in respect
of its shareholding interest in our Company, the Third [REDACTED] Investor and its beneficial owner
are independent third parties.
— 107 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
HISTORY, REORGANIZATION AND GROUP STRUCTURE
The Fourth [REDACTED] Investor
On May 27, 2016, Zhen Lian transferred 140 shares with a par value of US$1.00 each to the
Fourth [REDACTED] Investor, representing 1.4% of the then issued share capital of our Company, at
a consideration of US$4,082,384. The consideration was determined after arm’s length negotiation
among the parties with reference to the net profit of our Group for the year ended 31 December 2015.
The Fourth [REDACTED] Investor is a limited liability company incorporated in the BVI and an
investment-holding company wholly owned by Mr. Wu Yuchan (吳郁展先生). Other than in respect of
its shareholding interest in our Company, the Fourth [REDACTED] Investor and its beneficial owner
are independent third parties.
The table below sets out the key particulars of the [REDACTED] Investments:
Name of the
[REDACTED]
Investor:
First
[REDACTED]
Investor (through
Ruby City)
Second
[REDACTED]
Investor
Third
[REDACTED]
Investor
Fourth
[REDACTED]
Investor
Number of shares
subscribed/transferred (1) :
150 shares (2)
1,400 shares
378 shares
140 shares
Consideration:
RMB839,510.
Such
consideration is
equivalent to a
subscription
price of
HK$[REDACTED]
per Share upon
completion of
the
[REDACTED]
and the
[REDACTED]
and is equivalent
to a
[REDACTED]%
discount to the
[REDACTED] of
HK$[REDACTED]
(being the
mid-point of the
[REDACTED]) (2)
HK$200,000,000.
Such
consideration is
equivalent to a
subscription
price of
HK$[REDACTED]
per Share upon
completion of
the
[REDACTED]
and the
[REDACTED]
and is equivalent
to a
[REDACTED]%
discount to the
[REDACTED] of
HK$[REDACTED]
(being the
mid-point of the
[REDACTED])
RMB71,820,000.
Such
consideration is
equivalent to a
subscription
price of
HK$[REDACTED]
per Share upon
completion of
the
[REDACTED]
and the
[REDACTED]
and is equivalent
to a
[REDACTED]%
discount to the
[REDACTED] of
HK$[REDACTED]
(being the
mid-point of the
[REDACTED])
US$4,082,384.
Such
consideration is
equivalent to a
subscription
price of
HK$[REDACTED]
per Share upon
completion of
the
[REDACTED]
and the
[REDACTED]
and is equivalent
to a
[REDACTED]%
discount to the
[REDACTED] of
HK$[REDACTED]
(being the
mid-point of the
[REDACTED])
Payment date of the
consideration:
May 30, 2016
May 30, 2016
May 26, 2016
May 3, 2016
Number of Shares held
and shareholding % in
the Company after
completion of the
Reorganization and
[REDACTED] but
immediately before the
[REDACTED]:
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
([REDACTED]%) ([REDACTED]%) ([REDACTED]%) ([REDACTED]%)
— 108 —
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THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
HISTORY, REORGANIZATION AND GROUP STRUCTURE
Number of Shares held
and shareholding % in
the Company immediately
upon completion of the
[REDACTED] and the
[REDACTED] (assuming
the [REDACTED] is not
exercised and excluding
any Shares which may be
allotted and issued
pursuant to the exercise
of the options which may
be granted under the
Share Option Scheme):
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
([REDACTED]%) ([REDACTED]%) ([REDACTED]%) ([REDACTED]%)
Use of proceeds from the
[REDACTED]
Investments:
N/A (2)
Strategic benefits of the
[REDACTED]
Investments:
Our Directors are of the view that the Company can benefit from the
[REDACTED] Investors’ commitments to the Company as their investments
demonstrate their confidence in the operations of the Group and serve as an
endorsement of the Company’s performance, strength and prospects.
N/A (3)
N/A (3)
N/A (3)
Notes:
(1)
The subscription/transfers took place prior to the sub-division of shares in our Company on June 27, 2016.
(2)
A total of RMB839,510 was paid to Mr. Zhang as a consideration for the transfer of his 1.5% equity interest in Hubei
Cenmingtang to the First [REDACTED] Investor in March 2016. In order to replicate the First [REDACTED] Investor’s
initial shareholding interest in the Group at the Company level, our Company allotted and issued 150 shares of a par
value of US$1.00 each, representing 1.5% of the then issued share capital of our Company, at a nominal consideration
of US$150 to Ruby City. Therefore, the actual investment made by the First [REDACTED] Investor was RMB839,510
for the acquisition of Mr. Zhang’s 1.5% equity interest in Hubei Cenmingtang and the calculation of discount is based
on such investment amount instead of the nominal consideration of US$150 for the allotment and issue of 150 shares by
our Company.
(3)
HK$200 million, RMB71.8 million and US$4.1 million were paid to Mr. Zhang as consideration for the transfer of 1,400
Shares, 278 Shares, 140 Shares of US1.00 each in the Company from Mr. Zhang to the Second [REDACTED] Investor,
the Third [REDACTED] Investor and the Fourth [REDACTED] Investor, respectively.
Special Rights and Lock-up
Pursuant to the Second [REDACTED] Sale and Purchase Agreement, in the event that our
Company fails to complete the [REDACTED] on the Main Board of the Stock Exchange within six
months after May 26, 2016, the Second [REDACTED] Investor shall be entitled to request Zhen Lian
to purchase the Shares held by the Second [REDACTED] Investor at HK$200,000,000. The Second
[REDACTED] Investor has also agreed that it shall not dispose of the Shares held by it for a period
of six months commencing from the [REDACTED].
Save as disclosed above, there are not any other special rights or lock up requirements applicable
to the [REDACTED] Investors.
— 109 —
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HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
HISTORY, REORGANIZATION AND GROUP STRUCTURE
[REDACTED]
Since the shareholding of the First [REDACTED] Investor, the Third [REDACTED] Investor and
the Fourth [REDACTED] Investor in the Company upon [REDACTED] will be less than 10%, the
Shares held by them will be counted towards part of the [REDACTED]. Since the Second
[REDACTED] Investor will remain as a Substantial Shareholder upon [REDACTED], the Shares held
by it will not be counted towards part of the [REDACTED].
Sole Sponsor’s View
The Sole Sponsor is of the view that the investments by the [REDACTED] Investors is in
compliance with the Guidance Letter HKEx-GL29-12 issued by the Stock Exchange in January 2012
and the Guidance Letter HKEx-GL43-12 issued by the Stock Exchange in October 2012 and updated
in July 2014 based on their review of the relevant documents.
CORPORATE STRUCTURE IMMEDIATELY AFTER THE REORGANIZATION AND
[REDACTED] AND BEFORE COMPLETION OF THE [REDACTED]
The following chart sets forth the shareholding structure of our Group immediately after the
Reorganization and [REDACTED] and before completion of the [REDACTED].
Mr. Shi(1)
100%
Min Yu
(BVI)
70.0%
Mr. Zhang(2)
100%
Zhen Lian
(BVI)
9.3%
First
[REDACTED]
Investor (3)
100%
Mr. Cheung
Wah Fung,
Christopher(4)
100%
Ruby City
(BVI)
Second
[REDACTED]
Investor
(BVI)
1.5%
14.0%
Ms. Ng Choi
Fung(5)
Mr. Wu
Yuchan(6)
100%
100%
Third
[REDACTED]
Investor
(BVI)
Fourth
[REDACTED]
Investor
(BVI)
3.8%
1.4%
100%
Our Company
(Cayman)
100%
Cenmingtang Hong Kong
(Hong Kong)
Offshore
100%
Onshore
Hubei Cenmingtang
(PRC)
Notes:
(1)
Mr. Shi is our Chairman, executive Director and our Controlling Shareholder. Please see the section headed “Directors
and Senior Management — Board of Directors — Executive Directors” in this document for details relating to his
background and expertise.
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HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
HISTORY, REORGANIZATION AND GROUP STRUCTURE
(2)
Mr. Zhang is our executive Director and chief executive officer. Please see the section headed “Directors and Senior
Management — Board of Directors — Executive Directors” in this document for details relating to his background and
expertise.
(3)
The First [REDACTED] Investor is an independent third party.
(4)
Mr. Cheung Wah Fung, Christopher and the Second [REDACTED] Investor will remain as a Substantial Shareholder upon
[REDACTED].
(5)
Ms. Ng Choi Fung is an independent third party.
(6)
Mr. Wu Yuchan is an independent third party.
CORPORATE STRUCTURE IMMEDIATELY AFTER THE [REDACTED]
The following chart sets forth the shareholding structure of our Group immediately after the
completion of the [REDACTED] and the [REDACTED] (assuming the [REDACTED] is not exercised
and excluding any Shares which may be allotted and issued pursuant to the exercise of the options
which may be granted under the Share Option Scheme).
Mr. Shi(1)
100%
Min Yu
(BVI)
[REDACTED]%
Mr. Zhang(2)
First
[REDACTED]
Investor (3)
100%
100%
Zhen Lian
(BVI)
[REDACTED]%
Mr. Cheung
Wah Fung,
Christopher(4)
100%
Second
Ruby City
(BVI)
[REDACTED]
Investor
(BVI)
[REDACTED]%
[REDACTED]%
Mr. Wu
Yuchan(6)
Ms. Ng Choi
Fung(5)
100%
100%
Third
Fourth
[REDACTED]
[REDACTED]
Investor
(BVI)
Investor
(BVI)
[REDACTED]%
Other
[REDACTED]
Shareholders
[REDACTED]%
[REDACTED]%
100%
Our Company
(Cayman)
100%
Cenmingtang Hong Kong
(Hong Kong)
Offshore
100%
Onshore
Hubei Cenmingtang
(PRC)
Notes:
(1)
Mr. Shi is our Chairman, executive Director and our Controlling Shareholder. Please see the section headed “Directors
and Senior Management — Board of Directors — Executive Directors” in this document for details relating to his
background and expertise.
(2)
Mr. Zhang is our executive Director and chief executive officer. Please see the section headed “Directors and Senior
Management — Board of Directors — Executive Directors” in this document for details relating to his background and
expertise.
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THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
HISTORY, REORGANIZATION AND GROUP STRUCTURE
(3)
The First [REDACTED] Investor is an independent third party.
(4)
Mr. Cheung Wah Fung, Christopher and the Second [REDACTED] Investor will remain as a Substantial Shareholder upon
[REDACTED].
(5)
Ms. Ng Choi Fung is an independent third party.
(6)
Mr. Wu Yuchan is an independent third party.
PRC REGULATORY REQUIREMENTS
Our PRC legal advisers have confirmed that all relevant approvals and permits in respect of the
equity transfers of our PRC operating subsidiary as described above have been obtained and the
procedures and steps involved are in compliance with relevant PRC laws and regulations.
The Rules on the Mergers and Acquisitions of Domestic Enterprises by Foreign Investors in the
PRC
According to the Provisions Regarding Mergers and Acquisitions of Domestics Enterprises by
Foreign Investors (關於外國投資者併購境內企業的規定) (the “Circular 10”) jointly issued by the
MOFCOM, the SASAC, the SAT, the CSRC, the SAIC and the SAFE on August 8, 2006 and effective
as of September 8, 2008 and amended in June 22, 2009, where a domestic company, enterprise or
natural person intends to acquire its or his/her related domestic company in the name of an offshore
company which it or he/she lawfully established or controls, the acquisition shall be subject to the
examination and approval of the MOFCOM, and where a domestic company or natural person holds
an equity interest in a domestic company through an offshore special purpose company, any overseas
[REDACTED] of that special purpose company shall be subject to approval by the CSRC.
Our PRC legal advisers is of the opinion that Hubei Cenmingtang had been established as a
foreign invested enterprise, the acquisition of Mr. Shi, Mr. Zhang and the First [REDACTED]
Investor’s respective 70.0%, 28.5% and 1.5% equity interest in Hubei Cenmingtang by Hong Kong
Cenmingtang does not fall within the scope of such acquisition of domestic company by foreign
investor as stipulated under the Circular 10. Therefore, as advised by our PRC legal advisers, the
Reorganization was not subject to the Circular 10 and it is not necessary for us to obtain approval from
the CSRC or the MOFCOM for the [REDACTED] and [REDACTED] of our Shares on the Stock
Exchange.
SAFE Registration in the PRC
Pursuant to Circular 37, (i) a PRC resident must register with the local SAFE branch before he
or she contributes assets or equity interest in an overseas special purpose vehicle (the “Overseas
SPV”) that is directly established or controlled by the PRC resident for the purpose of conducting
investment or financing, and (ii) following the initial registration, the PRC resident is also required
to register with the local SAFE branch for any major change in respect of the Overseas SPV, including,
among other things, a change in the Overseas SPV’s PRC resident shareholder, name of the Overseas
SPV, term of operation or any increase or reduction of the Overseas SPV’s registered capital, share
transfer or swap, and merger or division. Pursuant to Circular 37, failure to comply with these
registration procedures may result in penalties, including the imposition of restrictions on the ability
of the Overseas SPV’s PRC subsidiary to distribute dividends to its overseas parent.
As advised by our PRC Legal Advisers, Mr. Shi and Mr. Zhang have properly complied with the
requirements of Circular 37 and registered with SAFE, Xiaogan City Branch for foreign exchange
registration of overseas investments and obtained the Business Registration Certificate (業務登記憑
證) issued by SAFE, Xiaogan City Branch on April 22, 2016.
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BUSINESS
OVERVIEW
We are one of the leading snack food and beverage producers in Hubei and Henan. We mainly
target the snack food and beverage markets in third- and fourth-tier cities and rural areas in central
China, which according to the CRI Report, has greater growth potential than first- and second-tier
cities over the next five years.
In terms of sales value and according to the CRI Report, by the end of 2015 we have become:
•
the largest beverage producer in third- and fourth-tier cities and rural areas in each of Hubei
and Henan, and in particular, (i) the largest plant-based and milk beverage producer and (ii)
the largest fruit and vegetable beverage producer in third- and fourth-tier cities and rural
areas in each of Hubei and Henan;
•
the third and second largest bread, cakes and pastries producer in third- and fourth-tier
cities and rural areas in Hubei and Henan, respectively; and
•
the third largest puffed foods producer in third- and fourth-tier cities and rural areas in each
of Hubei and Henan.
With a clear aim to seize opportunities in our target markets, we have established an extensive
distribution network substantially covering third- and fourth-tier cities and rural areas in Henan,
Hubei, Yunnan, Shaanxi, Guizhou, Sichuan, Jiangxi and Chongqing. Since our establishment in 2012,
our distribution network has been growing fast and we had 49, 228 and 311 distributors, respectively,
as of December 31, 2013, 2014 and 2015. To further expand our distribution network into other
provinces, starting from January 1, 2016 and up to the Latest Practicable Date, we had entered into
distribution agreements with 85 new distributors, most of which were located in Sichuan, Jiangxi and
Chongqing. To solidify our position in our target markets, we plan to further expand our sales network
by adding distributors in provinces and municipalities where we have an existing presence and by
penetrating into new regions.
Marketed under a single brand “CENMINGTANG”, our product portfolio is comprised of two
categories of snack food products and four categories of beverage products with more than 100
product varieties in total. Despite our relatively short history, our brand “CENMINGTANG” has
already gained substantial brand recognition among consumers in third- and fourth-tier cities and rural
areas in China primarily attributable to our popular products such as peanut milk and pork floss pies
as well as our marketing strategies. “CENMINGTANG” was awarded the “2015 Famous Brand Award
in the Chinese Beverages Industry” at the Fourth Chinese Brand Annual Conference, which was jointly
held by several large national media outlets in China. We plan to further strengthen our brand
recognition and diversify our marketing strategies. We also plan to increase our investments in
research and development to launch new products based on our target consumers’ taste preferences and
needs. We believe that these efforts will be essential for our continued success in the snack food and
beverage industry.
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BUSINESS
During the Track Record Period, we grew at a faster pace than the industry average in our target
markets in Hubei and Henan, according to the CRI Report. Our revenue increased from RMB109.0
million in 2013 to RMB742.1 million in 2014 and further increased to RMB1,482.4 million in 2015,
representing a CAGR of 268.8%. Our gross profit increased from RMB24.3 million in 2013 to
RMB195.1 million in 2014 and further increased to RMB435.6 million in 2015, representing a CAGR
of 323.1%.
OUR COMPETITIVE STRENGTHS
We believe the following competitive strengths have been critical to our success to date and
position us for significant growth.
A Major Snack Food and Beverage Brand in central China Targeting Markets with Great Growth
Potential
We are one of the leading snack food and beverage producers in Hubei and Henan. According to
the CRI Report, we were the largest beverage producer in third- and fourth-tier cities and rural areas
in each of Hubei and Henan in terms of sales value, with a market share of 1.1% and 1.5%,
respectively, in 2015. In term of sales value in third- and fourth-tier cities and rural areas, we were
also the third and second largest bread, cakes and pastries producer, respectively, and the third largest
puffed foods producer in each of Hubei and Henan. Both the snack food market and the beverage
market in China has been continuously growing during the last decade, along with the rapid
urbanization and increasing purchasing power of Chinese consumers. As the snack food and beverage
markets in first- and second-tier cities are reaching a relatively mature stage of development, the
rudimentary snack food and beverage markets in third- and fourth-tier cities and rural areas are
considered as having greater growth potential over the next five years, according to the CRI Report.
•
Snack Food Market. According to the CRI Report, the sales value of the snack food market
in third- and fourth-tier cities and rural areas increased at a CAGR of 10.1% from 2011 to
2015, while the sales value in first- and second-tier cities increased at a CAGR of 8.0% for
the same period. CRI expects that the sales value of snack food in third- and fourth-tier
cities and rural areas will increase at a CAGR of 11.0%, compared to 9.1% for first- and
second-tier cities, from 2016 to 2020.
•
Beverage Market. According to the CRI Report, the sales value of the beverage market in
third- and fourth-tier cities and rural areas increased at a CAGR of 13.7% from 2011 to
2015, while the sales value in first- and second-tier cities increased at a CAGR of 10.9%
for the same period. CRI expects that the sales value of beverage market in third- and
fourth-tier cities and rural areas will increase at a CAGR of 12.0%, compared to 9.4% for
first- and second-tier cities, from 2016 to 2020.
We have focused on establishing a distribution network rooted in third- and fourth-tier cities and
rural areas since our establishment in 2012. As such, we believe we have strategically positioned
ourselves to seize opportunities in third- and fourth-tier cities and rural areas where there is greater
growth potential in the near future.
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BUSINESS
Marketed under a single brand “CENMINGTANG”, our product portfolio is comprised of two
categories of snack foods and four categories of beverages with more than 100 different types of
products in total. We offer these products in a variety of packaging, including gift boxes and loose
packs for our snack foods and TP cartons, PET bottles and CANs for our beverages. We also strive
to produce and package our products based on our target consumers’ specific taste preferences and
needs. In addition, our target consumers’ spending patterns are amongst the factors we consider in
pricing our products and therefore our products are priced competitively in our target markets. For
example, a significant portion of our end-consumers are residents in third- and fourth-tier cities and
rural areas in China. During traditional Chinese festivals, family celebrations and other local events,
these consumers often purchase large packs of snack foods and beverages as gifts for their relatives
and friends because it is considered generous in their local culture. To accommodate their needs, we
often package a large quantity of snack foods or beverages into a single big box wrapped in red.
Despite our relatively short operating history, our brand “CENMINGTANG” has already gained
substantial brand recognition amongst consumers in third- and fourth-tier cities and rural areas in
China, primarily due to our popular products such as peanut milk and pork floss pies, as well as our
marketing strategies. “CENMINGTANG” was awarded the “2015 Famous Brand Award in the Chinese
Beverages Industry” at the Fourth Chinese Brand Annual Conference, which was jointly held by
several large national media outlets in China. Accordingly, with clear market positioning, an
established brand and a rapidly growing distribution network, we believe that we will be able to
capture the opportunities and solidify our market position in this fast-growing industry.
Extensive and Fast-Growing Distribution Network in Seven Provinces and One Municipality in
China
We have built an extensive sales network through our distributors in seven provinces and one
municipality in China, which is vital to our success in the snack food and beverage industry.
Penetrating into a wide range of points-of-sale in third- and fourth-tier cities, counties, towns and
villages, our distribution network is tailored for our target markets, which differentiates us from most
other snack food and beverage producers that focus on first- and second-tier cities. Our distributors
are widely spread in terms of geographic coverage and revenue generation. As of the Latest
Practicable Date, our 394 distributors covered seven provinces and one municipality including Henan,
Hubei, Yunnan, Shaanxi, Guizhou, Sichuan, Jiangxi and Chongqing. For the year ended December 31,
2015, the revenue generated from our top ten distributors combined accounted for only 21.3% of our
total revenue and the revenue generated from our largest distributors accounted for only 2.4% of our
total revenue. Our distribution network has grown rapidly since our establishment in 2012, which is
in line with our increase in revenue. As of December 31, 2013, 2014 and 2015, we had 49, 228 and
311 distributors, respectively, as our customers. Starting from January 1, 2016 and up to the Latest
Practicable Date, we had entered into distribution agreements with 85 new distributors, most of which
were located in Sichuan, Jiangxi and Chongqing, where we had no presence in previous years. Our
diversified product offerings, competitive pricing, comprehensive support, as well as scale in sales,
logistics and advertising help continuously strengthen our relationships with our cooperative
distributors.
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BUSINESS
We work closely with our distributors to promote our diversified products, which benefit both
our distributors and us. Our distributors benefit from our marketing activities, such as the brand’s
endorsement by a well-known Chinese pop music group, as well as various support from our sales
team, such as advice on points-of-sales development, inventory management and shelf display. We
benefit from the distributors’ efforts in selling our products to a wide range of consumers, as well as
their collection of data relating to consumer preferences, which is instrumental to understanding new
market trends.
Strategic Location in Hubei for Low Manufacturing Costs and Convenient Transportation
We adopt a centralized management and production system and manufacture all of our products
in-house. We based our production facility in Anlu, Hubei, due to its abundant land resources, low
manufacturing costs and strategic location. Anlu is about 110 kilometers from Wuhan, the capital of
Hubei, and is part of the Wuhan City Circle. Historically, Wuhan is a major trading and commercial
center in China, and is known as the “thoroughfare for nine provinces” (九省通衢), which includes the
provinces of Anhui, Guizhou, Henan, Hubei, Hunan, Jiangxi, Shaanxi, Shanxi and Sichuan. Currently
Wuhan is a key regional center and a major transportation hub in central China, which gives us
convenient access to a market of approximately 300 million people across central China.
Our strategic location helps us reduce our transportation time and maintain relatively low
logistics expenses. Cooperating with third-party logistics service providers, we are generally able to
deliver our products to our customers within one week and our logistics costs were less than 6% of
our total revenue for the years ended December 31, 2013, 2014 and 2015. According to the CRI
Report, our logistics cost to revenue ratio is lower than the industry average. We also enjoy the
advantage of convenient transportation for the procurement of various types of raw materials
including sugar, eggs, peanuts and milk powder. The shortened transportation time between our
suppliers/customers and us also reduces the risk of contamination and damage of raw materials or our
finished products during transportation.
Strong Research and Development Capabilities and Responsive to Evolving Consumer Tastes
Our research and development center is equipped with modern laboratory equipment including
specialized food testing and processing machines. We have a dedicated research and development team
consisting of 19 professionals, nine of whom possess five or more years of experience in food-related
industries, as of the Latest Practicable Date. With a market-orientated focus, our research and
development team is capable of analyzing evolving consumer tastes, upgrading product formulas and
optimizing production processes.
Supported by our manufacturing capability and distribution network, we believe that we can roll
out new products and reach points-of-sale rapidly and efficiently. During the Track Record Period, we
introduced several new series of products or new flavors of existing products to the market every one
or two months. For the years ended December 31, 2013, 2014 and 2015, we launched 22, 49 and 30
new products, respectively, including several popular products such as peanut milk and pork floss
pies, which brought in steady revenue for us. In addition to developing new products, our research and
development team also strives to improve the quality and safety standards of our existing products.
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BUSINESS
We have adopted Aseptic Cold Filling technology for our canned beverages. According to the
CRI Report, we are among the few beverage producers in our target markets to use Aseptic Cold
Filling technology. Unlike traditional bottling processes that involve tunnel pasteurization or hot
filling to kill bacteria, Aseptic Cold Filling briefly heats the products to 135⬚C and then cools such
products down to 25˚C prior to filling and therefore no preservatives or cold sterilizing agents are
needed or used during the process. Aseptic Cold Filling is considered one of the advanced bottling
technologies in the beverage industry and can also enhance the taste, quality and safety of beverages.
We use the Aseptic Cold Filling technology in all of our beverage products except for the three-piece
can products.
Competent Management Team with Solid Industry Experience
Our success has been and will continue to be largely attributable to our competent management
team that endeavors to effectively promote our brand and products. The key members of our senior
management team have solid industry experience and many of them began to work for us since our
establishment. In particular, Mr. Shi, our Chairman, has more than 18 years of experience in the food
and beverage-related industries. Before joining our Company, Mr. Shi worked as a vice general
manager for a company in China which engages in the distribution of pre-packaged food as well as
a sales manager of another snack food company in China.
Mr. Zhang, our executive Director and general manager, and Mr. Tsai Wei-min, our chief research
and development officer have approximately eight years and more than 30 years of operational
experience in the food and beverage industry, respectively. Furthermore, Mr. Wang Dongwei, our
executive Director and chief sales officer has more than ten years of experience in food-related
businesses. We believe that our key management members are core assets of our Company and will
continue to play a crucial role in the success of our business. In addition, we place a strong emphasis
on staff training to develop their knowledge and skills as well as ensuring they fully comply with our
high standards.
OUR STRATEGIES
Our goal is to continue to consolidate our leading position in the snack food and beverage
products industry in Hubei and Henan and further extend our market reach into other provinces as well
as expand our range of products. To this end we plan to carry out or are in the process of carrying out
the following strategies:
Strengthen Our Brand Recognition and Diversify Our Marketing Strategies
We believe our brand “CENMINGTANG” has gained substantial brand recognition in third- and
fourth-tier cities and rural areas in China as a result of our popular products and successful marketing
campaigns. We believe that enhanced brand awareness is closely tied to consumer loyalty and our
position in the snack food and beverage industry. We also believe that recognition of our brand helps
stimulate the sales of our products and expand our market share. Therefore, we intend to continue
concentrating our marketing resources in our brand “CENMINGTANG” in the foreseeable future. As
we diversify our product portfolio going forward, we may seek to offer new brands for different series
of products.
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BUSINESS
To increase the visibility and marketability of our products, we plan to diversify our marketing
strategies. For example, in addition to our existing advertising channels such as television advertising
and celebrity endorsement, we plan to explore alternative advertising methods including internet
social media advertising. We may engage professional advertisers to design modernized logos and
create catchy slogans for new products, which can enhance the memorability of our brand. We believe
that a multi-faceted marketing strategy will increase the effectiveness of our overall marketing efforts.
Further Expand Our Sales Regions and Distribution Network
We have successfully set up an extensive distribution network in third- and fourth-tier cities and
rural areas in China during a relatively short period of time after the establishment of our Company.
As of the Latest Practicable Date, our sales regions included seven provinces and one municipality in
China, namely Henan, Hubei, Yunnan, Shaanxi, Guizhou, Sichuan, Jiangxi and Chongqing. CRI
expects that there is great potential for growth in both the snack food market and the beverage market
in third- and fourth-tier cities in China in the foreseeable future. Against this backdrop, an expanding
distribution network will be essential to the continued success of our business. We plan to expand our
existing distribution network both by adding distributors in our current regions to increase market
penetration and by entering into new regions to widen our geographical reach.
We also intend to expand our distribution network by adding additional distribution channels.
Currently we only cooperate with distributors. We intend to establish direct relationships with
supermarket chains and convenience store chains based on their sales potential. Moreover, we plan to
explore the possibility of using online platforms to bulk sale our products to consumers. We believe
that a broadened multi-channel distribution network will help us capitalize on the demand for our
products from end-consumers.
Increase Our Investments in Research and Development
Innovation is vital to our success in the competitive snack food and beverage industry. A popular
new product brings us not only long-term sustained income, but also brand loyalty. We have a proven
track record of introducing new products since our establishment. The creative professionals in our
internal research and development department will strive to keep developing foods and beverages with
new tastes to further diversify our product offerings. We also plan to collaborate with external
academic and research institutions to design customized production processes for new products.
We plan to increase our investments in research and development to launch new series of foods
or drinks and our development activities will continue to be largely market-oriented. According to the
CRI Report, healthy foods and beverages are becoming increasingly popular among Chinese
consumers and accordingly, we plan to develop more nutritious snack food and beverage products. For
example, we plan to add hedgehog fungus, which is considered beneficial to the human stomach, to
certain of our pastries. We also plan to continue to focus on developing more fruit and vegetable
beverages as well as plant-based and milk beverages, which are considered healthier than sodas and
other types of drinks.
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BUSINESS
Expand the Production Capacity of Our Company
We plan to expand our production capacity at our existing facilities in Anlu, Hubei, as our
distribution network continues to broaden and demand for our products increases. As of December 31,
2015, we had 15 production lines for snack foods with an aggregate annual production capacity of
70,909 tons and ten production lines for beverages, with an aggregate annual production capacity of
478,992 tons. Our utilization rates for snack food production lines and beverage production lines were
78.6% and 97.7%, respectively, for the five months ended May 31, 2016. As our sales volume
continues to increase and we continue to diversify our product portfolio, we estimate that our
production capacity will be insufficient by the end of 2016.
In order to cope with our expected production constraints and to support the future growth and
development of our business, we plan to (i) construct two additional warehouses on our parcel of
existing land, and (ii) acquire one parcel of land with a size of approximately 200 mu at a suitable
location in Hubei, upon which we plan to construct new production plants, including the installation
of eight snack food production lines and ten beverage production lines which we intend to purchase
by 2017. For more details about our expansion plan, please refer to the section headed “Business —
Production — Our Production Expansion Plan” in this document.
OUR PRODUCTS
We operate our business in two segments: snack foods and beverages. Marketed under a single
brand “CENMINGTANG”, our product portfolio is comprised of two categories of snack food
products and four categories of beverage products with more than 100 product varieties in total. Our
diversified product portfolio provides us with multiple growth drivers across various product
categories, as demonstrated by our sales growth CAGR of 268.8% from 2013 to 2015.
As a result of our development and expansion into the beverage industry in 2014, there was a
change in our product offering during the Track Record Period. For the years ended December 31,
2013, 2014 and 2015, the revenue contribution of our snack food products decreased from 100.0% to
33.9% to 26.7% in the respective periods, while revenue contribution of our beverage products
increased from nil to 66.1% to 73.3% during the same periods. For more details regarding our change
in product mix during the Track Record Period, please refer to the section headed “Financial
Information — Description of Selected Income Statement Line Items — Revenue — Revenue by
Product Categories” in this document. In the next few years, we expect that our beverage products will
continue to contribute a larger proportion of our revenue than our snack food products do.
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BUSINESS
The following table provides a summary of our key product launch milestones:
Year
Key Product/Product Category Launch
2013
• Shaped Cakes, Pork Floss Pies, Swiss Rolls, Soft Bread, Dorayaki and
Custard Pies
2014
• Potato Chips and Potato Circles
• Peanut Milk, Crystal Sugar Pear and Longan Mixed Porridge
2015
• Walnut Milk, Mango Juice and Iced Red Tea
2016
• Soy Milk
The following table provides selected information about our signature products as of December
31, 2015:
Product
Categories
Key Products
Sample
Product
Photos
Snack Foods
Bread, Cakes
and Pastries
Shaped
Happy Bear and
Cakes . . . . Naughty Bear
Shaped Cakes
No. of
Product
Types (1)
Unit
Retail
Price
Range
Typical
Shelf Life
(RMB) (2)
(months)
8
22-26
6
3
28-36
6
30
22-26
6-12
Soft Bread . . French Soft Bread
5
20-22
6
Dorayaki . . . Dorayaki
4
22-26
6
Pork Floss
Pork Floss Pies
Pies . . . . .
Swiss Rolls . Swiss Rolls, Sponge
Cakes and Multiple
Layer Cakes
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BUSINESS
Product
Categories
Key Products
Sample
Product
Photos
No. of
Product
Types (1)
Unit
Retail
Price
Range
Typical
Shelf Life
(RMB) (2)
(months)
13
20-22
6
15
1-3.5
9-12
5
1-1.5
12
Fruit and
Red Apple Juice and
Vegetable
Crystal Sugar Pear
Beverages . . . Juice
8
2-2.5
12
Plant-based
Peanut Milk, Walnut
and Milk
Milk, Banana Milk
Beverages . . . and Milk Peanut
6
3.5-5.5
6-18
Longan Mixed
Other
Beverages . . . Porridge, Glucose
Beverages and
Malida
4
3-3.5
12-24
Custard
Custard Pies,
Pies. . . . . . European Style
Cakes and Banana
Cakes
Puffed Foods . . Potato Chips and
Potato Circles
Beverages
Ready-to-drink Iced Red Tea and
Tea . . . . . . . . Chrysanthemum Tea
Notes:
(1)
The number of product types takes into account flavor variations but does not take into account packaging
variations.
(2)
RMB per kilo for bread, cakes and pastries; RMB per pack for puffed foods; RMB per bottle/can/pack for
beverages.
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BUSINESS
Snack Food Products
Our snack food products comprise of (i) bread, cakes and pastries, which include shaped cakes,
pork floss pies, swiss rolls, soft bread, dorayaki and custard pies that were launched in 2013, and (ii)
puffed foods, which include potato chips, potato circles and other potato snacks that were launched
in 2014.
The following table sets forth our revenue from our snack food segment by product category for
the periods indicated:
For the year ended December 31,
2013
RMB
(’000)
Snack Food
Bread, Cakes and
Pastries
Shaped Cakes . .
Pork Floss Pies .
Swiss Rolls . . . .
Soft Bread . . . . .
Dorayaki. . . . . . .
Custard Pies . . . .
2014
% of total
revenue
RMB
(’000)
2015
% of total
revenue
RMB
(’000)
% of total
revenue
.
.
.
.
.
.
26,991
27,127
19,861
15,129
13,144
6,713
24.8
24.9
18.2
13.9
12.1
6.1
64,405
71,568
34,321
33,170
26,702
12,394
8.7
9.6
4.6
4.5
3.6
1.7
86,986
80,981
58,314
45,978
40,945
26,337
5.9
5.5
3.9
3.1
2.8
1.8
Subtotal . . . . . . . . .
Puffed Foods
Potato Snacks . . . .
108,965
100.0
242,560
32.7
339,541
23.0
—
—
8,942
1.2
54,821
3.7
Total . . . . . . . . . . .
108,965
100.0
251,502
33.9
394,362
26.7
The shaped cakes and pork floss pies are our most popular snack food among the various
categories of our snack food products, accounting for 5.9% and 5.5% of our respective total revenue
for the year ended December 31, 2015.
Bread, Cakes and Pastries
Shaped Cakes
We introduced our first series of shaped cakes the “Happy Bear” in 2013, which became popular
shortly after launching due to their cute bear shapes and delicious taste. We then developed several
derivative shaped cakes with various sizes, shapes and flavors, such as the “Naughty Bear”, which
further increased the popularity of this series. Shaped cakes are one of our core snack food products
and contributed to 24.8%, 8.7% and 5.9% of our total revenue for the years ended December 31, 2013,
2014 and 2015, respectively.
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Pork Floss Pies
As a suitable breakfast choice, pork floss pies are becoming increasingly popular in China.
According to the CRI Report, the pork floss pie market had a total market size of RMB4.5 billion in
2015, and is expected to grow at a CAGR of 21.7% from 2016 to 2020. Filled with thick pork floss,
our pork floss pies are soft and chewy and have received wide acceptance among consumers. We
currently offer our pork floss pies in various flavors such as original, chives and spicy flavors. The
pork floss pie products contributed 24.9%, 9.6% and 5.5% of our total revenue for the years ended
December 31, 2013, 2014 and 2015, respectively.
Swiss Rolls
We have the requisite production facilities and techniques to produce multi-flavored swiss rolls.
Our swiss roll offerings currently include swiss rolls, sponge cakes and multiple layer cakes in many
different flavors. Our swiss roll products contributed 18.2%, 4.6% and 3.9% of our total revenue for
the years ended December 31, 2013, 2014 and 2015, respectively.
Soft Bread
Over the years, we have continuously introduced new flavors for our soft bread products in a
wide range of packages to make them more appealing to consumers. Our soft bread products
contributed 13.9%, 4.5% and 3.1% of our total revenue for the years ended December 31, 2013, 2014
and 2015, respectively.
Dorayaki
Dorayaki is a dessert with filling between two slices of sweet fluffy pancakes which are shaped
like a gong. We have developed a variety of fillings for our dorayaki products including red bean, taro
and purple sweet potatoes to appeal to the wide ranging preferences of our consumers. Our dorayaki
products contributed 12.1%, 3.6% and 2.8% of our total revenue for the years ended December 31,
2013, 2014 and 2015, respectively.
Custard Pies
Delicate and soft, our custard pies have a variety of shapes and flavors including European style
cakes, ingot cakes and banana cakes. Custard pies contributed to 6.1%, 1.7% and 1.8% of our total
revenue for the years ended December 31, 2013, 2014 and 2015, respectively.
Puffed Foods
We launched our puffed food products in 2014 with a wide spectrum of potato snacks such as
potato chips and potato circles. We have continuously improved our puffed foods offerings by
introducing new flavors including spicy, crab, barbecue, and tomato flavors. Tailored for young
consumers, we have introduced potato chips with small packages and competitive prices. Our puffed
food products contributed 1.2% and 3.7% of our total revenue for the years ended December 31, 2014
and 2015, respectively.
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BUSINESS
Beverage Products
Positioning ourselves as a diversified snack food and beverage producer, we entered China’s
beverage market in 2014. With our bottling technology, we are able to produce a wide range of
beverage products in various sizes and packaging, including in PET bottles (350ml, 360ml and 500ml),
in TP cartons (125ml and 250ml) and in CANs (240ml, 245ml, 310ml, 360ml and 480ml). Our
beverage products include plant-based and milk beverages, fruit and vegetable beverages,
ready-to-drink teas and other beverages. The descriptions for each category of our beverages are set
forth below.
The following table sets forth our revenue from our beverage segment by product categories for
the periods indicated.
For the year ended December 31,
Revenue
2013
RMB
(’000)
Beverage
Plant-based and
Milk
Beverages . . . .
Fruit and
Vegetable
Beverages . . . .
Ready-to-drink
Tea . . . . . . . . .
Other Beverages
2014
% of total
revenue
RMB
(’000)
2015
% of total
revenue
RMB
(’000)
% of total
revenue
.
—
—
192,989
26.0
627,457
42.3
.
—
—
102,585
13.8
220,874
14.9
.
.
—
—
—
—
121,294
73,752
16.4
9.9
164,928
74,737
11.1
5.0
Total . . . . . . . . . . .
—
—
490,620
66.1
1,087,996
73.3
Plant-based and Milk Beverages
Inspired by consumers’ increasing health awareness, the nutritious plant-based and milk
beverages have been gaining market share from carbonated drinks. The plant-based and milk beverage
market is expected to increase at a CAGR of 14.2% from 2016 to 2020, according to the CRI Report.
We launched canned peanut milk as our first plant-based and milk beverage in 2014. Peanut milk is
one of our most successful beverage products and we currently offer peanut milk in four
different-sized packages including PET bottles (350ml and 500ml), TP cartons (250ml) and CANs
(240ml). For the year ended December 31, 2015, sales from peanut milk accounted for approximately
31.3% of our total revenue. To accommodate consumers’ preferences, we have developed new types
of plant-based and milk beverages including walnut milk, banana milk and soymilk. Sales of our
plant-based and milk beverage products contributed 26.0% and 42.3% of our total revenue for the
years ended December 31, 2014 and 2015, respectively.
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Fruit and Vegetable Beverages
Fruit and vegetable beverages are considered to have health benefits and are regarded as growth
drivers in the beverage market in China. According to the CRI Report, the fruit and vegetable beverage
market is expected to increase at a CAGR of 14.0% from 2016 to 2020. We offer a wide range of fruit
and vegetable beverages including red apple juice, crystal sugar pear juice, mango juice, pineapple
juice and blueberry juice. Our fruit and vegetable beverages are packaged in PET bottles (500ml and
600ml), TP cartons (250ml) and CANs (240ml, 310ml and 480ml). Sales of our fruit and vegetable
products contributed 13.8% and 14.9% of our total revenue for the years ended December 31, 2014
and 2015, respectively.
Ready-to-drink Tea
We produce ready-to-drink tea products, such as ice red tea, chrysanthemum tea, honey green tea,
honey jasmine tea and lemon red tea, in various packaging sizes. Our ready-to-drink teas are packaged
in PET bottles (500ml and 600ml) and TP cartons (250ml). With portable convenient packaging, a
refreshing taste and competitive pricing, sales of our ready-to-drink tea products contributed 16.4%
and 11.1% of our total revenue for the years ended December 31, 2014 and 2015, respectively.
Other Beverages
As part of our beverage product portfolio, we also offer mixed porridge, such as longan mixed
porridge, in CANs (360ml), glucose beverages in PET bottles (500ml) and malida in TP cartons
(360ml and 500ml). Our other beverage products contributed 9.9% and 5.0% of our total revenue for
the years ended December 31 2014 and 2015, respectively. We are committed to offering more new
beverage varieties with various classic and novel flavors to meet the evolving demands of our
consumers.
SEASONALITY
The sales of certain of our products may be subject to seasonality. Historically, we have
experienced higher sales of beverage products during the summer months and stronger demand for
certain snack food products during traditional Chinese holidays, such as Chinese New Year and
Mid-Autumn Festival. Sales can also fluctuate during the course of a financial year for other reasons
such as a new product launch or an advertising campaign. However, given the diversity of our product
offerings, our overall sales are balanced throughout the year and we do not believe that our results of
operations are significantly affected by seasonality.
BRANDING AND MARKETING
We market our products under a single brand “CENMINGTANG”. Concentrating our marketing
resources on one umbrella brand, we believe that our strategy is helpful in raising awareness of our
brand and enhancing consumer loyalty, especially at this relatively early stage of our development. As
we diversify our product portfolio in the future, we may seek to offer different brands for different
series of products.
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To enhance visibility and marketability of our products, we undertake various advertising and
promotional activities, particularly in third- and fourth-tier cities and rural areas where there is a large
population and increasing demand for our products. For instance, when we launch new products, we
usually conduct advertising campaigns on regional television channels and design advertisement
taglines for certain of our products, such as below:
Product
Key Advertisement Taglines
Happy Bear Shaped Cakes
Cute and Delicious Cakes (可愛又好吃的蛋糕)
Iced Red Tea
Icy and Tasty (冰爽好喝)
Crystal Sugar Pear Juice
Natural, Clear and Sweet (自然清甜)
We also conduct on-site promotions for our beverages in schools during back-to-school seasons
and in our distributors’ points-of-sales during Chinese festival seasons. To attract young consumers in
our target markets, we engaged a well-known Chinese pop music group as our spokesperson to endorse
our brand’s products. Furthermore, we organize order-placing meetings semi-annually in which the
participating distributors can choose to place a deposit with us and receive a 2% rebate of their
advance payments. Despite our Company’s relatively short history, our Directors believe that our
marketing efforts have achieved considerable success. Our brand “CENMINGTANG” was awarded the
“2015 Famous Brand Award in the Chinese Beverages Industry” at the Fourth Chinese Brand Annual
Conference, which was jointly held by several large national media outlets in China.
Our promotion and advertising expenses for the three years ended December 31, 2013, 2014 and
2015 were RMB0.4 million, RMB14.2 million and RMB17.7 million, respectively. Going forward, we
plan to continue our marketing activities via traditional channels and exploring new media channels
such as internet social networks. We believe that our multi-dimensional marketing strategy can
effectively promote awareness and recognition of our brand recognition among specific target
consumer groups.
PRICING POLICY
In pricing our products, we take into account a variety of factors including the costs of raw
materials, packaging materials, production and distribution, the desired profit margins for us and for
our distributors, the historical sales data, the retail prices of competing products, the target consumers’
spending patterns, the demand and supply dynamics of the particular products in our target markets,
as well as any anticipated market trends. After considering all these factors and the general market
conditions, we set a factory price and a suggested sales price for each of our products, which is
consistent with market practice in the snack food and beverage industry in China.
As stipulated in our standardized distribution agreement, our distributors shall sell our products
at our suggested sales prices and shall not sell our products below the factory prices, which are set
forth on the orders of the respective products. Our sales personnel monitor the actual sale prices of
the distributors from time to time and we have the right to terminate the relevant distribution
agreement with any distributor who breaches the agreement. For more details regarding our
distribution agreements, please refer to the section headed “Business — Sales and Distribution
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BUSINESS
Network — Standardized Distribution Agreement” in this document. Save for those distributors that
participate in our semi-annual order-placing meetings and choose to place a deposit with us and
receive a 2% rebate of their advance payments, we do not usually offer any credit or discount to our
distributors except that we may offer extra free units upon the same calculation basis to our
distributors as part of our promotional efforts upon their procurement of our products. Such a
promotional campaign applies in equal terms to all of the distributors procuring our products,
regardless of the size of the distributor, and therefore each distributor receives a certain percentage
of extra free units solely based on its purchase volume of the new products.
SALES AND DISTRIBUTION NETWORK
We have built an extensive sales and distribution network through our distributors in seven
provinces and one municipality in China, which is vital to our success in the snack food and beverage
industry. Penetrating into a wide range of points-of-sale in third- and fourth-tier cities, counties, towns
and villages, our distribution network is tailored for our targeted markets, mainly third- and fourth-tier
cities and rural areas across central China. Our snack food and beverage products are exclusively sold
to distributors, who in turn sell our products through various sales channels such as supermarkets,
convenience stores, retailers and sub-distributors. All of our revenue is derived from the sale of our
products to our distributors and consequently we carefully evaluate and select our distributors.
Our sales and distribution network is managed by our sales team which acts as our liaison with
each of our distributors. Led by our chief sales director, our sales team consisted of seven provincial
sales managers, 42 regional managers and 372 sales representatives as of the Latest Practicable Date,
all of whom were our full-time employees. Our sales director is primarily responsible for the
formulation of overall sales strategy at the headquarters’ level. Our provincial managers are
responsible for the management of our sales activities in their respective provinces. Our regional
managers work with our distributors and provide sales assistance to help them promote our products.
Our sales representatives are primarily responsible for daily communications with distributors,
visiting points-of-sale, and collecting first-hand market information, such as distributor inventory
levels and consumer feedback. For more details regarding our distributor evaluation and methodology,
please refer to the section headed “Business — Sales and Distribution Network — Management of our
Distribution Network” in this document.
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Our Geographic Coverage
As of the Latest Practicable Date, our distribution network covered seven provinces and one
municipality including Henan, Hubei, Yunnan, Shaanxi, Guizhou, Sichuan, Jiangxi and Chongqing.
The map below shows the location of our headquarters and the geographic coverage of our distribution
network as of the Latest Practicable Date:
Shaanxi
(41)
Sichuan
(33)
Chongqing
(17)
Guizhou
(50)
Henan
(104)
Hubei
(76)
Anlu, Hubei
Jiangxi
(21)
Yunnan
(52)
: Our Headquarters
( ) : The numbers of distributors in corresponding provinces/ municipalities as of the Latest Practicable Date
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The table below sets forth the breakdown of our distributors and their sales by geographic
coverage for the periods indicated:
For the year ended December 31,
Provinces
2013
2014
(RMB
Distributors in Million)
Sales
Sales
Sales
Number of
2015
% of total
revenue
Number of
(RMB
Distributors in Million)
% of total
revenue
Number of
(RMB
Distributors in Million)
% of total
revenue
Henan . . . . . . . .
20
44.2
40.7
72
196.1
26.4
102
435.7
29.3
Hubei . . . . . . . . .
8
20.6
18.9
55
197.1
26.6
79
404.2
27.3
Yunnan . . . . . . . .
10
21.1
19.3
39
139.1
18.7
51
248.7
16.8
Shaanxi. . . . . . . .
6
12.8
11.7
32
116.9
15.8
41
229.7
15.5
Guizhou . . . . . . .
5
10.3
9.4
30
92.9
12.5
41
164.1
11.1
Total . . . . . . . . .
49
109.0
100.0
228
742.1
100.0
314
1,482.4
100.0
Our Distributors
During the Track Record Period, all of our customers were our distributors and we have a
vendor-purchaser relationship with them. We exclusively sell of our products through our distribution
network and the majority of our products were sold to retailers and sub-distributors, reaching
points-of-sale quickly and efficiently. Furthermore, we believe that our exclusive cooperation with
distributors at the early stages of our development, allowed us to rapidly expand into our target
markets by leveraging off their existing market reach with relatively low investment costs since we
did not need to invest capital in direct sales channels as well as allowing us to focus more on product
development and our overall sales strategy.
In a typical transaction, we receive 80% of the purchase price from a distributor before we
deliver any products to it and the balance of the purchase price is paid to us by the end of the next
month after delivery. We believe that the requirement of prepayments encourages our distributors to
distribute our products in a timely fashion and avoid accumulation of excess inventory. We usually
arrange for third party logistics service providers to deliver the products to the distributor’s designated
location. We typically recognize our sales to our distributors after we hand over the goods to third
party logistics service providers and obtain the freight bills as we are deemed to have completed the
delivery, and the ownership of, and the risks relating to the goods are thereafter transferred to the
distributor. We do not accept any return or exchange of our products sold to the distributor except for
products with significant quality issues.
During the Track Record Period, there had been no material return or exchange of our products.
As we generally arrange for the manufacturing of our products after receiving the distributors’ orders
and prepayments, we do not bear any material inventory risk. For more details regarding our
distribution arrangements and product quality control, please refer to the sections headed “Business
— Sales and Distribution Network — Standardized Distribution Agreement” and “Business — Quality
Control and Food Safety — Product Returns, Exchanges and Recalls and Consumer Feedback” in this
document.
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BUSINESS
For the years ended December 31, 2013, 2014 and 2015, sales to our five largest distributors was
less than 30% of our total revenue, accounting for 14.4%, 6.6% and 12.0% of our total revenue,
respectively, and sales to our largest distributor accounted for 3.2%, 1.6% and 2.4% of our total
revenue, respectively. None of our five largest distributors during the Track Record Period was our
former or current employee (whether part-time or full-time). None of our Directors, their respective
close associates or Shareholders (which to the knowledge of the Directors) who own five per cent or
more of the total issued Shares, had an interest in any of our five largest distributors during the Track
Record Period.
We have maintained stable business relationships with our distributors. As of December 31,
2013, 2014 and 2015, we had 49, 228 and 311 distributors, respectively. Starting from January 1, 2016
and up to the Latest Practicable Date, we had entered into distribution agreements with 85 new
distributors, which were mainly located in Sichuan, Jiangxi and Chongqing. The following table sets
forth the changes in the number of our distributors as of the dates indicated:
As of December 31,
Distributors
2013
2014
2015
As of the
Latest
Practicable
Date
As of the beginning of the
year/period . . . . . . . . . . . . . . . . .
—
49
Additions of new distributors . . . . . .
Terminations of distributors . . . . . .
49
—
179
—
86
(3)
85
(2)
Net increase in distributors . . . . . . .
49
179
83
83
As of year-end/period-end . . . . . . . .
49
228
311
394
228
311
On December 31, 2015, we terminated our cooperation with three of our distributors, due to their
non-payment of our trade receivables of approximately RMB0.1 million in total. Revenue generated
by these terminated distributors for the years ended December 31, 2013, 2014 and 2015 were nil,
RMB3.4 million and RMB4.5 million respectively, accounting for nil, 0.5% and 0.3% of total revenue
in such periods respectively. The turnover rate of our distributors were approximately nil, nil and 1.1%
respectively for the year ended December 31, 2013, 2014 and 2015. The turnover rate is calculated
using the number of distributor relationships that were terminated during a given period divided by
the average number of our distributors at the beginning and the end of that period. In addition, we did
not terminate our working relationship with our largest five distributors during the Track Record
Period.
We terminated two additional distributors in April 2016 because they switched their businesses
to other industries. The additions of new distributors primarily reflected our efforts in expanding our
sales network and deepening our market penetration in China. We believe that our diversified product
offerings, competitive pricing, comprehensive support as well as our scale in sales, logistics and
advertising help us continuously strengthen our relationships with our distributors.
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Standardized Distribution Agreement
While our distributors buy our products on a per purchase order basis, we typically enter into an
annual framework distribution agreement with each of our distributors, which sets out the basic terms
and conditions of our cooperation. To streamline our management of distributors, we use a
standardized distribution agreement, which sets out key terms of our cooperation such as distribution
area, pricing policy, payment methods, return policy and other rights and obligations of our
distributors and us. The key terms of our standardized distribution agreement include:
•
Restrictions on Distribution Area: The distributor shall only sell our products within its
designated distribution area and shall not sell our products in any area outside of its
designated distribution area.
•
Restrictions on Distributorship: During the term of the distribution agreement, the
distributor shall sell our products as its primary products to be sold.
•
Duration and Renewal: Usually one year. Upon the expiration of the distribution
agreement, the distributor shall enjoy a priority right over other distributors covering
substantially the same distribution area on renewal.
•
Pricing Policy: The distributor shall sell our products at our suggested sales prices and shall
not sell our products below the factory prices, which are set forth on the orders of the
respective products. In setting the factory prices and the suggested sales prices for our
products, we take into account a variety of factors, including but not limited to the costs
of raw materials, packaging materials, production and distribution, the desired profit
margins for us and for our distributors, the historical sales data, the retail prices of
competing products, the target consumers’ spending patterns, the demand and supply
dynamics of the particular products in our target markets, as well as the anticipated market
trends.
•
Order Placement and Payment Methods: The distributor shall place orders with us by fax
or telephone one month in advance. The distributor shall pay us (i) 50% of the purchase
price as down payment within five days after the placement of an order, (ii) 30% of the
purchase price before shipment of the goods and (iii) the remaining 20% of the purchase
price by the end of the next month after delivery of the goods. The payment shall be made
by wire transfer.
•
Shipping and Transportation: Upon receipt of the prepayment of 80% of the purchase price,
we shall ship the goods ordered by the distributor within ten days. We shall arrange for third
party logistics service providers to deliver our products to the distributor’s designated
location and we shall be responsible for the shipping expenses. We are deemed to have
completed the delivery after we hand over the goods to third party logistics service
providers and obtain the freight bills to confirm receipt.
•
Inspection and Acceptance: The distributor shall inspect the goods while picking them up
at its designated delivery location. If there is damage to the package or loss of goods caused
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by transportation, the distributor shall take photos and notify us. The third party logistics
service providers shall be responsible for such damage or loss and we will assist the
distributor in recovering such damage or loss. If the distributor does not accept the
delivered goods due to its objection on the type, model or quantity of the goods, it shall
raise its objection to us in the form of a letter, email or fax within three days of the agreed
pickup date, otherwise the delivered goods shall be deemed to be accepted.
•
Quality and Safety: We represent to the distributor that the raw materials used by us and the
products we sell to the distributor comply with the relevant national food safety standards.
We are responsible for any liabilities caused by the quality of our products. However, the
distributor shall be responsible for liabilities caused by deterioration of the products due to
overstocking.
•
Return or Exchange of Products: We do not accept any return or exchange of our products
sold to the distributor except for products with significant quality issues, in which case the
distributor shall report to us in writing and we accept return or change after verification of
the quality issues.
•
Establishment of Distribution Channels: The distributor shall establish a comprehensive
system of sales channels as well as a standardized and integrated sales network within its
designated distribution area to facilitate sales of our products and promote our brand image.
If the distributors fail to establish such sales channels and network in the target cities, we
have the right to authorize third parties to sell our products or terminate the distribution
agreement.
•
Marketing and Promotion: The distributor shall assist in maintaining our brand image and
reputation and shall not conduct any activities that damage our brand image and reputation.
The distributor shall actively participate in our marketing activities and promotional events.
•
Confidentiality: The distributor shall not disclose our trade secrets, utilize our trademarks
for commercial activities without our authorization or sell counterfeit products, the breach
of which gives us the right to terminate the distribution agreement at any time and recover
the damages.
•
Liability of Breach: The breaching party shall be liable for any economic damages. If the
distributor breaches the agreement, we have the right to stop the supply of goods until
termination of the agreement.
•
Termination: Either party has the right to terminate the agreement if the other party
breaches the agreement. The agreement is automatically terminated upon the occurrence of
any force majeure event. Upon the termination of the agreement, the distributor shall settle
the outstanding payment with us within three days after the date of termination.
We believe that our standardized distribution agreements enable us to properly incentivize our
distributors to actively market and sell our products and provide us with sufficient control over our
distribution network. As a result, we can better manage and ensure an orderly market for our products.
— 132 —
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BUSINESS
For more details regarding risks associated with our distribution model, please see the section headed
“Risk Factors — Risks Relating to our Business — We only rely on third-party distributors to place
our products into the market and face certain risks relating to our distributors, their sub-distributors
and retailers” in this document.
Management of Our Distribution Network
To effectively manage our distribution network, we place great emphasis on distributor selection
as well as distributor evaluation. In selecting our distributors in each region, we take into account of
their reputation, geographical locations, sales network coverage, marketing capabilities and financial
resources, among other factors, to ensure that they can meet our distribution requirements and they
do not compete with each other. In evaluating our existing distributors, multiple departments of our
Company assess their performance based primarily on their creditworthiness, operating status, quality
of internal management, development and expansion of distribution networks in their corresponding
regions, improvement in warehousing facilities, improvement in business management capabilities,
management of customer relationships and improvement in overall sales performance. We only renew
distribution agreements with the distributors that have passed our performance evaluation.
We rely not only on the distribution agreements with our distributors, but also on our dedicated
sales team to implement our policies. We do not establish sales targets in our distribution agreements.
However, our sales staff regularly follow up with the distributors regarding their sales orders and
communicate with them to understand their sales plans and inventory levels. Our sales personnel also
provide various support services to our distributors, such as advising on points-of-sales development,
inventory management and shelf display. We believe that our assistance helps develop mutually
beneficial and long-term relationships with our distributors. These procedures, combined with (i) no
minimum purchase obligations in our standardized distribution agreement and all sales are completed
through placing of purchase orders by the distributors, (ii) our requirement for all the distributors to
pay us 80% of the purchase price before shipment of goods and (iii) our policy of “no return or
exchange unless significantly defective”, help ensure that our sales to distributors reflect genuine
market demand for our products and mitigate the risk of excessive inventory accumulation of our
products in the distribution channels. We are not aware of any material accumulation of our products
stocked by our distributors during the Track Record Period.
In addition, our sales personnel conduct regular inspections of our distributors and their
points-of-sale to ensure their compliance with the terms and conditions of the distribution agreements.
For instance, our sales personnel monitor our distributors’ advertising exercises to ensure that they do
not make misrepresentations regarding our products or engage in activities that may harm our
reputation. Our sales personnel regularly check our distributors’ actual sale prices of our products
against their respective suggested sales prices. Moreover, our sales personnel also inspect the storage
conditions of our products from time to time for quality control purposes.
In order to minimize any cannibalization amongst our distributors, we prohibit our distributors
from selling our products outside their designated areas. The designated areas are defined under the
our distributors’ respective distribution agreements with reference to the names of the provinces,
cities, counties or towns. In addition, we regularly conduct an evaluation on the sales network
— 133 —
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BUSINESS
coverage of distributors and the number of distributors in a particular area to avoid overlapping of
sales network between distributors in the same designated area. We also examine our distributors’
sales ranges to see whether our products are effectively distributed within their specified geographical
regions. If we discover any non-compliance, we inform the relevant distributor and request the
distributor to cease the non-compliant activities within a specified period of time. Our distributors are
liable for any damages caused by their breaches of the distribution agreements and we are entitled to
terminate the distribution arrangements if there are material breaches of the distribution agreements.
Given the growing market for snack foods and beverages in all of our distribution areas including
seven provinces and one municipality, our Directors believe that there is potential for a significant
expansion of our business within our existing distribution areas and, as such, there is currently no
over-concentration of distributors within our distribution network.
During the Track Record Period, we did not have any material disputes and we were not a party
to any legal or arbitration proceedings with any of our distributors. In addition, we did not receive any
material sales returns from our distributors and did not detect any material non-compliance by our
distributors with the terms of our distribution agreements during the Track Record Period. Through
regular inspections of our distributors and their points-of-sale by our sales team, nothing has caused
our Directors to believe that the significant increase in our revenue during the Track Record Period
was due to the accumulation of inventories at the distributors or their sub-distributors or retailers.
Our centralized sales and distribution management system allows us to effectively monitor our
sales channels from our headquarters. We believe our established and extensive distribution network
will continue to support our ability to successfully market and deliver our products to end-consumers.
We also believe our distribution model is consistent with customary industry practice and enables us
to efficiently grow our sales network while maintaining sufficient control over distribution and
expansion costs.
The tables below set forth certain details regarding our top five distributors in each of 2013, 2014
and 2015.
Revenue
contribution in
2013 (RMB in
million)
Years of business
relationship with
our Company
Distributor A1. . . .
Distributor A2. . . .
3.5
3.1
3
3
Snack foods
Snack foods
Distributor A3. . . .
Distributor A4. . . .
Distributor A5. . . .
3.1
3.1
3.0
3
3
3
Snack foods
Snack foods
Snack foods
Top five
distributors in
2013
— 134 —
Main products
sold to the
distributors
Business nature
of distributors
Food retailer
Individual
Distributor
Food retailer
Food wholesaler
Individual food
retailer
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Revenue
contribution in
2014 (RMB in
million)
Years of business
relationship with
our Company
Distributor B1. . . .
11.7
3
Distributor B2. . . .
10.0
3
Distributor B3. . . .
9.9
3
Distributor B4. . . .
9.2
3
Distributor B5. . . .
9.1
3
Revenue
contribution in
2015 (RMB in
million)
Years of business
relationship with
our Company
Distributor C1. . . .
36.1
3
Distributor C2. . . .
35.9
3
Distributor C3. . . .
35.8
3
Distributor C4. . . .
35.2
3
Distributor C5. . . .
34.9
3
Top five
distributors in
2014
Top five
distributors in
2015
Main products
sold to the
distributors
Snack foods
beverages
Snack foods
beverages
Snack foods
beverages
Snack foods
beverages
Snack foods
beverages
and
Food retailer
and
Supermarket
and
Supermarket
and
Food distributor
and
Supermarket
Main products
sold to the
distributors
Snack foods
beverages
Snack foods
beverages
Snack foods
beverages
Snack foods
beverages
Snack foods
beverages
Business nature
of distributors
Business nature
of distributors
and
Food retailer
and
Supermarket chain
and
Supermarket
and
Food retailer
and
Food retailer
All of our distributors during the Track Record Period paid us (i) 50% of the purchase price as
down payment within five days after placement of orders, (ii) 30% of the purchase price before
shipment of goods and (iii) the remaining 20% of the purchase price by the end of the next month after
delivery of the goods. All of our distributors during the Track Record Period were independent third
parties.
Sub-Distributors
For many of the same reasons we engage distributors to distribute our snack food and beverage
products to the market, some of our distributors also engage their own network of sub-distributors to
widen their respective market reach as well as expedite product delivery and sales. We have no direct
contractual relationship with any of the sub-distributors which may be used by our distributors and
rely solely on our distributors’ discretion to select, manage and monitor the activities of such
— 135 —
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sub-distributors, including the restriction of confining any sales of our products to within their
designated geographical areas. However, we do monitor the inventory levels of our distributors as well
as conduct on-site visits of certain points-of-sale within designated geographical areas to help verify
that our products are being sold to end-consumers by sub-distributors in compliance with our
suggested sales prices, marketing strategies and overall distribution plans. If we become aware of any
non-compliance and misconduct of a sub-distributor, we will investigate and notify the relevant
distributor accordingly and require it to take remedial measures. In the event the distributor is unable
to remedy the situation, we retain the right to terminate the distribution agreement with the relevant
distributor as summarized in the section headed “Business — Sales and Distribution Network —
Standardized Distribution Agreement” in this document.
Through site visits to our distributors, sub-distributors and points-of-sale by our sales personnel
and implementation of internal policies and measures described above, nothing has caused our
Directors to believe that the rapid growth in sales revenue we experienced during the Track Record
Period was due to any material accumulation of inventories within the sales channels of any
sub-distributors.
PRODUCTION
Our Production Facilities
We manufacture all of our products in-house, which allows us to maximize our control over
product quality and food safety. Our self-owned production base is strategically located in Anlu,
Hubei, within a relatively close proximity to our distributors and our sources for various types of raw
materials, which help us reduce our transportation costs and delivery times. As of the Latest
Practicable Date, we had ten production workshops, including seven snack food production workshops
and three beverage production workshops, equipped with an aggregate of 25 production lines. These
automated production lines enable us to mass produce snack food and beverage products in an efficient
manner. Our production facilities include:
•
Snack Food Production Facilities. We have 15 production lines for manufacturing our
cakes, bread and pastries and puffed foods. Our 13 production lines for cakes, bread and
pastries came into service in September 2013 and our two production lines for puffed foods
came into service in June 2014. Our overall annual production capacity for snack food
products was 70,909 tons in 2015.
— 136 —
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BUSINESS
•
Beverage Production Facilities. We have ten production lines for manufacturing
plant-based and milk beverages, fruit and vegetables beverage, ready-to-drink tea and other
beverages. Out of our eight TP carton production lines, four production lines came into
service in April 2014 and the other four production lines came into service in December
2014. Our one PET bottling production line came into service in April 2014. Our one CAN
production line came into service in January 2014. Our overall annual production capacity
for beverage products was 478,992 tons in 2015.
We strive to produce products that satisfy our end-customers’ taste preferences and fulfill their
needs. For instance, with our PET bottling production lines, we are able to produce not only
specially-shaped PET bottles for various types of our beverages, but also lighter PET bottles to lower
our packaging costs. Compared to the 27-gram PET bottles used by most other companies, our PET
bottles are weighted an average of 20 grams, which are more environmentally friendly and
cost-effective.
— 137 —
2
2
2
1
Swiss Rolls . . . . . . . .
Soft Bread . . . . . . . .
Dorayaki . . . . . . . . .
Custard Pies . . . . . . .
—
—
—
—
PET Bottled Products . . . . .
TP Products . . . . . . . . .
Canned Products . . . . . . .
Beverages Total . . . . . . .
— 138 —
—
—
—
—
25,526
—
2,522
2,522
3,749
5,180
5,623
5,930
—
—
—
—
8,071
—
532
938
1,250
1,508
1,887
1,956
(tons)
Production
volume
—
—
—
—
31.6
—
21.1
37.2
33.3
29.1
33.6
33.0
(%)
Utilization
rate (2)
6
1
4
1
15
2
1
2
2
2
3
3
301,422
58,752
138,720
103,950
66,661
5,544
6,038
6,038
8,976
12,403
13,464
14,198
(tons)
Production Production
lines in use capacity (1)
162,831
37,062
66,913
58,856
17,413
714
993
1,823
2,601
2,423
4,629
4,230
(tons)
Production
volume
2014
54.0
63.1
48.2
56.6
26.1
12.9
16.4
30.2
29.0
19.5
34.4
29.8
(%)
Utilization
rate (2)
As of or for the year ended December 31,
10
1
8
1
15
2
1
2
2
2
3
3
478,992
58,752
277,440
142,800
70,909
9,792
6,038
6,038
8,976
12,403
13,464
14,198
(tons)
Production Production
lines in use capacity (1)
330,548
47,194
190,908
92,446
26,861
3,932
2,039
2,453
3,578
4,027
5,255
5,577
(tons)
Production
volume
2015
69.0
80.3
68.8
64.7
37.9
40.2
33.8
40.6
39.9
32.5
39.0
39.3
(%)
Utilization
rate (2)
10
1
8
1
15
2
1
2
2
2
3
3
200,050
24,538
115,872
59,640
29,616
4,090
2,522
2,522
3,749
5,180
5,623
5,930
(tons)
Production Production
lines in use capacity (1)
195,444
23,817
114,831
56,796
23,265
2,383
2,480
1,893
3,088
5,065
3,905
4,451
(tons)
Production
volume
2016
97.7
97.1
99.1
95.2
78.6
58.3
98.3
75.1
82.4
97.8
69.4
75.1
(%)
Utilization
rate (2)
As of or for the five months ended May 31,
The utilization rate for our beverage production lines increased from 54.0% in 2014 to 69.0% in 2015 and to 97.7% in the first five months
of 2016 primarily due to a significant increase in our production volume of beverages over the same period.
The utilization rate for our snack food production lines decreased from 31.6% in 2013 to 26.1% in 2014 primarily due to a significant
increase in our total production capacity for snack foods in 2014 as the production lines we purchased in 2013 became operational in 2014. The
utilization rate for our snack food production lines increased to 37.9% in 2015 and 78.6% in the first five months of 2016 primarily due to a
significant increase in our production volume over the same period.
Notes:
(1)
Production capacity for the three years ended December 31, 2013, 2014 and 2015 and the five months ended May 31, 2016 is calculated on a weighted average basis. The
weighted average production capacity for a period equals (i) the production capacity at the beginning of the period, plus (ii) weighted new production capacity added during
the same period. Weighted new production capacity added during a period is derived by multiplying (a) the total new production capacity added during that period with (b)
the numbers of days during which the new production capacity is in operation, (c) divided by 340. Our annual production capacity for snack foods and beverages is calculated
on the basis of 24 hours per day and 340 days per year.
(2)
Utilization rate is derived by dividing the production volume by the production capacity during the same period.
(3)
The production lines for beverage products are categorized by the types of packaging materials used during the production processes.
Beverages (3)
13
Potato Snacks . . . . . . .
Snack Foods Total . . . . . .
—
3
Puffed Food
3
Pork Floss Pies . . . . . .
(tons)
Production Production
lines in use capacity (1)
Shaped Cakes . . . . . . .
Bread, Cakes and Pastries
Snack Foods
Our Products
2013
The table below sets forth the number of production lines, annual production capacity, production volume and utilization rate of our
production facilities as of and for the periods indicated:
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HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
BUSINESS
Our Production Process
All of our production lines are automated without the need for much direct manual labor. Our
snack food production lines typically consist of several product-specific cutting and processing
machines linked together by a motorized conveyor belt system. Our beverage production lines are
typically composed of a combination of mixing, sterilization and filtration tanks interconnected by an
electric pump and piping system. Generally, once the required raw materials enter into our respective
production lines, it takes no more than two hours (depending on product type) for us to create a
finished product.
Production of Food Products
The following chart illustrates the production process of our typical snack food products:
Raw materials and
ingredients
selection
Raw materials and
ingredients
measurement
• Raw materials and ingredients are selected based
on product requirements
• Raw materials and ingredients are measured
according to specific formula ratios
• Raw materials and ingredients are incorporated
and blended according to technical standards
Mixing
Shaping
(if applicable)
Baking
Filings
(if applicable)
Cooling
• The doughs are shaped by roller printing,
pouring or cutting
• The doughs are baked at high temperatures and
also undergo expansion, gelatinization, shaping
and coloring depending on product type
• Different fillings are injected according to
the formulas
• Products are cooled down to room temperature
to dissipate moisture and gas
• Snack food products are sterilized
Sterilizing
Packaging
• Snack foods are packaged in different
specifications for transportation and sales
— 139 —
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The methods used during the molding stage vary depending on the product type. Molding for
bread, cakes and pastries is typically conducted by injection molding or bakery depositors, while
puffed foods are typically machine cut and processed. Fillings are only required for certain products
such as pork floss pies, swiss rolls and dorayaki. Disinfection is required for all our snack food
products.
Production of Beverage Products
The following chart illustrates the production process for our typical PET-bottle and TP carton
beverage products:
Raw materials
Preparation of
raw materials
Dissolution
Purification
Mixing
• Raw materials and ingredients are selected
based on product requirements
• Raw materials and ingredients are measured
accordingly to specific formula ratios
• Raw materials are dissolved separately
• Particles are removed to prevent mixing with
unwanted materials
• A blended solution is mode through mixing
materials proportionally according to
technical standards
Sterilizing
• Materials are sterilized to preserve the safety
and freshness of the beverages
Bottling
• Finished beverages are filled into PET bottles
and TP cartons
Packaging
• Finished products are packaged for
transportation and sales
— 140 —
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The following chart illustrates the production process of our typical CAN beverage products:
Raw materials
Preparation of
raw materials
Preprocessing
Mixing
Filing
Sterilizing
Cooling
Packaging
• Raw materials and ingredients are selected
based on product requirements
• Raw materials and ingredients are measured
accordingly to specific formula ratios
• Raw materials are washed, processed and filtered
into a liquid form
• A blended liquid is made via mixing materials
proportionally according to technical standards
• Cans are filled with fixed amounts of liquid
• Liquids inside the can are sterilized with high
temperature steaming and boiling
• Products are cooled to a predetermined
temperature
• Finished products are packaged for
transportation and sales
The initial preparation procedures of beverage products depend on the packaging requirements
for the product type. We regularly check and maintain our equipment to ensure efficient production
of our beverage products.
— 141 —
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Equipment Maintenance
Regular equipment maintenance enables our production lines to operate at optimal levels and
prolong the useful lives of our equipment and machinery. Therefore, our equipment maintenance
system is essential for our long-term productivity. We carry out routine cleaning, maintenance and
inspection of our production equipment based on our scheduling and production requirements. We did
not experience any material or prolonged interruptions to our production process due to equipment or
machinery failure during the Track Record Period.
Our Production Expansion Plan
Along with a rapid increase in our sales orders, the utilization rates of our production lines also
continued to increase. The utilization rate for our snack food production lines and beverage production
lines reached 78.6% and 97.7%, respectively, for the five months ended May 31, 2016 and the capacity
of our existing production lines is expected to be fully utilized by the end of 2016. Thus, in order to
cope with our expected production constraints, we plan to (i) construct two additional warehouses on
our parcel of existing land, and (ii) acquire one parcel of land with a size of approximately 200 mu
at a suitable location in Hubei, upon which we plan to construct new production plants, including the
installation of eight snack food production lines and ten beverage production lines which we intend
to purchase by 2017. We expect our annual production capacity to significantly expand by the end of
2017.
The table below sets forth the details of our production expansion plan.
Quantity or
Size
Items
Estimated
Total Full
Production
Capacity
Completion/Start
production
(tons per
year)
Acquisition of land . . . . . . . . . . . . . . . . . .
Construction of two warehouses . . . . . . . . . . .
Construction of production plant (including four
snack food production workshops, three
beverage production workshops and
warehouses) . . . . . . . . . . . . . . . . . . . . .
Purchase of beverage production lines:
TP beverage production line . . . . . . . . . . .
CAN beverage production line . . . . . . . . . .
PET beverage production line . . . . . . . . . .
Purchase of snack food production lines
Swiss roll production line . . . . . . . . . . . . .
Shaped cake production line . . . . . . . . . . .
Pork floss pie production line . . . . . . . . . .
Soft bread production line . . . . . . . . . . . .
.
.
200 mu
2
1
Estimated
Cost
(RMB in
million)
—
—
—
2016 Q4
2017 Q1
2017 Q1
40.0
51.0
160.0
2017 Q2
2017 Q2
2017 Q2
72.8
71.5
104.0
.
.
.
.
8
1
1
360,672
76,378
185,640
.
.
.
.
2
2
3
1
16,124
18,458
17,503
11,669
— 142 —
2017
2017
2017
2017
Q1
Q1
Q1
Q1
26.0
26.0
39.0
13.0
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The table below sets forth the estimated annual production capacity for each of our product
categories upon the completion of each phase of our expansion plan.
2016
2017
Number of
Number of
Number of
production Estimated production Estimated production Estimated
lines in
production
lines in
production
lines in
production
capacity
operation
capacity
operation capacity (1) operation
Our Products
(tons)
Snack Foods
Bread, Cakes and
Pastries
Shaped Cakes . .
Pork Floss Pies
Swiss Rolls . . .
Soft Bread . . . .
Dorayaki. . . . . .
Custard Pies . .
Puffed Foods
Potato Snacks .
2018
.
.
.
.
.
.
(tons)
(tons)
.
.
.
.
.
.
3
3
2
2
2
1
14,198
13,464
12,403
8,976
6,038
6,038
5
6
4
3
2
1
23,427
22,216
20,465
14,810
6,038
6,038
5
6
4
3
2
1
32,656
30,967
28,527
20,645
6,038
6,038
..
2
9,792
2
9,792
2
9,792
Snack Foods Total .
15
70,909
23
102,786
23
134,663
Beverages
PET Bottled
Products . . . . . . .
TP Products . . . . . . .
Canned Products . . .
1
8
1
142,800
277,440
58,752
2
16
2
235,620
457,776
96,941
2
16
2
328,440
638,112
135,130
Beverages Total . . .
10
478,992
20
790,337
20
1,101,682
Note:
(1)
We estimate that all of the new production lines we purchase pursuant to our expansion plan will start commercial
production in the first quarter of 2017 and will reach their full production capacity in 2018.
We expect to incur an aggregate of approximately RMB603.3 million in connection with our
production expansion plan, which we plan to finance by our operating cash flows, intended bank loans
and net proceeds from the [REDACTED]. As of the Latest Practicable Date, we had not incurred any
capital expenditure in connection with our proposed production expansion plan set forth in the table
above, nor have we finalized any agreement for the acquisition of land use rights for such plan, as we
only intend to proceed with the production expansion plan set out above after the [REDACTED]. For
more details regarding our capital expenditures during the Track Record Period, please refer to the
section headed “Financial Information — Capital Expenditures and Capital Commitments — Capital
Expenditures” in this document.
As our expansion plan goes forward, we may seek to build additional production bases in other
cities. For instance, if our sales in Yunnan and Sichuan continue to grow rapidly, we may establish new
production facilities in these provinces to lower our transportation costs.
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RESEARCH AND DEVELOPMENT
We have a proven track record of launching successful new snack food and beverage products
and we believe that we are capable of continuously improving our existing products and developing
new products. Our research and development center is equipped with specialized laboratory equipment
including food testing and processing machines. Our research and development department, led by one
of our senior managers, Mr. Tsai Wei-min, consists of 19 professionals, nine of whom have five or
more years of experience in food-related industries. For more details regarding their background,
please refer to the section headed “Directors and Senior Management” in this document.
The major steps of launching a new product typically include market research and positioning,
research and development, production development and commercialized production, which require
coordination among different departments. For example, our research and development department
cooperates with our sales and marketing teams to understand the evolving preferences and needs of
consumers based on the market reactions and feedback from our distributors as well as sales teams.
In addition, our research and development department also works closely with the procurement
department to conduct a feasibility study about the costs associated with mass production. The
illustration below shows the process of a typical new product launch:
Customer survey and
market research
Market positioning planning
Market research and positioning
Feasibility analysis and
project approval
Product development proposal
Product design and
material preparation
Research and development
Sample assessment
and market verification
Preparation of
technical documents
Batch production
and testing
Production development
Summarization of design and
development documents
Commercialized production
Formal mass production
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Our research and development strategy is largely market-oriented. According to the CRI Report,
healthy foods and beverages are becoming increasingly popular among Chinese consumers and
accordingly, we plan to develop more nutritious snack food and beverage products. For example, we
plan to add hedgehog fungus, which is widely considered beneficial to the human stomach, to certain
of our pastries. We also plan to continue to focus on developing more fruit and vegetable beverages
as well as plant-based and milk beverages, which are considered healthier than sodas and other types
of carbonated drinks. As of the Latest Practicable Date, we had nine products in our research and
development pipeline, such as steamed sandwiches, fermented yogurt, coconut milk and oatmeal
soymilk.
In addition to developing new products, we continuously upgrade our existing products by
varying packaging, taste and appearance to accommodate the changing preferences of consumers. For
example, we continue to roll out different varieties of swiss rolls and had 30 different types of swiss
rolls as of December 31, 2015 compared to nine types as of December 31, 2013. For the years ended
December 31, 2013, 2014 and 2015, we incurred total research and development expenses of RMB0.4
million, RMB3.2 million and RMB4.0 million, respectively. We expect that our investments in
research and development will increase in 2016 along with the expansion of our business.
QUALITY CONTROL AND FOOD SAFETY
Quality Control Management
Food safety is of paramount importance to us. As such, we have implemented stringent quality
control procedures to ensure the safety of our products. Our quality control management covers raw
material supply chains, product processes, warehousing and distribution. Headed by a GB/T
19001—2008-certified internal auditor, our dedicated quality control team consists of 68 quality
control staff, the majority of which have over five years of work experience in the food and beverage
industry. With the support of a well-established quality control team, we are able to prevent and rectify
product quality issues throughout our production process.
Certifications
Covering different stages of the production process from the origin of the raw materials,
ingredients and food sources to the finished products, our quality control procedures are in compliance
with the quality and hygiene standards set by PRC Government. In accordance with the applicable
PRC laws and regulations relating to food and beverage production and sales, we have obtained
certificates relating to our quality control systems including the Food Production Permit
(食品生產許可證) for the manufacture of our food and beverage products from the Xiaogan Municipal
Food and Drug Administration (孝感市食品藥品監督管理局). To maintain these certificates, we must
pass periodic independent audits by third parties according to the requirements set forth by the
relevant governmental authorities.
Our production facilities are designed to meet the standards of international quality management
certifications including ISO 9001-2008 and ISO 22000. We are applying for these certifications and
we believe that we are able to pass the documentary and on-site inspections by the relevant
independent accreditation bodies.
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Quality Control over Procurement
We maintain strict procedures in the selection and management of our suppliers to ensure that
the raw materials and packaging materials we use in producing and packaging our snack food and
beverage products are of high quality. We only purchase raw materials and packaging materials from
suppliers on our “Qualified Supplier List”. A “qualified supplier” must meet our internal criteria on
reputation, product quality, production scale, price and delivery timeliness. To remain on our
Qualified Supplier List, a supplier must pass our annual evaluations as well as on-site inspections on
an ad-hoc basis.
We require raw materials and packaging materials provided by our suppliers to meet the national
and local quality standards imposed by relevant PRC regulatory authorities. Before entering into a
supply contract, we conduct on-site inspection of suppliers’ facilities and production process and test
its sample materials. Upon acceptance of the raw materials and packaging materials delivered to our
warehouses, our quality control personnel examine whether the appearance and hygiene status meet
applicable GMP standards. If the raw materials and packaging materials supplied to us do not meet
our quality standards, we are entitled to reject the goods and be compensated for any relevant damages
according to the supply contracts. Our suppliers generally provide us self-examination reports for the
raw materials and packaging materials they deliver. If there are any disputes regarding the quality of
certain goods, we submit the samples to the National Special Quality Inspection Center for an
inspection, whose reports and determinations are legally binding.
In addition, we maintain records for raw materials and packaging materials delivered to us,
which include the names and contact details of the suppliers, specifications, quantities, dates of
delivery and preservation periods. We keep the records and supporting documents for not less than six
months after the delivery dates for raw materials and packaging materials.
Quality Control over Production Process
We have rigorous internal quality control guidelines for the production process, which strictly
follow the national hygiene and safety standards. To implement our rigorous quality control
procedures, each production line is assigned dedicated quality control personnel, who conduct
inspections throughout the entire production process. In accordance with our quality control manual,
our quality control personnel monitor the temperature and the pressure at various stages of our
production process. At each of the key points of our production process that may be prone to quality
impairment, our laboratory analysts conduct sample testing to identify potential quality problems. If
a single sub-standard product is identified, we examine all finished products in the same production
batch to ensure all of them satisfy our quality standards. The sub-standard products identified are
immediately disposed of.
We consider our employees to be an essential element in our quality control process. Our
production staff are required to provide us with their annual health checkup reports issued by hospitals
to us and our laboratory analysts are required to obtain the relevant occupational qualification
certificates before assuming their respective work positions. We require our employees to maintain
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their personal hygiene as well as wear disinfected work clothes and masks before entering our
production facilities. We also provide various quality control, production safety and other technical
trainings to our employees from time to time to improve their professionalism, work efficiency and
safety awareness. In addition, we perform regular checks on our production staff as well as quality
control personnel whether they adhere to our internal quality control guidelines. Any non-compliance
is immediately ceased upon discovery and the persons in violation of the required guidelines are
reported to our management.
Quality Control over Warehousing
Our raw materials and package materials are stored in our warehouses after delivery by our
suppliers and our finished products are stored at our warehouses before shipment to our distributors.
We store these raw materials, package materials and finished products in designated zones according
to their product categories and manufacturing dates. Most of our raw materials have a preservation
period of 6 to 12 months and most of packaging raw materials do not have a specific preservation
period. As for finished products, our snack food products typically have a shelf life of 6 to 12 months
while our beverage products typically have a shelf life of 12 to 24 months. To maintain freshness, our
raw materials and finished products are stored in pest-free, well-ventilated, temperature- and
humidity-controlled warehouses. We have implemented detailed warehouse operational procedures
that require timely record keeping, proper labeling and periodic stock-taking. We have also imposed
strict sanitation requirements to prevent contamination and cross-contamination in our warehouses.
Additionally, we take various safety measures to minimize fire hazards, water damage and other risks
to the goods stored in our warehouses.
Quality Control over Transportation and Distribution
Our quality control personnel conduct inspections of our finished products before they are
handed over to the logistics service providers. To enforce quality control over transportation, we
require our logistics service providers to maintain a suitable delivery environment in their vehicles
and make timely delivery of goods to avoid food deterioration during the transportation process. Our
quality control personnel review the performance of our logistics service providers periodically to
ensure that they fully comply with our requirements. In addition, our sales personnel from time to time
check our distributors’ warehouses to ensure that their storage conditions satisfy our sanitary
standards.
Food Safety Management
In identifying and controlling food safety issues, we have established and implemented the
following measures:
(i)
Product Testing: We mainly cooperate with three independent third-party laboratories to
conduct safety and quality testing on our products in accordance with the relevant industry
standards in the PRC.
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(ii)
Production Process: Our production processes are operated in accordance with the GMP
standard, which includes guidelines to prevent cross-contamination during the
manufacturing process, and the SSOP standard, which sets forth cleaning and sanitizing
procedures for food processing equipment.
(iii) HACCP System: We have implemented HACCP procedures to prevent biological, chemical,
and physical hazards in production processes. Our quality control personnel are required to
report material food safety issues they have identified to our senior management.
(iv) Food Safety Emergency Response: We maintain a food safety emergency response plan that
sets out detailed response procedures and responsibilities of each department involved. Our
on-site quality control personnel are responsible for identifying food adulteration in the
production process and our quality control director evaluates the severity of the
contamination. If the risks relating to food safety warrant a suspension of production, we
would shut down the relevant production line until the quality control department confirms
that it is thoroughly sanitized.
Product Returns, Exchanges and Recalls and Consumer Feedback
Pursuant to the distribution agreements, our distributors generally are not allowed to return or
exchange our products except for significant quality issues. For more details regarding our distribution
agreements, please refer to the section headed “Business — Sales and Distribution Network —
Standardized Distribution Agreement” in this document.
To prevent or reduce potential harm to consumers, we have implemented a product recall policy
to recall substandard products that are already circulating in the market. If a product defect warrants
a product recall, our general manager will initiate our product recall procedure and establish a “recall
action team”. Comprising of personnel from various departments, our recall action team is responsible
for product isolation, product evaluation and disposition, legal affairs, customer accommodation and
the implementation of remedial measures in the event of a product recall. According to our product
recall policy, we would provide among others, the government and our customers recall letters setting
forth the reasons for the recall, the specifications, quantities and distribution areas of the products
being recalled and the remedial measures. We have divided our product recalls into three categories
depending on the severity and impact of the product issues as follows:
(i)
Class I: the products have safety hazards and will likely cause serious or long-term adverse
health consequences or even death (e.g. the products have been poisoned). In Class I
recalls, all suspected products, including those that have reached to consumers’ residences,
must be recalled from all sales channels. The designated personnel shall implement all
procedures in Class II as described below and in addition, shall conciliate the distributors
and consumers and make proper compensation.
(ii)
Class II: the products may cause temporary or minor adverse impacts on human health, but
are unlikely to cause serious adverse health consequences (e.g. excessive bacteria). In Class
II recalls, we would immediately notify our distributors, who must in turn notify any
relevant retailers and sub-distributors or otherwise, to stop selling the unsafe products. If
necessary, our sales personnel may assist the distributors to recall unsafe products and
deliver them back to us for exchanges and compensation of damages.
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(iii) Class III: the products will not cause adverse effects on human health (e.g. incorrect
labeling). In Class III recalls, our sales personnel need only notify the logistics service
providers to deliver the products back to us or notify our distributors to stop selling the
products and deliver the unsold products back to us for exchanges and compensation of
damages.
We have multiple channels to collect consumer feedback. We maintain a service hotline to listen
to inquiries and complaints from our distributors and end-consumers. Our sales personnel also receive
first-hand feedback regarding our products in the regions they conduct sales activities. If there are
complaints about the quality of a specific product, our sales department is initially responsible for
understanding the alleged problems and the rationales underlying the complaints. The information
collected by our sales department is then passed on to relevant departments, such as the production
department and the quality control department, for investigation and resolution. Based on the nature
of the problems, we carry out remedial measures as appropriate. For instance, if a product defect is
caused by a flawed production step, we would trace the source of the defect and adjust our production
process to avoid recurring quality issues. We may also pay reasonable compensation to the
complainants, if necessary.
During the Track Record Period and up to the Latest Practicable Date, (i) there had been no
product returns or exchanges by our distributors and we had not recorded any provision for product
warranty, (ii) we had not received any material complaints in relation to the quality of our products,
(iii) we had not been required by PRC laws to undertake any mandatory product recalls and (iv) we
had not been subject to any material fines or other penalties from Chinese governmental authorities
regarding product quality.
RAW MATERIALS, PACKAGING MATERIALS AND SUPPLIERS
We use a centralized system to manage the procurement of our raw materials and packaging
materials. The primary raw materials that we use for our snack food products are eggs, flour, sugar
and palm oil and the primary raw materials for our beverage products are sugar, peanuts, milk powder
and concentrated fruit juice. Other important raw materials used in our production process include
edible flavoring essences, edible spices, seasoning powder and water. In addition, we also use large
quantities of packaging materials including polyester chips, cardboard boxes, tin cans and aseptic
packs.
Raw Materials and Packaging Materials
The schedule and volume in relation to our procurement are largely based on our customers’
orders. Therefore, we generally purchase our raw materials at prevailing market prices, which are
subject to fluctuation based on the supply and demand dynamics, our bargaining power with our
suppliers, transportation costs and regulatory policies. During the Track Record Period, the average
purchase prices of our major packaging materials and two out of our four main raw material
ingredients, sugar and peanuts, were generally stable, while that of milk powder and eggs showed
relatively wide fluctuations. For more details regarding the fluctuations of the prices of milk powder
and eggs, please refer to the section headed “Industry Overview — Overview of major raw materials”
in this document. We usually enter into an annual supply contract with each of the suppliers of our
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key raw materials. We do not fix purchase prices in such annual supply contracts. Instead, our
suppliers provide a quote to us each time we place our orders based largely on market prices. We have
not entered into any hedging activities in relation to commodity prices. However, we monitor the
market prices closely and analyze the price trends on a regular basis. We closely monitor the market
prices of our major raw materials and packaging materials and seek to mitigate the impact of market
volatility by purchasing in bulk when we believe prices are relatively low. Furthermore, as the scale
of our business increases, we expect to be able to obtain more favorable prices for certain raw
materials and packaging materials. For more details regarding the sensitivity of our net profit during
the Track Record Period in relation to movements in our costs of certain major raw materials, please
refer to the section headed “Financial Information — Description of Selected Income Statement Line
Items — Cost of Sales” in this document.
According to our standard form annual supply contract, we do not pay our suppliers upfront and
usually pay the purchase price 30 days after the acceptance of the supply goods. Our suppliers are
responsible for the delivery of raw materials and packaging materials to our warehouses at their own
expense. All the raw materials and packaging materials provided by our suppliers are required to meet
our quality standards and the PRC national standards such as GB 317-2006 for white sugar, SB/T
10277 for eggs, GB 19644-2010 for milk powder, NY/T 1039-2014 for flour and GB 15680-2009 for
palm oil. We are entitled to reject the goods if they do not meet our quality standards. If there are any
disputes regarding the quality of certain goods, we submit the samples to the National Special Quality
Inspection Center for an inspection, the inspection results of which would be final and binding to both
parties. For more details regarding our quality control over procurement, please refer to the section
headed “Business — Quality Control and Food Safety — Quality Control over Procurement” in this
document. The water used in our production is supplied by local water supply companies and filtered
by our own filtration system, which complies with the PRC national standards.
Suppliers
We generally cooperate with large reputable domestic suppliers to secure the key raw materials
used in our production process. In selecting our suppliers, we consider their reputation, scale, and
product quality, among other factors. Before entering into a contract with a new supplier, we will
inspect its production facilities and test its sample materials and make sure their products meet the
food safety standards set by the PRC Government.
To reduce the risk of our dependency on a small amount of suppliers, we normally have various
sources of supply for each type of raw materials and packaging materials. As of December 31, 2013,
2014 and 2015, we had 40, 74 and 73 suppliers, respectively. The decrease in number of suppliers from
2014 to 2015 was primarily because we ceased ordering from one supplier that could not meet our
supply requirements. As of the Latest Practicable Date, we had 81 suppliers in total.
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The tables below set forth certain details regarding our top five suppliers in each of 2013, 2014
and 2015.
Top five suppliers
in 2013
Total Purchase in Years of business
2013 (RMB in
relationship
million)
with us
Main products
procured from
the suppliers
Supplier A1 . . . . .
Supplier A2 . . . . .
Supplier A3 . . . . .
14.6
7.8
5.5
3
3
3
Eggs
Sugar
Plastic wrap
Supplier A4 . . . . .
4.6
3
TP Cartons
Supplier A5 . . . . .
4.4
3
TP Cartons
Total Purchase in Years of business
Top five suppliers
2014 (RMB in
relationship
in 2014
million)
with us
Main products
procured from
the suppliers
Supplier B1 . . . . .
46.8
3
CANs
Supplier A2 . . . . .
Supplier B3 . . . . .
43.3
37.3
3
3
Sugar
CANs
Supplier B4 . . . . .
26.4
2
TP Cartons
Supplier A1 . . . . .
25.7
3
Eggs
Top five suppliers
in 2015
Total Purchase in Years of business
2015 (RMB in
relationship
million)
with us
Main products
procured from
the suppliers
Supplier A2 . . . . .
Supplier C2 . . . . .
97.1
86.8
3
2
Sugar
TP Cartons
Supplier B1 . . . . .
51.2
3
CANs
Supplier A4 . . . . .
42.8
3
TP Cartons
Supplier B3 . . . . .
39.9
3
CANs
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Business nature
Poultry breeder
Food wholesaler
Packaging material
manufacturer
Packaging material
manufacturer
Packaging material
manufacturer
Business nature
Metal package
manufacturer
Food wholesaler
Metal package
manufacturer
Paper product
manufacturer
Poultry breeder
Business nature
Food wholesaler
Paper product
manufacturer
Metal package
manufacturer
Packaging material
manufacturer
Metal package
manufacturer
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During the Track Record Period, we did not pay any of our top five suppliers upfront and usually
paid the purchase price 30 days after the acceptance of supply goods. All of our suppliers during the
Track Record Period were independent third parties.
For the years ended December 31, 2013, 2014 and 2015, purchases from our five largest suppliers
accounted for 45.3%, 36.1% and 35.2% of our total costs of purchasing raw materials and packaging
materials, respectively, and the purchases from our largest supplier accounted for 17.9%, 9.2% and
10.6% of our total costs of purchasing raw materials and packaging materials, respectively. We have
maintained stable relationships with our major suppliers. For our five largest suppliers during the
Track Record Period, we had business relationships with an average of approximately two years with
them. All of our five largest suppliers during the Track Record Period were independent third parties.
During the Track Record Period and up to the Latest Practicable Date, we did not have any material
disputes with our suppliers and had not experienced any shortage or quality issues with respect of the
supply of our raw materials and packaging materials. None of our Directors, their respective close
associates or Shareholders (which to the knowledge of the Directors) who own five per cent or more
of the total issued Shares, had an interest in any of our five largest suppliers during the Track Record
Period.
LOGISTICS AND TRANSPORTATION
We outsource all of our product transportation to logistics service providers, who deliver our
products to the distributors’ warehouses through road transportation. We select logistics service
providers based on their track records, network coverage, scale of operations and price (which is
typically a market price quoted by the logistics service providers). As of the Latest Practicable Date,
we had five logistics service providers, all of which were independent third parties. We usually enter
into an annual agreement with each of our logistics service providers, whose service quality is subject
to our periodic review. If the logistics service providers fail to satisfy our requirements, we are
entitled to terminate the agreements with them. As the current market provides an abundant supply of
logistics service providers, we would be able to secure alternatives with similar terms and conditions
in a short period of time if we terminate any of our existing logistics service providers.
Before the trucks filled with our products leave our facilities, we require our logistics service
providers to inspect the products and to confirm the quantity and condition of products to be delivered
to the destination. Our logistics service providers are also required to ensure that our products are
transported under the proper conditions. We are deemed to have completed delivery of the goods to
our distributors once we hand over our products to the logistics service providers, who are liable for
any damage or loss during transportation. Our distributors acknowledge and agree this type of
arrangement. By cooperating with third party logistics service providers, we can avoid the capital
investment in developing and maintaining an in-house logistics system and transfer the risks during
transportation to these logistics service providers. During the Track Record Period and up to the Latest
Practicable Date, we had not experienced any significant delay or mishandling of goods by our
logistics service providers that materially and adversely affected our business operations.
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INVENTORY MANAGEMENT
We have an effective inventory management system that helps us reduce the deterioration risk
of our inventories. Primarily consisting of raw materials, packaging materials and finished products,
our inventories are stored in designated areas in our warehouses with controlled temperature and
humidity. The procurement of our raw materials and packaging materials is based on the orders that
we receive from our customers and provide a reasonable forecast of our production requirements based
on our experience. We typically maintain raw material and packaging material inventory levels
sufficient for approximately 20 days of our production. The inventory level of our finished products
is determined through the communications between our distributors and us based on market
conditions. We generally do not over-stock finished products and maintain a finished product
inventory level of approximately 20 days. Once our finished products are manufactured, we endeavor
to deliver them to our customers at the earliest possible time. For the years ended December 31, 2013,
2014 and 2015, our inventory turnover days were 31, 29 and 29, respectively.
AWARDS AND RECOGNITION
We have received numerous awards and recognition in respect of our brand recognition, the
quality of our products and our social responsibilities. The following table sets forth our key awards
and recognition:
Year
Awards and Recognition
Issuing Authority
2016 . . . 2016 Quality and Trustworthiness —3.15
Satisfaction Brand (Entity)
(2016年重質守信—3.15滿意品牌(單位）)
China Consumer Protection Foundation
(中國消費者保護基金會)
2016 . . . Municipal Key Enterprise for Agricultural
Industrialization in Xiaogan
(孝感市農業產業化市級重點龍頭企業)
Xiaogan Agricultural Industrialization
Management Leadership Group
(孝感市農業工業化領導小組)
2016 . . . 2015 Leading Entity for Safe Production
(2015年度安全生產工作先進單位)
Chinese Communist Party Working
Committee of Anlu Development Zone
(安陸經濟開發區中國共產黨工作小組);
Management Committee of Hubei Anlu
Economic Development Zone
(安陸經濟開發區工作小組)
2015 . . . Brand Jinbo Award: 2015 Famous Brand Award The Fourth Chinese Brand Annual
in the Chinese Beverages Industry
Conference (第四屆中國品牌年會)
(品牌金博獎：2015年度中國飲料行業知名品牌獎)
2015 . . . 2014 Leading Entity for Safe Production
(2014年度安全生產工作先進單位)
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Chinese Communist Party Working
Committee of Anlu Development Zone
(安陸經濟開發區中國共產黨工作小組);
Management Committee of Hubei Anlu
Economic Development Zone
(安陸經濟開發區工作小組)
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COMPETITION
We compete on a product-by-product basis with other large national or regional snack food and
beverage producers, in particular, with those focusing on third- and fourth-tier cities and rural areas.
Competition in the fast-moving snack food and beverage industry is primarily based on price, taste,
distribution channels and marketing.
Snack Foods. Our major competitors in the snack food market include several national and
regional producers with portfolios of similar snack food products. In terms of sales value and
according to the CRI Report, we were the second largest bread, cakes and pastries producer in Henan,
with a market share of 3.1% in 2015, and the third largest bread, cakes and pastries producer in Hubei,
with a market share of 3.4% in 2015, in third- and fourth-tier cities and rural areas. In terms of sales
value and according to the CRI Report, we were the third largest puffed food producer in each of
Hubei and Henan, with a market share of 1.4% and 1.1% in 2015, respectively, in third- and fourth-tier
cities and rural areas.
Beverages. Our major competitors in the beverage market include several national and regional
producers of beverages. In terms of sales value and according to the CRI Report, in 2015 we were the
largest beverage producer in third- and fourth-tier cities and rural areas in each of Hubei and Henan,
with a respective market share of 1.5% and 1.1%, in particular and in relation to third- and fourth-tier
cities and rural areas, we were also (i) the largest plant-based and milk beverage producer in each of
Hubei and Henan, with a respective market share of 5.5% and 3.9%, and (ii) the largest fruit and
vegetable juice beverage producer in each of Hubei and Hunan, with a respective market share of 1.4%
and 0.9%.
The barriers to entry for the snack food and beverage industries include substantial capital
investment, strong research and development capabilities, extensive distribution networks and
regulatory requirements. Some of our competitors, in particular the large national brands, may have
substantially greater resources than we do. However, with a clear focus on our target markets, we
believe that our competitive prices, strong product innovation, extensive sales network, familiarity
with local cultures and market trends and effective marketing distinguish us from our competitors. For
example, as reported by CRI, during the Track Record Period, our Company was the only beverage
producer out of the top five enterprises in third- and fourth-tier cities and rural areas in each of Hubei
and Hunan, which had increases in market share of beverages sold in terms of total sales. For more
details regarding the competition in our target markets, please refer to the section headed “Industry
Overview — Competitive Landscape” in this document.
EMPLOYEES
As of December 31, 2013, 2014 and 2015, we had 672, 1,519 and 1,872 full-time employees,
respectively. As of the Latest Practicable Date, we had 2,144 full-time employees. With the exception
of the employees in our sales department who often travel to meet with customers, our employees are
substantially located in our office building or production facility which are adjacent to each other in
Anlu, Hubei. During the Track Record Period and up to the Latest Practicable Date, we had not
experienced any labor shortages that materially affected our operations.
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BUSINESS
The table below sets forth a breakdown of our full-time employees by functions as of the Latest
Practicable Date.
Number of
Employees
Functions
Manufacturing . . . . . . . . . . . . . . . . . .
Sales . . . . . . . . . . . . . . . . . . . . . . . . .
Quality Control . . . . . . . . . . . . . . . . .
Human Resources and Administration
Finance . . . . . . . . . . . . . . . . . . . . . . .
Research and Development . . . . . . . .
Logistics and Warehousing . . . . . . . . .
Procurement . . . . . . . . . . . . . . . . . . . .
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1,507
422
68
78
23
19
16
11
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,144
Our success, to a considerable extent, depends upon our ability to attract, motivate and retain a
sufficient number of qualified employees. Therefore, we provide competitive remuneration packages
to our employees based on the local standards. In addition to the base salaries, we provide various
benefits to our employees, which accounted for approximately RMB1.3 million, RMB8.0 million and
RMB13.9 million, respectively, for the years ended December 31, 2013, 2014 and 2015. In addition,
we provide various training programs for our employees in order to enhance their professional skills
and understanding of work place safety standards.
In accordance with the applicable PRC laws, we have established a labor union and contributed
to social insurance plans for our full-time employees. During the Track Record Period and up to the
Latest Practicable Date, we had not experienced any material labor disputes or claims, and had not
experienced any significant difficulties in recruiting employees. According to our PRC Legal
Advisers, we have complied with the all the applicable PRC labor and social welfare laws and
regulations in all material respects.
OCCUPATIONAL HEALTH AND SAFETY
Our operations are subject to PRC laws and regulations with respect to employee health and
safety. For more details regarding employee regulations, please refer to the section headed
“Regulatory Overview — Labor and Social Security” in this document. Based on these regulations, we
have implemented safety control guidelines, which include procedures for conducting worksite
inspections, reporting potential hazardous work environment, investigating accidents and taking
remedial actions. We require all of our employees to strictly comply with these guidelines. In addition,
we carry out regular workplace safety trainings for our employees to enhance their awareness of safety
issues.
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BUSINESS
During the Track Record Period and up to the Latest Practicable Date, we had not experienced
any major accidents in the course of our production process that resulted in the death or serious injury
of our employees. Our PRC Legal Advisers have confirmed that we are in compliance with all material
applicable PRC laws and regulations in relation to employee health and safety.
INSURANCE
We have in place all the mandatory social insurances as required by the relevant PRC laws and
regulations including pension insurance, unemployment insurance, maternity insurance, labor injury
insurance and medical insurance. In addition, we also have property insurance, storage insurance, and
motor vehicle insurance. We do not carry any insurance to cover product liability claims as product
liability insurance is not required under the current PRC laws. We mitigate our product liability risks
by adopting quality control measures during the course of production to ensure that our finished
products comply with the national and local quality standards imposed by the relevant PRC regulatory
authorities. We do not maintain any insurance policies against interruptions to business operations,
third party liability claims against personal injury or environmental liabilities as we believe that these
risks are relatively low and are adequately monitored and controlled by our management. We believe
that our insurance coverage is adequate and consistent with the customary practices for businesses of
our size in the snack food and beverage industry. As of the Latest Practicable Date, we had not
received any material insurance claims against us.
PROPERTIES
We occupy certain properties in China in connection with our business operations. We adopt a
centralized management and production system and all the facilities in connection with our operations
are located in our headquarters in Anlu, Hubei. As of the Latest Practicable Date, we owned six parcels
of land with an aggregate area of approximately 167,152.2 square meters and 17 buildings with an
aggregate GFA of approximately 62,199.5 square meters. Our buildings mainly include industrial
workshops, warehouses, administration building, dormitory buildings, canteen and ancillary
buildings. All of our properties are used for non-property activities as defined under Rule 5.01(2) of
the Listing Rules.
According to section 6(2) of the Companies Ordinance (Exemption of Companies and
Prospectuses from Compliance with Provisions) Notice, this document is required to comply with the
requirements of section 342(1)(b) of the Companies Ordinance in relation to paragraph 34(2) of the
Third Schedule to the Companies Ordinance which require a valuation report with respect to all our
Group’s interests in land or buildings, for the reason that, as of December 31, 2015, our properties
have a carrying amount of 15% or more of our combined total assets. For more details regarding the
valuation of our properties, please refer to the section “Financial Information — Property Interests and
Property Valuation” in this document.
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BUSINESS
Owned Properties
The following table sets out a summary of all the land use rights owned by us as of the Latest
Practicable Date.
Location
Registered
area
Restrictive use
of land
Expiry date of land
use rights
(sq.m.)
Shi Li Village, Economic
Development Zone, An Lu . . . . . . . .
30,774.1
Industrial use
April 17, 2061
Shi Li Village, Economic
Development Zone, An Lu . . . . . . . .
36,584.8
Industrial use
November 27, 2062
Shi Li Village, Economic
Development Zone, An Lu . . . . . . . .
33,333.5
Industrial use
November 27, 2062
Shi Li Village, Economic
Development Zone, An Lu . . . . . . . .
34,605.3
Industrial use
April 17, 2061
Shi Li Village, Economic
Development Zone, An Lu . . . . . . . .
3,411.2
Industrial use
December 24, 2062
Shi Li Village, Economic
Development Zone, An Lu . . . . . . . .
28,443.3
Industrial use
July 24, 2064
The following table sets out a summary of all the buildings owned by us as of the Latest
Practicable Date.
Location
Use of
property
Approximate GFA Restrictions on use
(sq.m.)
Block 2, Shi Li Village, Economic
Dormitory
Development Zone, An Lu . . . . . . . .
3,473.2
Residential use
Block 4, Shi Li Village, Economic
Dormitory
Development Zone, An Lu . . . . . . . .
2,105.9
Residential use
Block 6, Shi Li Village, Economic
Dormitory
Development Zone, An Lu . . . . . . . .
2,015.9
Residential use
Block 9, Shi Li Village, Economic
Dormitory
Development Zone, An Lu . . . . . . . .
1,590.5
Residential use
Block D2, Shi Li Village, Economic Factory
Development Zone, An Lu . . . . . . . .
6,197.8
Industrial use
Block D1, Shi Li Village, Economic Factory
Development Zone, An Lu . . . . . . . .
6,197.8
Industrial use
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BUSINESS
Location
Use of
property
Approximate GFA Restrictions on use
(sq.m.)
Block B2, Shi Li Village, Economic Warehouse
Development Zone, An Lu . . . . . . . .
3,527.8
Industrial use
Block B3, Shi Li Village, Economic Warehouse
Development Zone, An Lu . . . . . . . .
3,527.8
Industrial use
Block B5, Shi Li Village, Economic Warehouse
Development Zone, An Lu . . . . . . . .
3,527.8
Industrial use
Block B4, Shi Li Village, Economic Warehouse
Development Zone, An Lu . . . . . . . .
3,915.6
Industrial use
Power Workshop, Shi Li Village,
Factory
Economic Development Zone, An
Lu . . . . . . . . . . . . . . . . . . . . . . . . . .
2,045.4
Industrial use
Shi Li Village, Economic
Factory
Development Zone, An Lu . . . . . . . .
3,999.1
Industrial use
Shi Li Village, Economic
Factory
Development Zone, An Lu . . . . . . . .
4,078.8
Industrial use
Shi Li Village, Economic
Factory
Development Zone, An Lu . . . . . . . .
3,999.1
Industrial use
Shi Li Village, Economic
Factory
Development Zone, An Lu . . . . . . . .
3,999.1
Industrial use
Shi Li Village, Economic
Factory
Development Zone, An Lu . . . . . . . .
3,999.1
Industrial use
Shi Li Village, Economic
Factory
Development Zone, An Lu . . . . . . . .
3,999.1
Industrial use
We have obtained land use rights certificates with respect to all our land and building ownership
certificates for all of our buildings. As confirmed by our PRC Legal Advisers, we legally own all of
our land and buildings and none of the properties held by us has any material encumbrances,
environmental issues, litigation, breaches or defects.
Leased Properties
As of the Latest Practicable Date, we did not have any leased properties.
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Properties under Construction
As of the Latest Practicable Date, all the buildings we occupied were completed properties and
we did not have any property under construction.
ENVIRONMENTAL MATTERS
We are subject to various PRC national and local environmental laws and regulations including
the Environmental Law of the PRC (中華人民共和國環境保護法), the Law on Prevention and
Treatment of Air Pollution of the PRC (中華人民共和國大氣污染防治法), the Law on the Prevention
and Treatment of Water Pollution of the PRC (中華人民共和國水污染防治法) and the Law on the
Prevention and Treatment of Solid Waste of the PRC (中華人民共和國固體廢物防治法), the violation
of which may lead to penalties imposed by the regulatory authorities. For more details regarding
environmental matters, please refer to the section headed “Regulatory Overview — Environmental
Protection Laws” in this document.
Due to the nature of our production, we generate only a small amount of waste, which is not
hazardous and has minimal impact on the environment. In accordance with the relevant environmental
laws and regulations, we engage an independent evaluator to conduct environmental impact
assessments before construction of our production facilities. We have also adopted a series of
measures to cope with different pollutants. For example, by using the Coagulation + SBR technology,
we are able to treat 3,000 m 3 sewage per day so that our treated wastewater satisfies level one
specifications of the Integrated Wastewater Discharge Standard (污水綜合排放標準) (GB8978-1996).
Our PRC Legal Advisers have confirmed that since the commencement of our operations and up
to the Latest Practicable Date, we had complied with all applicable PRC environmental laws and
regulations in all material respects and have not been subject to any penalties or administrative
proceedings as a result of non-compliance with environmental laws and regulations. For the years
ended December 31, 2013, 2014 and 2015, our total environmental compliance costs were
approximately RMB25,000, RMB0.7 million and RMB1.4 million, respectively.
INTELLECTUAL PROPERTY
We currently operate under the “CENMINGTANG” brand. As of the Latest Practicable Date, we
had 23 registered trademarks in China, all of which were transferred from Fujian Gongyuan, and had
applied for one registered trademark registration in Hong Kong. For more details regarding our
relationship with Fujian Gongyuan, please refer to the section headed “History, Reorganization and
Group Structure — History and Development — Our History and Development” in this document. We
also had 47 trademark applications pending for processing and approval by the relevant PRC
Government authorities as of the Latest Practicable Date. Our Directors are of the view that there is
no material impediment in completing the registration of these trademarks. Details of our intellectual
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BUSINESS
property rights registered and pending registration which we consider to be or may be material to our
business are set out in the section headed “Appendix V — Statutory and General Information — B.
Further Information about Our Business — 2. Intellectual property rights of our Group” in this
document.
We have entered into a patent licensing agreement with Fujian Gongyuan (the “Patent Licensing
Agreement”) pursuant to which Fujian Gongyuan agreed to grant us the usage rights for six utility
models and 11 design patents in the form of a general license for a term until June 17, 2017 during
which the patents could be used free of charge by us. After the expiration of the license period, Fujian
Gongyuan agrees to transfer the relevant patents to us at the consideration of RMB100,000 per patent.
Our PRC Legal Advisers are of the view that this patent licensing agreement is effective according to
applicable PRC laws. Our Directors have no reasons to believe that our usage rights will be terminated
during the term of this agreement and we will have no material difficulty in acquiring the property
rights to all the relevant patents under the Patent Licensing Agreement upon its expiration.
As our brand name becomes increasingly recognized among customers in central China, we
believe that protecting our intellectual property rights is of significant importance for our reputation.
We seek to register additional trademarks and patents as and when appropriate. For proprietary
know-how that is not patentable, we mainly rely on trade secret protection and confidentiality
agreements to safeguard our interests. For more details regarding risks associated with our intellectual
property rights, please refer to the section headed “Risk Factors — We may not be able to protect our
intellectual property rights and industrial know-how, and our ability to compete could be harmed if
our intellectual property rights are infringed by or our industrial know-how is disclosed to third
parties” in this document.
Further details of our intellectual property portfolio, including our trademarks and domain
names, are provided in the paragraph headed “Statutory and General Information — B. Further
information about our business — 2. Intellectual property rights of our Group” in Appendix V to this
document.
During the Track Record Period, there had been no material legal proceedings or disputes
regarding our intellectual property. As of the Latest Practicable Date, our Directors were not aware of
any pending or threatened claims against us relating to the infringement of intellectual property rights
that could have a material and adverse effect on our business, results of operations or financial
condition.
COMPLIANCE AND LEGAL PROCEEDINGS
Our PRC Legal Advisers have confirmed that we have complied in all material aspects with all
relevant PRC laws and regulations regarding our operations. As advised by our PRC Legal Advisers,
according to the confirmation letters issued by relevant social insurance authorities and housing
provident fund authorities, we confirm that we have complied in all material aspects with all the
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BUSINESS
requirements under the Interim Regulation on the Collection and Payment of Social Insurance
Premiums (社會保險費繳交暫行條例), the Interim Provisions on Registration of Social Insurance
(社會保險登記管理暫行辦法) and Regulations on Management of Housing Provident Fund (住房公積
金管理條例).
We may be involved, from time to time, in legal proceedings arising from the ordinary course
of our operations. During the Track Record Period and as of the Latest Practicable Date, we were not
involved in any litigation, arbitration or claim of material importance, and no litigation or arbitration
is known to our Directors to be pending or threatened by or against us that would have a material
adverse effect on our results of operations or financial condition.
LICENSES AND PERMITS
Our PRC Legal Advisers have confirmed that we have obtained all necessary licenses and permits
for our operations as required by PRC laws and all such licenses and permits were valid as of the
Latest Practicable Date. Our human resource department is responsible for monitoring the validity of
our licenses and permits and make timely applications for renewal to relevant government authorities.
As of the Latest Practicable Date, our material license and permit required for our business operations
is the Food Production Permit (食品生產許可證) which was issued by the Xiaogan Municipal Food
and Drug Administration (孝感市食品藥品監督管理局) to us on April 21, 2016 and is valid for a term
of five years.
During the Track Record Period, we did not encounter any difficulty or impediment in renewing
our operation licenses and permits. Our Directors are also of the view that there are no material
impediments for our Group to renew any of our existing licenses and permits upon their expiry. For
more details regarding the applicable laws and regulations we are subject to in China, please refer to
the section headed “Regulatory Overview” in this document.
RISK MANAGEMENT
The risk exposure of our operations is expected to increase along with the expansion of our
operations. In order to identify, assess and mitigate the risks that may create impediments to our
success, we have implemented a risk management system that covers material aspects of our
operations including financial security, production, logistics and technology. As our risk management
is a systematic project, each of our departments is responsible for identifying and evaluating the risks
relating to its area of operations. Our Directors are responsible for evaluating the effectiveness of our
risk management system and improving our risk management policy.
Our risk management system includes three steps:
(i)
Identification: Our risk management process starts with identifying the major risks
associated with our business, industry and overall market in the ordinary course of our
business and categorizing them according to the nature of the risk. For more details
regarding the potential risks we may face, please refer to the section headed “Risk Factors”
in this document.
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BUSINESS
(ii)
Assessment: Once a risk is identified, our Directors and the related departments will assess
the likelihood of the potential risk materializing as well as its potential impact based on
their analysis of similar incidents.
(iii) Mitigation: Depending on the likelihood and potential impact of the relevant risk exposed
to us, our Directors will prioritize the risk and will either take immediate mitigating action,
devise a contingency plan or conduct period reviews pursuant to the contingency plan.
Since we are a snack food and beverage producer, our Directors are of the view that the effective
management of our sales and distribution network as well as the safe and reliable supply of raw
materials and ingredients is crucial to the success of our business operations. For more details
regarding some of the existing protocols that our Directors have implemented regarding the
management of our sales and distribution network and our supply procurement policies, please refer
to the sections headed “Business — Sales and Distribution Network” and “Business — Quality Control
and Food Safety”, respectively, in this document.
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HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
DIRECTORS AND SENIOR MANAGEMENT
GENERAL
The following table sets forth certain information concerning our Directors and members of
senior management:
Name
Age
Time of
joining our
Group
Current
position in
our Company
Date of
appointment
Key role and
responsibilities
Directors
Mr. Shi Qingchi
34
(施清池先生) . . . .
June 2014
Chairman,
executive
Director
March 29,
2016
Responsible for formulating
the overall development
strategy, marketing strategy
and future development
strategy
Mr. Zhang Xuezhi
41
(張學智先生) . . . .
August 2012
Executive
Director, chief
executive
officer
June 15, 2016
Responsible for managing
the daily operation of our
Group and coordinating the
Chairman of the Board to
formulate the overall
development strategy
Mr. Wang Dongwei
33
(王冬偉先生) . . . .
December
2012
Executive
Director, chief
sales officer
June 15, 2016
Responsible for formulating
Hubei Cenmingtang’s sales
and marketing strategies,
managing its sales business
and sales team and
establishing and managing
its distribution network
38
Mr. Chong, Man
Hung Jeffrey
(莊文鴻先生) . . . .
[REDACTED]
Independent
non-executive
Director
[REDACTED]
Responsible for addressing
conflicts and giving
strategic advice and
guidance on the business
and operations of our
Group
Mr. Chen Kewen
44
(陳科文先生) . . . .
[REDACTED]
Independent
non-executive
Director
[REDACTED]
Responsible for addressing
conflicts and giving
strategic advice and
guidance on the business
and operations of our
Group
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DIRECTORS AND SENIOR MANAGEMENT
Name
Age
Ms. Zou Jianjun
45
(鄒建軍女士) . . . .
Time of
joining our
Group
Current
position in
our Company
Time of
appointment
Key role and
responsibilities
[REDACTED]
Independent
non-executive
Director
[REDACTED]
Responsible for addressing
conflicts and giving
strategic advice and
guidance on the business
and operations of our
Group
35
June 2016
Chief financial
officer
June 15, 2016
Responsible for the overall
management of the finance
department, including
overseeing the financial
management, regulatory
compliance and reporting
obligations of our Group
Mr. Tsai Wei-min
59
(蔡偉民先生) . . . .
November
2012
Chief research
and
development
officer
June 15, 2016
Responsible for formulating
and supervising the
implementation of our
Group’s research and
development project plans,
and managing our research
and development center
Senior management
Mr. Yeung Wai
Leung
(楊偉樑先生)
. . .
Our Directors and members of the senior management do not have any relationship with one
another, other than being our Directors and members of the senior management.
BOARD OF DIRECTORS
Our Board is responsible for and has general powers over the management and operation of our
business. It consists of six Directors including three executive Directors and three independent
non-executive Directors.
The functions and duties conferred on the Board include, but are not limited to:
•
convening Shareholders’ meetings and reporting its work to Shareholders’ meetings;
•
implementing the resolutions passed at Shareholders’ meetings;
•
determining our Company’s business plans and investment plans;
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DIRECTORS AND SENIOR MANAGEMENT
•
formulating our Company’s annual or quarterly budget and final and interim accounts;
•
formulating our Company’s proposals for the increase or reduction of share capital, the
issuance of bonds or other securities and [REDACTED] plans; and
•
exercising other powers, functions and duties as conferred by the Articles of Association.
Biographical details of each of our Directors are set out as follows:
Executive Directors
Mr. Shi Qingchi (施清池), aged 34, joined our Group as the director of Hubei Cenmingtang in
June 2014, and has been our Director since March 2016. Mr. Shi was redesignated as an executive
Director in June 2016. He has been the director of Hubei Cenmingtang since June 2014 and the
director of Cenmingtang Hong Kong since April 2016. Mr. Shi is primarily responsible for formulating
our overall development strategy, marketing strategy and future development strategy.
Mr. Shi has approximately 18 years’ working experiences in the snack food and beverage
production related industry. Mr. Shi worked in Fujian Jinjiang Fuyuan Foods Limited Company
(福建省晉江福源食品有限公司), engaging in the business of snack food production, from July 1998
to June 2005 with his last position as a sales manager, taking charge of the company’s sales and
promotion activities. Mr. Shi worked in Xiamen Baoshang Sugar Business Limited Company
(廈門市寶商糖業有限公司), engaging in the distribution of pre-packaged food. He took up the role as
its vice general manager from March 2006 to December 2013, being responsible for sales related work.
Mr. Shi obtained his high school graduation certificate from Jinjiang City Nanqiao High School (晋
江市南僑中學) in Fujian in June 1998.
During the three years immediately preceding the date of this document, Mr. Shi has not been
a director of a public company the securities of which are listed on any securities market in Hong
Kong or overseas.
Mr. Zhang Xuezhi (張學智), aged 41, joined our Group as a special assistant at the general
management department of Hubei Cenmingtang in August 2012. He took up the role as its general
manager since January 2014. He has been our executive Director and chief executive officer since June
2016. Mr. Zhang is primarily responsible for managing the daily operation of our Group, coordinating
our Chairman of the Board to formulate our overall business development strategy, formulating our
overall annual operation plan in light of our long-term business prospects, formulating and
implementing our annual budget plan and establishing and improving our organizational management
structure.
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HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
DIRECTORS AND SENIOR MANAGEMENT
Mr. Zhang has approximately eight years’ working experiences in the snack food and beverage
production industry. From July 2008 to August 2012, he worked as the special assistant to the
chairman of the board in Fujian Gongyuan which engages in the production of snack food assisting
the chairman of the board with the formulation of plans for the company’s future development and
strategies while coordinating the daily operation of the company such as production, sales and
purchases. Mr. Zhang completed an undergraduate course in civil engineering through online courses
from The University of Chongqing (重慶大學) in Chongqing in July 2014. Mr. Zhang was accredited
as an engineer by Suining Title Revolution Work Leading Group (遂甯市職稱改革工作領導小組) in
July 2004.
During the three years immediately preceding the date of this document, Mr. Zhang has not been
a director of a public company the securities of which are listed on any securities market in Hong
Kong or overseas.
Mr. Wang Dongwei (王冬偉), aged 33, joined our Group as a sales manager of Hubei
Cenmingtang in December 2012, took up the role as its chief sales officer since August 2013, and has
been our executive Director since June 2016. Mr. Wang is primarily responsible for formulating Hubei
Cenmingtang’s sales and marketing strategies, managing its sales business and sales team and
establishing and managing its distribution network.
Mr. Wang has approximately ten years’ working experiences in the snack food and beverage
production industry. From July 2006 to May 2009, Mr. Wang worked as a product manager, being
responsible for the marketing of new products and the formulation of new product plans, in Tianjin
Dingjin Foods Limited Company (天津頂津食品有限公司), which engages in the production and
distribution of various beverage products. In May 2009, Mr. Wang joined Xiamen Yinlu Foods Group
Limited Company (廈門銀鷺食品集團有限公司) which primarily engages in the production of canned
food and beverage as a chief marketing officer, taking charge of its sales and product promotion
operation until November 2012. Mr. Wang obtained his bachelor’s degree in economics from Hunan
Science and Technology College (湖南科技學院) in Hunan in June 2006.
During the three years immediately preceding the date of this document, Mr. Wang has not been
a director of a public company the securities of which are listed on any securities market in Hong
Kong or overseas.
Independent Non-executive Directors
Mr. Chong Man Hung Jeffrey (莊文鴻), aged 38, was appointed as an independent
non-executive Director on [●], which will take effect on the [REDACTED].
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DIRECTORS AND SENIOR MANAGEMENT
Mr. Chong has more than 16 years’ working experiences in the financial and accounting areas.
The following table sets out the accounting firms or business enterprises that he worked for over the
past 16 years.
Period of Services
Name of
the Companies
Principal
Business Activities
Last position
Responsibilities
June 2000 to February
Sonia Yau & Co
2002 . . . . . . . . . . . . .
Providing
professional
auditing and
consulting services
Intermediate
Performance of audit
tasks and provision of
tax related services
March 2002 to January
KLL Associates
2006 . . . . . . . . . . . . . CPA Limited
(merged with
BDO MaCabe Co
Limited on
August 1, 2005)
Providing
professional
auditing and
consulting services
Senior associate
III
Providing assurance
and advisory services
January 2006 to
Deloitte Touche
December 2009 . . . . . . Tohmatsu
Providing
professional
auditing and
consulting services
Manager
Providing assurance
and advisory services
and executing statutory
audits
December 2009 to
Shinewing (HK)
October 2014 . . . . . . . CPA Limited
Providing
accounting,
assurance and
advisory services
Senior audit
manager
Providing assurance
and advisory services,
developing audit
strategy, leading and
executing statutory
audits and engaging in
in-house operation
management
Group analytics
director
Performing data
analysis, providing
professional opinion to
the management and
managing new
cooperative projects
with other entities
October 2014 to March
Promise Network Engaging in the
2015 . . . . . . . . . . . . . Printing Limited supply of online
printing services
and customized
printed products
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DIRECTORS AND SENIOR MANAGEMENT
Period of Services
May 2015 to present
Name of
the Companies
. . . China Partytime
Culture Holdings
Limited (listed
on the Main
Board of the
Stock Exchange
(Stock code:
1532))
Principal
Business Activities
Engaging in the
design, production
and sale of cosplay
products and
non-cosplay
apparels
Last position
Chief financial
officer and
company
secretary
Responsibilities
Compiling financial
data, setting up
internal control
system, implementing
financial policy and
company secretarial
related affairs
Mr. Chong obtained his bachelor of business administration in accounting from the Hong Kong
University of Science and Technology in July 2000. Mr. Chong was admitted as a certified public
accountant by the Hong Kong Institute of Certified Public Accountants in January 2005 and was
registered as a practising member in July 2015.
During the three years immediately preceding the date of this document, Mr. Chong has not been
a director of a public company the securities of which are listed on any securities market in Hong
Kong or overseas.
Mr. Chen Kewen (陳科文), aged 44, was appointed as an independent non-executive Director on
[●], which will take effect on the [REDACTED].
Mr. Chen has more than 16 years’ working experiences in PRC law practices. He worked as a
lawyer at Hunan Junjian Law Firm (湖南君見律師事務所) from January 2000 to June 2006. He joined
Hunan Jinzhou Lawyer Office (湖南金州律師事務所) in June 2006 and is currently serving as a senior
partner.
Mr. Chen completed the specialty course in law and economics at Central South University of
Technology (中南工業大學) in June 1995. Mr. Chen was admitted as a PRC practicing lawyer by the
PRC Ministry of Justice in May 2000. He was honored as an Excellent Lawyer of Changsha for the
year of 2011 (長沙市優秀律師) by Changsha Lawyers Association (長沙市律師協會) in April 2012.
During the three years immediately preceding the date of this document, Mr. Chen has not been
a director of a public company the securities of which are listed on any securities market in Hong
Kong or overseas.
Ms. Zou Jianjun (鄒建軍), aged 45, was appointed as an independent non-executive Director on
[●], which will take effect on the [REDACTED].
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DIRECTORS AND SENIOR MANAGEMENT
Ms. Zou has approximately 15 years’ working experiences in the finance and accounting areas.
From July 2001 to March 2004, Ms. Zou worked in Xiangcai Securities Company Limited
(湘財證券有限公司), a securities trading company, with her last position as researcher at its general
finance department, focusing on research and accounting related work. Ms. Zou was the head of the
audit department of Dongguan Science and Technologies College (東莞理工學院) from April 2004 to
March 2008 where her work focused on finance and audit. Ms. Zou has been a senior researcher of
the research and development center of Fortune Securities Limited Liability Company
(財富證券有限責任公司), a securities trading company, since June 2008, primarily taking up
management responsibilities.
Ms. Zou obtained her bachelor of economics degree in statistics from Zhongnan Finance
University (中南財經大學) in June 1992. She was granted her master of management degree in
technology economy and management by The University of Chongqing (重慶大學) in Chongqing in
June 2001. Ms. Zou was registered as a non-practising member by China Association of Certified
Public Accountants (中國註冊會計師協會) in December 2009. She received her qualification
certification as an analyst in securities investment advisory business issued by Securities Association
of China (中國證券業協會) in February 2011.
During the three years immediately preceding the date of this document, Ms. Zou has not been
a director of a public company the securities of which are listed on any securities market in Hong
Kong or overseas.
SENIOR MANAGEMENT
Our senior management is responsible for the day-to-day management and operation of our
business.
Mr. Yeung Wai Leung (楊偉樑), aged 35, has been the chief financial officer of our Group since
June 2016. Mr. Yeung is primarily responsible for the overall management of the finance department,
including overseeing the financial management, regulatory compliance and reporting obligations of
our Group.
Mr. Yeung has over 11 years’ working experiences in the financial and accounting areas. Upon
graduation from the Hong Kong Polytechnic University with his bachelor’s degree, Mr. Yeung joined
Deloitte Touche Tohmatsu as a level one staff accountant in August 2004 and was promoted as a level
two staff accountant in October 2005. He was later promoted as a senior in October 2006 and took up
the role as a manager of Deloitte Touche Tohmatsu from October 2009 to January 2011. He was mainly
responsible for audit-related work while serving at Deloitte Touche Tohmatsu. From January 2011 to
February 2015, Mr. Yeung joined Prosperity Properties Management Limited, a subsidiary of
Prosperity International Holdings (H.K.) Limited which is a company listed on the Main Board of
Stock Exchange (stock code: 803), as a finance manager and was responsible for overseeing financial
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DIRECTORS AND SENIOR MANAGEMENT
reporting and audit issues of the group. Prior to joining our Company, Mr. Yeung served as a financial
controller and company secretary at Steed Oriental (Holdings) Company Limited, a company listed on
the Growth Enterprise Market of the Stock Exchange (stock code: 8277), where he was responsible for
the management of the accounting and finance departments from March 2015 to June 2016.
Mr. Yeung obtained his bachelor’s degree in accountancy from the Hong Kong Polytechnic
University in November 2004. He was granted with his master of business administration by the
University of Hong Kong in November 2014. Mr. Yeung was accredited as a certified public
accountant by the Hong Kong Institute of Certified Public Accountants in March 2009.
During the three years immediately preceding the date of this document, Mr. Yeung has not been
a director of a public company the securities of which are listed on any securities market in Hong
Kong or overseas.
Mr. Tsai Wei-min (蔡偉民), aged 59, joined our Group as a research and development manager
of Hubei Cenmingtang in November 2012, took up the role as its chief research and development
officer in January 2014 and has been our chief research and development officer since June 2016. Mr.
Tsai is primarily responsible for formulating and supervising the implementation of our Group’s
research and development project plans, and managing our research and development center.
Mr. Tsai has more than 30 years’ working experiences in the snack food and beverage production
industry. The following table sets out the business enterprises that he worked for over the past years.
Period of Services
Name of the
Companies
Principal
Business Activities
Positions
Responsibilities
October 1982 to
Weiquan Foods
December 1997 . . . Industrial
Limited
Company (味全
食品工業股份有
限公司)
Specializing in the
production of
various foods and
beverage products
Head of research
and development
department
Conducting product
research and
development
January 1998 to June
Tianjin Tingyu
1999 . . . . . . . . . . . Consulting Co.,
Ltd. (天津頂育諮
詢有限公司) (a
subsidiary of
Tingyi (Cayman
Islands) Holdings
Corp. (康師傅控
股有限公司)
(stock code:
322))
Primarily engaging
in provision of
management
services
Manager of the
research and
development center
for instant food
products
Instant food products
development
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DIRECTORS AND SENIOR MANAGEMENT
Period of Services
Name of the
Companies
Principal
Business Activities
Positions
Responsibilities
July 1999 to May
Zhuhai Huafeng
2001 . . . . . . . . . . . Foods Industrial
(Group) Limited
Company (珠海
市華豐食品工業
(集團)有限公司)
Chief research and
Engaging in the
development officer
production of
various snack foods
and beverages
(specializing them
in the production of
instant noodles)
Product betterment,
formulation of the
research and
development of new
products and
management of the
research and
development
department
June 2001 to June
Baixiang Group
2006 . . . . . . . . . . . Foods Limited
Company (白象
集團食品有限公
司)
Primarily engaging Chief research and Research and
in the production of development officer development of food
noodles
flavours and functional
food products
China Green
November 2006 to
May 2007 . . . . . . . Group Limited
(中綠食品集團有
限公司)
Engaging in the
growing/
production and
supply of fresh and
processed
vegetables and
fruits
Assistant to the
president and the
general manager of
the research and
development center
Product research and
development and
assisting the president
in the management of
the daily operation of
the company
December 2007 to May Kedi Foods
2009 . . . . . . . . . . . Group Co., Ltd.
(科迪食品集團股
份有限公司)
Engaging in the
production of
instant noodles,
milk beverage and
frozen foods
General manager of
the research and
development center
Products research and
development and the
daily management of
the research
development center
Mr. Tsai obtained his bachelor’s degree in foods nutrition from Fu Jen Catholic University in
Taiwan in June 1980. During the three years immediately preceding the date of this document, Mr. Cai
has not been a director of a public company the securities of which are listed on any securities market
in Hong Kong or overseas.
COMPANY SECRETARY
Mr. Yeung Wai Leung (楊偉樑先生) is the company secretary of our Company.
For biographical details of Mr. Yeung, please see the paragraph headed “Senior Management” in
this section above.
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DIRECTORS AND SENIOR MANAGEMENT
AUDIT COMMITTEE
We have established an audit committee with written terms of reference in compliance with the
Corporate Governance Code and Corporate Governance Report as set out in Appendix 14 to the Listing
Rules. The primary duties of the audit committee are to review and supervise our financial reporting
process and internal control system of our Group, oversee the audit process, provide advice and
comments to our Board and perform other duties and responsibilities as may be assigned by the Board.
The Audit Committee consists of three members, namely Mr. Chong Man Hung Jeffrey, Mr. Chen
Kewen and Ms. Zou Jianjun. The chairman of the Audit Committee is Mr. Chong Man Hung Jeffrey
who is the independent non-executive Director with the appropriate professional qualifications.
REMUNERATION COMMITTEE
We have established a remuneration committee with written terms of reference in compliance
with the Corporate Governance Code and Corporate Governance Report as set out in Appendix 14 to
the Listing Rules. The primary duties of the remuneration committee are to establish, review and make
recommendations to our Directors on our policy and structure concerning remuneration of our
Directors and senior management and on the establishment of a formal and transparent procedure for
developing policies concerning such remuneration, determine the terms of the specific remuneration
package of each executive Director and senior management and review and approve
performance-based remuneration by reference to corporate goals and objectives resolved by our
Directors from time to time.
The Remuneration Committee consists of three members, namely Mr. Chen Kewen, Ms. Zou
Jianjun and Mr. Zhang. The chairman of the remuneration committee is Mr. Chen Kewen.
NOMINATION COMMITTEE
We have established a nomination committee with written terms of reference in compliance with
the Corporate Governance Code and Corporate Governance Report as set out in Appendix 14 to the
Listing Rules. The primary duties of the nomination committee are to review the structure, size and
composition of our Board on a regular basis and make recommendations to the Board regarding any
proposed changes, identify, select or make recommendations to our Board on the selection of
individuals nominated for directorship, assess the independence of our independent non-executive
Directors and make recommendations to our Board on relevant matters relating to the appointment,
reappointment and removal of our Directors and succession planning for our Directors.
The Nomination Committee consists of three members, namely Mr. Shi, Mr. Chen Kewen and
Ms. Zou Jianjun. The chairman of the Nomination Committee is Mr. Shi.
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DIRECTORS AND SENIOR MANAGEMENT
COMPENSATION OF DIRECTORS AND SENIOR MANAGEMENT
Our Directors and members of our senior management receive compensation from our Company
in the form of salaries, bonuses and other benefits in kind such as contributions to pension plans.
The aggregate amount of remuneration (including fees, salaries, contributions to pension
schemes, discretionary bonuses, housing and other allowances and other benefits in kind) paid to our
Directors for each of the three years ended December 31, 2015 were RMB0.2 million, RMB1.6 million
and RMB2.3 million, respectively.
The aggregate amount of remuneration (including fees, salaries, contributions to pension
schemes, discretionary bonuses, housing and other allowances and other benefits in kind) paid to our
Group’s five highest paid individuals (including Directors) for each of the three years ended December
31, 2015 were approximately RMB1.1 million, RMB2.3 million and RMB3.4 million, respectively.
During the Track Record Period, no remuneration was paid by us to, or receivable by, our
Directors or the five highest paid individuals as an inducement to join or upon joining our Company.
No compensation was paid by us to, or receivable by, our Directors, former Directors, or the five
highest paid individuals for each of the Track Record Period for the loss of any office in connection
with the management of the affairs of any subsidiary of our Company.
None of the Directors had waived or agreed to waive any remuneration during the Track Record
Period.
Pursuant to the existing arrangements that are currently in force as of the date of this document,
the aggregate amount of remuneration (including benefits in kind but excluding discretionary bonuses)
payable to our Directors by our Company for the year ending December 31, 2016 is estimated to be
RMB2.3 million.
Our Board will review and determine the remuneration and compensation packages of our
Directors and senior management and will, following the [REDACTED], receive recommendation
from the Remuneration Committee which will take into account salaries paid by comparable
companies, time commitment and responsibilities of our Directors and performance of our Group.
Save as disclosed in this document, no other payments had been made, or are payable, by any
member of the Group to the Directors during the Track Record Period.
For additional information on the Directors’ remuneration during the Track Record Period as well
as information on the five highest paid individuals, please refer to Note 8 to the Accountant’s Report
set out in Appendix I to this document.
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DIRECTORS AND SENIOR MANAGEMENT
WAIVER GRANTED BY THE STOCK EXCHANGE
Management presence
According to Rule 8.12 of the Listing Rules, an issuer must have sufficient management presence
in Hong Kong, normally meaning that at least two of the issuer’s executive Directors must be
ordinarily resident in Hong Kong. We currently have no executive Directors residing in Hong Kong.
Since our principal operations are located in the PRC, we do not and, for the foreseeable future, will
not have a sufficient management presence in Hong Kong. Accordingly, we have applied to the Stock
Exchange for, and the Stock Exchange has agreed to grant, a waiver from strict compliance with the
requirement under Rule 8.12 of the Listing Rules, subject to the conditions that, among other things,
we maintain certain arrangements to maintain effective communication between the Stock Exchange
and us. For details of the waiver, please see the section headed “Waiver from Strict Compliance with
the Listing Rules — Management Presence in Hong Kong”.
COMPLIANCE ADVISER
Our Company has appointed China Investment Securities International Capital Limited as our
compliance adviser pursuant to Rule 3A.19 of the Listing Rules.
The material terms of the compliance adviser’s agreement entered into between our Company
and our compliance adviser are as follows:
(i)
our compliance adviser shall provide our Company with services including guidance and
advice as to compliance with the requirement of the Listing Rules and other applicable
laws, rules, codes and guidelines, and accompany our Company to any meetings with the
Stock Exchange;
(ii)
our Company may terminate the appointment of our compliance adviser by giving a 30
days’ prior written notice to the compliance adviser. Our Company will exercise such right
in compliance with Rule 3A.26 of the Listing Rules. The compliance adviser will have the
right to terminate its appointment as compliance adviser under certain specific
circumstances and upon notification of the reason of its resignation to the Stock Exchange;
and
(iii) during the period of appointment, our Company must consult with, and if necessary, seek
advice from our compliance adviser on a timely basis in the following circumstances:
(a)
before the publication of any regulatory announcement, circular or financial report;
(b)
where a transaction, which might be a notifiable or connected transaction, is
contemplated, including share issues and share repurchases;
(c)
where we propose to use the proceeds of the [REDACTED] in a manner different from
that detailed in this document or where our business activities, developments or
results materially deviate from any forecast, estimate, or other information in this
document; and
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DIRECTORS AND SENIOR MANAGEMENT
(d)
where the Stock Exchange makes an inquiry of our Company regarding unusual
movements in the price or trading volume of our Shares.
The term of the appointment shall commence on the [REDACTED] and end on the date on which
we distribute our annual report in respect of our financial results for the first full financial year
commencing after the [REDACTED].
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HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS
OVERVIEW
Immediately after completion of the [REDACTED] and the [REDACTED] (assuming the
[REDACTED] is not exercised and excluding any Shares which may be allotted and issued pursuant
to the exercise of the options which may be granted under the Share Option Scheme), Mr. Shi will
indirectly through Min Yu, an investment holding company wholly-owned by him, own
[REDACTED]% of the issued share capital of the Company. Accordingly, Mr. Shi and Min Yu will
continue to be our Controlling Shareholders.
NO COMPETITION AND CLEAR DELINEATION OF BUSINESS
Our Controlling Shareholders and Directors, including our independent non-executive Directors,
confirm that, as of the Latest Practicable Date, none of them or any of their respective close associates
had any interest in any business, other than the business of our Group, which competes, or is likely
to compete, either directly or indirectly, with our business which would require disclosure under Rule
8.10 of the Listing Rules.
INDEPENDENCE FROM OUR CONTROLLING SHAREHOLDERS
Having considered the following factors, our Directors are satisfied that we can function, operate
and carry on our business independently from the Controlling Shareholders and their respective close
associates after the [REDACTED].
Management Independence
Our Board will comprise three executive Directors and three independent non-executive
Directors upon [REDACTED]. For more information, please see the section headed “Directors and
Senior Management” in this document.
On the basis of the following reasons, our Directors consider that our Board is able to perform
and manage our business independently from the Controlling Shareholders:
(a)
our Board consists of three independent non-executive Directors, which represents half of
the members of the Board and more than as required under the Listing Rules. With half of
our Board members being independent non-executive Directors, there will be a sufficiently
robust and independent voice within our Board to counter-balance any situation involving
conflict of interest and protect the interests of our independent Shareholders;
(b)
the daily operation of the Group is carried out by an independent and experienced
management team. We have the capabilities and personnel to perform all essential
administrative functions, including financial and accounting, human resources, business
management and research and development on a stand-alone basis;
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RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS
(c)
each Director is aware of his/her fiduciary duties as a Director, which require, among other
things, that he/she must act for the benefit and in the best interests of the Company and not
allow any conflict between his/her duties as a Director and his/her personal interest;
(d)
in the event that there is a potential conflict of interest arising out of any transaction to be
entered into between the Company and our Directors or their respective close associates,
the interested Director(s) shall abstain from voting at the relevant board meetings of the
Company in respect of such transactions and shall not be counted in the quorum; and
(e)
connected transactions between our Group and our Controlling Shareholders or their
respectively close associates are subject to the requirements under the Listing Rules,
including the requirements of reporting, announcement and independent Shareholders’
approval (where applicable).
Operational Independence
We have full rights to make business decisions and to carry out our business independent of the
Controlling Shareholders and their respective close associates. On the basis of the following reasons,
our Directors consider that the Company will continue to be operationally independent of the
Controlling Shareholders and their respective close associates after [REDACTED]:
(a)
we are not reliant on trademarks owned by the Controlling Shareholders, or by other
companies controlled by the Controlling Shareholders;
(b)
we are the holder of all relevant licenses material to the operation of our business and has
sufficient capital, equipment and employees to operate our business independently;
(c)
we make our own procurement purchases and conduct our own sales and marketing
primarily through independent third party distributors. The Group has a large and
diversified base of customers and our customers and suppliers are unrelated to the
Controlling Shareholders and their respective close associates;
(d)
as of the Latest Practicable Date, we owned all our factory facilities and office facilities.
All the properties and facilities necessary to our business operations are independent from
the Controlling Shareholders and their respective close associates;
(e)
we have our own administrative and corporate governance infrastructure, including our own
accounting, legal and human resources departments;
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RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS
(f)
as of the Latest Practicable Date, all of our full-time employees were recruited
independently from our Controlling Shareholders and their respective close associates and
primarily through campus recruiting, job market recruiting, headhunters’ recommendations
and internal referrals;
(g)
our Directors do not expect that there will be any other transactions between our Group and
our Controlling Shareholders or their respective close associates upon or shortly after
[REDACTED]; and
(h)
none of our Controlling Shareholders and their respective close associates has any interest
which competes or is likely to compete with the business of our Group. Min Yu is an
investment holding company and does not carry on any business other than holding the
equity interests in the Company.
Financial Independence
We have our own financial management system and we make financial decisions according to our
own business needs. Our Directors confirm that during the Track Record Period and as of the Latest
Practicable Date, none of the Controlling Shareholders or their respective close associates had
provided any guarantees to our Group. As our Group is able to obtain the same amount of loan facility
without the guarantee or other financial support from our Controlling Shareholders, our Directors are
satisfied that our Group will be financially independent of our Controlling Shareholders and any of
their respective close associates upon [REDACTED].
During the Track Record Period and as of the Latest Practicable Date, the Group had certain
outstanding balances due from/to the Controlling Shareholders and/or their respective close
associates, details of which are set forth in Notes 19 and 20 to the Accountants’ Report included in
Appendix I to this document. Our Directors confirm that there will be no balances due to or from our
Controlling Shareholders or their respective close associates which had not been fully settled nor were
there any financial assistance, security or guarantee provided by the Controlling Shareholders or their
respective close associates in favor of our Group or vice versa upon [REDACTED].
Based on the above, our Directors believe that we are able to maintain financial independence
from our Controlling Shareholders and their close associates after [REDACTED].
NON-COMPETITION UNDERTAKING
Each of Mr. Shi and Min Yu (the “Covenantors”) has entered into a Deed of Non-competition
in favor of the Company on [●], pursuant to which the Covenantors have, among other things,
unconditionally, irrevocably and jointly and severally undertaken with our Group that they shall not,
and shall use their best endeavors to procure that none of their respective close associates (other than
the members of the Group) will directly or indirectly, carry on, engage in, invest in, participate in,
attempt to participate in, render any services to, provide any financial support to or otherwise be
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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS
involved or interested (economically or otherwise) in, whether alone or jointly with another person
and whether directly or indirectly or on behalf of or to assist or act in concert with any other person,
any business or investment activity in the PRC and Hong Kong which is the same as, similar to or in
competition with the business carried on or contemplated to be carried on by any member of our Group
during the period (collectively, the “Restricted Business”) commencing on the [REDACTED] and
ending on the earlier of:
(i)
the date when collectively the Covenantors, and any of their respective close associates,
cease to hold, or otherwise be interested in, whether directly or indirectly, 30% or more (or
such other percentage of shareholding as stipulated in the Listing Rules to constitute a
controlling shareholder) of the voting rights of the Company; or
(ii)
the date when the Shares cease to be listed on the Stock Exchange (paragraphs (i) and (ii)
collectively, the “Non-Competition Period”).
The above restrictions do not prohibit any of the Covenantors and their close associates
(excluding members of our Group) from:
(i)
holding any securities of any companies which conduct or are engaged in any Restricted
Business through their interests in our Group; or
(ii)
acquiring or holding any investment or interest in units or shares of any company,
investment trust, joint venture, partnership or other entity in whatever form which engages
in any Restricted Business where such investment or interest does not exceed 10% of the
issued shares of such entity, provided that (1) such investment or interest does not grant the
Covenantors or their respective close associates any right to control the composition of the
board of directors or managers of such entity, (2) none of the Covenantors or their
respective close associates controls the board of directors or managers of such entity, and
(3) such investment or interest does not grant the Covenantors or their respective close
associates any right to participate directly or indirectly in such entity.
Each of the Covenantors has also undertaken to refer, or to procure the referral of, any
investment or commercial opportunities relating to any Restricted Business (the “New Opportunities”
and each a “New Opportunity”) to us (for ourselves and as trustee for the benefit of each of our
Subsidiaries from time to time) in the following manner:
•
As soon as it/he/she becoming aware of any New Opportunity, give written notice (the
“Offer Notice”) to us identifying the target company (if relevant) and the nature of the New
Opportunity, detailing all information available to it/him/her for us to consider whether to
pursue such New Opportunity (including details of any investment or acquisition costs and
the contact details of the third parties offering, proposing or presenting the New
Opportunity to it).
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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS
•
The Company shall, as soon as possible and in any case within 20 Business Days from the
receipt of the Offer Notice (the “Offer Notice Period”) notify the relevant Covenantor in
writing of any decision taken to pursue or decline the New Opportunity. During the Offer
Notice Period, the Company may negotiate with the third party offering his/her, proposing
or presenting the New Opportunity and the relevant Covenantor shall use its/his/her best
endeavors to assist us in obtaining such New Opportunity on the same or more favorable
terms.
•
The Company is required to seek approval from our independent non-executive Directors
who do not have any material interest in the matter for consideration as to whether to pursue
or decline the New Opportunity, and that the appointment of an independent financial
adviser to advise on the terms of the transaction in the subject the New Opportunity may
be required.
•
The relevant Covenantor may, at its/his/her absolute discretion, consider extending the
Offer Notice Period as appropriate.
•
The relevant Covenantor shall be entitled to but shall not be obliged to carry on, engage,
invest, participate or be interested (economically or otherwise) in the New Opportunity
(whether individually or jointly with another person and whether directly or indirectly or
on behalf of or to assist any other person) on the same, or less favorable, terms and
conditions in all material respects as set out in the Offer Notice if:
•
(i)
it/he/she has received a written notice from us declining the New Opportunity; or
(ii)
it/he/she has not received any written notice from us of our decision to pursue or
decline the New Opportunity within 20 Business Days from our receipt of the Offer
Notice, or if it/he/she has extended the Offer Notice Period, within such other period
as agreed by it, in which case the Company shall be deemed to have declined the New
Opportunity.
If there is a change in the nature or proposal of the New Opportunity pursued by the
relevant Covenantor, it/he/she shall refer the New Opportunity as revised and shall provide
to us details of all available information for us to consider whether to pursue the New
Opportunity as revised.
When considering whether or not to pursue any New Opportunities, our independent
non-executive Directors will form their views based on a range of factors, including but not limited
to, the estimated profitability, investment value and permits and approval requirements. The
Covenantors, for themselves and on behalf of their close associates (except any members of our
Group), have also acknowledged that the Company may be required by the relevant laws, regulations
and rules and regulatory bodies to disclose, from time to time, information on the New Opportunities,
including but not limited to disclosure in public announcements or annual reports of the Company our
decisions to pursue or decline the New Opportunities, and have agreed to disclose to the extent
necessary to comply with any such requirements.
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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS
Further, each of the Covenantors has undertaken the following under the Deed of
Non-competition:
(i)
it/he/she shall provide, and shall procure its/his/her close associates (other than any
members of our Group) to provide, during the Relevant Period, where necessary and at least
on an annual basis, all information necessary for the review by our independent
non-executive Directors, subject to any relevant laws, rules and regulations or any
contractual obligations, to enable them to review the compliance with the Deed of
Non-competition of the Covenantors and their close associates (other than any members of
our Group), and to enable the independent non-executive Directors to enforce the Deed of
Non-competition;
(ii)
without prejudicing the generality of paragraph (i) above, it shall provide to us with an
annual declaration for inclusion in the annual report of the Company in respect of the
Covenantors’ compliance with the terms of the Deed of Non-competition; and
(iii) it/he/she shall indemnify the Company from and against any and all losses, damages,
claims, liabilities, costs and expenses (including legal costs and expenses) where the
Company may suffer or incur as a result of any failure to comply with the terms of the Deed
of Non-competition by the Covenantors or any of their respective close associates.
The Company will disclose the decisions with basis on matters reviewed by the independent
non-executive Directors relating to the compliance with and enforcement of the Deed of
Non-competition either in the annual reports of the Company or by way of announcement to the public.
CORPORATE GOVERNANCE MEASURES
Our Directors believe that there are adequate corporate governance measures in place to manage
the conflict of interests arising from competing business and to safeguard the interests of our
shareholders, including:
(i)
the independent non-executive Directors will review, on an annual basis, the compliance
with the non-competition undertaking by the Controlling Shareholders under the Deed of
Non-competition;
(ii)
the Controlling Shareholders to provide all information requested by the Company which
is necessary for the annual review by the independent non-executive Directors and the
enforcement of the Deed of Non-competition;
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HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS
(iii) the Company will disclose decisions and related basis on matters reviewed by the
independent non-executive Directors relating to compliance and enforcement of the
non-competition undertaking by the Controlling Shareholders under the Deed of
Non-competition in our annual report; and
(iv) the Controlling Shareholders to make an annual statement on compliance with the Deed of
Non-competition in our annual report, which is consistent with the principles of making
disclosure in the corporate governance report of our annual report.
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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
SUBSTANTIAL SHAREHOLDERS
As at the Latest Practicable Date, the following persons were directly or indirectly interested in
10% or more of the nominal value of any class of share capital carrying rights to vote at general
meetings of our Company:
Shares held immediately
Shares held immediately
following the [REDACTED]
following the [REDACTED]
Shares held as of the
and completion of the
and completion of the
submission of the application
[REDACTED] (assuming the
[REDACTED] (assuming the
proof of the document of
[REDACTED]
[REDACTED]
our Company
is not exercised)
is fully exercised)
Approximate
Name of Shareholder
Nature of interest
Mr. Shi (1) . . . . . . . Interest in a controlled corporation
Min Yu
(1)
. . . . . . . Beneficial interest
Number
percentage
Approximate
Number
percentage
Approximate
Number
percentage
[REDACTED]
[REDACTED]% [REDACTED]
[REDACTED]% [REDACTED]
[REDACTED]%
[REDACTED]
[REDACTED]% [REDACTED]
[REDACTED]% [REDACTED]
[REDACTED]%
[REDACTED]
[REDACTED]% [REDACTED]
[REDACTED]% [REDACTED]
[REDACTED]%
[REDACTED]
[REDACTED]% [REDACTED]
[REDACTED]% [REDACTED]
[REDACTED]%
[REDACTED]
[REDACTED]% [REDACTED]
[REDACTED]% [REDACTED]
[REDACTED]%
[REDACTED]
[REDACTED]% [REDACTED]
[REDACTED]% [REDACTED]
[REDACTED]%
Ms. Lin Xiuhua
(林秀華女士) (2) . . . Interest of spouse
Mr. Cheung Wah Fung,
Christopher
(張華峯先生) (3) . . . Interest in a controlled corporation
Second [REDACTED]
Investor (3) . . . . . Beneficial interest
Ms. Chan Sin Wah
(陳倩華女士) (4) . . Interest of spouse
Notes:
(1)
Mr. Shi holds the entire issued share capital of Min Yu and is deemed to be interested in the Shares held by Min Yu.
(2)
Ms. Lin Xiuhua is the spouse of Mr. Shi and is therefore deemed to be interested in the same number of Shares in which
Mr. Shi is interested under the SFO.
(3)
Mr. Cheung Wah Fung, Christopher, holds the entire issued share capital of the Second [REDACTED] Investor and is
deemed to be interest in the Shares held by the Second [REDACTED] Investor.
(4)
Ms. Chan Sin Wah is the spouse of Mr. Cheung Wah Fung, Christopher and is therefore deemed to be interested in the
same number of Shares in which Mr. Cheung Wah Fung, Christopher is interested under the SFO.
Save as disclosed above and in the section headed “Statutory and General Information — C.
Further Information about Our Directors and Substantial Shareholders” in Appendix V to this
document, our Directors are not aware of any person who will, immediately following the
[REDACTED] and completion of the [REDACTED] and assuming that the [REDACTED] and options
which may be granted under the Share Option Scheme are not exercised, have or be deemed or taken
to have an interest and/or short position in the Shares or the underlying Shares which would fall to
be disclosed under the provisions of Division 2 and 3 of Part XV of the SFO, or are, directly or
indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights
to vote in all circumstances at general meetings of any other member of our Group.
We are not aware of any arrangement which may result in any change of control in our Company
at any subsequent date.
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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
SHARE CAPITAL
SHARE CAPITAL
The following is a description of the authorized and issued share capital of our Company in issue
and to be issued as fully paid or credited as fully paid immediately prior to and following the
[REDACTED] and completion of the [REDACTED]:
Authorized Share Capital
5,000,000 Shares of US$0.01 each
US$50,000
Issued and to be issued, fully paid or credited as fully paid:
[1,000,000]
[REDACTED]
[REDACTED]
Shares in issue as of the date of this document
Shares to be issued pursuant to the [REDACTED]
Shares to be issued pursuant to the [REDACTED]
US$[10,000]
US$[REDACTED]
US$[REDACTED]
[REDACTED]
Total
US$[REDACTED]
ASSUMPTION
The above table assumes that the [REDACTED] has become unconditional. It takes into no
account of any Shares (a) which may be issued pursuant to the exercise of the options which may be
granted under the Share Option Scheme; or (b) which may be allotted and repurchased by us pursuant
to the general mandates granted to our Directors to issue or repurchase Shares as described below or
otherwise.
RANKING
The Shares are ordinary Shares in the share capital of our Company and rank pari passu in all
respects with all Shares currently in issue or to be issued and, in particular, will rank in full for all
dividends or other distributions declared, made or paid after the date of this document (save for
entitlements to the [REDACTED]).
CIRCUMSTANCES UNDER WHICH GENERAL MEETING AND CLASS MEETING ARE
REQUIRED
Our Company has only one class of Shares, namely ordinary Shares, each of which ranks pari
passu with the other Shares.
Pursuant to the Cayman Companies Law and the terms of the Memorandum of Association and
the Articles of Association, our Company may from time to time by Shareholders’ ordinary resolution
(i) increase its capital; (ii) consolidate and divide its capital into Shares of larger amount; (iii) divide
its Shares into classes; (iv) subdivide its Shares into Shares of smaller amount; and (v) cancel any
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THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
SHARE CAPITAL
Shares which have not been taken. In addition, our Company may reduce or redeem its share capital
by Shareholders’ special resolution. For more details, please see the section headed “Summary of the
Constitution of our Company and Cayman Companies Law — 2. Articles of Association — 2.5
Alteration of capital” in Appendix IV to this document.
Pursuant to the Cayman Companies Law and the terms of the Memorandum of Association and
the Articles of Association, all or any of the special rights attached to the Share or any class of Shares
may 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. For more
details, please see the section headed “Summary of the Constitution of our Company and Cayman
Companies Law — 2. Articles of Association — 2.4 Variation of rights of existing shares or classes
of shares” in Appendix IV to this document.
GENERAL MANDATE TO ISSUE SHARES
Subject to the [REDACTED] becoming unconditional, our Directors have been granted a general
unconditional mandate to allot, issue and deal with Shares, securities convertible into Shares, or
options, warrants or similar rights to subscribe for any Shares or such convertible securities and to
make or grant offers, agreements or options which might require such Shares, securities convertible
into Shares, or options, warrants or similar rights to subscribe for any Shares or such convertible
securities to be allotted and issued or dealt with at any time subject to the requirement that the
aggregate nominal value of the Shares so allotted and issued or agreed conditionally or
unconditionally to be allotted and issued, shall not exceed the sum of:
(i)
20% of the aggregate nominal value of the share capital of our Company in issue
immediately following completion of the [REDACTED] and the [REDACTED] (excluding
any Shares which may be issued pursuant to the exercise of the [REDACTED] and options
which may be granted under the Share Option Scheme); and
(ii)
the nominal amount of the share capital repurchased by our Company (if any) pursuant to
the repurchase mandate (as mentioned below).
This mandate does not cover Shares to be allotted, issued, or dealt with under a rights issue or
scrip dividend scheme or similar arrangements or a specific authority granted by our Shareholders.
This mandate to issue Shares will remain in effect until:
(i)
at the conclusion of our next annual general meeting; or
(ii)
the expiration of the period within which the next annual general meeting of our Company
is required to be held under any applicable laws or the Articles of Association; or
(iii) it is varied or revoked by an ordinary resolution of our Shareholders at a general meeting,
whichever is the earliest.
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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
SHARE CAPITAL
For further details of this general mandate, please see the section headed “Statutory and General
Information — A. Further Information About Our Company and Our Subsidiaries — 3. Resolutions in
writing of all our shareholders passed on [●]” in Appendix V to this document.
GENERAL MANDATE TO REPURCHASE SHARES
Subject to the [REDACTED] becoming unconditional, our Directors have been granted a general
unconditional mandate to exercise all the powers of our Company to repurchase Shares with an
aggregate nominal value of not more than 10% of the aggregate nominal value of our share capital in
issue immediately following the [REDACTED] and [REDACTED].
This mandate relates to repurchases made on the Stock Exchange, or on any other stock exchange
on which the Shares may be [REDACTED] (and which is recognized by the SFC and the Stock
Exchange for this purpose), and made in accordance with all applicable laws and regulations and the
requirements of the Listing Rules. A summary of the relevant Listing Rules is set out in the section
headed “Statutory and General Information — A. Further Information About Our Company and Our
Subsidiaries — 7. Repurchase of Shares by our Company” in Appendix V to this document.
This general mandate to repurchase Shares will remain in effect until:
(i)
at the conclusion of our next annual general meeting; or
(ii)
the expiration of the period within which the next annual general meeting of our Company
is required to be held under any applicable laws or the Articles of Association; or
(iii) it is varied or revoked by an ordinary resolution of our Shareholders at a general meeting,
whichever is the earliest.
For further details of this general mandate, please see the section headed “Statutory and General
Information — A. Further Information about Our Company and Our Subsidiaries — 3. Resolutions in
writing of all our shareholders passed on [●]” in Appendix V to this document.
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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
FINANCIAL INFORMATION
The following discussions and analysis of our financial condition and operational results
should be read in conjunction with our combined financial information included in “Appendix
I—Accountants’ Report” and “Appendix II—Unaudited Pro Forma Financial Information”, in each
case together with the accompanying notes thereto. The Accountants’ Report has been prepared by
Grant Thornton Hong Kong Limited, Certified Public Accountants, Hong Kong in accordance with
HKFRSs issued by Hong Kong Institute of Certified Public Accountants.
The discussions and analysis in this section of the document contain forward-looking
statements that involve risks and uncertainties. These statements are based on assumptions and
analysis made by us in light of our experience and interpretation of historical trends, current
conditions and expected future developments as well as other factors that we believe are
appropriate under the relevant circumstances. However, whether our actual results reported in
future periods differ materially from those discussed below depends on various factors which we
do not have any control over. Factors that could cause or contribute to such differences include
those discussed in the sections headed “Forward-Looking Statements”, “Risk Factors” and
“Business” as well as those discussed elsewhere in this document.
Unless the context otherwise requires, for the purposes of this section, references to “2013”,
“2014” and “2015” refer to our financial years ended December 31, 2013, 2014 and 2015,
respectively. Unless the context otherwise requires, financial information described in this section
is described on a combined basis.
OVERVIEW
We are one of the leading snack food and beverage producers in Hubei and Henan. We mainly
target the snack food and beverage markets in third- and fourth-tier cities and rural areas in central
China, which according to the CRI Report, has greater growth potential than first- and second-tier
cities over the next five years.
In terms of sales value and according to the CRI Report, by the end of 2015 we have become:
•
the largest beverage producer in third- and fourth-tier cities and rural areas in each of Hubei
and Henan, and in particular, (i) the largest plant-based and milk beverage producer and (ii)
the largest fruit and vegetable beverage producer in third- and fourth-tier cities and rural
areas in each of Hubei and Henan;
•
the third and second largest bread, cakes and pastries producer in third- and fourth-tier
cities and rural areas in Hubei and Henan, respectively; and
•
the third largest puffed foods producer in third- and fourth-tier cities and rural areas in each
of Hubei and Henan.
With a clear aim to seize opportunities in our target markets, we have established an extensive
distribution network substantially covering third- and fourth-tier cities and rural areas in Henan,
Hubei, Yunnan, Shaanxi, Guizhou, Sichuan, Jiangxi and Chongqing. Strategically located in Anlu,
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FINANCIAL INFORMATION
Hubei, we are generally able to deliver our products to customers within one week and our logistics
costs were lower than 6% of our total revenue during the Track Record Period. Since our establishment
in 2012, our distribution network has been growing fast and we had 49, 228 and 311 distributors,
respectively, as of December 31, 2013, 2014 and 2015. To further expand our distribution network into
other provinces, starting from January 1, 2016 and up to the Latest Practicable Date, we had entered
into distribution agreements with 85 new distributors, most of which were located in Sichuan, Jiangxi
and Chongqing. To solidify our position in our target markets, we plan to further expand our sales
network by sourcing additional distributors in provinces and municipalities where we have an existing
presence and by penetrating into new regions.
During the Track Record Period, our results of operations continued to increase as we ramped
up our production and expanded our business. Our revenue increased from RMB109.0 million in 2013
to RMB742.1 million in 2014 and further increased to RMB1,482.4 million in 2015, representing a
CAGR of 268.8%. Our gross profit increased from RMB24.3 million in 2013 to RMB195.1 million in
2014 and further increased to RMB435.6 million in 2015, representing a CAGR of 323.1%. Our gross
profit margin increased from 22.3% in 2013 to 26.3% in 2014 and further increased to 29.4% in 2015.
BASIS OF PRESENTATION
Pursuant to the Reorganization as more fully explained in the section headed “History,
Reorganization and Group Structure — The Reorganization” in this document, our Company became
the holding company of the companies now comprising our Group on May 4, 2016.
The Reorganization only involved inserting new holding companies, which have not been
engaged in any other business, immediately on top of Hubei Cenmingtang and other changes of
ownership of Hubei Cenmingtang during the Track Record Period were not related to the
Reorganization. The Reorganization has not resulted in any changes of economic substance and
therefore, our Group is considered as a continuation of Hubei Cenmingtang. The financial information
of our Group for the Track Record Period has been prepared using the carrying amounts under the
financial statements of Hubei Cenmingtang for all the periods presented.
Immediately prior to and after the Reorganization, the operations of our Group are solely
conducted by Hubei Cenmingtang. Since its establishment on August 10, 2012, Hubei Cenmingtang
has undergone a change of control. For more details regarding the share transfers, please refer to the
section headed “History, Reorganization and Group Structure - Our Corporate Development” in this
document. To provide the [REDACTED] additional information in analyzing our results of operations,
we present the financial information of Hubei Cenmingtang before its acquisition by Mr. Shi and Mr.
Zhang on June 16, 2014 in Section III of “Appendix I — Accountants’ Report” to this document.
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FINANCIAL INFORMATION
SIGNIFICANT FACTORS AFFECTING OUR RESULTS OF OPERATIONS
Consumer Demand for Our Products
Our results of operations are affected by consumer demand for snack food and beverage products
in China, which is positively correlated with the economic development and consumers’ purchasing
power in China. In 2013, 2014 and 2015, China’s GDP grew at a rate of 7.7%, 7.3% and 6.9%,
respectively. Along with the economic growth, the market size of the snack food and beverage industry
in China continues to increase. According to the CRI Report, the sales value of the snack food market
in third- and fourth-tier cities and rural areas in China grew at a CAGR of 10.1% from 2011 to 2015
and is expected to grow at a CAGR of 11.0% from 2016 to 2020, whereas the sales value of the
beverage market in third- and fourth-tier cities and rural areas in China grew at a CAGR of 13.7% from
2011 to 2015 and is expected to grow at a CAGR of 12.0% from 2016 to 2020.
Moreover, the average purchasing power of Chinese consumers also continues to increase.
According to the PRC National Bureau of Statistics, Chinese urban households’ per capita disposable
income increased at a rate of 7.0%, 6.8% and 6.6% and Chinese rural households’ per capita disposable
income increased at a rate of 9.3%, 9.2% and 7.5% in these same respective periods. CRI expects that
Chinese consumers’ purchasing power will continue to increase in the foreseeable future, which would
drive up the demand for snack food and beverage products in China, including those produced by us.
As a result, our revenue is expected to continue to grow in line with the economic development and
consumers’ purchasing power in China in the near future.
Brand Recognition
The sales of our snack food and beverage products are affected by our target consumers’
awareness of our brand because consumers generally tend to purchase brands of products they are
familiar with. We market our products under a single brand “CENMINGTANG”. We believe that our
strategy of concentrating our marketing resources under one umbrella brand is helpful in raising
awareness of our brand and enhancing consumer loyalty, especially at this relatively early stage of our
development.
Despite the relatively short history of our Group, our brand “CENMINGTANG” has already
gained substantial brand recognition among consumers in third- and fourth-tier cities and rural areas
in China primarily due to our popular products including peanut milk and pork floss pies. Our brand
“CENMINGTANG” was awarded the “2015 Famous Brand Award in the Chinese Beverages Industry”
at the Fourth Chinese Brand Annual Conference, which was jointly held by several large national
media outlets in China. We continue to undertake various advertising and promotional activities to
enhance the visibility and marketability of our products.
In addition, brand recognition is also closely tied to the reputation of our Group and the quality
of the products we produce. We have implemented stringent quality control procedures, which cover
raw material supply chains, product processes, warehousing and distribution, to ensure the safety and
quality of our products. The perceived safety and consistency of our products is crucial in order for
consumers to have confidence in our Group, our brand and our products.
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FINANCIAL INFORMATION
Distribution Network
Our results of operations depend largely on the volume of transactions with our distributors as
our sales to distributors contributed to all of our revenue during the Track Record Period. The
increases in our revenue during the Track Record Period were partially due to the expansion and the
improved performance of our distribution network.
Our extensive distribution network has substantially penetrated into a wide range of
points-of-sale in third- and fourth-tier cities, counties, towns and villages in Henan, Hubei, Yunnan,
Shaanxi, Guizhou, Sichuan, Jiangxi and Chongqing. Our distribution network has been growing
rapidly since our establishment in 2012. As of December 31, 2013, 2014 and 2015, we had 49, 228
and 311 distributors, respectively, as our customers. Starting from January 1, 2016 and up to the Latest
Practicable Date, we had entered into distribution agreements with 85 new distributors, most of which
were located in Sichuan, Jiangxi and Chongqing. Our diversified product offerings, competitive
pricing, comprehensive support, as well as scale in sales, logistics and advertising help to
continuously strengthen our relationships with our cooperative distributors. An expanding distribution
network will therefore be essential to the continued success of our business.
Costs of Raw Materials and Packaging Materials
We produce a wide variety of snack food and beverage products and therefore use different
combinations of raw materials and packaging materials. The primary raw materials that we use for our
snack food products are eggs, flour, sugar and palm oil and the primary raw materials for our beverage
products are sugar, peanuts, milk powder and concentrated fruit juice. Other important raw materials
used in our production process include edible flavoring essences, edible spices, seasoning powder and
water. In addition, we also use large quantities of packaging materials including polyester chips,
cardboard boxes, tin cans and aseptic packs. For the years ended December 31, 2013, 2014 and 2015,
our costs of raw materials accounted for 51.5%, 37.1% and 41.3%, respectively, and our costs of
packaging materials accounted for 26.1%, 43.7% and 42.3%, respectively, of our total cost of sales in
the respective periods. The fluctuations in the proportion of each of our costs of raw materials and
costs of packaging materials during the Track Record Period was mainly due to changes in our product
mix as we commenced production of beverages in 2014 and fluctuations in the prices of milk powder
and eggs.
Most of our primary raw materials and our packaging materials are commodities and their prices
are subject to fluctuation based on the supply and demand dynamics, our bargaining power with our
suppliers, transportation costs and regulatory policies. As we do not fix purchase prices in the annual
supply contracts with our suppliers, we generally purchase our raw materials and packaging materials
at prevailing market prices. On the other hand, we do not usually change the sale prices for the
products sold to our distributors. Therefore, we expect that the fluctuation in the cost of raw materials
to continue to affect our gross profit margins.
— 190 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
FINANCIAL INFORMATION
Product Portfolio
Our diverse snack food and beverage product offerings provide us with the flexibility to sell
different products to accommodate the different preferences of consumers. Our snack food products
are comprised of (i) bread, cakes and pastries, which include shaped cakes, pork floss pies, swiss rolls,
soft bread, dorayaki and custard pies; and (ii) puffed foods, which include potato chips, potato circles
and other potato snacks. Our beverage products include plant-based and milk beverages, fruit and
vegetable beverages, ready-to-drink teas and other beverages.
Our financial performance is substantially affected by the mix of products in our portfolio
because the revenue, gross profit and gross profit margins vary depending on the types of products.
The factors influencing our financial performance include, among others, the sales volume, the
average sale price and the cost of raw materials and packaging materials for each of our products.
During the Track Record Period our beverage products had relatively higher gross profit margins than
snack food products. The gross profit margin of our snack food products for the years ended December
31, 2013, 2014 and 2015 was 22.3%, 23.3% and 26.0%, respectively, while that of our beverage
products for the same periods was nil, 27.8% and 30.6%, respectively. Our gross profit margin
increased from 22.3% in 2013 to 26.3% in 2014 and further increased to 29.4% in 2015, partially due
to an increase in proportion of sales of products with relatively higher profit margins such as
plant-based and milk beverages as well as fruit and vegetable beverages. In the future, we plan to
focus more of our research and development and marketing resources on products that have higher
gross profit margins.
Introduction of New Products
The growth of our business is affected by our ability to continuously introduce new products
according to the changing market trends. A popular new product brings us not only long-term
sustainable revenue, but also brand loyalty. During the Track Record Period, we introduced several
new series of products or new flavors of existing products to the market every one or two months. For
the years ended December 31, 2013, 2014 and 2015, we launched 22, 49 and 30 new products,
respectively, including several popular products such as peanut milk and pork floss pies, which
brought in steady amounts of revenue for us. We plan to increase our investments in research and
development to introduce snack food or beverage products with various flavors and packaging to meet
evolving consumer preferences and needs. We believe that these efforts will be essential for our
continued success in the snack food and beverage industry.
Pricing of Our Products
Our results of operations are affected by the pricing of our products. In pricing our products, we
take into account a variety of factors including the costs of raw materials, packaging materials,
production and distribution, the desired profit margins for us and for our distributors, the historical
sales data, the retail prices of competing products, the target consumers’ spending patterns, the
demand and supply dynamics of the particular products in our target markets, as well as the anticipated
market trends. Therefore, the competitive landscape in our target markets is one of the important
factors that influence the pricing of our products. According to the CRI Report, the competition in the
— 191 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
FINANCIAL INFORMATION
snack food and beverage industry in third- and fourth-tier cities and rural areas in China is expected
to intensify with the addition of new market entrants in the next few years. As a result, the
effectiveness of our responses to the intensifying market competition will affect our ability to price
our products at desired levels.
CRITICAL ACCOUNTING POLICIES, JUDGMENTS AND ESTIMATES
We have identified certain accounting policies that are significant to the preparation of our
combined financial statements. Our significant accounting policies, judgments and estimates that are
important for you to understand our financial condition and results of operations, are set forth in detail
in Notes 2 and 3 of “Appendix I — Accountants’ Report” to this document respectively. Some of our
accounting policies involve subjective assumptions and estimates, as well as complex judgments
relating to accounting items. In each case, the determination of these items requires management
judgments based on information and financial data that may change in future periods. When reviewing
our financial information, you should consider (i) our selection of critical accounting policies; (ii) the
judgments and other uncertainties affecting the application of such policies; and (iii) the sensitivity
of reported results to changes in conditions and assumptions. We set forth below those that we
believed are the most significant accounting policies and estimations of uncertainty in preparing of our
financial statements.
Significant Accounting Policies
Revenue recognition
Revenue comprises of the fair value of the consideration received or receivable for the sales of
goods, net of value-added tax, rebates and discounts. Rebates (including those in the form of products)
and discounts are determined taking into account the terms agreed with the customers.
Provided it is probable that the economic benefits will flow to the Group and the revenue and
costs, if applicable, can be measured reliably, sales of goods are recognized upon transfer of the
significant risks and rewards of ownership to the customer. This is usually taken as the time when the
goods are delivered and the customer has accepted the goods.
Estimation of Uncertainty
Impairment of property, plant and equipment and prepaid land lease payments
Items of property, plant and equipment and prepaid land lease payments are tested for
impairment if there is any indication that the carrying value of these assets may not be recoverable
and the assets are subject to an impairment loss. This process requires management’s estimate of
future cash flows generated by each asset or group of assets. For any instance where this evaluation
process indicates impairment, the relevant asset’s carrying amount is written down to the recoverable
amount and the amount of the write-down is charged against the combined statements of profit or loss
and other comprehensive income. The recoverable amount is the higher of an asset’s fair value less
costs of disposal and value in use.
— 192 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
FINANCIAL INFORMATION
Depreciation of property, plant and equipment
Property, plant and equipment are depreciated on a straight-line basis over the estimated useful
lives of the assets. The Group reviews the estimated useful lives and residual values, if any, of the
assets annually in order to determine the amount of depreciation expenses for any reporting period.
The useful lives are estimated based on historical experience with similar assets and taking into
account anticipated technological changes. The depreciation expenses for future periods are adjusted
if there are material changes from previous estimates. Details of the accounting policy on depreciation
of property, plant and equipment are disclosed in Note 2.4 of “Appendix I — Accountants’ Report”
to this document.
Net realizable value of inventories
Net realizable value of inventories is based on estimated selling price less any estimated costs
to be incurred to completion and disposal with reference to prevailing market information. These
estimates are based on the current market condition and the historical experience in selling goods of
similar nature. It could change significantly as a result of changes in market conditions. The Group
reassesses the estimation at the end of each reporting period.
— 193 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
FINANCIAL INFORMATION
RESULTS OF OPERATIONS
The following table sets forth a summary of our results of operations for the periods indicated.
Our historical results presented below are not necessarily indicative of the results that may be
expected for any future period.
For the year ended December 31,
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013
2014
2015
RMB’000
RMB’000
RMB’000
108,965
(84,635)
742,122
(546,992)
1,482,358
(1,046,807)
.
.
.
.
24,330
46
(8,639)
(5,429)
195,130
122
(69,514)
(16,314)
435,551
256
(131,934)
(20,825)
Profit before income tax . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,308
(2,577)
109,424
(28,387)
283,048
(73,482)
Profit and total comprehensive income for the year . .
7,731
81,037
209,566
Attributable to:
Equity holders of the Company . . . . . . . . . . . . . . . . . . .
7,731
81,037
209,566
Gross profit . . . . . . . . .
Other income . . . . . . . .
Selling expenses . . . . . .
Administrative and other
...............
...............
...............
operating expenses
.
.
.
.
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.
DESCRIPTION OF SELECTED INCOME STATEMENT LINE ITEMS
The following discussion summarizes components of selected income statement line items
appearing in “Appendix I — Accountants’ Report” to this document that we believe may be helpful
in understanding the period-to-period discussions that follow.
Revenue
During the Track Record Period, all of our revenue is derived from sales of snack food and
beverage products to our distributors. We started commercial production in September 2013 and only
generated revenue from September 2013 to December 2013. As a result, our revenue for 2013 was only
indicative of four months of our operational results and therefore was significantly lower than the
revenue generated during the twelve months in 2014. Our total revenue increased by 581.1% from
RMB109.0 million in 2013 to RMB742.1 million in 2014 and further increased by 99.7% to
RMB1,482.4 million in 2015.
— 194 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
FINANCIAL INFORMATION
Revenue by Product Categories
The following table sets forth our revenue by segment and product category for the periods
indicated:
For the year ended December 31,
2013
RMB’000
Snack Food
Bread, Cakes and
Pastries
Shaped Cakes . .
Pork Floss Pies
Swiss Rolls . . .
Soft Bread . . . . .
Dorayaki . . . . . .
Custard Pies . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
% of
total
revenue
RMB’000
2015
% of
total
revenue
RMB’000
% of
total
revenue
.
.
.
.
.
.
26,991
27,127
19,861
15,129
13,144
6,713
24.8
24.9
18.2
13.9
12.1
6.1
64,405
71,568
34,321
33,170
26,702
12,394
8.7
9.6
4.6
4.5
3.6
1.7
86,986
80,981
58,314
45,978
40,945
26,337
5.9
5.5
3.9
3.1
2.8
1.8
Subtotal . . . . . . . . . . . . . .
Puffed Foods
Potato Snacks . . . . . . . .
108,965
100.0
242,560
32.7
339,541
23.0
—
—
8,942
1.2
54,821
3.7
Segment Total . . . . . . . .
108,965
100.0
251,502
33.9
394,362
26.7
....
—
—
192,989
26.0
627,457
42.3
....
....
....
—
—
—
—
—
—
102,585
121,294
73,752
13.8
16.4
9.9
220,874
164,928
74,737
14.9
11.1
5.0
Segment Total . . . . . . . .
—
—
490,620
66.1
1,087,996
73.3
Total . . . . . . . . . . . . . . . . . .
108,965
100.0
742,122
100.0
1,482,358
100.0
Beverage
Plant-based and Milk
Beverages . . . . . . .
Fruit and Vegetable
Beverages . . . . . . .
Ready-to-drink Tea . .
Other Beverages . . .
.
.
.
.
.
.
2014
— 195 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
FINANCIAL INFORMATION
Revenue from sales of our snack food products was RMB109.0 million, RMB251.5 million and
RMB394.4 million, respectively, for the years ended December 31, 2013, 2014 and 2015, representing
100.0%, 33.9% and 26.7% of our total revenue for the respective periods. Revenue from sales of our
beverage products was nil, RMB490.6 million and RMB1,088.0 million, respectively, for the years
ended December 31, 2013, 2014 and 2015, representing nil, 66.1% and 73.3% of our total revenue for
the respective periods.
During the Track Record Period, pork floss pies and shaped cakes were our major
revenue-contributing snack food products. Sales from our pork floss pies accounted for approximately
24.9%, 9.6% and 5.5%, respectively, and sales from our shaped cakes accounted for approximately
24.8%, 8.7% and 5.9%, respectively, of our total revenue for the years ended December 31, 2013, 2014
and 2015. The decreases in proportion of the sales of our pork floss pies and shaped cakes were
primarily because we launched our beverage products during the Track Record Period to diversify our
product offerings which reduced the proportion of the sales of our snack food products. The sales of
snack food products increased by 130.8% from RMB109.0 million in 2013 to RMB251.5 million in
2014 and further increased by 56.8% to RMB394.4 million in 2015.
We focused on the production of snack food products when we established our business in 2012.
We started setting up our production lines for our beverage products in early 2013 and started trial
production at the end of 2013. As a result, we only commenced commercial production of our beverage
products and began to generate revenue from such products in 2014. Accordingly, there was a change
in our product mix during the Track Record Period.
Despite the increase in revenue from our snack food products at a CAGR of 90.2% from
RMB109.0 million in 2013 to RMB394.4 million in 2015, the proportion of revenue contribution by
our beverage products increased significantly during the same period mainly because (i) we introduced
several successful beverage products such as plant-based and milk beverages as well as fruit and
vegetable beverages; and (ii) the demand for beverage products in third- and fourth-tier cities and
rural areas in central China increased rapidly due to an increase in personal income and a change in
consumption habits during the same period. As a result, the sales of our beverage products increased
by 121.8% from RMB490.6 million in 2014 to RMB1,088.0 million in 2015 with plant-based and milk
beverages as our most important revenue-contributing beverage product, accounting for approximately
nil, 26.0% and 42.3%, respectively, of our revenue for the years ended December 31, 2013, 2014 and
2015.
The overall increase in revenue from sales of our snack food products and beverage products was
primarily due to the increase in the number of our distributors and the increase in our volume of
products sold.
— 196 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
FINANCIAL INFORMATION
Revenue by Provinces
During the Track Record Period, we sold our products through our distributors in five provinces
including Henan, Hubei, Yunnan, Shaanxi and Guizhou. The following table sets forth the revenue
contribution from each of the provinces for the periods indicated:
For the year ended December 31,
2013
2014
2015
RMB’000
% of total
revenue
RMB’000
% of total
revenue
RMB’000
% of total
revenue
.
.
.
.
.
44,220
20,637
21,075
12,756
10,277
40.7
18.9
19.3
11.7
9.4
196,102
197,085
139,139
116,889
92,907
26.4
26.6
18.7
15.8
12.5
435,712
404,235
248,721
229,707
163,983
29.3
27.3
16.8
15.5
11.1
Total . . . . . . . . . . .
108,965
100.0
742,122
100.0
1,482,358
100.0
Henan . .
Hubei . . .
Yunnan .
Shaanxi .
Guizhou .
.
.
.
.
.
.
.
.
.
.
.
.
.
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.
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.
.
.
.
.
.
.
.
.
.
.
.
.
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.
.
.
.
.
.
.
.
.
.
During the Track Record Period, Henan and Hubei were the two provinces where we recorded
the largest proportion of our total sales, accounting for approximately 40.7% and 18.9%, 26.4% and
26.6%, and 29.3% and 27.3%, respectively, of our total revenue for the three years ended December
31, 2015. Henan and Hubei are close to our headquarters, which has helped us achieve deeper market
penetration in these two provinces over other provinces. Although we are currently expanding our
distribution network in Sichuan, Jiangxi and Chongqing, we expect that sales from Hubei and Henan
will continue to account for a relatively large proportion of our total revenue in the next few years.
— 197 —
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THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
FINANCIAL INFORMATION
Sales Volume
The following table sets forth our sales volume by segment and product category for the periods
indicated:
For the year ended December 31,
Sales Volume
Snack Food
Bread, Cakes and
Shaped Cakes . .
Pork Floss Pies
Swiss Rolls . . .
Soft Bread . . . . .
Dorayaki . . . . . .
Custard Pies . . .
Puffed Foods
Potato Snacks . .
Pastries
.......
.......
.......
.......
.......
.......
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
—
583
3,773
Segment Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,415
16,824
27,027
.
.
.
.
—
—
—
—
47,406
40,046
55,775
16,208
160,818
81,676
75,974
15,535
Segment Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
159,435
334,003
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,415
176,259
361,030
.
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— 198 —
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.
(Tons)
..............................
.
.
.
.
.
.
.
.
.
.
(Tons)
5,736
5,257
4,068
3,585
2,588
2,020
.
.
.
.
.
.
.
.
.
.
(Tons)
4,147
4,595
2,318
2,537
1,711
933
.
.
.
.
.
.
.
.
.
.
2015
1,777
1,746
1,367
1,175
835
515
.
.
.
.
.
.
.
.
.
.
2014
.
.
.
.
.
.
Beverage
Plant-based and Milk Beverages .
Fruit and Vegetable Beverages . .
Ready-to-drink Tea . . . . . . . . . . .
Other Beverages . . . . . . . . . . . .
.
.
.
.
.
.
2013
.
.
.
.
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
FINANCIAL INFORMATION
Average Selling Price
The following table sets forth our average selling price per ton by segment and product category
for the periods indicated:
For the year ended December 31,
Average Selling Price
2013
2014
2015
(RMB/ton) (RMB/ton) (RMB/ton)
Snack Food
Bread, Cakes and
Shaped Cakes . .
Pork Floss Pies
Swiss Rolls . . .
Soft Bread . . . . .
Dorayaki . . . . . .
Custard Pies . . .
Puffed Foods
Potato Snacks . .
Pastries
.......
.......
.......
.......
.......
.......
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
15,187
15,540
14,531
12,879
15,742
13,019
15,531
15,574
14,805
13,074
15,602
13,300
15,164
15,405
14,337
12,826
15,822
13,038
..............................
—
15,338
14,530
Snack Food Segment (all products) . . . . . . . . . . . . . . . . . . .
14,695
14,949
14,592
.
.
.
.
—
—
—
—
2,175
2,562
4,071
4,550
2,171
2,704
3,902
4,811
Beverage Segment (all products) . . . . . . . . . . . . . . . . . . . . .
—
3,077
3,257
Average Selling Price of all Products . . . . . . . . . . . . . . . .
14,695
4,210
4,106
Beverage
Ready-to-drink Tea . . . . . . . . . .
Fruit and Vegetable Beverages. .
Plant-based and Milk Beverages
Other Beverages . . . . . . . . . . . .
.
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Our average selling prices represent our total sales revenue divided by our total sales volume.
The average selling price of our snack food products remained stable during the Track Record Period.
For the years ended December 31, 2013, 2014 and 2015, the average selling price of our snack food
products was RMB14,695 per ton, RMB14,949 per ton and RMB14,592 per ton, respectively. The
slight decrease in the average selling price of our food products from 2014 to 2015 was primarily
because we sold a larger proportion of lower-priced products in 2015 when compare with 2014.
We started commercial production of beverages in 2014 and the average selling price of our
beverage products remained stable from 2014 to 2015. For the years ended December 31, 2014 and
2015, the average selling price of our beverage products was RMB3,077 per ton and RMB3,257 per
ton, respectively. The increase in the average selling price of our beverage products from 2014 to 2015
was primarily due to an increase in proportion of the sales of products that have higher selling prices,
such as the plant-based and milk beverages, in 2015.
— 199 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
FINANCIAL INFORMATION
Cost of Sales
Our cost of sales is primarily comprised of (i) material costs, which include costs of raw
materials and packaging materials; (ii) direct labor cost; (iii) manufacturing overhead; and (iv)
business tax and surcharges.
The following table sets forth our cost of sales by category for the periods indicated:
For the year ended December 31,
2013
2014
RMB’000
Material costs . .
Direct labor cost
Manufacturing
overhead . . . . .
Business tax and
surcharges . . .
%
RMB’000
2015
%
RMB’000
%
....
....
65,706
7,787
77.6
9.2
441,934
38,475
80.8
7.0
875,503
62,245
83.6
5.9
....
11,054
13.1
65,603
12.0
98,700
9.5
....
88
0.1
980
0.2
10,359
1.0
Total . . . . . . . . . . . . .
84,635
100.0
546,992
100.0
1,046,807
100.0
During the Track Record Period, material costs were the largest component of our cost of sales,
representing approximately 77.6%, 80.8% and 83.6%, respectively of our cost of sales for the years
ended December 31, 2013, 2014 and 2015. Materials used to manufacture our products primarily
consist of packaging materials, raw materials including sugar, milk powder, eggs and peanuts.
The following table sets forth our material costs by category for the periods indicated:
For the year ended December 31,
2013
RMB’000
Packaging materials .
Raw materials
Sugar . . . . . . . . . .
Milk powder . . . . . .
Eggs . . . . . . . . . . .
Peanuts . . . . . . . . .
Others . . . . . . . . . .
2014
%
RMB’000
2015
%
RMB’000
%
.....
22,057
33.6
239,001
54.1
442,713
50.6
.
.
.
.
.
.
.
.
.
.
8,668
361
13,777
—
20,843
13.2
0.5
21.0
—
31.7
50,114
21,663
27,607
14,989
88,560
11.3
4.9
6.2
3.4
20.1
106,427
39,863
31,020
43,503
211,977
12.2
4.6
3.5
5.0
24.1
Total . . . . . . . . . . . . . . . . . .
65,706
100.0
441,934
100.0
875,503
100.0
.
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.
— 200 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
FINANCIAL INFORMATION
We started commercial production in September 2013 and only incurred cost of sales from
September 2013 to December 2013. As a result, our cost of sales for 2013 was only indicative of four
months of our operational results and therefore was significantly lower than the cost of sales incurred
during the twelve months in 2014. Our cost of sales increased by 546.3% from RMB84.6 million in
2013 to RMB547.0 million in 2014, and further increased by 91.4% to RMB1,046.8 million in 2015
primarily due to the increases in our material costs as a result of our increased production volumes.
Our cost of packaging materials increased by 983.6% from RMB22.1 million in 2013 to RMB239.0
million in 2014, and further increased by 85.2% to RMB442.7 million in 2015. Our cost of raw
materials increased by 364.9% from RMB43.6 million in 2013 to RMB202.9 million in 2014 and
further increased by 113.3% to RMB432.8 million in 2015. The increases in our costs of raw materials
and packaging materials during the Track Record Period were in line with the increases in the sales
volumes of our products.
The changes in our costs of packaging materials and raw materials during the Track Record
Period were also influenced by fluctuations in our average purchase prices for certain major raw
materials and packaging materials as well as changes in our product mix. During the Track Record
Period, the average purchase prices of our major packaging materials and two out of our four main raw
material ingredients, sugar and peanuts, were generally stable, while that of milk powder and eggs
showed relatively wide fluctuations. For more details regarding the fluctuations of the prices of milk
powder and eggs, please refer to the section headed “Industry Overview — Overview of major raw
materials” in this document.
The following sensitivity analysis illustrates the impact of hypothetical fluctuations in our
average unit purchase prices for certain of our major raw materials — sugar, milk powder, eggs, and
peanuts — on our net profit for the periods indicated, assuming all other factors affecting our
profitability had remained unchanged.
Average unit costs of sugar:
Change in net profit
(RMB million)
2013 . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . .
Increase/decrease
by 5%
-/+0.3
-/+1.9
-/+4.0
— 201 —
Increase/decrease
by 10%
-/+0.7
-/+3.8
-/+8.0
Increase/decrease
by 15%
-/+1.0
-/+5.7
-/+12.0
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
FINANCIAL INFORMATION
Average unit costs of milk powder:
Change in net profit
(RMB million)
2013 . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . .
Increase/decrease
by 5%
Increase/decrease
by 10%
Increase/decrease
by 15%
-/+0.01
-/+0.8
-/+1.5
-/+0.03
-/+1.6
-/+3.0
-/+0.04
-/+2.4
-/+4.5
Increase/decrease
by 5%
Increase/decrease
by 10%
Increase/decrease
by 15%
-/+0.5
-/+1.1
-/+1.2
-/+1.0
-/+2.1
-/+2.4
-/+1.6
-/+3.2
-/+3.5
Increase/decrease
by 5%
Increase/decrease
by 10%
Increase/decrease
by 15%
N/A
-/+0.6
-/+1.6
N/A
-/+1.1
-/+3.3
N/A
-/+1.7
-/+4.9
Average unit costs of eggs:
Change in net profit
(RMB million)
2013 . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . .
Average unit costs of peanuts:
Change in net profit
(RMB million)
2013 . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . .
Note:
This sensitivity analysis is intended for reference only, and any variation may differ from the amounts indicated.
[REDACTED] should note in particular that this sensitivity analysis is not intended to be exhaustive and is limited to
the impact of changes in our cost of sugar, milk powder, eggs and peanuts.
The increases in our cost of sales during the Track Record Period were also affected by the
increases in our direct labor costs and manufacturing overhead as we expanded our production
capacity and increased our sales volumes. Direct labor costs primarily consist of expenses related to
salaries and other employee related benefits. Our direct labor costs increased by 394.1% from RMB7.8
million in 2013 to RMB38.5 million in 2014, and further increased by 61.8% to RMB62.2 million in
2015 due to increasing employee salaries as we hired more personnel each year, in line with the
increases in sales volume of our products and expansion of our business. Manufacturing overhead
primarily consist of expenses related to electricity and utilities. Our manufacturing overhead increased
by 493.5% from RMB11.1 million in 2013 to RMB65.6 million in 2014, and further increased by
50.5% to RMB98.7 million in 2015 as we commenced commercial production in September 2013 and
steadily increased our production, in line with the increases in sales volume of our products and
expansion of our business. For more details regarding the expansion of our production capacity during
the Track Record Period, please refer to the section headed “Business — Production — Our Production
Facilities” in this document.
— 202 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
FINANCIAL INFORMATION
Gross Profit and Gross Profit Margin
Our gross profit represents our revenue less our cost of sales, and our gross profit margin
represents our gross profit divided by our revenue, expressed as a percentage.
The following table sets forth our gross profits, gross profit contribution and gross profit margins
by segment for the periods indicated:
For the year ended December 31,
2013
2014
Amount
% of
total
gross
profit
Gross
profit
margin
RMB’000
%
%
2015
Amount
% of
total
gross
profit
Gross
profit
margin
RMB’000
%
%
Amount
% of
total
gross
profit
Gross
profit
margin
RMB’000
%
%
Snack Foods
Bread, Cakes and
Pastries
Shaped Cakes . . . .
6,301
25.9
23.3
15,028
7.7
23.3
24,565
5.6
28.2
Pork Floss Pies . . .
6,320
26.0
23.3
17,704
9.1
24.7
20,505
4.7
25.3
Swiss Rolls . . . . .
3,985
16.4
20.1
7,277
3.7
21.2
14,691
3.4
25.2
Soft Bread . . . . . .
3,210
13.2
21.2
6,962
3.6
21.0
10,436
2.4
22.7
Dorayaki . . . . . . .
3,230
13.2
24.6
7,204
3.7
27.0
12,058
2.8
29.4
Custard Pies . . . . .
1,284
5.3
19.1
2,351
1.2
19.0
5,984
1.4
22.7
Subtotal/Average
Gross Profit
Margin (as
applicable) . . . . . .
24,330
100.0
22.3
56,526
29.0
23.3
88,239
20.3
26.0
Potato Snacks . . . .
—
—
—
2,114
1.0
23.6
14,361
3.3
26.2
Segment
Total/Average
Gross Profit
Margin (as
applicable) . . . . . .
24,330
100.0
22.3
58,640
30.0
23.3
102,600
23.6
26.0
—
—
—
57,327
29.4
29.7
194,462
44.7
31.0
Puffed Foods
Beverages
Plant-based and Milk
Beverages . . . . . . .
Fruit and Vegetable
Beverages . . . . . . .
—
—
—
30,550
15.7
29.8
74,697
17.1
33.8
Ready-to-drink Tea . . .
—
—
—
31,418
16.1
25.9
42,889
9.8
26.0
Other Beverages . . . .
—
—
—
17,195
8.8
23.3
20,903
4.8
28.0
Segment
Total/Average
Gross Profit
Margin (as
applicable) . . . . . .
—
—
—
136,490
70.0
27.8
332,951
76.4
30.6
Total/Average Gross
Profit Margin (as
applicable) . . . . . . .
24,330
100.0
22.3
195,130
100.0
26.3
435,551
100.0
29.4
Our gross profit increased by 702.0% from RMB24.3 million in 2013 to RMB195.1 million in
2014 and further increased by 123.2% to RMB435.6 million in 2015.
— 203 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
FINANCIAL INFORMATION
The increase in our gross profit was in line with the rapid increase in our sales volume and
revenue during the same period.
Our gross profit margin in 2013, 2014 and 2015 was 22.3%, 26.3% and 29.4%, respectively. The
gross profit margin of our snack food products in these same respective periods was 22.3%, 23.3% and
26.0%. The gross profit margin of our beverage products in these same respective periods was nil,
27.8% and 30.6%. The increase in our gross profit margin during the Track Record Periods was
primarily due to (i) decreases in our average purchase prices for certain major raw materials; (ii) the
economies of scale as a result of our increased production volumes; and (iii) an increase in proportion
of sales of products with relatively high profit margins such as our plant-based and milk beverages as
well as fruit and vegetables beverages.
Other Income
Our other income includes interest income and others. Our interest income increased from
RMB43,000 in 2013 to RMB0.1 million in 2014 and further increased to RMB0.2 million in 2015,
which was in line with the increases in our bank deposits.
The following table sets forth our other income by category for the periods indicated:
For the year ended December 31,
2013
RMB’000
2014
%
RMB’000
2015
%
RMB’000
%
Interest income . . . . . . . . . . . . . . . .
Others (1) . . . . . . . . . . . . . . . . . . . . .
43
3
93.5
6.5
120
2
98.4
1.6
236
20
92.2
7.8
Total . . . . . . . . . . . . . . . . . . . . . . . .
46
100.0
122
100.0
256
100.0
Note:
(1)
Includes primarily an indemnity for the damages of our goods during transportation
Selling Expenses
During the Track Record Period, our selling expenses include primarily transportation costs,
salaries and benefits of our sales personnel, advertising, promotion and exhibition costs. For the years
ended December 31, 2013, 2014 and 2015, our selling expenses were RMB8.6 million, RMB69.5
million and RMB131.9 million, respectively, representing 7.9%, 9.4% and 8.9% of our revenue for
these same respective periods.
— 204 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
FINANCIAL INFORMATION
The following table sets forth our selling expenses by category for the periods indicated:
For the year ended December 31,
2013
RMB’000
Transportation costs . . . . . .
Salaries and benefits . . . . .
Advertising, promotion and
exhibition costs . . . . . . .
Travel-related costs . . . . . .
2014
%
RMB’000
2015
%
RMB’000
%
.......
.......
6,106
1,849
70.7
21.4
37,737
15,577
54.3
22.4
76,862
32,877
58.3
24.9
.......
.......
441
243
5.1
2.8
14,161
2,039
20.3
3.0
17,675
4,520
13.4
3.4
Total . . . . . . . . . . . . . . . . . . . . . . . .
8,639
100.0
69,514
100.0
131,934
100.0
Administrative and Other Operating Expenses
Our administrative and other operating expenses include primarily staff salaries and benefits for
our administrative personnel, research and development costs, depreciation and other tax expenses.
For the years ended December 31, 2013, 2014 and 2015, our administrative and other operating
expenses were RMB5.4 million, RMB16.3 million and RMB20.8 million, respectively, accounting for
5.0%, 2.2% and 1.4% of our revenue for these same respective periods.
The following table sets forth our administrative and other operating expenses by category for
the periods indicated:
For the year ended December 31,
2013
RMB’000
Salaries and benefits . . . . . . . . . . .
Research and development costs . .
Other tax expenses . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . .
Travel-related expenses . . . . . . . . .
Amortization of prepaid land lease
payments . . . . . . . . . . . . . . . . . .
Others (1) . . . . . . . . . . . . . . . . . . . .
2014
%
RMB’000
2015
%
RMB’000
%
.
.
.
.
.
2,555
432
767
821
76
47.1
8.0
14.1
15.1
1.4
6,920
3,173
1,925
1,967
574
42.4
19.4
11.8
12.1
3.5
8,862
4,047
2,467
2,157
894
42.6
19.4
11.8
10.4
4.3
.
.
357
421
6.6
7.7
403
1,352
2.5
8.3
446
1,952
2.1
9.4
Total . . . . . . . . . . . . . . . . . . . . . . . .
5,429
100.0
16,314
100.0
20,825
100.0
Note:
(1)
Includes primarily the non-payment of debts owed by three distributors and one supplier, utilities and miscellaneous
office expenses.
— 205 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
FINANCIAL INFORMATION
Income Tax Expense
Our income tax expense includes current and deferred tax expenses. The following table sets
forth our income tax expense by category for the periods indicated:
For the year ended December 31,
2013
2014
2015
RMB’000
RMB’000
RMB’000
3,510
—
29,739
98
74,422
337
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax
Credited to deferred tax assets . . . . . . . . . . . . . .
3,510
29,837
74,759
(1,450)
(1,277)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,577
28,387
73,482
Current tax — PRC enterprise income tax
Current year. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Under provision in respect of prior years . . . . . .
(933)
Pursuant to the rules and regulations of the Cayman Islands, we are not subject to any income
tax in the Cayman Islands.
Our subsidiary established in China was subject to the statutory income tax rate of 25% in
accordance with the EIT Law during the Track Record Period. Our effective tax rate was
approximately 25.0%, 25.9% and 26.0% in 2013, 2014 and 2015, respectively. Our effective tax rate
for 2014 and 2015 was slightly higher than the statutory income tax rate of 25% primarily due to the
impacts of non-deductible expenses and under provision of the prior years.
PERIOD TO PERIOD COMPARISON OF RESULTS OF OPERATIONS
The Year Ended December 31, 2015 Compared with the Year Ended December 31, 2014.
Revenue
Our revenue increased by 99.7% from RMB742.1 million in 2014 to RMB1,482.4 million in
2015. Revenue from sales of our snack food products increased by 56.8% from RMB251.5 million in
2014 to RMB394.4 million in 2015 primarily due to an increase in sales of our products in both of our
snack food product categories.
•
Revenue from sales of our bread, cakes and pastries increased by 40.0% from RMB242.6
million in 2014 to RMB339.5 million in 2015 primarily due to an increase in sales volume
of such products, which was in line with the increase in our production capacity, the
significant increase in the number of our distributors and the diversification of our bread,
cakes and pastries product offerings.
— 206 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
FINANCIAL INFORMATION
•
Revenue from sales of our puffed foods increased by 513.1% from RMB8.9 million in 2014
to RMB54.8 million in 2015 primarily because we only introduced the puffed foods in June
2014 and significantly increased our sales volume of puffed foods in 2015.
Revenue from sales of our beverage products increased by 121.8% from RMB490.6 million in
2014 to RMB1,088.0 million in 2015 primarily due to an increase in the sales volume of our beverage
products in 2015 as a result of our introduction of four new beverage production lines in December
2014.
•
Revenue from sales of our plant-based and milk beverages increased by 225.1% from
RMB193.0 million in 2014 to RMB627.5 million in 2015 primarily due to the increase in
variety and sales volume of our plant-based and milk beverage products since we
commenced mass production of plant-based and milk beverages in January 2014 and
increased our production capacity in December 2014 by our introduction of four TP carton
production lines.
•
Revenue from sales of our fruit and vegetable beverages increased by 115.3% from
RMB102.6 million in 2014 to RMB220.9 million in 2015 primarily due to a gradual
increase in variety and sales volume of our fruit and vegetable beverage products since we
commenced mass production of fruit and vegetable beverages in January 2014 and
increased our production capacity in December 2014.
•
Revenue from sales of ready-to-drink teas increased by 36.0% from RMB121.3 million in
2014 to RMB164.9 million in 2015 primarily due to an increased sales volume of our
ready-to-drink tea as we introduced three new varieties of ready-to-drink teas.
•
Revenue from our sales of other beverages increased slightly by 1.3% from RMB73.8
million in 2014 to RMB74.7 million in 2015 primarily because we did not focus our
marketing efforts on these products.
Cost of sales
Our cost of sales increased by 91.4% from RMB547.0 million in 2014 to RMB1,046.8 million
in 2015, representing (i) a 51.3% increase in cost of sales for our snack food products from RMB192.9
million in 2014 to RMB291.8 million in 2015; and (ii) a 113.2% increase in cost of sales for our
beverage products from RMB354.1 million in 2014 to RMB755.0 million in 2015. The increases in our
cost of sales were primarily due to (i) an increase of 113.3% in our cost of raw materials from
RMB202.9 million in 2014 to RMB432.8 million in 2015; and (ii) an increase of 85.2% in our cost
of packaging materials from RMB239.0 million in 2014 to RMB442.7 million in 2015, which were in
line with the rapid increases in our sales volume and revenue during the same period.
For a more detailed discussion on the changes in our cost of sales, please refer to the section
headed “Financial Information — Description of Selected Income Statement Line Items — Cost of
Sales” in this document.
— 207 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
FINANCIAL INFORMATION
Gross profit and gross profit margin
Our gross profit increased by 123.2% from RMB195.1 million in 2014 to RMB435.6 million in
2015, representing (i) a 75.0% increase in gross profit from sales of our snack food products from
RMB58.6 million in 2014 to RMB102.6 million in 2015; and (ii) a 143.9% increase in gross profit
from sales of our beverage products from RMB136.5 million in 2014 to RMB333.0 million in 2015.
The increase in our gross profit was in line with the rapid increases in our sales volume and revenue
during the same period.
Our gross profit margin increased from 26.3% in 2014 to 29.4% in 2015. Our gross profit margin
from sales of snack food products increased from 23.3% in 2014 to 26.0% in 2015 primarily due to
an increase in gross profit margin for each of our snack food product categories, which was
attributable to (i) decreases in our average purchase prices for certain major raw materials; and (ii)
the economies of scale as a result of our increased production volumes. Our gross profit margin from
sales of beverage products increased from 27.8% in 2014 to 30.6% in 2015 primarily due to (i) an
increase in gross profit margin for each of our beverage product categories, which was attributable to
(a) decreases in our average purchase prices for certain major raw materials, and (b) the economies
of scale as a result of our increased production volumes; and (ii) an increase in proportion of sales of
products with relatively high profit margins such as our plant-based and milk beverages as well as fruit
and vegetable beverages.
Other income
Our other income increased by 109.8% from RMB0.1 million in 2014 to RMB0.3 million in 2015
primarily attributable to (i) an increase in the interests generated by our bank deposits; and (ii) an
indemnity we received for damages to our products during transportation from one of our third-party
logistics service providers.
Selling expenses
Our selling expenses increased by 89.8% from RMB69.5 million in 2014 to RMB131.9 million
in 2015, which was primarily due to increases in transportation costs, salaries and benefits for our
sales personnel, advertising, promotion and exhibition costs and travel-related costs as a result of our
expansion of business during the same period.
Our transportation costs increased by 103.7% from RMB37.7 million in 2014 to RMB76.9
million in 2015, which was primarily due to (i) the increases in our sales volume of our snack food
and beverage products; and (ii) the expansion of our distribution areas during the same period. Salaries
and benefits costs for our sales personnel increased by 111.1% from RMB15.6 million in 2014 to
RMB32.9 million in 2015, which was primarily due to (i) a rapid increase in headcount of our sales
personnel, from 252 in 2014 to 392 in 2015, as we expanded our sales team to deepen our penetration
into our target markets; and (ii) the increase in commissions of our sales representatives along with
the increase in sales of our products. Advertising, promotion and exhibition costs increased by 24.8%
from RMB14.2 million in 2014 to RMB17.7 million in 2015, primarily due to increased advertising
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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
FINANCIAL INFORMATION
and promotional campaigns in connection with the launch of various new products as well as our
continued marketing efforts, which mainly consisted of (i) placing advertisements on television; and
(ii) hosting exhibitions to promote our products, including at our semi-annual order-placing meetings.
Administrative and other operating expenses
Our administrative and other operating expenses increased by 27.7% from RMB16.3 million in
2014 to RMB20.8 million in 2015 primarily due to an increase in our salary and benefits payments to
our administrative staff resulting from the need for more administrative support with the expansion of
our business scale and operations.
Our salaries and benefits costs for our administrative personnel increased by 28.1% from
RMB6.9 million in 2014 to RMB8.9 million in 2015, primarily due to an increase in the number of
our administrative personnel as we expanded our business. Our research and development costs
increased slightly by 27.5% from RMB3.2 million in 2014 to RMB4.0 million in 2015, primarily due
to an increase in the purchase of materials for the purpose of developing new products. Our other tax
expenses increased by 28.2% from RMB1.9 million in 2014 to RMB2.5 million in 2015, primarily due
to an increase in real estate taxes and land use taxes. Our depreciation costs increased by 9.7% from
RMB2.0 million in 2014 to RMB2.2 million in 2015, primarily due to the increase in our office
equipment as we increased our administrative headcount by 139 personnel.
Profit before income tax
As a result of the foregoing, our profit before tax increased by 158.7% from RMB109.4 million
in 2014 to RMB283.0 million in 2015.
Income tax expenses
Our income tax expense increased by 158.9% from RMB28.4 million in 2014 to RMB73.5
million in 2015. Our effective tax rate remained stable at 26.0% in 2015 compared to 25.9% in 2014.
Profit and total comprehensive income for the year
As a result of the foregoing, our profit and total comprehensive income for the year increased
by 158.6% from RMB81.0 million in 2014 to RMB209.6 million in 2015.
The Year Ended December 31, 2014 Compared with the Year Ended December 31, 2013.
Revenue
We commenced commercial production and sales in September 2013. The financial information
for the year ended December 31, 2013 is thus only indicative of our operational results for the four
months from September to December 2013. As a result, the following comparisons of certain financial
figures between the year of 2013 and 2014 may display significant increases.
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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
FINANCIAL INFORMATION
Our revenue increased by 581.1% from RMB109.0 million in 2013 to RMB742.1 million in 2014.
Revenue from sales of our snack food products increased by 130.8% from RMB109.0 million in 2013
to RMB251.5 million in 2014 primarily due to an increase in sales of our products in both of our snack
food product categories.
•
Revenue from sales of our bread, cakes and pastries increased by 122.6% from RMB109.0
million in 2013 to RMB242.6 million in 2014 primarily due to an increase in sales volume
of such products, which was in line with the increase in our production capacity, the
significant increase in the number of our distributors and the diversification of our bread,
cakes and pastries product offerings.
•
Revenue from sales of our puffed foods increased from nil in 2013 to RMB8.9 million in
2014 as we set up our two puffed foods production lines and commenced commercial
production in June 2014.
Revenue from sales of our beverage products increased from nil in 2013 to RMB490.6 million
in 2014 as we acquired all of our production lines for our beverage products in the second-half of 2013
and commenced commercial production with them in January 2014.
Cost of sales
Our cost of sales increased by 546.3% from RMB84.6 million in 2013 to RMB547.0 million in
2014, representing (i) a 127.9% increase in cost of sales for our snack food products from RMB84.6
million in 2013 to RMB192.9 million in 2014; and (ii) an increase in cost of sales for our beverage
products from nil in 2013 to RMB354.1 million in 2014. The increases in our cost of sales were
primarily due to (i) a 364.9% increase in our costs of raw materials from RMB43.6 million in 2013
to RMB202.9 million in 2014; and (ii) a 983.6% increase in our costs of packaging materials from
RMB22.1 million in 2013 to RMB239.0 million in 2014, which were primarily due to our introduction
of beverage products in 2014 and the significant increases in our production volume in the year ended
December 31, 2014 compared to that from September to December 2013.
For a more detailed discussion on the changes in our cost of sales, please refer to the section
headed “Financial Information — Description of Selected Income Statement Line Items — Cost of
Sales” in this document.
Gross profit and gross profit margin
Our gross profit increased by 702.0% from RMB24.3 million in 2013 to RMB195.1 million in
2014, representing (i) a 141.0% increase in gross profit from sales of our snack food products from
RMB24.3 million in 2013 to RMB58.6 million in 2014; and (ii) an increase in our gross profit from
sales of our beverage products from nil in 2013 to RMB136.5 million in 2014.
Our gross profit margin increased from 22.3% in 2013 to 26.3% in 2014. Our gross profit margin
from sales of our snack food products increased from 22.3% in 2013 to 23.3% in 2014 primarily due
to an increase in the gross profit margin for our bread, cakes and pastries product category, which was
attributable to economies of scale as we increased our production. We commenced our production of
— 210 —
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THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
FINANCIAL INFORMATION
beverage products in January 2014 and our gross profit margin from sales of our beverage products
amounted to 27.8% in 2014, representing (i) a 29.7% gross profit margin for our plant-based and milk
beverages, which accounted for 26.0% of our total revenue in 2014 and (ii) gross profit margins of
29.8%, 25.9% and 23.3% for our fruit and vegetable beverages, ready-to-drink tea and other
beverages, respectively, which accounted for 40.1% of our total revenue in 2014.
Other income
Our other income increased from RMB46,000 in 2013 to RMB0.1 million in 2014 in line with
an increase in the interests generated by our bank deposits.
Selling expenses
Our selling expenses increased by 704.7% from RMB8.6 million in 2013 to RMB69.5 million in
2014, which was primarily due to increases in transportation costs, salaries and benefits for our sales
personnel, advertising, promotion and exhibition costs and travel-related costs as a result of our
expansion of business during the same period.
Our transportation costs increased by 518.0% from RMB6.1 million in 2013 to RMB37.7 million
in 2014, which was primarily due to (i) the increases in our sales volume of our snack food and
beverage products, and (ii) the expansion of our distribution areas during the same period. Salaries and
benefits costs for our sales personnel increased by 742.5% from RMB1.8 million in 2013 to RMB15.6
million in 2014, which was primarily due to (i) a rapid increase in headcount of our sales personnel,
from 56 in 2013 to 252 in 2014, as we expanded our sales team to deepen our penetration into our
target markets, and (ii) the increase in commissions of our sales representatives along with the
increase in sales of our products. Advertising, promotion and exhibition costs increased by 3,111.1%
from RMB0.4 million in 2013 to RMB14.2 million in 2014, primarily due to increased advertising and
promotional campaigns as we did minimal marketing in the prior years and only began to focus on
marketing this year, particularly when launching various new products. These advertising and
promotional campaigns mainly consisted of (i) placing advertisements on television and (ii) hosting
exhibitions to promote our products, including at our semi-annual order-placing meetings.
Administrative and other operating expenses
Our administrative and other operating expenses increased by 200.5% from RMB5.4 million in
2013 to RMB16.3 million in 2014, which was primarily due to the increased salaries and benefits
expenditures for our enlarged administrative staff team and our increased efforts in research and
development.
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THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
FINANCIAL INFORMATION
Our salaries and benefits costs for our administrative personnel increased by 170.8% from
RMB2.6 million in 2013 to RMB6.9 million in 2014, primarily due to an increase in the number of
our administrative personnel as we expanded our business. Our research and development costs
increased by 634.5% from RMB0.4 million in 2013 to RMB3.2 million in 2014, which was primarily
due to (i) an increase in purchases of materials used for experimenting on new products; and (ii) an
increase in the number of our research and development headcount by 14 personnel. Our other tax
expenses increased by 151.0% from RMB0.8 million in 2013 to RMB1.9 million in 2014, primarily
due to an increase in real estate taxes and land use taxes. Our depreciation costs increased by 139.6%
from RMB0.8 million in 2013 to RMB2.0 million in 2014, primarily due to the increase in our office
equipment as we increased our administrative headcount by 236 personnel.
Profit before tax
As a result of the foregoing, our profit before tax increased by 961.5% from RMB10.3 million
in 2013 to RMB109.4 million in 2014.
Income tax expenses
Our income tax expense increased by 1,001.6% from RMB2.6 million in 2013 to RMB28.4
million in 2014. Our effective tax rate increased slightly from 25.0% in 2013 to 25.9% in 2014
primarily due to the impacts of non-deductible expenses and under provision of the prior year.
Profit and total comprehensive income for the year
As a result of the foregoing, our profit and total comprehensive income for the year increased
by 948.2% from RMB7.7 million in 2013 to RMB81.0 million in 2014.
— 212 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
FINANCIAL INFORMATION
CERTAIN STATEMENT OF FINANCIAL POSITION ITEMS
Net Current Liabilities
The following table sets forth our current assets and current liabilities by category as of the dates
indicated:
As of
May 31
As of December 31,
2013
2014
2015
2016
RMB’000
RMB’000
RMB’000
RMB’000
.
.
.
.
14,486
43,952
366
29
72,288
16,401
446
19
92,941
24,491
446
51,425
114,653
39,095
446
111,178
Total Current Assets. . . . . . . . . . . . . . . . . . . .
58,833
89,154
169,303
265,372
...
74,619
207,636
372,987
336,807
...
...
...
191,750
—
1,971
—
67,310
13,095
—
—
28,046
—
—
19,838
Total Current Liabilities . . . . . . . . . . . . . . . .
268,340
288,041
401,033
356,645
Net Current Liabilities . . . . . . . . . . . . . . . . . .
(209,507)
(198,887)
(231,730)
(91,273)
Current Assets
Inventories . . . . . . . . . . . . . .
Trade and other receivables .
Prepaid land lease payments
Cash and cash equivalents . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
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.
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.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Current Liabilities
Trade and other payables . . . . . . . . . . . . . .
Amount due to the then immediate holding
company . . . . . . . . . . . . . . . . . . . . . . . . .
Amounts due to Mr. Shi and Mr. Zhang . . .
Income tax payable . . . . . . . . . . . . . . . . . .
.
.
.
.
.
.
.
.
We recorded net current liabilities of RMB209.5 million, RMB198.9 million, RMB231.7 million
and RMB91.3 million, respectively, as of December 31, 2013, 2014 and 2015 and May 31, 2016. Our
net current liabilities of RMB209.5 million as of December 31, 2013 were primarily attributable to the
outstanding advance of RMB191.8 million from Fujian Gongyuan, the then immediate holding
company of us, for funding our purchases of land, properties and production facilities at the ramp-up
stage of our business. Our net current liabilities of RMB198.9 million as of December 31, 2014 were
primarily attributable to our trade payables to third parties of RMB103.4 million and deposits from
customers of RMB86.0 million as a result of our expanded business. Our net current liabilities of
RMB231.7 million as of December 31, 2015 were primarily attributable to dividend payables of
RMB200.0 million, which were declared in December 2015 and paid in January and March 2016, and
our trade payables to third parties of RMB103.9 million. Our net current liabilities of RMB91.3
million as of May 31, 2016 were primarily attributable to deposits from customers of RMB127.0
million and trade payables of RMB169.9 million as a result of our expanded business.
— 213 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
FINANCIAL INFORMATION
Inventories
Our inventories consist primarily of raw materials and packaging materials, finished goods and,
to a lesser extent, work in progress.
The following table sets forth a summary of our total inventories as of each date indicated:
As of December 31,
2013
2014
2015
RMB’000
RMB’000
RMB’000
Raw materials and packaging materials . . . . . . . . . . . . .
Work in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,463
440
7,583
37,079
2,437
32,772
62,024
745
30,172
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14,486
72,288
92,941
Our inventories increased by 399.0% from RMB14.5 million as of December 31, 2013 to
RMB72.3 million as of December 31, 2014 primarily because we significantly expanded our
production capacity and increased our sales volume in 2014. Our inventories increased by 28.6% from
RMB72.3 million as of December 31, 2014 to RMB92.9 million as of December 31, 2015 primarily
due to a significant increase in raw material inventories as (i) the continued increase in our sales
volume, in particular the sales of our beverage products; and (ii) we purchased more raw materials at
the end of 2015 based on the orders we received from our customers. The 7.9% decrease in finished
goods from RMB32.8 million as of December 31, 2014 to RMB30.2 million as of December 31, 2015
is due to accounting treatment as at the cutoff date of our 2015 financial year because we had not yet
produced any finished goods with the raw materials and packaging materials that was purchased at the
end of 2015.
The following table sets forth our inventory turnover days during the period indicated:
For the year ended December 31,
2013
Inventory turnover days (1) . . . . . . . . . . . . . . . . . . . . . . .
2014
31
2015
29
29
Note:
(1)
Inventory turnover days for each one-year period equals the average of the beginning and ending inventory for that year
divided by cost of sales for that year and multiplied by 365 days.
— 214 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
FINANCIAL INFORMATION
We typically purchase raw materials and packaging materials and produce snack food products
and beverage products based on the orders we receive from our distributors. In addition, most of our
raw materials and finished products have a short preservation period. Therefore, we maintain a
relatively quick inventory turnover. Our inventory turnover days decreased from 31 days in 2013 to
29 days in 2014 and 29 days in 2015, which was due to our improved management of procurement,
distribution and inventory levels during the Track Record Period.
As of May 31, 2016, 100% of our inventories balance as at December 31, 2015 had been utilized
or sold.
Trade and Other Receivables
The following table sets forth our trade and other receivables as of the dates indicated.
As of December 31,
2013
2014
2015
RMB’000
RMB’000
RMB’000
Trade receivables
From third parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12,870
14,892
21,680
Deposits, prepayments and other receivables
Prepayments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deposits paid for property, plant and equipment . . . . . .
Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
59
30,716
307
395
679
435
1,229
—
1,582
31,082
1,509
2,811
43,952
16,401
24,491
Trade Receivables
Our trade receivables represent the amount due from our distributors arising out of their
purchases of our snack food and beverage products. During the Track Record Period, we required our
distributors to pay 50% of their purchase price upon placing the orders and pay 30% of the purchase
prices prior to shipment of the goods and pay the remaining 20% by the end of the next month after
delivery of the goods.
Our trade receivables increased from RMB12.9 million as of December 31, 2013 to RMB14.9
million as of December 31, 2014 and further increased to RMB21.7 million as of December 31, 2015,
which was in line with the increases in our sales. As of May 31, 2016, we had settled 100% of the
outstanding balance of our trade receivables as of December 31, 2015.
— 215 —
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THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
FINANCIAL INFORMATION
The following table sets forth an aging analysis, based on invoice dates, of our trade receivables
(net of impairment losses for bad and doubtful debts) as of the dates indicated:
As of December 31,
Within 30 days. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013
2014
2015
RMB’000
RMB’000
RMB’000
12,870
14,892
21,680
As of December 31, 2013, 2014 and 2015, all of our trade receivables were aged within 30 days.
We did not record any impairment of trade receivables during the Track Record Period except for bad
debts of RMB0.1 million that were written off in 2015.
The table below sets forth our trade receivables turnover days for the periods indicated:
For the year ended December 31,
2013
Trade receivables turnover days (1) . . . . . . . . . . . . . . . . .
2014
22
2015
7
5
Note:
(1)
Trade receivables turnover days for each one-year period equals the average of the beginning and ending balances of
trade receivables for that year divided by revenue for that year and multiplied by 365 days.
During the Track Record Period, we maintained relatively short turnover days mainly because we
required our distributors to pay 80% of the purchase prices before the shipment of our products. Our
trade receivables turnover days decreased from 22 days in 2013 to 7 days in 2014 and further
decreased to 5 days in 2015 primarily due to our closer cooperative relationship with the distributors
and more effective payment collection.
Deposits, Prepayments and Other Receivables
During the Track Record Period, our deposits, prepayments and other receivables consisted
primarily of deposits paid for property, plant and equipment, prepayments and other receivables.
Our deposits paid for property, plant and equipment, which mainly included our advance
payments for purchases of production lines and other equipment, were RMB30.7 million, RMB0.7
million and nil, respectively, as of December 31, 2013, 2014 and 2015. Our deposits paid for property,
plant and equipment were significantly higher as of December 31, 2013 than that as of December 31,
2014 and 2015 primarily because we were ramping up our beverage production at the end of 2013 and
had placed orders for several beverage production lines as of December 31, 2013.
— 216 —
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THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
FINANCIAL INFORMATION
Our prepayments, which mainly included our prepayments of advertising fees and raw material
procurement, were RMB59,000, RMB0.4 million and RMB1.2 million, respectively, as of December
31, 2013, 2014 and 2015. Our prepayments were significantly higher as of December 31, 2015 than
that as of December 31, 2013 and 2014 primarily because we strengthened our marketing efforts and
prepaid a larger amount of advertising fees at the end of 2015.
Our other receivables, which mainly included social benefits recoverable and prepayment for
transfer of trademarks, were RMB0.3 million, RMB0.4 million and RMB1.6 million, respectively, as
of December 31, 2013, 2014 and 2015. We paid the social benefits contributions on behalf of our
employees and were entitled to withhold part of our prepayments from our employees according to the
applicable laws. Our other receivables were significantly higher as of December 31, 2015 than that as
of December 31, 2013 and 2014 primarily because we prepaid RMB1.0 million for the transfer of 23
trademarks to Fujian Gongyuan in September 2015, the transfer of which was completed in April 2016.
As a result of the above, our deposits, prepayments and other receivables decreased from
RMB31.1 million as of December 31, 2013 to RMB1.5 million as of December 31, 2014 and increased
to RMB2.8 million as of December 31, 2015.
Cash and Cash Equivalents
The table below sets forth our cash and cash equivalents as of the dates indicated.
As of
May 31,
As of December 31,
Bank balances and cash . . . . . . . . . . . . .
2013
2014
2015
2016
RMB’000
RMB’000
RMB’000
RMB’000
29
19
51,425
111,178
Our bank balances and cash were only RMB29,000 as of December 31, 2013 because (i) we
invested substantially all of our cash into our business to ramp up our production in 2013; and (ii) we
settled a considerable portion of our trade payables with our suppliers at the end of 2013. Our bank
balances and cash were only RMB19,000 as of December 31, 2014 because (i) we continued to
increase our investment in 2014 to expand our production capacity and distribution network; (ii) we
settled a considerable portion of our trade payables with our suppliers at the end of 2014; and (iii) we
repaid RMB99.0 million to Mr. Shi and Mr. Zhang in December 2014. Our capital expenditures in
2013 and 2014 mainly included the purchase of land, construction of workshops, purchase of
production lines and the establishment of distribution networks, among others. For more details
regarding our production facilities, please refer to the section headed “Business — Production — Our
Production Facilities” in this document. During our fast-growing and early stages, our Shareholders
provided financial support to our business from time to time to fund our capital expenditures and
supplement our working capital. For more details regarding our initial capital expenditure and working
capital funds, please refer to the section headed “Financial Information — Certain Statement of
— 217 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
FINANCIAL INFORMATION
Financial Position Items — Related Party Transactions” in this document. As our cash generated from
business operations increased and we spent less on capital expenditures compared to 2013 and 2014,
our bank balances and cash were RMB51.4 million as of December 31, 2015.
We generated substantial operating cash flows in the first five months of 2016 as a result of our
investments made in prior years to expand our production capacity, therefore we paid RMB200.0
million of dividends to Mr. Shi and Mr. Zhang in January and March 2016. Our bank balances and cash
were RMB111.2 million as of May 31, 2016. For more details regarding our dividend payment, please
refer to the section headed “Financial Information — Dividend Policy and Distributable Reserves” in
this document.
Trade and Other Payables
The table below sets forth our trade and other payables as of the dates indicated.
As of December 31,
2013
2014
2015
RMB’000
RMB’000
RMB’000
Trade payables
To third parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
36,246
103,395
103,861
Accrued charges and other payables
Deposits from customers . . . . . . . . . . .
Salaries payables . . . . . . . . . . . . . . . . .
Dividend payables . . . . . . . . . . . . . . . .
Other payables and accruals . . . . . . . . .
16,894
3,733
—
17,746
85,971
9,533
—
8,737
47,747
14,640
200,000
6,739
38,373
104,241
269,126
74,619
207,636
372,987
.
.
.
.
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.
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.
.
.
.
.
.
.
.
.
.
.
.
Trade Payables
Our trade payables primarily consists of the amounts due to our suppliers arising out of our
procurement of raw materials and packaging materials for our products. During the Track Record
Period, we paid substantially all of our suppliers the purchase prices for raw materials and packaging
materials only after we receive the goods from them.
Our trade payables increased from RMB36.2 million as of December 31, 2013 to RMB103.4
million as of December 31, 2014 and further increased slightly to RMB103.9 million as of December
31, 2015. As of May 31, 2016, we had settled 100% of the outstanding balance of our trade payables
as of December 31, 2015.
— 218 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
FINANCIAL INFORMATION
The following table sets forth an aging analysis of our trade payables as of the dates indicated,
based on the invoice dates:
As of December 31,
2013
2014
2015
RMB’000
RMB’000
RMB’000
0 - 30 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31 - 60 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21,838
14,408
84,587
18,808
103,861
—
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
36,246
103,395
103,861
As of December 31, 2013, 2014 and 2015, a substantial majority of our trade payables were aged
within 30 days because we usually made payment to our suppliers within one month after we received
the goods. As of December 31, 2013 and 2014, RMB14.4 million and RMB18.8 million, respectively,
of our trade payables were aged between 31 and 60 days because certain of our suppliers extended the
payment period for us in the early stages of our cooperation.
The following table sets forth our trade payables turnover days for the periods indicated:
For the year ended December 31,
2013
Trade payables turnover days (1) . . . . . . . . . . . . . . . . . . .
2014
78
2015
47
36
Note:
(1)
Trade payables turnover days for each one-year period equals the average of the beginning and ending trade payables
for that year divided by cost of sales for that year and multiplied by 365 days.
Our trade payables turnover days decreased from 78 days in 2013 to 47 days in 2014 and further
decreased to 36 days in 2015 primarily because our ability to make payments was enhanced as we
generated stable operating cash flows.
Accrued Charges and Other Payables
During the Track Record Period, our accrued charges and other payables consisted primarily of
dividend payables, deposits from customers, salaries payables and other payables and accruals.
Our dividend payables were nil, nil and RMB200.0 million as of December 31, 2013, 2014 and
2015 primarily because we declared dividends of RMB200.0 million on December 31, 2015, which
were paid in January and March 2016. For more details regarding our dividend arrangements, please
refer to the section headed “Financial Information — Dividend Policy and Distributable Reserves” in
this document.
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FINANCIAL INFORMATION
Our deposits from customers, which mainly included the prepayment of 80% of the purchase
prices for our products, were RMB16.9 million, RMB86.0 million and RMB47.7 million, respectively,
as of December 31, 2013, 2014 and 2015. Our deposits from customers was significantly lower as of
December 31, 2013 than that as of December 31, 2014 and 2015 primarily because we were ramping
up our production in 2013 and therefore had fewer orders at the end of 2013 than at the year ends of
2014 and 2015. Our deposits from customers was lower as of December 31, 2015 than that as of
December 31, 2014 primarily because a significant portion of our products ordered by the customers
were already shipped and accordingly the customers’ deposits were recognized as revenue as of
December 31, 2015, whereas a significant portion of our products ordered by the customers were still
being manufactured or stored in our warehouses as of December 31, 2014.
Our salaries payables were RMB3.7 million, RMB9.5 million and RMB14.6 million,
respectively, as of December 31, 2013, 2014 and 2015. The increases in our salaries payables from
2013 to 2015 were in line with the increases in our employee headcount.
Our other payables and accruals, which mainly included accruals on the construction of property,
plant and equipment and freight charges, were RMB17.7 million, RMB8.7 million and RMB6.7
million, respectively, as of December 31, 2013, 2014 and 2015. Our other payables were significantly
higher as of December 31, 2013 than that as of December 31, 2014 and 2015 primarily because we
purchased several production lines and other equipment while ramping up our business in 2013.
As a result of the above, our accrued charges and other payables increased by from RMB38.4
million as of December 31, 2013 to RMB104.2 million as of December 31, 2014 and further increased
to RMB269.1 million as of December 31, 2015.
Related Party Transactions
The following table sets forth our amounts due to related parties as of the dates indicated:
As of December 31,
2013
2014
2015
RMB’000
RMB’000
RMB’000
Amount due to the then immediate holding company . . .
Amounts due to Mr. Shi and Mr. Zhang . . . . . . . . . . . .
191,750
—
—
67,310
—
—
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
191,750
67,310
—
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HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
FINANCIAL INFORMATION
Our amount due to the then immediate holding company of RMB191.8 million as of December
31, 2013 was relating to the advances from Fujian Gongyuan, the then immediate holding company
of Hubei Cenmingtang, to fund the construction of our production facilities, purchases of production
lines and working capital. These advances were non-trade in nature and were unsecured, interest-free
and without fixed repayment terms. Along with the transfer of shares from Fujian Gongyuan to Mr.
Shi and Mr. Zhang, the balance due to Fujian Gongyuan of RMB209.3 million was assigned to Mr. Shi
and Mr. Zhang.
Our amounts due to Mr. Shi and Mr. Zhang of RMB67.3 million as of December 31, 2014 was
relating to (i) the debts assigned from Fujian Gongyuan along with the transfer of shares; and (ii)
advances from Mr. Shi and Mr. Zhang, our Shareholders, to fund purchases of production lines and
working capital. These advances were non-trade in nature and were unsecured, interest-free and
without fixed repayment terms. We repaid all of these advances to Mr. Shi and Mr. Zhang as of
December 31, 2015.
In addition, we paid short term employee benefits as part of compensation of our key
management personnel during the Track Record Period. For more details, please see Note 24 of
“Appendix I — Accountants’ Report” to this document. Our Directors confirm that all related party
transactions during the Track Record Period were entered into on an arm’s length basis and on normal
commercial terms, and were non-trade in nature.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital
The primary uses of cash during the Track Record Period were to fund our purchases of
production lines, raw materials and packaging materials and capital expenditures. Historically we
funded our liquidity and capital requirements primarily through capital contributions from our
Shareholders, advances from our Shareholders and cash generated from our operating activities. As
our business reached a stable stage in 2015, we have been generating, and expect to continue to
generate, stable cash flows from our operating activities. As of December 31, 2015 and May 31, 2016,
we had cash and cash equivalents of RMB51.4 million and RMB111.2 million, respectively. For more
details regarding our statement of financial position, please refer to the section headed “Financial
Information — Certain Statement of Financial Position Items — Net Current Liabilities” in this
document. On June 15, 2016, we signed a letter of intent with a PRC state-owned bank with the intent
to obtain a long-term financing arrangement in the amount of RMB250.0 million, and as of the Latest
Practicable Date, we were in the process of formalizing this financing arrangement.
Our directors confirm that we did not have any material defaults in the payment of trade and
non-trade payables, bank borrowings or finance covenants during the Track Record Period. Taking into
account our cash and cash equivalents on hand, cash generated from our future operations, our
anticipated credit facilities available to us and the proceeds from the [REDACTED], our Directors are
of the opinion that we have sufficient working capital to meet our present and future financial
requirements for at least twelve months from the date of this document. After due consideration and
discussions with the Company’s management and based on the above and the assumption that there is
no material change in the composition and trend of our capital expenditure, the Sole Sponsor has no
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FINANCIAL INFORMATION
reason to believe that the Company cannot meet the working capital requirements for the twelve month
period from the date of this document. However, we cannot assure you that we will not experience
liquidity problems in the future. For more details regarding our financing and liquidity risks, please
refer to the sections headed “Risk Factors — Risks Relating to our Business — We relied significantly
on advances from our Shareholders for the sufficiency of our working capital during the Track Record
Period” and “Risk Factors — Risks Relating to our Business — We had net current liabilities as of
December 31, 2013, 2014 and 2015 and May 31, 2016 and we cannot assure you that we will not
continue to record net current liabilities” in this document.
Cash Flows
The following table sets forth selected cash flow data from our combined cash flow statements
for the years indicated:
For the year ended December 31,
2013
2014
2015
RMB’000
RMB’000
RMB’000
Net cash flows generated from operating activities . . . .
Net cash flows used in investing activities . . . . . . . . . . .
Net cash flows generated from/(used in) financing
activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24,783
(200,508)
180,843
(56,413)
179,442
(10,726)
171,940
(124,440)
(117,310)
Net (decrease)/increase in cash and cash equivalents . . .
Cash and cash equivalents at the beginning of the year .
(3,785)
3,814
Cash and cash equivalents at the end of the year . . . . . .
29
(10)
29
51,406
19
19
51,425
Cash Flows Generated from Operating Activities
For the year ended December 31, 2015, we had net cash generated from operating activities of
RMB179.4 million, consisting of RMB303.4 million in net cash inflows from operating profit before
working capital changes, net cash outflows of RMB64.2 million relating to changes in working capital
and income tax paid of RMB59.8 million. Our net cash inflows generated from operating activities
before working capital changes were primarily attributable to profit before tax of RMB283.0 million,
adjusted for non-cash items, including (i) adding back (a) depreciation of RMB20.1 million; (b)
amortization of prepaid land lease payments of RMB0.4 million and; (c) bad debts written off of
RMB0.1 million; and (ii) deducting interest income of RMB0.2 million. Our net cash outflows relating
to changes in working capital were primarily attributable to (i) a decrease in trade and other payables
of RMB34.6 million which primarily due to the decrease in deposits from customers as a significant
position of our products ordered by customers were already shipped and accordingly the customers’
deposits were recognized as revenue as of December 31, 2015; (ii) an increase in inventories of
RMB20.7 million which primarily due to the purchase of more raw materials at the end of 2015 based
on the orders we received from our customers; and (iii) an increase in trade and other receivables of
RMB8.9 million which was in line with the increase in our sales.
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HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
FINANCIAL INFORMATION
For the year ended December 31, 2014, we had net cash generated from operating activities of
RMB180.8 million, consisting of RMB126.8 million in net cash inflows from operating profit before
working capital changes, net cash inflows of RMB72.7 million relating to changes in working capital
and income tax paid of RMB18.7 million. Our net cash inflows generated from operating activities
before working capital changes were primarily attributable to profit before tax of RMB109.4 million,
adjusted for non-cash items, including (i) adding back (a) depreciation of RMB17.1 million; and (b)
amortization of prepaid land lease payments of RMB0.4 million; and (ii) deducting interest income of
RMB0.1 million. Our net cash inflows relating to changes in working capital were primarily
attributable to an increase in trade and other payables of RMB133.0 million which primarily due to
the significant increase in our deposits from customers as a significant portion of our products ordered
by the customers will still being manufactured or stored in our warehouses as of December 31, 2014,
which were partially offset by (i) an increase in inventories of RMB57.8 million; and (ii) an increase
in trade and other receivables of RMB2.5 million. The increase in our inventories and trade and other
receivables was in line with the increase in our sales.
For the year ended December 31, 2013, we had net cash generated from operating activities of
RMB24.8 million, consisting of RMB14.3 million in net cash inflows from operating profit before
working capital changes, net cash inflows of RMB12.0 million relating to changes in working capital
and income tax paid of RMB1.5 million. Our net cash inflows generated from operating activities
before working capital changes were primarily attributable to profit before tax of RMB10.3 million,
adjusted for non-cash items, including (i) adding back (a) depreciation of RMB3.7 million; and (b)
amortization of prepaid land lease payments of RMB0.4 million; and (ii) deducting interest income of
RMB43,000. Our net cash inflows relating to changes in working capital were primarily attributable
to an increase in trade and other payables of RMB39.7 million, which were partially offset by (i) an
increase in inventories of RMB14.5 million; and (ii) an increase in trade and other receivables of
RMB13.2 million. The increase in our trade and other payables, inventories and trade and other
receivables were primarily due to commencement of commercial production in September 2013.
Cash Flows Used in Investing Activities
For the year ended December 31, 2015, our net cash flows used in investing activities were
RMB10.7 million. This was mainly attributable to purchase of property, plant and equipment of
RMB11.0 million, which were partially offset by interest received of RMB0.2 million.
For the year
RMB56.4 million.
RMB52.3 million;
partially offset by
ended December 31, 2014, our net cash flows used in investing activities were
This was mainly attributable to (i) purchase of property, plant and equipment of
and (ii) purchase of prepaid land lease payments of RMB4.2 million, which were
interest received of RMB0.1 million.
For the year ended December 31, 2013, our net cash flows used in investing activities were
RMB200.5 million. This was mainly attributable to (i) purchase of property, plant and equipment of
RMB199.9 million; and (ii) purchase of prepaid land lease payments of RMB0.6 million, which were
partially offset by interest received of RMB43,000.
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FINANCIAL INFORMATION
Cash Flows Generated from/Used in Financing Activities
For the year ended December 31, 2015, our net cash flows used in financing activities were
RMB117.3 million. This was attributable to (i) the repayments to Mr. Shi and Mr. Zhang of RMB93.3
million; and (ii) the dividends paid to Mr. Shi and Mr. Zhang of RMB50.0 million, which were
partially offset by the advances from Mr. Shi and Mr. Zhang of RMB26.0 million.
For the year ended December 31, 2014, our net cash flows used in financing activities were
RMB124.4 million. This was attributable to (i) the repayments to Mr. Shi and Mr. Zhang of RMB158.9
million; and (ii) the repayment to Fujian Gongyuan of RMB21.5 million, which were partially offset
by (a) an advance from Fujian Gongyuan of RMB39.0 million; and (b) advances from Mr. Shi and Mr.
Zhang of RMB17.0 million.
For the year ended December 31, 2013, our net cash flows generated from financing activities
were RMB171.9 million. This was attributable to (i) an advance from Mr. Xu of RMB156.2 million
and (ii) an advance from Fujian Gongyuan of RMB22.7 million, which were partially offset by (a) the
repayment to Fujian Gongyuan of RMB3.5 million and (b) the repayment to Mr. Xu of RMB3.4
million.
INDEBTEDNESS
As of December 31, 2013, 2014 and 2015, we did not have any borrowings from commercial
financial institutions except that we had advances from our Shareholders, Mr. Shi and Mr. Zhang, and
former shareholders Mr. Xu and Fujian Gongyuan. As of the Latest Practicable Date, we were not in
default of any covenants that could cause any material adverse impact on our business operations. On
June 15, 2016, we signed a letter of intent with a PRC state-owned bank with the intent to obtain a
long-term credit facility in the amount of RMB250.0 million, and as of the Latest Practicable Date,
we were in the process of formalizing this financing arrangement. As of the Latest Practicable Date,
we did not have any other plans for material external debt financing other than the aforementioned
intended long-term credit facility. Our ability to obtain adequate external financing will depend on a
number of factors, including our financial performance and results of operations, as well as factors
beyond our control.
As of May 31, 2016, we did not have any outstanding debt securities, charges, mortgages, or
other similar indebtedness, hire purchase and finance lease commitments, any guarantees or other
material contingent liabilities, or other banking facilities. Since May 31, 2016, there has been no
material adverse change in our indebtedness.
OFF-BALANCE SHEET COMMITMENTS AND ARRANGEMENTS
As of the Latest Practicable Date, we did not enter into any material off-balance sheet
transactions.
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FINANCIAL INFORMATION
CAPITAL COMMITMENTS AND CAPITAL EXPENDITURES
Capital Expenditures
The following table sets forth our capital expenditures for the periods indicated:
For the year ended December 31,
2013
2014
2015
RMB’000
RMB’000
RMB’000
Allocated capital expenditures:
Snack food segment . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Beverage segment . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
86,732
88,503
16,378
70,192
3,880
7,761
Total capital expenditures . . . . . . . . . . . . . . . . . . . . . .
175,235
86,570
11,641
Our capital expenditures during the Track Record Period comprised of expenditures on property,
plant and equipment and prepaid land lease payments. During the Track Record Period, we financed
our capital expenditure primarily with cash flows generated from our operating activities and advances
from our Shareholders.
For more details regarding our production expansion plan, such as the estimated costs, estimated
capacity and estimated timeframe of establishment for each of our projects under the expansion plan,
please refer to the section headed “Business — Production — Our Production Expansion Plan” in this
document.
Our expected capital expenditures may vary from the amounts actually expended for a variety of
reasons, including changes in market conditions and other factors. We plan to finance these capital
expenditures mainly by our operating cash flows, intended bank loans and net proceeds from the
[REDACTED].
Capital Commitments
The following tables sets forth our capital commitments at the dates indicated:
As of December 31,
Contracted, but not provided for:
Property, plant and equipment . . . . . . . . . . . . . . . . . . . .
— 225 —
2013
2014
2015
RMB’000
RMB’000
RMB’000
54,838
11,000
—
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THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
FINANCIAL INFORMATION
Our capital commitments during the Track Record Period were primarily relating to the
construction of certain production facilities and purchases of production lines. We plan to finance our
capital commitments with cash flows generated from operating activities and proceeds from the
[REDACTED].
During the Track Record Period, we did not have any operating lease commitments.
KEY FINANCIAL RATIOS
The following table sets forth our key financial ratios as of the dates or for the periods indicated:
For the year ended December 31,
2013
Return on equity (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Return on assets (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014
13.4%
2.4%
58.4%
19.0%
2015
213.2%
42.0%
As of December 31,
2013
Current ratio (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Quick ratio (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gearing Ratio (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.2
0.2
332.3%
2014
2015
0.3
0.1
48.5%
0.4
0.2
—
Notes:
(1)
Equals profit for the year divided by the total equity as of the respective financial year-end date and multiplied by 100%.
(2)
Equals profit for the year divided by the total assets as of the respective financial year-end date and multiplied by 100%.
(3)
Equals current assets divided by current liabilities as of the respective financial year-end date.
(4)
Equals current assets less inventories and divided by current liabilities as of the respective financial year-end date.
(5)
Equals total debt divided by total equity as of the respective financial year-end date and multiplied by 100%.
Return on equity
Our return on equity increased from 13.4% in 2013 to 58.4% in 2014 and further increased to
213.2% in 2015, which was in line with the significant increases in our profits during the same
periods.
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FINANCIAL INFORMATION
Return on assets
Our return on assets increased from 2.4% in 2013 to 19.0% in 2014 and further increased to
42.0% in 2015, which was in line with the significant increases in our profits during the same periods.
Current ratio
Our current ratio increased from 0.2 as of December 31, 2013 to 0.3 as of December 31, 2014
primarily due to (i) an increase in our current assets from RMB58.8 million to RMB89.2 million; and
(ii) an increase in inventories, especially raw materials and packaging materials and finished goods,
from RMB14.5 million to RMB72.3 million as a result of our production expansion, which was
partially offset by a slight increase in our current liabilities from RMB268.3 million to RMB288.0
million, as of the respective dates.
Our current ratio increased from 0.3 as of December 31, 2014 to 0.4 as of December 31, 2015
primarily due to an increase in our current assets from RMB89.2 million to RMB169.3 million as a
result of (i) an increase in cash and cash equivalents from RMB19,000 to RMB51.4 million; and (ii)
an increase in our account receivables from RMB14.9 million to RMB21.7 million as of the respective
dates.
Quick ratio
Our quick ratio decreased from 0.2 as of December 31, 2013 to 0.1 as of December 31, 2014,
primarily because (i) our current liabilities increased slightly from RMB268.3 million to RMB288.0
million; and (ii) our inventories increased by a larger extent from RMB14.5 million to RMB72.3
million as compared to the increase in our current assets, as of the respective dates.
Our quick ratio increased from 0.1 as of December 31, 2014 to 0.2 as of December 31, 2015,
primarily because (i) our current assets increased significantly from RMB89.2 million to RMB169.3
million; and (ii) our inventories increased to a lesser extent from RMB72.3 million to RMB92.9
million and as of the respective dates.
Gearing ratio
Our gearing ratio decreased from 332.3% as of December 31, 2013 to 48.5% as of December 31,
2014 primarily due to a significant decrease of our debts from approximately RMB191.8 million as
of December 31, 2013 to RMB67.3 million as of December 31, 2014. Our gearing ratio was nil as of
December 31, 2015 because we repaid all of our debts as of December 31, 2015.
FINANCIAL RISKS DISCLOSURE
We are exposed to various types of financial risks, including foreign currency risk, interest rate
risk, credit risk and liquidity risk. Please see the paragraph headed “Financial Information —
Description of Selected Income Statement Line Items — Cost of Sales” in this section for a sensitivity
analysis regarding the impact of hypothetical fluctuations in our average unit purchase prices for
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FINANCIAL INFORMATION
certain of our major raw materials on our net profit during the Track Record Period. Our Directors
confirm that, since December 31, 2015, there has been no material adverse change in our financial or
trading position or prospects and no event has occurred that would materially affect the information
shown in “Appendix I — Accountants’ Report” to this document.
Foreign Currency Risk
Foreign currency risk refers to the risk that the fair value or future cash flows of a financial
instrument will fluctuate because of changes in foreign exchange rates. Our transactions are
denominated in RMB and our assets and liabilities are maintained in RMB, therefore we do not have
any significant exposure to foreign currency risk.
Interest Rate Risk
Interest rate risk relates to the risk that the fair value or cash flows of a financial instrument will
fluctuate because of changes in market interest rates. As of December 31, 2013, 2014 and 2015, we
did not have any significant exposure to interest rate risk as we had no borrowing which bore a
floating interest rate.
Credit Risk
Credit risk refers to the risk that the counterparty to a financial instrument would fail to
discharge its obligation under the terms of the financial instrument and cause a financial loss to us.
Our exposure to credit risk mainly arises from granting credit to customers in the ordinary course of
our operations and from our investing activities.
Our maximum exposure to credit risk on recognized financial assets is limited to the carrying
amount at the reporting date as summarized in Note 25.1 of “Appendix I — Accountants’ Report” to
this document.
Cash and bank balances are placed at financial institutions that have sound credit rating and we
consider the credit risk to be insignificant.
For trade and other receivables, the exposures to credit risk are monitored such that any
outstanding debtors are reviewed and followed up on an ongoing basis. In the opinion of the Directors,
we have no significant concentration of credit risk arising from our ordinary course of business due
to our large customer base. We do not hold any collateral from our debtors.
Liquidity Risk
Liquidity risk relates to the risk that we will not be able to meet its obligations associated with
its financial liabilities that are settled by delivering cash or another financial asset. We are exposed
to liquidity risk in respect of settlement of trade and other payables and our financing obligations, and
also in respect of its cash flow management. Our objective is to maintain an appropriate level of liquid
assets and committed lines of funding to meet its liquidity requirements in the short and longer term.
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FINANCIAL INFORMATION
When the creditor has a choice of when the liability is settled, the liability is included on the
basis of the earliest date on which we can be required to pay. Where the settlement of the liability is
in instalments, each instalment is allocated to the earliest period in which we are committed to pay.
As of December 31, 2013, 2014 and 2015, our remaining contractual maturities for our financial
liabilities will be either on demand or within one year. The undiscounted amounts of these financial
liabilities are not materially different from their carrying amount because of the immediate or short
term maturity.
We had net current liabilities of RMB231.7 million as of December 31, 2015. We relied on the
continuing cash inflows from operating activities and the financial support from our Shareholders to
meet with our liquidity requirements.
DIVIDEND POLICY AND DISTRIBUTABLE RESERVES
Our subsidiary in China may be restricted to distribute dividends if it incurs debt or loss because
Chinese law requires that dividends be paid only out of net profit calculated according to the PRC
accounting principles. Moreover, as a foreign-invested enterprise, our subsidiary in China is required
to set aside a portion of its net profit as statutory reserves, which cannot be distributed as cash
dividends. In addition, our subsidiary in China may also be subject to restrictive covenants in bank
credit facilities or other agreements that we or our subsidiary may enter into in the future. Since we
rely on our Chinese subsidiary’s dividends as our source of funds to pay dividends, these restrictions
may limit or completely prevent us from paying dividends.
Any declaration and payment, as well as the amount of dividends, will be subject to our Articles
of Association and the Cayman Companies Law. Our Shareholders in general meetings may approve
any declaration of dividends, which must not exceed the amount recommended by our Board. No
dividend may be declared or paid except out of our profits or reserves set aside from profits in our
Directors’ discretion. Dividends may also be declared and paid out of our share premium account or
any other fund or account that can be authorized for such purpose in accordance with the Cayman
Companies Law and our Articles of Association.
Hubei Cenmingtang declared dividends of nil, nil and RMB250.0 million to its then shareholders
in the year ended December 31, 2013, 2014 and 2015, respectively. All these dividend payables have
been settled. Any future declaration of dividends may or may not reflect our prior declarations of
dividends and any dividend recommendation will be at the discretion of our Board, subject to the
Cayman Companies Law. We may declare dividends in the future after taking into account our results
of operations, total equity, business strategies, capital expenditure needs, impacts of the dividend
distribution on our working capital and financial position, and other factors as our Directors may deem
relevant at such time. Going forward, subject to the abovementioned limitations, our Company expects
to maintain a dividend policy that no less than 15% of the Group’s profit after taxation for each
financial year may be distributed to Shareholders as dividends, commencing from the [REDACTED].
As of May 31, 2016, our reserves available for distribution to our members were nil.
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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
FINANCIAL INFORMATION
[REDACTED] EXPENSES
We did not incur any [REDACTED] expenses during the Track Record Period. Assuming an
[REDACTED] of HK$[REDACTED] (being the mid-point of the [REDACTED] stated in this
document) and no exercise of the [REDACTED], we expect to incur approximately
RMB[REDACTED] of [REDACTED] expenses after the Track Record Period, of which approximately
RMB[REDACTED] million will be recognized as expenses in the combined statements of profit or
loss and other comprehensive income for the year ending December 31, 2016 and the remaining
(predominantly related to [REDACTED] commission expenses will be fully capitalized after the
[REDACTED].
UNAUDITED PRO FORMA ADJUSTED COMBINED NET TANGIBLE ASSETS
The unaudited pro forma data relating to our combined net tangible assets prepared in accordance
with Rule 4.29 of the Listing Rules is set out below to illustrate the effect of the [REDACTED] on
our combined net tangible assets as at December 31, 2015 as if the [REDACTED] had taken place on
that date.
This unaudited pro forma statement of adjusted combined net tangible assets has been prepared
for illustrative purposes only and, because of its hypothetical nature, it may not give a true picture of
the combined net tangible assets of our Group attributable to the equity holders of the Company as
at December 31, 2015 or any subsequent dates, including following the [REDACTED].
Audited
combined net
Unaudited pro
tangible assets
of our Group
forma adjusted
combined net
attributable to
equity holders
of the
Company as of
December 31,
2015
Estimated net
proceeds from
the
[REDACTED]
tangible assets
of our Group
attributable to
equity holders
of the
Company
RMB’000
(Note 1)
RMB’000
(Note 3)
RMB’000
RMB
(Note 4)
HK$
(Note 6)
Based on an [REDACTED] of
HK$[REDACTED] . . . . . . . .
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
Based on an [REDACTED] of
HK$[REDACTED] . . . . . . . .
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
Unaudited pro forma adjusted
combined net tangible assets of
the Group attributable to equity
holders of the Company per
Share
Notes:
(1)
The amount is calculated based on audited combined net assets of the Group attributable to equity holders of the
Company as of December 31, 2015 amounting to approximately RMB98,304,000, extracted from the Accountants’ Report
of the Group set out in Appendix I to this document.
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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
FINANCIAL INFORMATION
(2)
The Group’s buildings, and prepaid land lease payments as of March 31, 2016 were revalued by Jones Lang LaSalle
Corporate Appraisal and Advisory Limited, an independent property valuer, and the relevant property valuation report
is set out in “Appendix III — Property Valuation Report”. The net valuation surplus, representing the excess of market
value of the buildings, and prepaid land lease payments over their carrying value amounting to RMB8.4 million, has not
been included in the combined net tangible assets of the Group attributable to the equity holders of the Company as of
December 31, 2015. The above adjustment does not take into account the above valuation surplus. Had the buildings,
and prepaid land lease payments been stated as such valuation, an additional depreciation and amortization of
RMB372,000 per annum in respect of the revaluation surplus, before income taxes, would be charged against the
combined statement of profit or loss and other comprehensive income.
(3)
The estimated net proceeds from the [REDACTED] are based on [REDACTED] Shares at the [REDACTED] of
HK$[REDACTED] (equivalent to RMB[REDACTED]) and HK$[REDACTED] (equivalent to RMB[REDACTED]) per
Share, being the low-end and high-end of the indicative range of the [REDACTED], respectively, after deduction of the
estimated [REDACTED] fees and other related expenses expected to be incurred by the Group subsequent to December
31, 2015 and does not take into account of any Shares which may be issued upon the exercise of the [REDACTED].
(4)
The unaudited pro forma adjusted combined net tangible assets per Share is calculated based on [REDACTED] Shares,
being the number of Shares expected to be in issue immediately following the completion of the [REDACTED] and the
[REDACTED] (assuming the [REDACTED] is not exercised and excluding any Shares which may be allotted and issued
pursuant to the exercise of options which may be granted under the Share Option Scheme).
(5)
No adjustment has been made to the unaudited pro forma adjusted combined net tangible assets of the Group attributable
to the equity holders of the Company as at December 31, 2015 to reflect any trading results or other transactions of the
Group entered into subsequent to December 31, 2015.
(6)
In connection with the preparation of this unaudited pro forma statement of adjusted combined net tangible assets, the
translation of Renminbi into Hong Kong dollars has been made at a rate of RMB1 to HK$1.17.
PROPERTY INTERESTS AND PROPERTY VALUATION
The statement below shows the reconciliation of aggregate amounts of certain properties and
prepaid land lease payments as reflected on the audited combined financial statements as of December
31, 2015 with the valuation of these properties and prepaid land lease payments as of March 31, 2016
as set out in Appendix III to this document.
RMB million
Valuation of properties owned by our Group as at March 31, 2016 as set out
in the property valuation report in Appendix III to this document . . . . . . . .
132.2
Net book value of the following properties as at December 31, 2015
- Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- Prepaid land lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
104.2
21.1
Net book value as of December 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
125.3
Depreciation and amortization
- Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- Prepaid land lease payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1.4)
(0.1)
Net book value as of March 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
123.8
Net valuation surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.4
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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
FINANCIAL INFORMATION
NO MATERIAL ADVERSE CHANGE
Our Directors confirm that since December 31, 2015 and up to the date of this document, there
has been no material adverse change in our business, financial condition and results of operations and
no event has occurred that would materially affect the information shown in the Accountants’ Report
set out in Appendix I to this document.
DISCLOSURE REQUIRED UNDER THE LISTING RULES
Our Directors have confirmed that as of the Latest Practicable Date, there were no circumstances
that would give rise to a disclosure required under Rules 13.13 to 13.19 in Chapter 13 of the Listing
Rules upon the [REDACTED] of the Shares on the Stock Exchange.
— 232 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
FUTURE PLANS AND USE OF PROCEEDS
FUTURE PLANS
For more details regarding our future plans, please refer to the section headed “Business — Our
Strategies” in this document.
USE OF PROCEEDS
Assuming an [REDACTED] of HK$[REDACTED] per [REDACTED] (being the mid-point of the
[REDACTED] range stated in this document) and no exercise of the [REDACTED], we estimate that
(i) the gross proceeds of the [REDACTED] that we will receive will be approximately
HK$[REDACTED] million, and (ii) the net proceeds of the [REDACTED] that we will receive, after
the deduction of [REDACTED] fees and commissions and estimated expenses payable by us in
connection with the [REDACTED], will be approximately HK$[REDACTED] million.
If the [REDACTED] is fixed at HK$[REDACTED] per [REDACTED] (being the high end of the
[REDACTED] range stated in this document), assuming the [REDACTED] is not exercised, we will
receive additional net proceeds of approximately HK$[REDACTED] million.
If the [REDACTED] is fixed at HK$[REDACTED] per [REDACTED] (being the low end of the
[REDACTED] range stated in this document), assuming the [REDACTED] is not exercised, the net
proceeds we receive will be reduced by approximately HK$[REDACTED] million.
We intend to use the net proceeds of the [REDACTED], assuming the [REDACTED] is not
exercised, for the following purposes:
•
approximately 45%, or HK$[REDACTED] million, will be used for expanding our
production capacity. For more details regarding our production expansion plans, please
refer to the section headed “Business — Production — Our Production Expansion Plan” in
this document.
•
approximately 15%, or HK$[REDACTED] million, will be used for enhancing our brand
recognition and diversify our marketing strategies.
•
approximately 15%, or HK$[REDACTED] million, will be used for expanding of our
geographical coverage and distribution network.
•
approximately 15%, or HK$[REDACTED] million, will be used for strengthening our
research and development.
•
approximately 10%, or HK$[REDACTED] million, will be used for supplementing our
working capital.
In the event that the [REDACTED] is fixed at a higher or lower level compared to the mid-point
of the proposed [REDACTED] range, we will adjust the allocation of net proceeds on a pro rata basis.
— 233 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
FUTURE PLANS AND USE OF PROCEEDS
If the [REDACTED] is exercised in full, we estimate that the net proceeds of the [REDACTED]
to the [REDACTED] will be approximately HK$[REDACTED] million (based on the mid-point of the
[REDACTED] range stated in this document), after deducting the [REDACTED] fees payable by the
[REDACTED] in relation to the [REDACTED]. The [REDACTED] will be responsible for the
[REDACTED] fees for the [REDACTED], and the expenses incurred in relation to the [REDACTED]
will be borne by us. We will not receive any proceeds from the sale of the [REDACTED] by the
[REDACTED] from the exercise of the [REDACTED].
To the extent that the net proceeds of the [REDACTED] are not immediately applied to the above
purposes, it is our present intention that those net proceeds will be deposited into interest-bearing bank
accounts and/or money market instruments.
— 234 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
UNDERWRITING
[REDACTED]
[REDACTED]
— 235 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
UNDERWRITING
[REDACTED]
Grounds for termination
[REDACTED]
— 236 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
UNDERWRITING
[REDACTED]
— 237 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
UNDERWRITING
[REDACTED]
— 238 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
UNDERWRITING
[REDACTED]
— 239 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
UNDERWRITING
[REDACTED]
Undertakings to the Stock Exchange under the Listing Rules
Undertakings by our Company
[REDACTED]
Undertakings by our Controlling Shareholders
[REDACTED]
— 240 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
UNDERWRITING
[REDACTED]
Undertakings pursuant to the [REDACTED]
Undertakings by our Company
[REDACTED]
— 241 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
UNDERWRITING
[REDACTED]
Undertakings by our Controlling Shareholders
[REDACTED]
— 242 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
UNDERWRITING
[REDACTED]
— 243 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
UNDERWRITING
[REDACTED]
The [REDACTED]
[REDACTED]
— 244 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
UNDERWRITING
[REDACTED]
[REDACTED] INTERESTS IN OUR COMPANY
Save for their obligations under the [REDACTED], none of the [REDACTED] is interested
legally or beneficially in any shares of any member of our Group nor has any right or option (whether
legally enforceable or not) to subscribe for or purchase or to nominate persons to subscribe for or
purchase securities in any member of our Group nor any interest in the [REDACTED].
— 245 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
STRUCTURE OF THE GLOBAL OFFERING
[REDACTED]
— 246 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
STRUCTURE OF THE GLOBAL OFFERING
[REDACTED]
— 247 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
STRUCTURE OF THE GLOBAL OFFERING
[REDACTED]
— 248 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
STRUCTURE OF THE GLOBAL OFFERING
[REDACTED]
— 249 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
STRUCTURE OF THE GLOBAL OFFERING
[REDACTED]
— 250 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
STRUCTURE OF THE GLOBAL OFFERING
[REDACTED]
— 251 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
STRUCTURE OF THE GLOBAL OFFERING
[REDACTED]
— 252 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
STRUCTURE OF THE GLOBAL OFFERING
[REDACTED]
— 253 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
STRUCTURE OF THE GLOBAL OFFERING
[REDACTED]
— 254 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
STRUCTURE OF THE GLOBAL OFFERING
[REDACTED]
— 255 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
STRUCTURE OF THE GLOBAL OFFERING
[REDACTED]
— 256 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
HOW TO APPLY FOR HONG KONG OFFER SHARES
[REDACTED]
— 257 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
HOW TO APPLY FOR HONG KONG OFFER SHARES
[REDACTED]
— 258 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
HOW TO APPLY FOR HONG KONG OFFER SHARES
[REDACTED]
— 259 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
HOW TO APPLY FOR HONG KONG OFFER SHARES
[REDACTED]
— 260 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
HOW TO APPLY FOR HONG KONG OFFER SHARES
[REDACTED]
— 261 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
HOW TO APPLY FOR HONG KONG OFFER SHARES
[REDACTED]
— 262 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
HOW TO APPLY FOR HONG KONG OFFER SHARES
[REDACTED]
— 263 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
HOW TO APPLY FOR HONG KONG OFFER SHARES
[REDACTED]
— 264 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
HOW TO APPLY FOR HONG KONG OFFER SHARES
[REDACTED]
— 265 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
HOW TO APPLY FOR HONG KONG OFFER SHARES
[REDACTED]
— 266 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
HOW TO APPLY FOR HONG KONG OFFER SHARES
[REDACTED]
— 267 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
HOW TO APPLY FOR HONG KONG OFFER SHARES
[REDACTED]
— 268 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
HOW TO APPLY FOR HONG KONG OFFER SHARES
[REDACTED]
— 269 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
HOW TO APPLY FOR HONG KONG OFFER SHARES
[REDACTED]
— 270 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
HOW TO APPLY FOR HONG KONG OFFER SHARES
[REDACTED]
— 271 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
HOW TO APPLY FOR HONG KONG OFFER SHARES
[REDACTED]
— 272 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
HOW TO APPLY FOR HONG KONG OFFER SHARES
[REDACTED]
— 273 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
HOW TO APPLY FOR HONG KONG OFFER SHARES
[REDACTED]
— 274 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
HOW TO APPLY FOR HONG KONG OFFER SHARES
[REDACTED]
— 275 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
HOW TO APPLY FOR HONG KONG OFFER SHARES
[REDACTED]
— 276 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX I
ACCOUNTANTS’ REPORT OF THE COMPANY
The following is the text of a report, prepared for the purpose of incorporation in this document,
received from the reporting accountants of the Company, Grant Thornton Hong Kong Limited,
Certified Public Accountants, Hong Kong.
[●]
The Directors
Cenmingtang Holding Limited
China Investment Securities International Capital Limited
Dear Sirs,
We set out below our report on the financial information relating to Cenmingtang Holding
Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”)
comprising the combined statements of profit or loss and other comprehensive income, combined
statements of changes in equity and combined statements of cash flows of the Group for the years
ended 31 December 2013, 2014 and 2015 (the “Track Record Period”), and the combined statements
of financial position of the Group as at 31 December 2013, 2014 and 2015, together with the notes
thereto (the “Financial Information”), prepared on the basis of presentation set out in note 1.2 of
Section II below, for inclusion in the document of the Company dated [●] (the “Document”) in
connection with the [REDACTED] of the shares of the Company on the Main Board of The Stock
Exchange of Hong Kong Limited (the “Stock Exchange”).
The Company was incorporated in the Cayman Islands as an exempted company with limited
liability on 29 March 2016. Pursuant to a group reorganization, as more fully explained in the section
headed “History, Reorganization and Group Structure” to the Document (the “Reorganization”), the
Company became the holding company of the entities comprising the Group on 4 May 2016. Apart
from the Reorganization, the Company has not commenced any business or operation since its
incorporation.
As at the date of this report, no statutory financial statements have been prepared for the
Company, as it is newly incorporated and has not involved in any significant business transactions
since its date of incorporation, other than the Reorganization.
As at the date of this report, the Company had direct and indirect interests in the subsidiaries as
set out in note 1.1 of Section II below. All companies now comprising the Group have adopted 31
— I-1 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX I
ACCOUNTANTS’ REPORT OF THE COMPANY
December as their financial year end date. The financial statements of the companies now comprising
the Group were prepared in accordance with the relevant accounting principles applicable to these
companies in the countries in which they were incorporated and/or established. Details of their
auditors during the Track Record Period are set out in note 1.1 of Section II below.
For the purpose of this report, the directors of the Company (the “Directors”) have prepared the
financial statements of the Group (the “Underlying Financial Statements”) in accordance with Hong
Kong Financial Reporting Standards (“HKFRSs”), which include all applicable Hong Kong Financial
Reporting Standards, Hong Kong Accounting Standards (“HKASs”) and Interpretations issued by the
Hong Kong Institute of Certified Public Accountants (the “HKICPA”). The Underlying Financial
Statements for the years ended 31 December 2013, 2014 and 2015 were audited by us in accordance
with Hong Kong Standards on Auditing issued by the HKICPA.
The Financial Information set out in this report has been prepared from the Underlying Financial
Statements with no adjustments made thereon.
Directors’ responsibility
The Directors are responsible for the preparation of the Underlying Financial Statements and the
Financial Information that give a true and fair view in accordance with HKFRSs, and for such internal
control as the Directors determine is necessary to enable the preparation of the Underlying Financial
Statements and the Financial Information that are free from material misstatement, whether due to
fraud or error.
Reporting accountants’ responsibility
It is our responsibility to form an independent opinion on the Financial Information and to report
our opinion thereon to you.
For the purpose of this report, we have carried out procedures on the Financial Information in
accordance with Auditing Guideline 3.340 Prospectuses and the Reporting Accountant issued by the
HKICPA.
Opinion
In our opinion, for the purpose of this report and on the basis of presentation set out in note 1.2
of Section II below, the Financial Information gives a true and fair view of the financial position of
the Group as at 31 December 2013, 2014 and 2015 and of the financial performance and cash flows
of the Group for the Track Record Period.
— I-2 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX I
I.
ACCOUNTANTS’ REPORT OF THE COMPANY
FINANCIAL INFORMATION
Combined Statements of Profit or Loss and Other Comprehensive Income
Year ended 31 December
Note
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . .
Other income . . . . . . . . .
Selling expenses . . . . . .
Administrative and other
...............
...............
...............
operating expenses
.
.
.
.
.
.
.
.
.
.
.
.
4
5
2013
2014
2015
RMB’000
RMB’000
RMB’000
108,965
(84,635)
742,122
1,482,358
(546,992) (1,046,807)
24,330
46
(8,639)
(5,429)
195,130
122
(69,514)
(16,314)
435,551
256
(131,934)
(20,825)
Profit before income tax . . . . . . . . . . . . . . . . .
6
10,308
109,424
283,048
Income tax expense . . . . . . . . . . . . . . . . . . . . . .
7
(2,577)
(28,387)
(73,482)
7,731
81,037
209,566
N/A
N/A
N/A
Profit and total comprehensive income
for the year . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per share attributable to equity
holders of the Company . . . . . . . . . . . . . . .
Basic and diluted . . . . . . . . . . . . . . . . . . . . . . .
9
— I-3 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX I
ACCOUNTANTS’ REPORT OF THE COMPANY
Combined Statements of Financial Position
As at 31 December
Note
2013
2014
2015
RMB’000
RMB’000
RMB’000
17,304
248,971
933
21,051
314,191
2,383
20,605
305,769
3,660
267,208
337,625
330,034
14,486
43,952
366
29
72,288
16,401
446
19
92,941
24,491
446
51,425
58,833
89,154
169,303
18
74,619
207,636
372,987
19
20
191,750
—
1,971
—
67,310
13,095
—
—
28,046
268,340
288,041
401,033
Net current liabilities . . . . . . . . . . . . . . . . . . . .
(209,507)
(198,887)
(231,730)
Net assets/Total assets less current liabilities .
57,701
138,738
98,304
—
57,701
—
138,738
—
98,304
57,701
138,738
98,304
ASSETS AND LIABILITIES
Non-current assets . . . . . . .
Prepaid land lease payments .
Property, plant and equipment
Deferred tax assets . . . . . . . .
Current assets . . . . . . . . . .
Inventories . . . . . . . . . . . . .
Trade and other receivables
Prepaid land lease payments
Cash and cash equivalents . .
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Current liabilities . . . . . . . . . . . . . . . . . .
Trade and other payables . . . . . . . . . . . . . .
Amount due to the then immediate holding
company . . . . . . . . . . . . . . . . . . . . . . . .
Amounts due to Mr. Shi and Mr. Zhang . . .
Income tax payable . . . . . . . . . . . . . . . . . .
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....
....
....
....
....
EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share capital . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11
12
13
14
15
11
16
21
22
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . .
— I-4 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX I
ACCOUNTANTS’ REPORT OF THE COMPANY
Combined Statements of Changes in Equity
Share
capital
Statutory
reserve*
Retained
profits/
Capital (Accumulated
reserve*
losses)*
RMB’000
RMB’000
RMB’000
Total
RMB’000
RMB’000
(30)
49,970
As at 1 January 2013 . . . . . . . . . .
—
—
50,000
Profit and total comprehensive
income for the year . . . . . . . . .
—
—
—
Transaction with owner . . . . . . .
Transfer to statutory reserve . . . .
—
773
—
As at 31 December 2013 and
1 January 2014 . . . . . . . . . . . . .
—
773
50,000
6,928
57,701
Profit and total comprehensive
income for the year . . . . . . . . .
—
—
—
81,037
81,037
Transaction with owner . . . . . . .
Transfer to statutory reserve . . . .
—
8,104
—
(8,104)
As at 31 December 2014 and
1 January 2015 . . . . . . . . . . . . .
—
8,877
50,000
79,861
138,738
Profit and total comprehensive
income for the year . . . . . . . . .
—
—
—
209,566
209,566
Transaction with owner . . . . . . .
Transfer to statutory reserve . . . .
Dividends declared (note 10) . . .
—
—
16,123
—
—
—
(16,123)
(250,000)
—
(250,000)
—
16,123
—
(266,123)
(250,000)
—
25,000
50,000
23,304
98,304
As at 31 December 2015 . . . . . . .
*
7,731
(773)
7,731
—
—
Total amount of RMB57,701,000, RMB138,738,000 and RMB98,304,000 as at 31 December 2013, 2014 and 2015
respectively represents the amount of reserves as presented in the combined statements of financial position.
— I-5 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX I
ACCOUNTANTS’ REPORT OF THE COMPANY
Combined Statements of Cash Flows
Year ended 31 December
Note
Cash flows from operating activities
Profit before income tax . . . . . . . . . . .
Adjustments for: . . . . . . . . . . . . . . . . .
Amortization of prepaid land lease
payments . . . . . . . . . . . . . . . . . . . . .
Bad debts written off . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . .
..
..
..
2014
2015
RMB’000
RMB’000
RMB’000
109,424
283,048
10,308
.
.
.
.
357
—
3,673
(43)
403
—
17,120
(120)
446
107
20,063
(236)
..
..
..
14,295
(14,486)
(13,234)
126,827
(57,802)
(2,486)
303,428
(20,653)
(8,876)
..
39,747
133,017
(34,649)
Cash generated from operations . . . . . . . .
Income taxes paid . . . . . . . . . . . . . . . . . .
26,322
(1,539)
199,556
(18,713)
239,250
(59,808)
Net cash generated from operating
activities. . . . . . . . . . . . . . . . . . . . . . . .
24,783
180,843
179,442
Operating profit before working capital
changes . . . . . . . . . . . . . . . . . . . . . .
Increase in inventories . . . . . . . . . . . . .
Increase in trade and other receivables.
Increase/(Decrease) in trade and other
payables . . . . . . . . . . . . . . . . . . . . . .
.
.
.
.
2013
Cash flows from investing activities . . .
Interest received . . . . . . . . . . . . . . . . . . .
Purchase of prepaid land lease payments
Purchase of property, plant and
equipment . . . . . . . . . . . . . . . . . . . . . .
43
(617)
120
(4,230)
(199,934)
(52,303)
(10,962)
Net cash used in investing activities . . . .
(200,508)
(56,413)
(10,726)
— I-6 —
236
—
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX I
ACCOUNTANTS’ REPORT OF THE COMPANY
Year ended 31 December
Note
Cash flows from financing activities . .
Advance from a former shareholder . . . . .
Repayment to a former shareholder . . . . .
Advance from Mr. Shi and Mr. Zhang . . .
Repayment to Mr. Shi and Mr. Zhang . . .
Advance from the then immediate
holding company . . . . . . . . . . . . . . . . .
Repayment to the then immediate holding
company . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid . . . . . . . . . . . . . . . . . . . . .
Net cash generated from/(used in)
financing activities . . . . . . . . . . . . . . .
2014
2015
RMB’000
RMB’000
RMB’000
156,190
(3,420)
—
—
—
—
17,000
(158,940)
—
—
26,000
(93,310)
22,700
39,000
(3,530)
—
(21,500)
—
—
(50,000)
(124,440)
(117,310)
171,940
Net (decrease)/increase in cash and
cash equivalents . . . . . . . . . . . . . . . . .
Cash and cash equivalents at the
beginning of the year . . . . . . . . . . . . . .
Cash and cash equivalents at the end
of the year . . . . . . . . . . . . . . . . . . . . .
2013
16
— I-7 —
—
(3,785)
(10)
51,406
3,814
29
19
29
19
51,425
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX I
ACCOUNTANTS’ REPORT OF THE COMPANY
II.
NOTES TO THE FINANCIAL INFORMATION
1
GENERAL INFORMATION AND BASIS OF PRESENTATION
1.1
General information
The Company was incorporated in the Cayman Islands on 29 March 2016 with limited liability.
The address of its registered office is Floor 4, Willow House, Cricket Square, P.O. Box 2582, Grand
Cayman KY1-1103, Cayman Islands and its principal place of business is Shi Li Village, Economic
Development District, Anlu, Xiaogan, Hubei, the People’s Republic of China (the “PRC”).
The Company is an investment holding company and its subsidiaries are principally engaged in
the manufacture and sales of snack food and beverage products (the “[REDACTED] Business”).
The Company’s immediate and ultimate holding company is Min Yu Group Limited (“Min Yu”),
a company which was incorporated in the British Virgin Islands (“BVI”) and wholly-owned by Mr. Shi
Qingchi (“Mr. Shi”). Mr. Shi and Mr. Zhang Xuezhi (“Mr. Zhang”) acquired interests in the
[REDACTED] Business via acquisition of 70% and 30% equity interests respectively in Hubei
Cenmingtang, the operating subsidiary of the [REDACTED] Business, on 16 June 2014. Mr. Shi and
Mr. Zhang together held 100% equity interest in the [REDACTED] Business since 17 June 2014 until
when Mr. Zhang disposed of 1.5% shareholding in Hubei Cenmingtang to an independent third party
on 14 April 2016.
The Company and its subsidiaries now comprising the Group underwent the Reorganization as
set out in paragraphs headed “The Reorganization” in the section headed “History, Reorganization and
Group Structure” to the Document. The Reorganization was completed on 4 May 2016.
— I-8 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX I
ACCOUNTANTS’ REPORT OF THE COMPANY
As at the end of each reporting period and the date of this report, the Company had direct and
indirect interests in its subsidiaries, all of which are private limited liability companies, the particulars
of which are set out below:
Registered/
Issued and
Equity interest attributable
to the Group
fully paid up
As at
capital as at
Company name
Hubei Cenmingtang Food
Limited Liability
date of
Place and date of
incorporation/
the end of the
Track Record
this
Principal
establishment
Period
2013
2014
2015
report
activities
RMB50,000,000
100%
100%
100%
100%
Manufacture and
sales of snack food
The PRC,
10 August 2012
31 December
Company 湖北岑銘堂食
and beverage
品有限責任公司 (“Hubei
Cenmingtang”)(a) . . . . .
products
Cenmingtang Food Limited Hong Kong,
岑銘堂食品有限公司(b) . 13 April 2016
(a)
10,000 ordinary
shares
N/A
N/A
N/A
100%
Investment holding
The audited financial statements for the years ended 31 December 2013, 2014 and 2015 of Hubei
Cenmingtang were prepared in accordance with the relevant accounting principles and financial
regulations applicable to companies established in the PRC (“PRC GAAP”) and were audited in
accordance with relevant auditing standards in the PRC by Xiao Gan Zhong Yu C.P.A.
Partnership 孝感中宇會計師事務所.
Hubei Cenmingtang was incorporated in the PRC with registered capital of RMB50,000,000 on
10 August 2012 with limited liability in the name of Hubei Zhumu Langma Food Limited
Liability Company 湖北珠穆朗瑪食品有限責任公司.
Pursuant to a board resolution passed on 18 March 2016 and the approval from Hubei Anlu
Industrial and Commercial Registration Bureau dated 21 March 2016, Hubei Cenmingtang
changed its name from Hubei Zhumu Langma Food Limited Liability Company 湖北珠穆朗瑪食
品有限責任公司 to Hubei Cenmingtang Food Limited Liability Company 湖北岑銘堂食品有限
責任公司 on 21 March 2016.
Hubei Cenmingtang was 30% owned by Ms. Lin Bi 林碧 and 70% owned by Mr. Xu Jincen
許金岑 upon its incorporation.
In October 2013, Mr. Xu Jincen and Ms. Lin Bi transferred their entire equity interests in Hubei
Cenmingtang to Fujian Gongyuan Foods Limited Company 福建公元食品有限公司 (“Fujian
Gongyuan”), a company indirectly owned by Mr. Xu Jincen and Ms. Lin Bi as to 75% and 25%
respectively.
— I-9 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX I
ACCOUNTANTS’ REPORT OF THE COMPANY
Pursuant to the share transfer agreement entered into between Fujian Gongyuan and Mr. Shi and
the share transfer agreement entered into between Fujian Gongyuan and Mr. Zhang on 16 June
2014, Fujian Gongyuan agreed to transfer its 70% and 30% shareholdings in Hubei Cenmingtang
to Mr. Shi and Mr. Zhang at the consideration of RMB52,920,000 and RMB22,680,000
respectively and the transfer was completed on the same day. The financial information of Hubei
Cenmingtang before its acquisition by Mr. Shi and Mr. Zhang is set out in Section III below.
On 10 March 2016, Mr. Zhang entered into a share transfer agreement with an independent third
party where Mr. Zhang agreed to transfer 1.5% of his shareholding in Hubei Cenmingtang to the
independent third party at the consideration of approximately RMB840,000 and the transfer was
completed on 14 April 2016.
On 4 May 2016, Cenmingtang Food Limited acquired 70%, 28.5% and 1.5% equity interest in
Hubei Cenmingtang from Mr. Shi, Mr. Zhang and the independent third party, respectively, at a
total consideration of RMB55,967,000. Following the acquisition, Hubei Cenmingtang became
a wholly-owned subsidiary of Cenmingtang Food Limited and an indirect subsidiary of the
Company.
(b)
Cenmingtang Food Limited was newly incorporated on 13 April 2016, and no statutory financial
statements have been prepared since its incorporation.
(c)
Hubei Cenmingtang and Cenmingtang Food Limited is indirectly and directly held by the
Company respectively.
1.2
Basis of presentation
Pursuant to the Reorganization as more fully explained in the paragraphs headed “The
Reorganization” in the section headed “History, Reorganization and Group Structure” to the
Document, the Company became the holding company of the companies now comprising the Group
on 4 May 2016.
Immediately prior to and after the Reorganization, the [REDACTED] Business is held by and
conducted by Hubei Cenmingtang.
The Reorganization only involved inserting new companies, which have not been engaged in any
other business, immediate to the top of Hubei Cenmingtang and other changes in the ownership of the
Group during the Track Record Period were not related to the Reorganization. Accordingly, the
Reorganization has not resulted in any changes of economic substance, and the Group is considered
as a continuation of Hubei Cenmingtang. The Financial Information of the Group for the Track Record
Period has been prepared using the carrying amounts of the [REDACTED] Business under the
financial statements of Hubei Cenmingtang for all the periods presented.
— I-10 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX I
ACCOUNTANTS’ REPORT OF THE COMPANY
Notwithstanding the net current liabilities of RMB231,730,000 as at 31 December 2015, having
taking into account of (i) the continuing and expected cash inflows from the [REDACTED] Business
and (ii) a letter of intent from a bank providing RMB250,000,000 long term loan to finance the
planned fixed assets acquisition, the Financial Information have been prepared on a going concern
basis.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
2.1
Basis of preparation
The Financial Information has been prepared in accordance with Hong Kong Financial Reporting
Standards (“HKFRSs”), which collective term includes all applicable individual Hong Kong Financial
Reporting Standards, Hong Kong Accounting Standards (“HKASs”) and Interpretations issued by the
HKICPA which are effective for the accounting period beginning on 1 January 2015 throughout the
Track Record Period. The Financial Information also complies with the applicable disclosure
provisions of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong
Limited. The significant accounting policies that have been used in the preparation of this Financial
Information are summarized below. These policies have been consistently applied to all the periods
presented in the Financial Information.
The Financial Information has been prepared on the historical cost. The Financial Information
is presented in Renminbi (“RMB”), which is the functional currency of the Group, and all values are
rounded to the nearest thousands (“RMB’000”), except when otherwise indicated.
It should be noted that accounting estimates and assumptions are used in preparation of the
Financial Information. Although these estimates are based on management’s best knowledge and
judgement of current events and actions, actual results may ultimately differ from those estimates. The
areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates
are significant to the Financial Information are disclosed in note 3.
2.2
Issued but not yet effective HKFRSs
The Group has not early applied the following new and revised Standards, Amendments and
Interpretations (“new and revised HKFRSs”) that are relevant to the Group which have been issued
but are not yet effective:
Amendments to HKFRSs
HKAS 1
HKFRS 9
HKFRS 15
HKFRS 16
Annual improvements to HKFRSs 2012-2014 Cycle 1
Disclosure Initiative 1
Financial Instruments 2
Revenue from Contracts with Customers 2
Leases 3
1
Effective for annual periods beginning on or after 1 January 2016
2
Effective for annual periods beginning on or after 1 January 2018
3
Effective for annual periods beginning on or after 1 January 2019
— I-11 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX I
ACCOUNTANTS’ REPORT OF THE COMPANY
The Group is in the process of making an assessment of the impact of these new and revised
HKFRSs upon initial application. The Group is not yet in a position to state whether they would have
a significant impact on the Group’s results of operations and financial position.
2.3
Foreign currency translation
In the individual financial statements of the group entities, foreign currency transactions are
translated into the functional currency of the individual entity using the exchange rates prevailing at
the dates of the transactions. At the reporting date, monetary assets and liabilities denominated in
foreign currencies are translated at the foreign exchange rates ruling at that date. Foreign exchange
gains and losses resulting from the settlement of such transactions and from the reporting date
retranslation of monetary assets and liabilities are recognized in profit or loss.
Non-monetary items carried at fair value that are denominated in foreign currencies are
retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary
items that are measured in terms of historical cost in a foreign currency are not retranslated.
In the Financial Information, all individual financial statements of foreign operations, originally
presented in a currency different from the Group’s presentation currency, have been converted into
RMB. Assets and liabilities have been translated into RMB at the closing rates at the reporting date.
Income and expenses have been converted into RMB at the exchange rates ruling at the transaction
dates, or at the average rates over the reporting period provided that the exchange rates do not
fluctuate significantly. Any differences arising from this procedure have been recognized in other
comprehensive income and accumulated separately in exchange reserve in equity.
2.4
Property, plant and equipment
Property, plant and equipment, other than construction in progress, are stated at cost less
accumulated depreciation and impairment losses. Cost includes expenditure that is directly
attributable to the acquisition of the asset. Purchased software that is integral to the functionality of
the related equipment is capitalized as part of that equipment.
Depreciation is provided to write off the cost less their residual values using the straight-line
method over the following estimated useful lives.
Buildings . . . . . . . . . . . .
Plant and machineries . .
Motor vehicles . . . . . . . .
Furniture and equipment
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20
15
10
5
years
years
years
years
The assets’ residual values, depreciation methods and useful lives are reviewed, and adjusted if
appropriate, at each reporting date.
The gain or loss arising on retirement or disposal is determined as the difference between the
sales proceeds and the carrying amount of the asset and is recognized in profit or loss.
— I-12 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX I
ACCOUNTANTS’ REPORT OF THE COMPANY
Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset,
as appropriate, only when it is probable that future economic benefits associated with the item will
flow to the Group and the cost of the item can be measured reliably. The carrying amount of the
replaced part is derecognized. All other costs, such as repairs and maintenance are charged to profit
or loss during the financial period in which they are incurred.
Construction in progress represents property, plant and equipment under construction, which is
stated at cost less any impairment losses, and is not depreciated. Cost comprises of the direct costs
of construction and capitalized borrowing costs on related borrowed funds during the period of
construction. Construction in progress is reclassified to the appropriate category of property, plant and
equipment when completed and ready for use.
2.5
Financial assets
Financial assets are classified into loans and receivables.
Management determines the classification of its financial assets at initial recognition depending
on the purpose for which the financial assets were acquired and where allowed and appropriate,
re-evaluates this designation at every reporting date.
All financial assets are recognized when, and only when, the Group becomes a party to the
contractual provisions of the instrument. When financial assets are recognized initially, they are
measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly
attributable transaction costs.
Derecognition of financial assets occurs when the rights to receive cash flows from the
investments expire or are transferred and substantially all of the risks and rewards of ownership have
been transferred.
At each reporting date, financial assets are reviewed to assess whether there is objective evidence
of impairment. If any such evidence exists, impairment loss is determined and recognized based on
the classification of the financial asset.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments
that are not quoted in an active market. Loans and receivables are subsequently measured at amortized
cost using the effective interest method, less any impairment losses. Amortized cost is calculated
taking into account any discount or premium on acquisition and includes fees that are an integral part
of the effective interest rate and transaction cost.
— I-13 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX I
ACCOUNTANTS’ REPORT OF THE COMPANY
Impairment of financial assets
At each reporting date, financial assets are reviewed to determine whether there is any objective
evidence of impairment.
Objective evidence of impairment of individual financial assets includes observable data that
comes to the attention of the Group about one or more of the following loss events:
•
Significant financial difficulty of the debtor;
•
A breach of contract, such as a default or delinquency in interest or principal payments;
•
It becoming probable that the debtor will enter bankruptcy or other financial
reorganization;
•
Significant changes in the technological, market, economic or legal environment that have
an adverse effect on the debtor; and
•
The disappearance of an active market for that financial asset because of financial
difficulties.
Loss events in respect of a group of financial assets include observable data indicating that there
is a measurable decrease in the estimated future cash flows from the group of financial assets. Such
observable data includes but not limited to adverse changes in the payment status of debtors in the
group and, national or local economic conditions that correlate with defaults on the assets in the group.
If any such evidence exists, the impairment loss is measured and recognized as follows:
Financial assets carried at amortized cost
If there is objective evidence that an impairment loss on loans and receivables carried at
amortized cost has been incurred, the amount of the loss is measured as the difference between the
asset’s carrying amount and the present value of estimated future cash flows (excluding future credit
losses that have not been incurred) discounted at the financial asset’s original effective interest rate
(i.e. the effective interest rate computed at initial recognition). The amount of the loss is recognized
in profit or loss of the period in which the impairment occurs.
If, in subsequent period, the amount of the impairment loss decreases and the decrease can be
related objectively to an event occurring after the impairment was recognized, the previously
recognized impairment loss is reversed to the extent that it does not result in a carrying amount of the
financial asset exceeding what the amortized cost would have been had the impairment not been
recognized at the date the impairment is reversed. The amount of the reversal is recognized in profit
or loss of the period in which the reversal occurs.
— I-14 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX I
ACCOUNTANTS’ REPORT OF THE COMPANY
Impairment losses on financial assets other than financial assets at fair value through profit or
loss and trade receivables that are stated at amortized cost, are written off against the corresponding
assets directly. Where the recovery of trade receivables is considered doubtful but not remote, the
impairment losses for doubtful receivables are recorded using an allowance account. When the Group
is satisfied that recovery of trade receivables is remote, the amount considered irrecoverable is written
off against trade receivables directly and any amounts held in the allowance account in respect of that
receivable are reversed. Subsequent recoveries of amounts previously charged to the allowance
account are reversed against the allowance account. Other changes in the allowance account and
subsequent recoveries of amounts previously written off directly are recognized in profit or loss.
2.6
Inventories
Inventories are carried at the lower of cost and net realizable value. Net realizable value is the
estimated selling price in the ordinary course of business less the estimated cost of completion and
applicable selling expenses. Cost is calculated using the weighted average method.
2.7
Cash and cash equivalents
Cash and cash equivalents include cash at bank and in hand, demand deposits with banks and
short term highly liquid investments with original maturities of three months or less that are readily
convertible into known amounts of cash and which are subject to an insignificant risk of changes in
value. For the purpose of the combined statements of cash flows presentation, cash and cash
equivalents include bank overdrafts which are repayable on demand and form an integral part of the
Group’s cash management.
2.8
Financial liabilities
The Group’s financial liabilities include trade and other payables and the amounts due to the then
immediate holding company and Mr. Shi and Mr. Zhang.
Financial liabilities are recognized when the Group becomes a party to the contractual provisions
of the instrument. All interest related charges are recognized in accordance with the Group’s
accounting policy for borrowing costs.
A financial liability is derecognized when the obligation under the liability is discharged or
cancelled or expires.
Where an existing financial liability is replaced by another from the same lender on substantially
different terms, or the terms of an existing liability are substantially modified, such an exchange or
modification is treated as a derecognition of the original liability and the recognition of a new liability,
and the difference in the respective carrying amount is recognized in profit or loss.
Trade and other payables
Trade and other payables are recognized initially at their fair value and subsequently measured
at amortized cost, using the effective interest method.
— I-15 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX I
ACCOUNTANTS’ REPORT OF THE COMPANY
Amounts due to the then immediate holding company and Mr. Shi and Mr. Zhang
Amounts due to the then immediate holding company and Mr. Shi and Mr. Zhang are recognized
initially at their fair value and subsequently measured at amortized cost, using the effective interest
method.
2.9
Share capital
Ordinary shares are classified as equity.
2.10 Leases
An arrangement, comprising a transaction or a series of transactions, is or contains a lease if the
Group determines that the arrangement conveys a right to use a specific asset or assets for an agreed
period of time in return for a payment or a series of payments. Such a determination is made based
on an evaluation of the substance of the arrangement and is regardless of whether the arrangement
takes the legal form of a lease.
Prepaid land lease payments under operating leases are initially stated at cost and subsequently
recognized on the straight-line basis over the lease terms.
2.11 Revenue recognition
Revenue comprises of the fair value of the consideration received or receivable for the sales of
goods, net of value-added tax, rebates and discounts. Rebates (including those in the form of products)
and discounts are determined taking into account the terms agreed with the customers.
Provided it is probable that the economic benefits will flow to the Group and the revenue and
costs, if applicable, can be measured reliably, sales of goods are recognized upon transfer of the
significant risks and rewards of ownership to the customer. This is usually taken as the time when the
goods are delivered and the customer has accepted the goods.
2.12 Impairment of non-financial assets
The Group’s property, plant and equipment and prepaid land lease payments are tested for
impairment whenever there are indications that the asset’s carrying amount may not be recoverable.
An impairment loss is recognized as an expense immediately for the amount by which the asset’s
carrying amount exceeds its recoverable amount. Recoverable amount is the higher of fair value,
reflecting market conditions less costs of disposal, 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 assessment of time value of money and the risk specific to the asset.
— I-16 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX I
ACCOUNTANTS’ REPORT OF THE COMPANY
For the purposes of assessing impairment, where an asset does not generate cash inflows largely
independent from those from other assets, the recoverable amount is determined for the smallest group
of assets that generate cash inflows independently (i.e. a cash-generating unit). As a result, some
assets are tested individually for impairment and some are tested at cash-generating unit level.
Impairment loss is charged pro rata to the other assets in the cash-generating unit, except that
the carrying value of an asset will not be reduced below its individual fair value less cost of disposal,
or value in use, if determinable.
An impairment loss is reversed if there has been a favourable change in the estimates used to
determine the asset’s recoverable amount and only to the extent that the asset’s carrying amount does
not exceed the carrying amount that would have been determined, net of depreciation or amortization,
if no impairment loss had been recognized.
2.13 Employee benefits
Retirement benefits
Retirement benefits to employees are provided through defined contribution plans.
The employees in the PRC are required to participate in a central pension scheme operated by
the local municipal government and are required to contribute certain percentage of its payroll costs
to the central pension scheme.
Contributions are recognized as an expense in the profit or loss as employees render services
during the Track Record Period. The Group’s obligation under these plans is limited to the fixed
percentage contributions payable.
Short-term employee benefits
Employee entitlements to annual leave are recognized when they accrue to employees. A
provision is made for the estimated liability for annual leave as a result of services rendered by
employees up to the reporting date.
Non-accumulating compensated absences such as sick leave and maternity leave are not
recognized until the time of leave.
2.14 Accounting for income taxes
Income tax comprises of current tax and deferred tax.
— I-17 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX I
ACCOUNTANTS’ REPORT OF THE COMPANY
Current income tax assets and/or liabilities comprise those obligations to, or claims from, fiscal
authorities relating to the current or prior reporting period, that are unpaid at the reporting date. They
are calculated according to the tax rates and tax laws applicable to the fiscal periods to which they
relate, based on the taxable profit for the Track Record Period. All changes to current tax assets or
liabilities are recognized as a component of tax expense in profit or loss.
Deferred tax is calculated using the liability method on temporary differences at the reporting
date between the carrying amounts of assets and liabilities and their respective tax bases. Deferred tax
liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are
recognized for all deductible temporary differences, tax losses available to be carried forward as well
as other unused tax credits, to the extent that it is probable that taxable profit, including existing
taxable temporary differences, will be available against which the deductible temporary differences,
unused tax losses and unused tax credits can be utilized.
Deferred tax assets and liabilities are not recognized if the temporary difference arises from
goodwill or from initial recognition (other than in a business combination) of assets and liabilities in
a transaction that affects neither taxable nor accounting profit or loss.
Deferred tax liabilities are recognized for taxable temporary differences arising on investments
in subsidiaries, except where the Group is able to control the reversal of the temporary differences and
it is probable that the temporary differences will not reverse in the foreseeable future.
Deferred tax is calculated, without discounting, at tax rates that are expected to apply in the
period the liability is settled or the asset realized, provided they are enacted or substantively enacted
at the reporting date.
Changes in deferred tax assets or liabilities are recognized in profit or loss, or in other
comprehensive income or directly in equity if they relate to items that are charged or credited to other
comprehensive income or directly in equity.
Current tax assets and current tax liabilities are presented in net if, and only if,
(a)
The Group has the legally enforceable right to set off the recognized amounts; and
(b)
intends either to settle on a net basis, or to realize the asset and settle the liability
simultaneously.
The Group presents deferred tax assets and deferred tax liabilities in net if, and only if,
(a)
the entity has a legally enforceable right to set off current tax assets against current tax
liabilities; and
(b)
the deferred tax assets and the deferred tax liabilities relate to income taxes levied by the
same taxation authority on either:
(i)
the same taxable entity; or
— I-18 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX I
(ii)
ACCOUNTANTS’ REPORT OF THE COMPANY
different taxable entities which intend either to settle current tax liabilities and assets
on a net basis, or to realize the assets and settle the liabilities simultaneously, in each
future period in which significant amounts of deferred tax liabilities or assets are
expected to be settled or recovered.
2.15 Related parties
For the purposes of this Financial Information, a party is considered to be related to the Group
if:
(a)
the party is a person or a close member of that person’s family and if that person:
(i)
has control or joint control over of the Group;
(ii)
has significant influence over the Group; or
(iii) is a member of the key management personnel of the Group or of a parent of the
Group.
(b)
the party is an entity and if any of the following conditions applies:
(i)
the entity and the Group are members of the same group;
(ii)
one entity is an associate or joint venture of the other entity (or an associate or joint
venture of a member of a group of which the other entity is a member);
(iii) the entity and the Group are joint ventures of the same third party;
(iv) one entity is a joint venture of a third entity and the other entity is an associate of the
third entity;
(v)
the entity is a post-employment benefit plan for the benefit of employees of either the
Group or an entity related to the Group;
(vi) the entity is controlled or jointly controlled by a person identified in (a); and
(vii) a person identified in (a)(i) has significant influence over the entity or is a member
of the key management personnel of the entity (or of a parent of the entity).
Close members of the family of a person are those family members who may be expected to
influence, or be influenced by, that person in their dealings with the entity.
— I-19 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX I
ACCOUNTANTS’ REPORT OF THE COMPANY
2.16 Segment reporting
The Group identifies operating segments and prepares segment information based on the regular
internal financial information reported to the most senior executive management for their decisions
about resources allocation to the Group’s business components and for their review of the performance
of those components. The business components in the internal financial information reported to the
most senior executive management are determined following the Group’s major product lines.
The Group has identified the following reportable segments:
(a)
Manufacturing and sales of snack food products
(b)
Manufacturing and sales of beverage products
Each of these operating segments is managed separately as each of the product and service lines
requires different resources as well as marketing approaches. All inter-segment transfers are carried
out at arm’s length prices.
3.
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
The preparation of the Group’s Financial Information requires management to make judgements,
estimates and assumptions that affect the reported amounts of revenues, expenses, assets and
liabilities, and their accompanying disclosures. Uncertainty about these assumptions and estimates
could result in outcomes that could require a material adjustment to the carrying amounts of the assets
or liabilities affected in the future.
Judgements
In the process of applying the Group’s accounting policies, management has made the following
judgements apart from those involving estimations, which have the most significant effect on the
amounts recognized in the Financial Information.
Basis of preparation of Financial Information
In preparing the Financial Information, significant judgement has been exercised by the
Directors. As at 31 December 2015, the Group has net current liabilities of RMB231,730,000. The
Directors have taking into account of (i) the continuing and expected cash inflows from the
[REDACTED] Business and (ii) a letter of intent from a bank providing RMB250,000,000 long term
loan to finance the planned fixed assets acquisition to enable it to meet its liabilities as they fall due
and concluded that it is appropriate for Financial Information to be prepared on a going concern basis.
— I-20 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX I
ACCOUNTANTS’ REPORT OF THE COMPANY
Estimation of uncertainty
The key assumptions concerning the future and other key sources of estimation uncertainty at the
end of the reporting period during the Track Record Period, that have a significant risk of causing a
material adjustment to the carrying amounts of assets and liabilities within the next financial year, are
described below.
Impairment of property, plant and equipment and prepaid land lease payments
Items of property, plant and equipment (note 12) and prepaid land lease payments (note 11) are
tested for impairment if there is any indication that the carrying value of these assets may not be
recoverable and the assets are subject to an impairment loss. This process requires management’s
estimate of future cash flows generated by each asset or group of assets. For any instance where this
evaluation process indicates impairment, the relevant asset’s carrying amount is written down to the
recoverable amount and the amount of the write-down is charged against the combined statements of
profit or loss and other comprehensive income. The recoverable amount is the higher of an asset’s fair
value less costs of disposal and value in use.
Depreciation of property, plant and equipment
Property, plant and equipment (note 12) are depreciated on a straight-line basis over the
estimated useful lives of the assets. The Group reviews the estimated useful lives and residual values,
if any, of the assets annually in order to determine the amount of depreciation expenses for any
reporting period. The useful lives are estimated based on historical experience with similar assets and
taking into account anticipated technological changes. The depreciation expenses for future periods
are adjusted if there are material changes from previous estimates. Details of the accounting policy
on depreciation of property, plant and equipment are disclosed in note 2.4.
Net realizable value of inventories
Net realizable value of inventories (note 14) is based on estimated selling price less any
estimated costs to be incurred to completion and disposal with reference to prevailing market
information. These estimates are based on the current market condition and the historical experience
in selling goods of similar nature. It could change significantly as a result of changes in market
conditions. The Group reassesses the estimation at the end of each reporting period.
Impairment of trade receivables
The Group maintains an allowance for the estimated loss arising from the inability of its
customers to make the required payments. The Group makes its estimates based on the ageing of its
trade receivable balances, customers’ creditworthiness, and historical write-off experience. If the
financial condition of its customers was to deteriorate so that the actual impairment loss might be
higher than expected, the Group would be required to revise the basis of making the allowance. Details
of trade receivables are as set out in note 15.
— I-21 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX I
ACCOUNTANTS’ REPORT OF THE COMPANY
4.
REVENUE AND SEGMENT REPORTING
4.1
Revenue
The Group’s principal activities are disclosed in note 1 to the Financial Information. The Group’s
major products are snack food and beverage products. Information of revenue, cost of sales and gross
profit by products are as follows.
Year ended 31 December
REVENUE
Snack food
Bread, cakes and pastries
Dorayaki . . . . . . . . . . . . .
Swiss rolls . . . . . . . . . . . .
Soft bread . . . . . . . . . . . .
Pork floss pies . . . . . . . . .
Shaped cakes . . . . . . . . . .
Custard pies . . . . . . . . . . .
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Puffed food . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Potato snacks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Beverage
Ready-to-drink tea . . . . . . . . . .
Fruit and vegetable beverages .
Plant-based and milk beverages
Other beverages . . . . . . . . . . . .
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Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
— I-22 —
2013
2014
2015
RMB’000
RMB’000
RMB’000
13,144
19,861
15,129
27,127
26,991
6,713
26,702
34,321
33,170
71,568
64,405
12,394
40,945
58,314
45,978
80,981
86,986
26,337
108,965
242,560
339,541
—
8,942
54,821
108,965
251,502
394,362
—
—
—
—
121,294
102,585
192,989
73,752
164,928
220,874
627,457
74,737
—
490,620
1,087,996
108,965
742,122
1,482,358
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX I
ACCOUNTANTS’ REPORT OF THE COMPANY
Year ended 31 December
COST OF SALES
Snack food
Bread, cakes and pastries
Dorayaki . . . . . . . . . . . . .
Swiss rolls . . . . . . . . . . . .
Soft bread . . . . . . . . . . . .
Pork floss pies . . . . . . . . .
Shaped cakes . . . . . . . . . .
Custard pies . . . . . . . . . . .
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Puffed food
Potato snacks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Beverage
Ready-to-drink tea . . . . . . . . . .
Fruit and vegetable beverages .
Plant-based and milk beverages
Other beverages . . . . . . . . . . . .
Total cost of sales
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.
.
.
.
.
.
.
.
...............................
— I-23 —
2013
2014
2015
RMB’000
RMB’000
RMB’000
9,914
15,876
11,919
20,807
20,690
5,429
19,498
27,044
26,208
53,864
49,377
10,043
28,887
43,623
35,542
60,476
62,421
20,353
84,635
186,034
251,302
—
6,828
40,460
84,635
192,862
291,762
—
—
—
—
89,876
72,035
135,662
56,557
122,039
146,177
432,995
53,834
—
354,130
755,045
84,635
546,992
1,046,807
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX I
ACCOUNTANTS’ REPORT OF THE COMPANY
Year ended 31 December
GROSS PROFIT
Snack food
Bread, cakes and pastries
Dorayaki . . . . . . . . . . . . .
Swiss rolls . . . . . . . . . . . .
Soft bread . . . . . . . . . . . .
Pork floss pies . . . . . . . . .
Shaped cakes . . . . . . . . . .
Custard pies . . . . . . . . . . .
.
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Puffed food
Potato snacks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Beverage
Ready-to-drink tea . . . . . . . . . .
Fruit and vegetable beverages .
Plant-based and milk beverages
Other beverages . . . . . . . . . . . .
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Total gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.2
2013
2014
2015
RMB’000
RMB’000
RMB’000
3,230
3,985
3,210
6,320
6,301
1,284
7,204
7,277
6,962
17,704
15,028
2,351
12,058
14,691
10,436
20,505
24,565
5,984
24,330
56,526
88,239
—
2,114
14,361
24,330
58,640
102,600
—
—
—
—
31,418
30,550
57,327
17,195
42,889
74,697
194,462
20,903
—
136,490
332,951
24,330
195,130
435,551
Segment information
The Group is primarily engaged in the manufacturing and sales of snack food and beverage
products. Management has determined two product lines as operating and reportable segments based
on the reports reviewed by the chief operating decision makers, who have been identified as the
executive directors of the Company. The Group’s operating and reportable segments currently are
manufacturing and sales of (i) snack food products and (ii) beverage products.
— I-24 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX I
ACCOUNTANTS’ REPORT OF THE COMPANY
Segment results represented operating results of each reportable segment without allocation of
interest income, unallocated other operating income, unallocated corporate expenses, and taxation. All
assets are allocated to reportable segments other than bank balances and cash and other corporate
assets which are not directly attributable to the business activities of any reportable segments. All
liabilities are allocated to reportable segments other than corporate liabilities which are not directly
attributable to the business activities of any reportable segments.
The following is an analysis of the Group’s revenue and results by operating and reportable
segments:
Year ended 31 December 2013
Snack food
Beverage
Total
RMB’000
RMB’000
RMB’000
Revenue from external customers . . . . . . . . . . . . . . . . . . . . .
108,965
—
Segment results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unallocated income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unallocated expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15,214
(343)
108,965
14,871
46
(4,609)
Profit before income tax . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,308
(2,577)
Profit for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,731
Other segment items
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
— I-25 —
2,751
86,732
1,279
88,503
4,030
175,235
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX I
ACCOUNTANTS’ REPORT OF THE COMPANY
Year ended 31 December 2014
Snack food
Beverage
Total
RMB’000
RMB’000
RMB’000
Revenue from external customers . . . . . . . . . . . . . . . . . . . . .
251,502
490,620
742,122
Segment results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unallocated income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unallocated expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
33,935
89,715
123,650
122
(14,348)
Profit before income tax . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
109,424
(28,387)
Profit for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
81,037
Other segment items
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,672
16,378
9,851
70,192
17,523
86,570
Year ended 31 December 2015
Snack food
Beverage
Total
RMB’000
RMB’000
RMB’000
Revenue from external customers . . . . . . . . . . . . . . . . . . . . .
394,362
1,087,996
1,482,358
Segment results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unallocated expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
66,830
234,631
301,461
256
(18,669)
Profit before income tax . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
283,048
(73,482)
Profit for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
209,566
Other segment items
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bad debts written off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
— I-26 —
8,917
3,880
84
11,592
7,761
23
20,509
11,641
107
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX I
ACCOUNTANTS’ REPORT OF THE COMPANY
As at 31 December 2013
Snack food
Beverage Unallocated
RMB’000
Total
RMB’000
RMB’000
RMB’000
Reportable segment assets . . . . . . . . . . . . . . . .
230,165
94,607
1,269
326,041
Reportable segment liabilities . . . . . . . . . . . . .
48,111
8,762
211,467
268,340
As at 31 December 2014
Snack food
Beverage Unallocated
RMB’000
Total
RMB’000
RMB’000
RMB’000
Reportable segment assets . . . . . . . . . . . . . . . .
176,890
247,052
2,837
426,779
Reportable segment liabilities . . . . . . . . . . . . .
78,396
120,503
89,142
288,041
As at 31 December 2015
Snack food
Beverage Unallocated
Total
RMB’000
RMB’000
RMB’000
RMB’000
Reportable segment assets . . . . . . . . . . . . . . . .
184,068
258,602
56,667
499,337
Reportable segment liabilities . . . . . . . . . . . . .
71,460
94,788
234,785
401,033
Geographical information
The Group’s operations are located in the PRC and all of the Group’s revenue are come from the
PRC customers. In addition, all of the Group’s non-current assets are located in the PRC.
During the Track Record Period, none of the Group’s customers contributed more than 10% of
the Group’s revenue.
— I-27 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX I
5.
ACCOUNTANTS’ REPORT OF THE COMPANY
OTHER INCOME
Year ended 31 December
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.
2013
2014
2015
RMB’000
RMB’000
RMB’000
43
3
120
2
236
20
46
122
256
PROFIT BEFORE INCOME TAX
Profit before income tax is arrived at after charging:
Year ended 31 December
Amortization of prepaid land lease payments . . . . . . . . . . . .
Auditors’ remuneration. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bad debts written off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of inventories recognized as an expense . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease charges in respect of equipments . . . . . . . . .
Staff costs (including directors’ emoluments) . . . . . . . . . . . .
— Salaries, allowances and other benefits . . . . . . . . . . . .
— Contributions to defined contribution retirement plans
Research and development cost (including
staff costs) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
— I-28 —
2013
2014
2015
RMB’000
RMB’000
RMB’000
357
—
—
65,706
3,673
219
403
16
—
441,934
17,120
1,026
446
23
107
875,503
20,063
1,701
12,997
1,312
64,692
8,046
103,623
13,895
14,309
72,738
117,518
432
3,173
4,047
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX I
7.
ACCOUNTANTS’ REPORT OF THE COMPANY
INCOME TAX EXPENSE
The provision for the PRC enterprise income tax has been provided at the applicable tax rate of
25% on the assessable profits of the Group.
Year ended 31 December
Current tax — PRC enterprise income tax
Current year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Under provision in respect of prior years . . . . . . . . . . . . . . .
Deferred tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credited to deferred tax assets (note 13) . . . . . . . . . . . . . . .
2013
2014
2015
RMB’000
RMB’000
RMB’000
3,510
—
29,739
98
74,422
337
3,510
29,837
74,759
(1,450)
(1,277)
28,387
73,482
(933)
2,577
The difference between the actual income tax charge in the combined statements of profit or loss
and other comprehensive income and the amounts which would result from applying the enacted tax
rate to profit before income tax can be reconciled as follows:
Year ended 31 December
Profit before income tax . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax on profit before income tax, calculated
25% . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Utilization of unrecognized tax losses . . . .
Non-deductible expenses . . . . . . . . . . . . . .
Under provision in respect of prior years . .
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . .
at
..
..
..
..
..
the
...
...
...
...
...
rate of
......
......
......
......
......
— I-29 —
.
.
.
.
.
.
.
.
.
.
2013
2014
2015
RMB’000
RMB’000
RMB’000
10,308
109,424
283,048
2,577
(7)
105
—
(98)
27,356
—
1,270
98
(337)
70,762
—
2,894
337
(511)
2,577
28,387
73,482
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX I
ACCOUNTANTS’ REPORT OF THE COMPANY
8.
DIRECTORS’ EMOLUMENTS AND FIVE HIGHEST PAID INDIVIDUALS
8.1
Directors’ emoluments
Year ended 31 December 2013
Fees
RMB’000
Executive directors:
Shi Qingchi . . . . . . . . . . . .
Zhang Xuezhi . . . . . . . . . . .
Wang Dongwei . . . . . . . . . .
Salaries,
allowances
and
Retirement
benefits
Discretionary
scheme
in kind
bonuses
contributions
RMB’000
RMB’000
RMB’000
Total
RMB’000
—
—
—
—
—
152
—
—
7
—
—
1
—
—
160
—
152
7
1
160
Year ended 31 December 2014
Fees
RMB’000
Executive directors:
Shi Qingchi . . . . . . . . . . . . .
Zhang Xuezhi . . . . . . . . . . .
Wang Dongwei . . . . . . . . . .
Salaries,
allowances
and
Retirement
benefits in Discretionary
scheme
kind
bonuses
contributions
RMB’000
RMB’000
RMB’000
Total
RMB’000
—
—
—
480
360
740
—
—
25
—
—
3
480
360
768
—
1,580
25
3
1,608
— I-30 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX I
ACCOUNTANTS’ REPORT OF THE COMPANY
Year ended 31 December 2015
Fees
RMB’000
Executive directors:
Shi Qingchi . . . . . . . . . . . . .
Zhang Xuezhi . . . . . . . . . . .
Wang Dongwei . . . . . . . . . .
Salaries,
allowances
and
Retirement
benefits in Discretionary
scheme
kind
bonuses
contributions
RMB’000
RMB’000
RMB’000
Total
RMB’000
—
—
—
600
420
1,241
—
—
30
—
—
3
600
420
1,274
—
2,261
30
3
2,294
Mr. Shi Qingchi and Mr. Zhang Xuezhi were appointed as directors of the Company in March
2016 and June 2016, respectively. Mr. Wang Dongwei was appointed as director of the Company in
June 2016. The appointments of Mr. Chong Man Hung Jeffrey, Ms. Zou Jianjun and Mr. Chen Kewen
as independent non-executive directors of the Company will take effect upon [REDACTED]. During
the Track Record Period, the independent non-executive directors have not yet been appointed and
have not received any directors’ remuneration in the capacity of independent non-executive directors.
The emoluments shown above represent emoluments received from the Group by these directors
in their capacity as employees of Hubei Cenmingtang during the Track Record Period.
8.2
Five highest paid individuals
The five highest paid individuals of the Group during the years ended 31 December 2013, 2014
and 2015 include 1, 3 and 3 director/directors respectively whose emoluments are disclosed in note
8.1. The aggregate of the emoluments in respect of the remaining 4, 2 and 2 individuals are as follows:
Year ended 31 December
Salaries, allowances and benefits in kind . . . . . . . . . . . . . . .
Discretionary bonuses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retirement scheme contributions . . . . . . . . . . . . . . . . . . . . .
— I-31 —
2013
2014
2015
RMB’000
RMB’000
RMB’000
890
34
7
659
24
6
1,112
26
7
931
689
1,145
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX I
ACCOUNTANTS’ REPORT OF THE COMPANY
The above individuals’ emoluments are within the following bands:
Year ended 31 December
2013
2014
2015
Number of Number of Number of
individuals individuals individuals
HK$nil to HK$1,000,000 . . . . . . . . . . . . . . . . . . . . . . . . . . .
4
2
2
No directors or the five highest paid individuals received any emoluments from the Group as an
inducement to join or upon joining the Group or as compensation for loss of office during the Track
Record Period. No directors or the five highest paid individuals have waived or agreed to waive any
emoluments during the Track Record Period.
9.
EARNINGS PER SHARE
Earnings per share information is not presented as its inclusion, for the purpose of this report,
is not considered meaningful due to the Reorganization and the basis of preparation of the results of
the Group for the Track Record Period as disclosed in note 1.2 above.
10.
DIVIDENDS
Prior to the Reorganization, Hubei Cenmingtang declared dividends to its then equity owners as
follows:
Year ended 31 December
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013
2014
2015
RMB’000
RMB’000
RMB’000
—
—
250,000
The rate of dividend and number of shares ranking for dividend are not presented as such
information is not meaningful having regard to the purpose of this report.
— I-32 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX I
11.
ACCOUNTANTS’ REPORT OF THE COMPANY
PREPAID LAND LEASE PAYMENTS
As at 31 December
2013
2014
2015
RMB’000
RMB’000
RMB’000
Carrying amount at the beginning of the year . . . . . . . . . . .
Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortized during the year . . . . . . . . . . . . . . . . . . . . . . . . .
17,410
617
(357)
17,670
4,230
(403)
21,497
—
(446)
Carrying amount at the end of the year . . . . . . . . . . . . . . . .
17,670
21,497
21,051
Represented by: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17,304
366
21,051
446
20,605
446
17,670
21,497
21,051
The leasehold land is situated in the PRC and is held under a medium term lease.
— I-33 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX I
12.
ACCOUNTANTS’ REPORT OF THE COMPANY
PROPERTY, PLANT AND EQUIPMENT
Plant and
Motor
Furniture
and
Construction
Buildings
machineries
vehicles
equipment
in progress
Total
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
Cost
As at 1 January 2013 . . . . .
Additions . . . . . . . . . . . .
Transfer . . . . . . . . . . . . .
180
—
92,149
—
15,253
113,829
130
632
—
—
1,741
—
77,720
156,992
(205,978)
78,030
174,618
—
As at 31 December 2013 . . .
92,329
129,082
762
1,741
28,734
252,648
As at 1 January 2014 . . . . .
Additions . . . . . . . . . . . .
Transfer . . . . . . . . . . . . .
92,329
—
11,640
129,082
3,459
94,530
762
780
—
1,741
665
—
28,734
77,436
(106,170)
252,648
82,340
—
As at 31 December 2014 . . .
103,969
227,071
1,542
2,406
As at 1 January 2015 . . . . .
Additions . . . . . . . . . . . .
Transfer . . . . . . . . . . . . .
103,969
—
11,550
227,071
—
—
1,542
—
—
2,406
91
—
As at 31 December 2015 . . .
115,519
227,071
1,542
2,497
—
346,629
Accumulated depreciation
As at 1 January 2013 . . . . .
Charge for the year . . . . . .
—
1,459
—
2,052
4
22
—
140
—
—
4
3,673
As at 31 December 2013 . . .
1,459
2,052
26
140
—
3,677
As at 1 January 2014 . . . . .
Charge for the year . . . . . .
1,459
4,800
2,052
11,799
26
125
140
396
—
—
3,677
17,120
As at 31 December 2014 . . .
6,259
13,851
151
536
—
20,797
As at 1 January 2015 . . . . .
Charge for the year . . . . . .
6,259
5,075
13,851
14,381
151
147
536
460
—
—
20,797
20,063
As at 31 December 2015 . . .
11,334
28,232
298
996
—
40,860
Net book amount
As at 1 January 2013 . . . . .
180
—
126
—
77,720
78,026
As at 31 December 2013 . . .
90,870
127,030
736
1,601
28,734
248,971
As at 31 December 2014 . . .
97,710
213,220
1,391
1,870
—
314,191
As at 31 December 2015 . . .
104,185
198,839
1,244
1,501
—
305,769
— I-34 —
—
—
11,550
(11,550)
334,988
334,988
11,641
—
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX I
13.
ACCOUNTANTS’ REPORT OF THE COMPANY
DEFERRED TAX ASSETS
The following are the major deferred tax assets recognized and the movements during the Track
Record Period. The deferred tax assets are expected to be recovered within 12 months.
Salaries payable
RMB’000
As at 1 January 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credited to profit or loss for the year (note 7) . . . . . . . . . . . . . . . . . . . . . . . . . .
—
933
As at 31 December 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credited to profit or loss for the year (note 7) . . . . . . . . . . . . . . . . . . . . . . . . . .
933
1,450
As at 31 December 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credited to profit or loss for the year (note 7) . . . . . . . . . . . . . . . . . . . . . . . . . .
2,383
1,277
At 31 December 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,660
In accordance with the Enterprise Income Tax Law of the PRC and the Regulations for the
Implementation of the Enterprise Income Tax Law of the PRC, the Group is obliged to pay PRC
Enterprise Income Tax in connection with the dividends distributed by its PRC subsidiary at the
applicable tax rate of 5%.
As at 31 December 2013, 2014 and 2015, no deferred income tax liabilities has been recognized
for withholding taxes that would be payable on the unremitted earnings that are subject to withholding
taxes of the Group’s subsidiary established in the PRC because the Company controls the dividend
policy of this subsidiary and it is not probable that the temporary differences will reverse in the
foreseeable future.
As at 31 December 2013, 2014 and 2015, the aggregate amount of temporary differences
associated with investments in subsidiary in the PRC for which deferred income tax liabilities have
not been recognized amounting to approximately nil, nil and nil respectively.
14.
INVENTORIES
As at 31 December
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Work in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
— I-35 —
2013
2014
2015
RMB’000
RMB’000
RMB’000
6,463
440
7,583
37,079
2,437
32,772
62,024
745
30,172
14,486
72,288
92,941
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX I
15.
ACCOUNTANTS’ REPORT OF THE COMPANY
TRADE AND OTHER RECEIVABLES
As at 31 December
2013
2014
2015
RMB’000
RMB’000
RMB’000
Trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
From third parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12,870
14,892
21,680
Deposits, prepayments and other receivables
Prepayments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deposits paid for property, plant and equipment . . . . . . . . .
Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
59
30,716
307
395
679
435
1,229
—
1,582
31,082
1,509
2,811
43,952
16,401
24,491
The Directors consider that the fair values of trade and other receivables are not materially
different from their carrying amounts because these balances have short maturity periods on their
inception.
The Group usually requires advance deposits from its customers. Before accepting any new
customer, the Group applies an internal credit assessment policy to assess the potential customer’s
credit quality. The credit period is generally for a period of 31 to 60 days. Overdue balances are
reviewed regularly by senior management. Trade receivables are non interest-bearing.
An aged analysis of the trade receivables at the end of each of the Track Record Period, based
on the invoice date and net of impairment, is as follows:
As at 31 December
0-30 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013
2014
2015
RMB’000
RMB’000
RMB’000
12,870
14,892
21,680
At each reporting date, the Group reviews receivables for evidence of impairment on both an
individual and collective basis. Based on the assessment, Nil, Nil and RMB107,000 has been written
off against trade receivables during the years ended 31 December 2013, 2014 and 2015 respectively.
The impaired trade receivables were due from customers experiencing financial difficulties that were
in default or delinquency of payments.
— I-36 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX I
ACCOUNTANTS’ REPORT OF THE COMPANY
As at 31 December 2013, 2014 and 2015, no trade receivables were individually determined to
be impaired.
The ageing analysis of trade receivables at the end of the Track Record Period that are not
individually nor collectively considered to be impaired is as follows:
As at 31 December
Neither past due nor impaired . . . . . . . . . . . . . . . . . . . . . . .
2013
2014
2015
RMB’000
RMB’000
RMB’000
12,870
14,892
21,680
Trade receivables that were neither past due nor impaired relate to a number of independent
customers that have a good track record with the Group. Based on past experience, the Directors are
of the opinion that no provision for impairment is necessary in respect of these balances as there has
not been a significant change in credit quality and the balances are still considered fully recoverable.
The Group does not hold any collateral or other credit enhancements over these balances.
16.
CASH AND CASH EQUIVALENTS
As at 31 December
Bank balances and cash . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013
2014
2015
RMB’000
RMB’000
RMB’000
29
19
51,425
All the bank balances are denominated in RMB placed with banks in the PRC. RMB is not a
freely convertible currency. Under the PRC’s foreign exchange control regulations, the Group is
permitted to exchange RMB for foreign currencies through banks that are authorized to conduct
foreign exchange business. Cash at banks earns interest at floating rates based on daily bank deposit
rates.
17.
MAJOR NON-CASH TRANSACTIONS
During the year ended 31 December 2013, balance due to a former shareholder of Hubei
Cenmingtang amounting to RMB172,580,000 has been assigned to the then immediate holding
company (Fujian Gongyuan) upon completion of the share transfer of Hubei Cenmingtang as detailed
in note 1.1.
During the year ended 31 December 2014, balance due to the then immediate holding company
(Fujian Gongyuan) of Hubei Cenmingtang amounting to RMB209,250,000 has been assigned to Mr.
Shi and Mr. Zhang upon completion of the share transfer of Hubei Cenmingtang as detailed in note
1.1.
— I-37 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX I
18.
ACCOUNTANTS’ REPORT OF THE COMPANY
TRADE AND OTHER PAYABLES
As at 31 December
2013
2014
2015
RMB’000
RMB’000
RMB’000
Trade payables
To third parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
36,246
103,395
103,861
Accrued charges and other payables
Deposits from customers . . . . . . . . . . .
Salaries payables . . . . . . . . . . . . . . . . .
Dividend payables . . . . . . . . . . . . . . . .
Other payables and accruals . . . . . . . .
16,894
3,733
—
17,746
85,971
9,533
—
8,737
47,747
14,640
200,000
6,739
38,373
104,241
269,126
74,619
207,636
372,987
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
The Group is granted by its suppliers a credit period of 30 days. An aged analysis of the trade
payables at the end of the Track Record Period, based on the invoice date, is as follows:
As at 31 December
0-30 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31-60 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013
2014
2015
RMB’000
RMB’000
RMB’000
21,838
14,408
84,587
18,808
103,861
—
36,246
103,395
103,861
All amounts are short term and hence the carrying values of trade and other payables are
considered to be a reasonable approximation of their fair values.
— I-38 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX I
19.
ACCOUNTANTS’ REPORT OF THE COMPANY
AMOUNT DUE TO THE THEN IMMEDIATE HOLDING COMPANY
The amount due to Fujian Gongyuan was unsecured, interest-free and without fixed repayment
terms.
20.
AMOUNTS DUE TO MR. SHI AND MR. ZHANG
The amounts due were unsecured, interest-free and without fixed repayment terms.
21.
SHARE CAPITAL
There was no authorized and issued capital as at 31 December 2013, 2014 and 2015 since the
Company has not yet been incorporated.
22.
RESERVES
The amounts of the Group’s reserves and the movements therein for the Track Record Period are
presented in the combined statements of changes in equity of the Financial Information.
Statutory reserve
In accordance with the Company Law of the PRC, each of the company that was registered in
the PRC is required to appropriate 10% of the annual statutory profit after tax (after offsetting any
prior years’ losses), determined in accordance with the PRC GAAP, to the statutory reserve until the
balance of the reserve funds reaches 50% of the entity’s registered capital. The statutory reserve can
be utilized to offset prior years’ losses or to increase capital, provided the remaining balance of the
statutory reserve is not less than 25% of the registered capital.
As at 31 December 2013, 2014 and 2015, the Company did not have any amount of reserves
available for distribution to the shareholders of the Company since the Company has not yet been
incorporated.
Capital reserve
The capital reserve of the Group as at 31 December 2013, 2014 and 2015 represents the share
capital of Hubei Cenmingtang throughout the Track Record Period.
23.
CAPITAL COMMITMENTS
As at 31 December
Contracted but not provided for
Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . .
— I-39 —
2013
2014
2015
RMB’000
RMB’000
RMB’000
54,838
11,000
—
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX I
24.
ACCOUNTANTS’ REPORT OF THE COMPANY
RELATED PARTY TRANSACTIONS
In addition to those disclosed in notes 19 and 20 to the Financial Information, the Group had the
following transactions with related parties:
Year ended 31 December
Compensation of key management personnel
Short term employee benefits . . . . . . . . . . . . . . . . . . . . . . . .
Retirement scheme contributions . . . . . . . . . . . . . . . . . . . . .
25.
2013
2014
2015
RMB’000
RMB’000
RMB’000
649
2
1,930
6
2,682
7
651
1,936
2,689
FINANCIAL RISK MANAGEMENT AND FAIR VALUE MEASUREMENTS
The Group is exposed to financial risks through its use of financial instruments in its ordinary
course of operations and in its investment activities. The financial risks include market risk (including
foreign currency risk and interest rate risk), credit risk and liquidity risk.
The Group’s exposure to these risks and the financial risk management policies and practices
used by the Group to manage these risks are described below.
25.1 Categories of financial assets and liabilities
As at 31 December
Financial assets
Loans and receivables: . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade and other receivables . . . . . . . . . . . . . . . . . . . . . . . . .
Bank balances and cash . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial liabilities
Measured at amortized costs: . . . . . . . . . .
Trade and other payables . . . . . . . . . . . . .
Amounts due to Mr. Shi and Mr. Zhang . . .
Amount due to the then immediate holding
........
........
........
company
.
.
.
.
— I-40 —
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
2013
2014
2015
RMB’000
RMB’000
RMB’000
13,177
29
15,327
19
22,262
51,425
13,206
15,346
73,687
57,725
—
191,750
121,665
67,310
—
325,240
—
—
249,475
188,975
325,240
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX I
ACCOUNTANTS’ REPORT OF THE COMPANY
25.2 Foreign currency risk
Foreign currency risk refers to the risk that the fair value or future cash flows of a financial
instrument will fluctuate because of changes in foreign exchange rates. The Group’s transactions are
denominated in RMB and its assets and liabilities are maintained in RMB, therefore it does not have
any significant exposures to foreign currency risk.
25.3 Interest rate risk
Interest rate risk relates to the risk that the fair value or cash flows of a financial instrument will
fluctuate because of changes in market interest rates. As at 31 December 2013, 2014 and 2015, the
Group did not have any significant exposure to interest rate risk as the Group has no borrowing which
bears floating interest rate.
25.4 Credit risk
Credit risk refers to the risk that the counterparty to a financial instrument would fail to
discharge its obligation under the terms of the financial instrument and cause a financial loss to the
Group. The Group’s exposure to credit risk mainly arises from granting credit to customers in the
ordinary course of its operations and from its investing activities.
The Group’s maximum exposure to credit risk on recognized financial assets is limited to the
carrying amount at the reporting date as summarized in note 25.1.
Cash and bank balances are placed at financial institutions that have sound credit rating and the
Group considers the credit risk to be insignificant.
For trade and other receivables, the exposures to credit risk are monitored such that any
outstanding debtors are reviewed and followed up on an ongoing basis. In the opinion of the Directors,
the Group has no significant concentration of credit risk arising from its ordinary course of business
due to its large customer base. The Group does not hold any collateral from its debtors.
25.5 Liquidity risk
Liquidity risk relates to the risk that the Group will not be able to meet its obligations associated
with its financial liabilities that are settled by delivering cash or another financial asset. The Group
is exposed to liquidity risk in respect of settlement of trade and other payables and its financing
obligations, and also in respect of its cash flow management. The Group’s objective is to maintain an
appropriate level of liquid assets and committed lines of funding to meet its liquidity requirements in
the short and longer term.
When the creditor has a choice of when the liability is settled, the liability is included on the
basis of the earliest date on when the Group can be required to pay. Where the settlement of the
liability is in instalments, each instalment is allocated to the earliest period in which the Group is
committed to pay.
— I-41 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX I
ACCOUNTANTS’ REPORT OF THE COMPANY
As at 31 December 2013, 2014 and 2015, the Group’s remaining contractual maturities for its
financial liabilities will be either on demand or within one year. The undiscounted amounts of these
financial liabilities are not materially different from their carrying amount because of the immediate
or short term maturity.
The Group has net current liabilities of RMB231,730,000 as at 31 December 2015, the Group
relied on the continuing cash inflows from its [REDACTED] Business and banking finance if required,
to meet with its liquidity requirements.
25.6 Fair value
The management considered the carrying amounts of financial assets and financial liabilities of
the Group are not materially different from their fair values as at 31 December 2013, 2014 and 2015
due to short term of maturity.
26.
CAPITAL MANAGEMENT
The Group’s capital management objectives are to ensure the Group’s ability to continue as a
going concern and to provide an adequate return to shareholders by pricing goods and services
commensurately with the level of risk.
The Group actively and regularly reviews its capital structure and makes adjustments in light of
changes in economic conditions. The Group monitors its capital structure on the basis of the debt to
equity ratio. For this purpose, debt is defined as borrowings (including the loan from the then
immediate holding company and Mr. Shi and Mr. Zhang). In order to maintain or adjust the ratio, the
Group may adjust the amount of dividends paid to shareholders, issue new shares and raise new debt
financing.
The debt to equity ratio is at each reporting date was:
As at 31 December
2013
2014
2015
RMB’000
RMB’000
RMB’000
Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
191,750
67,310
N/A
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
57,701
138,738
98,304
Debt to equity ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
323.3%
48.5%
N/A
During the Track Record Period, the Group relied on the funding from its former shareholder, the
then immediate holding company and Mr. Shi and Mr. Zhang to finance its operations.
— I-42 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX I
27.
ACCOUNTANTS’ REPORT OF THE COMPANY
EVENT AFTER THE END OF REPORTING PERIOD
On 4 May 2016, Cenmingtang Food Limited acquired 70%, 28.5% and 1.5% equity interest in
Hubei Cenmingtang from Mr. Shi, Mr. Zhang and an independent third party, respectively, at a total
consideration of RMB55,967,000. Following the acquisition, Hubei Cenmingtang became a
wholly-owned subsidiary of Cenmingtang Food Limited and an indirect subsidiary of the Company.
The authorized share capital of the Company as of the date of its incorporation on 29 March 2016
was US$50,000 divided into 50,000 shares of US$1 each.
On 29 March 2016, one ordinary share with a par value of US$1 was allotted and issued at par
to the initial subscriber credited as fully paid. The ordinary share was transferred to Min Yu on the
same day.
On 29 March 2016, the Company allotted and issued 6,999 ordinary shares, 2,850 ordinary shares
and 150 ordinary shares to Min Yu, and two BVI companies held by Mr. Zhang and the independent
third party as set out in note 1.1, respectively.
Pursuant to the resolutions in writing of all the shareholders passed on 27 June 2016, each
ordinary share with a par value of US$1 in the authorized share capital of the Company was subdivided
into 100 ordinary shares with a par value of US$0.01 each. As a result of the share sub-division, the
authorized share capital of the Company comprised 5,000,000 ordinary shares with a par value of
US$0.01 each.
III. FINANCIAL INFORMATION OF HUBEI CENMINGTANG BEFORE ITS
ACQUISITION BY MR. SHI AND MR. ZHANG
The following is the financial information of Hubei Cenmingtang for the year ended 31
December 2013 and the period from 1 January 2014 to 16 June 2014, the date of acquisition by Mr.
Shi and Mr. Zhang. The accounting policies adopted in the preparation of pre-acquisition financial
information of Hubei Cenmingtang are consistent with those adopted in the preparation of the
Financial Information.
— I-43 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX I
ACCOUNTANTS’ REPORT OF THE COMPANY
Statements of Profit or Loss and Other Comprehensive Income of Hubei Cenmingtang
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . .
Other income . . . . . . . . .
Selling expenses . . . . . .
Administrative and other
...............
...............
...............
operating expenses
.
.
.
.
Year ended
31 December
2013
Period from
1 January 2014
to
16 June 2014
Note
RMB’000
RMB’000
(a)
108,965
(84,635)
196,526
(150,279)
24,330
46
(8,639)
(5,429)
46,247
10
(19,227)
(6,441)
.
.
.
.
Profit before income tax . . . . . . . . . . . . . . . .
(b)
10,308
20,589
Income tax expense . . . . . . . . . . . . . . . . . . . . .
(c)
(2,577)
(5,147)
7,731
15,442
Profit and total comprehensive income for
the year/period . . . . . . . . . . . . . . . . . . . . . .
— I-44 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX I
ACCOUNTANTS’ REPORT OF THE COMPANY
Statements of Financial Position of Hubei Cenmingtang
As at
31 December
2013
As at
16 June
2014
RMB’000
RMB’000
17,304
248,971
933
17,154
307,119
1,282
267,208
325,555
14,486
43,952
366
29
45,512
25,997
366
15,446
58,833
87,321
74,619
191,750
1,971
127,463
209,250
3,020
268,340
339,733
Net current liabilities . . . . . . . . . . . . . . . . . . . . . . . . .
(209,507)
(252,412)
Net assets/Total assets less current liabilities . . . . . .
57,701
73,143
EQUITY
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
50,000
7,701
50,000
23,143
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
57,701
73,143
Note
ASSETS AND LIABILITIES
Non-current assets
Prepaid land lease payments . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment . . . . . . . . . . . . . . . . . . .
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current assets
Inventories . . . . . . . . . . . . .
Trade and other receivables
Prepaid land lease payments
Cash and cash equivalents . .
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Current liabilities
Trade and other payables . . . . . . . . . . . . . . . . . . . . . . .
Amount due to the then immediate holding company .
Income tax payable . . . . . . . . . . . . . . . . . . . . . . . . . . .
— I-45 —
(d)
(e)
(f)
(g)
(h)
(d)
(i)
(j)
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX I
ACCOUNTANTS’ REPORT OF THE COMPANY
Statements of Changes in Equity of Hubei Cenmingtang
Paid-in
capital
Statutory
reserve
Retained
profits /
(Accumulated
losses)
RMB’000
RMB’000
RMB’000
RMB’000
As at 1 January 2013 . . . . . . . . . . . . . . . .
50,000
—
Profit and total comprehensive income
for the year . . . . . . . . . . . . . . . . . . . . .
—
—
Transaction with owner . . . . . . . . . . . . .
Transfer to statutory reserve . . . . . . . . . .
—
773
As at 31 December 2013 and 1 January
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . .
50,000
773
6,928
57,701
Profit and total comprehensive income
for the period . . . . . . . . . . . . . . . . . . . .
—
—
15,442
15,442
As at 16 June 2014 . . . . . . . . . . . . . . . . .
50,000
773
22,370
73,143
— I-46 —
(30)
Total
7,731
(773)
49,970
7,731
—
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX I
ACCOUNTANTS’ REPORT OF THE COMPANY
Statements of Cash Flows of Hubei Cenmingtang
Cash flows from operating activities
Profit before income tax . . . . . . . . . . . . . . . .
Adjustments for: . . . . . . . . . . . . . . . . . . . . . .
Amortization of prepaid land lease payments .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . .
Period from
1 January
2014 to
16 June 2014
RMB’000
RMB’000
.
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10,308
357
3,673
(43)
150
6,220
(10)
changes
.......
.......
.......
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.
14,295
(14,486)
(13,234)
39,747
26,949
(31,026)
(5,435)
52,844
Cash generated from operations . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
26,322
(1,539)
43,332
(4,447)
Net cash generated from operating activities . . . . . . . . . . . . . .
24,783
38,885
Cash flows from investing activities
Interest received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of prepaid land lease payments . . . . . . . . . . . . . . . .
Purchase of property, plant and equipment . . . . . . . . . . . . . . .
43
(617)
(199,934)
10
—
(40,978)
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . .
(200,508)
(40,968)
156,190
(3,420)
22,700
(3,530)
—
—
39,000
(21,500)
171,940
17,500
Operating profit before working capital
Increase in inventories . . . . . . . . . . . . .
Increase in trade and other receivables.
Increase in trade and other payables . .
.
.
.
.
.
Year ended
31 December
2013
Cash flows from financing activities
Advance from a former shareholder . . . . . . . . . . . . . .
Repayment to a former shareholder . . . . . . . . . . . . . .
Advance from the then immediately holding company
Repayment to the then immediately holding company
...
...
..
...
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Net cash generated from financing activities . . . . . . . . . . . . . .
Net (decrease)/increase in cash and cash equivalents . . . . . .
Cash and cash equivalents at the beginning of the year/period .
Cash and cash equivalents at the end of the year/period . .
— I-47 —
(3,785)
3,814
29
20,589
15,417
29
15,446
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX I
ACCOUNTANTS’ REPORT OF THE COMPANY
During the year ended 31 December 2013, balance due to a former shareholder of Hubei
Cenmingtang amounting to RMB172,580,000 has been assigned to the then immediate holding
company (Fujian Gongyuan) upon completion of the share transfer of Hubei Cenmingtang as detailed
in note 1.1.
(a)
Revenue
Revenue of Hubei Cenmingtang represents the revenue from sales of snack food products and
beverage products.
(b)
Profit before income tax
Profit before income tax is arrived at after charging:
Year ended
31 December
2013
Period from
1 January
2014 to
16 June 2014
RMB’000
RMB’000
.
.
.
.
.
357
—
65,706
3,673
219
150
16
120,079
6,220
369
............
plans . . . . . . .
12,997
1,312
20,006
2,311
Research and development cost (including staff costs) . . . . . . . . .
14,309
432
22,317
1,137
Amortization of prepaid land lease payments . . . .
Auditors’ remuneration. . . . . . . . . . . . . . . . . . . . .
Cost of inventories recognized as an expense . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease charges in respect of equipments
Staff costs (including directors’ emoluments)
- Salaries, allowances and other benefits . . . . . . .
- Contributions to defined contribution retirement
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— I-48 —
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.
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX I
(c)
ACCOUNTANTS’ REPORT OF THE COMPANY
Income tax expense
The provision for the PRC enterprise income tax has been provided at the applicable tax rate of
25% on the assessable profits of Hubei Cenmingtang.
Current tax — PRC enterprise income tax . . . . . . . . . . . . . . .
Current year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Under provision in respect of prior years . . . . . . . . . . . . . . . . . . .
Deferred tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credited to deferred tax assets (note f) . . . . . . . . . . . . . . . . . . . .
Year ended
31 December
2013
Period from
1 January
2014 to
16 June 2014
RMB’000
RMB’000
3,510
—
5,398
98
3,510
5,496
(933)
2,577
(349)
5,147
The difference between the actual income tax charge in the statements of profit or loss and other
comprehensive income of Hubei Cenmingtang and the amounts which would result from applying the
enacted tax rate to profit before income tax can be reconciled as follows:
Profit before income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax on profit before income tax, calculated
Utilization of unrecognized tax losses . . . .
Non-deductible expenses . . . . . . . . . . . . . .
Under provision in respect of prior years . .
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . .
at
..
..
..
..
the
...
...
...
...
rate of 25%
..........
..........
..........
..........
— I-49 —
.
.
.
.
.
.
.
.
.
.
Year ended
31 December
2013
Period from
1 January
2014 to
16 June 2014
RMB’000
RMB’000
10,308
20,589
2,577
(7)
105
—
(98)
5,147
—
245
98
(343)
2,577
5,147
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX I
(d)
ACCOUNTANTS’ REPORT OF THE COMPANY
Prepaid land lease payments
As at
31 December
2013
As at
16 June
2014
RMB’000
RMB’000
Carrying amount at the beginning of the year/period . . . . . . . . . .
Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortized during the year/period . . . . . . . . . . . . . . . . . . . . . . . .
17,410
617
(357)
17,670
—
(150)
Carrying amount at the end of the year/period . . . . . . . . . . . . . .
17,670
17,520
Represented by:
Non-current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17,304
366
17,154
366
17,670
17,520
The leasehold land is situated in the PRC and is held under a medium term lease.
— I-50 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX I
(e)
ACCOUNTANTS’ REPORT OF THE COMPANY
Property, plant and equipment
Plant and
Buildings machineries
Furniture
Motor
and
Construction
vehicles equipment in progress
RMB’000
RMB’000
RMB’000 RMB’000
Cost
As at 1 January 2013 . . . . .
Additions . . . . . . . . . . . . . .
Transfer . . . . . . . . . . . . . . .
180
—
92,149
—
15,253
113,829
130
632
—
As at 31 December 2013 . .
92,329
129,082
As at 1 January 2014 . . . . .
Additions . . . . . . . . . . . . . .
Transfer . . . . . . . . . . . . . . .
92,329
—
11,640
As at 16 June 2014 . . . . . . 103,969
Total
RMB’000
RMB’000
—
1,741
—
77,720
156,992
(205,978)
78,030
174,618
—
762
1,741
28,734
252,648
129,082
3,127
64,102
762
617
—
1,741
282
—
28,734
60,342
(75,742)
252,648
64,368
—
196,311
1,379
2,023
13,334
317,016
Accumulated depreciation
As at 1 January 2013 . . . . .
Charge for the year . . . . . .
—
1,459
—
2,052
4
22
—
140
—
—
4
3,673
As at 31 December 2013 . .
1,459
2,052
26
140
—
3,677
As at 1 January 2014 . . . . .
Charge for the period . . . . .
1,459
1,919
2,052
4,116
26
43
140
142
—
—
3,677
6,220
As at 16 June 2014 . . . . . .
3,378
6,168
69
282
—
9,897
Net book amount
As at 1 January 2013 . . . . .
180
—
126
—
77,720
78,026
As at 31 December 2013 . .
90,870
127,030
736
1,601
28,734
248,971
As at 16 June 2014 . . . . . . 100,591
190,143
1,310
1,741
13,334
307,119
— I-51 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX I
(f)
ACCOUNTANTS’ REPORT OF THE COMPANY
Deferred tax assets
The following are the major deferred tax assets recognized and the movements during the year
ended 31 December 2013 and the period from 1 January 2014 to 16 June 2014. The deferred tax assets
are expected to be recovered within 12 months.
Salaries payable
RMB’000
As at 1 January 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credited to profit or loss for the year (note c) . . . . . . . . . . . . . . . . . . . . . . . . .
—
933
As at 31 December 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credited to profit or loss for the period (note c) . . . . . . . . . . . . . . . . . . . . . . . .
933
349
As at 16 June 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,282
(g)
Inventories
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Work in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
— I-52 —
As at
31 December
2013
As at
16 June
2014
RMB’000
RMB’000
6,463
440
7,583
15,176
986
29,350
14,486
45,512
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX I
(h)
ACCOUNTANTS’ REPORT OF THE COMPANY
Trade and other receivables
As at
31 December
2013
As at
16 June
2014
RMB’000
RMB’000
Trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
From third parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12,870
11,950
Deposits, prepayments and other receivables .
Prepayments. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deposits paid for property, plant and equipment
Other receivables . . . . . . . . . . . . . . . . . . . . . . . .
59
30,716
307
6,366
7,326
355
31,082
14,047
43,952
25,997
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The directors of Hubei Cenmingtang consider that the fair values of trade and other receivables
are not materially different from their carrying amounts because these balances have short maturity
periods on their inception.
Hubei Cenmingtang usually requires advance deposits from its customers. Before accepting any
new customer, Hubei Cenmingtang applies an internal credit assessment policy to assess the potential
customer’s credit quality. The credit period is generally for a period of 31 to 60 days. Overdue
balances are reviewed regularly by senior management. Trade receivables are non interest-bearing.
An aged analysis of the trade receivables as at 31 December 2013 and 16 June 2014, based on
the invoice date and net of impairment, is as follows:
0-30 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
As at
31 December
2013
As at
16 June
2014
RMB’000
RMB’000
12,870
11,950
At each reporting date, Hubei Cenmingtang reviews receivables for evidence of impairment on
both an individual and collective basis. Based on the assessment, no amount of trade receivables were
individually determined to be impaired during the year ended 31 December 2013 and the period from
1 January 2014 to 16 June 2014.
— I-53 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX I
ACCOUNTANTS’ REPORT OF THE COMPANY
The ageing analysis of trade receivables as at 31 December 2013 and 16 June 2014 that are not
individually nor collectively considered to be impaired is as follows:
Neither past due nor impaired . . . . . . . . . . . . . . . . . . . . . . . . . . .
As at
31 December
2013
As at
16 June
2014
RMB’000
RMB’000
12,870
11,950
Trade receivables that were neither past due nor impaired relate to a number of independent
customers that have a good track record with Hubei Cenmingtang. Based on past experience, the
directors of Hubei Cenmingtang are of the opinion that no provision for impairment is necessary in
respect of these balances as there has not been a significant change in credit quality and the balances
are still considered fully recoverable. Hubei Cenmingtang does not hold any collateral or other credit
enhancements over these balances.
(i)
Trade and other payables
As at
31 December
2013
As at
16 June
2014
RMB’000
RMB’000
Trade payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
To third parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
36,246
62,964
Accrued charges and other payables
Deposits from customers . . . . . . . . . . .
Salaries payables . . . . . . . . . . . . . . . . .
Other payables and accruals . . . . . . . .
16,894
3,733
17,746
45,783
5,127
13,589
38,373
64,499
74,619
127,463
.
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— I-54 —
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.
.
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX I
ACCOUNTANTS’ REPORT OF THE COMPANY
Hubei Cenmingtang is granted by its suppliers a credit period of 30 days. An aged analysis of
the trade payables as at 31 December 2013 and 16 June 2014, based on the invoice date, is as follows:
0-30 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31-60 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
As at
31 December
2013
As at
16 June
2014
RMB’000
RMB’000
21,838
14,408
50,014
12,950
36,246
62,964
All amounts are short term and hence the carrying values of trade and other payables are
considered to be a reasonable approximation of their fair values.
(j)
Am ount due to the then immediate holding company
The amount due to Fujian Gongyuan was unsecured, interest-free and without fixed repayment
terms.
IV.
SUBSEQUENT FINANCIAL STATEMENTS
No audited financial statements have been prepared by the Company or any of the companies
now comprising the Group in respect of any period subsequent to 31 December 2015.
Yours faithfully,
Grant Thornton Hong Kong Limited
Certified Public Accountants
Level 12
28 Hennessy Road
Wanchai
Hong Kong
Shaw Chi Kit
Practising Certificate No.: P04834
— I-55 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX II
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The information set forth in this appendix does not form part of the Accountants’ Report on the
financial information of the Group for the three years ended 31 December 2015 prepared by Grant
Thornton Hong Kong Limited, Certified Public Accountants, Hong Kong, the reporting accountants of
the Company, as set forth in Appendix I of this document (the “Accountants’ Report”), and is included
herein for illustrative purposes only. The unaudited pro forma financial information should be read
in conjunction with the section headed “Financial Information” in this document and the
Accountants’ Report set forth in Appendix I of this document.
A.
UNAUDITED PRO FORMA STATEMENT OF ADJUSTED COMBINED NET TANGIBLE
ASSETS
The following is an illustrative unaudited pro forma statement of adjusted combined net tangible
assets of the Group which has been prepared in accordance with paragraph 4.29 of the Listing Rules
for the purpose of illustrating the effect of the [REDACTED] on the audited combined net tangible
assets of the Group attributable to equity holders of the Company as of 31 December 2015, as if the
[REDACTED] had taken place on 31 December 2015.
The unaudited pro forma adjusted combined net tangible assets of the Group has been prepared
for illustrative purposes only and because of its hypothetical nature, it may not give a true picture of
the combined net tangible assets of the Group attributable to equity holders of the Company had the
[REDACTED] been completed as at 31 December 2015 or at any future dates. It is prepared based on
the audited combined net tangible assets of the Group attributable to equity holders of the Company
as at 31 December 2015 as set out in the Accountants’ Report in Appendix I to this Document, and
adjusted as described below.
Audited
combined net
tangible assets
of the Group
attributable to
equity holders
of the
Company as at
31 December
2015
Unaudited pro
forma adjusted
combined net
tangible assets
of the Group
Estimated net attributable to
proceeds from equity holders
of the
the
Company
[REDACTED]
RMB’000
RMB’000
RMB
HK$
(Note 1)
(Note 3)
(Note 4)
(Note 6)
Based on the [REDACTED]
of HK$[REDACTED] per
[REDACTED] . . . . . . . .
[REDACTED]
[REDACTED]
[REDACTED] [REDACTED] [REDACTED]
Based on the [REDACTED]
of HK$[REDACTED] per
[REDACTED] . . . . . . .
[REDACTED]
[REDACTED]
[REDACTED] [REDACTED] [REDACTED]
— II-1 —
RMB’000
Unaudited pro forma
adjusted combined net
tangible assets of the
Group attributable to
equity holders of the
Company per Share
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX II
UNAUDITED PRO FORMA FINANCIAL INFORMATION
Notes:
(1)
The amount is calculated based on audited combined net assets of the Group attributable to equity holders of the
Company as of 31 December 2015 amounting to approximately RMB98,304,000, extracted from the Accountants’ Report
of the Group set out in Appendix I to this document.
(2)
The Group’s buildings and prepaid land lease payments as of 31 March 2016 were revalued by Jones Lang LaSalle
Corporate Appraisal and Advisory Limited, an independent property valuer, and the relevant property valuation report
is set out in Appendix III — Property Valuation Report. The net valuation surplus, representing the excess of market
value of the buildings and prepaid land lease payments over their carrying value amounting to RMB8.4 million, has not
been included in the combined net tangible assets of the Group attributable to the equity holders of the Company as of
31 December 2015. The above adjustment does not take into account the above valuation surplus. Had the buildings and
prepaid land lease payments been stated as such valuation, an additional depreciation and amortization of RMB372,000
per annum in respect of the revaluation surplus, before income taxes, would be charged against the combined statement
of profit or loss and other comprehensive income.
(3)
The estimated net proceeds from the [REDACTED] are based on [REDACTED] Shares at the [REDACTED] of
HK$[REDACTED] (equivalent to RMB[REDACTED]) and HK$[REDACTED] (equivalent to RMB[REDACTED]) per
Share, being the low-end and high-end of the indicative range of the [REDACTED], respectively, after deduction of the
estimated [REDACTED] fees and other related expenses expected to be incurred by the Group subsequent to 31
December 2015 and does not take into account of any Shares which may be issued upon the exercise of the
[REDACTED].
(4)
The unaudited pro forma adjusted combined net tangible assets per Share is calculated based on [REDACTED] Shares,
being the number of Shares expected to be in issue immediately following the completion of the [REDACTED] and the
[REDACTED] without taking into account of any Shares which may be allotted and issued pursuant to the exercise of
the [REDACTED].
(5)
No adjustment has been made to the unaudited pro forma adjusted combined net tangible assets of the Group attributable
to the equity holders of the Company as at 31 December 2015 to reflect any trading results or other transactions of the
Group entered into subsequent to 31 December 2015.
(6)
In connection with the preparation of this unaudited pro forma statement of adjusted combined net tangible assets, the
translation of Renminbi into Hong Kong dollars has been made at a rate of RMB1 to HK$1.17.
— II-2 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX II
UNAUDITED PRO FORMA FINANCIAL INFORMATION
[REDACTED]
— II-3 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX II
UNAUDITED PRO FORMA FINANCIAL INFORMATION
[REDACTED]
— II-4 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX II
UNAUDITED PRO FORMA FINANCIAL INFORMATION
[REDACTED]
— II-5 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX III
PROPERTY VALUATION REPORT
The following is the text of a letter and valuation certificate, prepared for the purpose of
incorporation in this document received from Jones Lang LaSalle Corporate Appraisal and Advisory
Limited, an independent valuer, in connection with its valuation as at 31 March 2016 of the property
interest held by Cenmingtang Holding Limited.
[● 2016]
The Board of Directors
Cenmingtang Holding Limited
Dear Sirs,
In accordance with your instructions to value the property interest held by Cenmingtang Holding
Limited (the “Company”) and its subsidiaries (hereinafter together referred to as the “Group”) in the
People’s Republic of China (the “PRC”), 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 on the market value of the property interest as at 31 March
2016 (the “valuation date”).
Our valuation is carried out on a market value basis. Market value is defined 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 wherein the parties had each
acted knowledgeably, prudently and without compulsion”.
Due to the nature of the buildings of the property interest and the particular location in which
they are situated, there are unlikely to be relevant market comparable sales readily available. The
property interest has therefore been valued by Cost Approach with reference to its depreciated
replacement cost.
Depreciated replacement cost is defined as “the current cost of replacing an asset with its modern
equivalent asset less deductions for physical deterioration and all relevant forms of obsolescence and
optimization”. It is based on an estimate of the market value for the existing use of the land, plus the
current cost of replacement (reproduction) of the improvements, less deductions for physical
deterioration and all relevant forms of obsolescence and optimization. In arriving at the value of land
portion, reference has been made to the sales evidence as available in the locality. The depreciated
replacement cost of the property interest is subject to adequate potential profitability of the concerned
business.
— III-1 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX III
PROPERTY VALUATION REPORT
Our valuation has been made on the assumption that the seller sells the property interest in the
market without the benefit of a deferred term contract, leaseback, joint venture, management
agreement or any similar arrangement, which could serve to affect the value of the property interest.
No allowance has been made in our report for any charge, mortgage or amount owing neither on
any of the property interest valued nor for any expense 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 value.
In valuing the property interest, we have complied with all requirements contained in Chapter 5
and Practice Note 12 of the Rules Governing the Listing of Securities issued by the Stock Exchange
of Hong Kong Limited; the RICS Valuation — Professional Standards published by the Royal
Institution of Chartered Surveyors; the HKIS Valuation Standards published by the Hong Kong
Institute of Surveyors, and the International Valuation Standards published by the International
Valuation Standards Council.
We have relied to a very considerable extent on the information given by the Group and have
accepted advice given to us on such matters as tenure, planning approvals, statutory notices,
easements, particulars of occupancy, lettings, and all other relevant matters.
We have been shown copies of title documents including State-owned Land Use Right
Certificates, Building Ownership Certificates and other title documents relating to the property
interest and have made relevant enquiries. Where possible, we have examined the original documents
to verify the existing title to the property interest in the PRC and any material encumbrance that might
be attached to the property interest or any tenancy amendment. We have relied considerably on the
advice given by the Company’s PRC legal advisers — Jingtian & Gongcheng Law Firm, concerning
the validity of the property interest in the PRC.
We have not carried out detailed measurements to verify the correctness of the areas in respect
of the properties but have assumed that the areas shown on the title documents handed to us are
correct. All documents and contracts have been used as reference only and all dimensions,
measurements and areas are approximations. No on-site measurement has been taken.
We have inspected the exterior and, where possible, the interior of the properties. However, we
have not carried out investigation to determine the suitability of the ground conditions and services
for any development thereon. Moreover, no structural survey has been made, but in the course of our
inspection, we did not note any serious defect. We are not, however, able to report whether the
properties are free of rot, infestation or any other structural defect. No tests were carried out on any
of the services.
The site inspection was carried out between 18 April 2016 and 19 April 2016 by Mr. Mathew Ma
and Ms. Josephine Ho. Mr. Mathew Ma is a member of Royal Institute of Chartered Surveyor and has
more than 5 years’ experience in the valuation of properties in the PRC. Ms. Josephine Ho is a
probationer of Royal Institute of Chartered Surveyor and has more than 2 years’ experience in the
valuation of properties in the PRC.
— III-2 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX III
PROPERTY VALUATION REPORT
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 Group that no material factors have been omitted
from the information supplied. We consider that we have been provided with sufficient information to
arrive an informed view, and we have no reason to suspect that any material information has been
withheld.
Yours faithfully,
For and on behalf of
Jones Lang LaSalle Corporate Appraisal and Advisory Limited
Gilbert C. H. Chan
MRICS MHKIS RPS (GP)
Director
Note: Gilbert C.H. Chan is a Chartered Surveyor who has 22 years’ experience in the valuation of properties in Hong Kong
and the PRC as well as relevant experience in the Asia-Pacific region.
— III-3 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX III
PROPERTY VALUATION REPORT
VALUATION CERTIFICATE
Property
Description and tenure
Particulars of
occupancy
Market value
in existing state
as at
31 March 2016
RMB
6 parcels of land
with 17 buildings
and various
structures erected
thereon located at
Shili Village,
Economic
Development
District,
Anlu City,
Xiaogan,
Hubei Province,
the PRC.
The property comprises of 6 parcels
of land with a total site area of
approximately 167,152.20 sq.m. and
17 buildings and various structures
erected thereon which were
completed in various stages between
2012 and 2014.
The buildings mainly include
industrial workshops, warehouses,
administration building, dormitory
buildings, canteen and ancillary
buildings with a total gross floor
area of approximately 62,199.45
sq.m.
The property
was occupied
by the
Company for
production,
office and
ancillary
purposes as at
the valuation
date.
132,195,000
The structures mainly include
canteen, roads, fences and security
booth, sewage treatment system and
boiler room.
The land use rights of the property
have been granted for terms
expiring on 17 April 2061, 27
November 2062, 24 July 2064 and
24 December 2062 respectively for
industrial use.
Notes:
1.
Pursuant to 6 State-owned Land Use Rights Certificates — An Tu Guo Yong (2012) Di Nos. 0678, 0679, 0680, An Tu
Guo Yong (2013) Di Nos. 0617, 0573 and An Tu Guo Yong (2014) Di No. 1573 the land use rights of 6 parcels of land
with a total site area of approximately 167,152.20 sq.m. have been granted to Hubei Zhumu Langma Food Limited
Liability Company (currently known as Hubei Cenmingtang Food Limited Liability Company), an indirect wholly-owned
subsidiary of the Company, for terms expiring on 17 April 2061, 27 November 2062, 24 July 2064 and 24 December 2062
and 17 April 2062 respectively for industrial use.
— III-4 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX III
2.
PROPERTY VALUATION REPORT
Pursuant to 17 Building Ownership Certificates — An Lu Shi Fang Quan Zheng Fu Cheng Qu Zi Di Nos. A00049703,
A042534, A042535, A042536, A042537, A042538, A042539, A042540, A038997, A038998, A038999, A039000,
A039001, A039002 and An Lu Shi Fang Quan Zheng Zi Di Nos. A00049704, A00049705 and A00049706 issued by An
Lu Shi Housing Security and Management Authority (安陸市住房保障和房屋管理局), 17 buildings with a total gross
floor area of approximately 62,199.45 sq.m. are owned by Hubei Zhumu Langma Food Limited Liability Company,
(currently known as Hubei Cenmingtang Food Limited Liability Company), an indirect wholly-owned subsidiary of the
Company.
3.
We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which
contains, inter alia, the following:
a.
The Company has obtained the land use rights certificates of the property. Within the land use rights term, the
company is the sole legal user of these parcels of land and has the rights to use, occupy, transfer, lease, mortgage
or otherwise dispose of the land use rights of the property; and
b.
The Company has obtained the building ownership certificates of the property and has fully, legally and effectively
obtained the ownership rights of the buildings.
— III-5 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX IV
SUMMARY OF THE CONSTITUTION OF OUR COMPANY
AND CAYMAN COMPANIES LAW
SUMMARY OF THE CONSTITUTION OF THE COMPANY
1
MEMORANDUM OF ASSOCIATION
The Memorandum of Association of the Company was conditionally adopted on [●] and states,
inter alia, that the liability of the members of the Company is limited, that the objects for which the
Company is established are unrestricted and the Company shall have full power and authority to carry
out any object not prohibited by the Cayman Companies Law or any other law of the Cayman Islands.
The Memorandum of Association is available for inspection at the address specified in Appendix
[VI] to this document in the section headed “Documents available for inspection”.
2
ARTICLES OF ASSOCIATION
The Articles of Association of the Company were conditionally adopted on [●] and include
provisions to the following effect:
2.1
Classes of Shares
The share capital of the Company consists of ordinary shares. The capital of the Company at the
date of adoption of the Articles of Association is US$500,000,000 divided into 50,000,000,000 shares
of US$0.01 each.
2.2
Directors
(a)
Power to allot and issue Shares
Subject to the provisions of the Cayman Companies Law and the Memorandum and Articles of
Association, the unissued shares in the Company (whether forming part of its original or any increased
capital) shall be at the disposal of the Directors, who may offer, allot, grant options over or otherwise
dispose of them to such persons, at such times and for such consideration, and upon such terms, as
the Directors shall determine.
Subject to the provisions of the Memorandum and Articles of Association and to any direction
that may be given by the Company in general meeting and without prejudice to any special rights
conferred on the holders of any existing shares or attaching to any class of shares, any share may be
issued with or have attached thereto such preferred, deferred, qualified or other special rights or
restrictions, whether in regard to dividend, voting, return of capital or otherwise, and to such persons
at such times and for such consideration as the Directors may determine. Subject to the Cayman
Companies Law and to any special rights conferred on any shareholders or attaching to any class of
shares, any share may, with the sanction of a special resolution, be issued on terms that it is, or at the
option of the Company or the holder thereof, liable to be redeemed.
— IV-1 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX IV
(b)
SUMMARY OF THE CONSTITUTION OF OUR COMPANY
AND CAYMAN COMPANIES LAW
Power to dispose of the assets of the Company or any subsidiary
The management of the business of the Company shall be vested in the Directors who, in addition
to the powers and authorities by the Articles of Association expressly conferred upon them, may
exercise all such powers and do all such acts and things as may be exercised or done or approved by
the Company and are not by the Articles of Association or the Cayman Companies Law expressly
directed or required to be exercised or done by the Company in general meeting, but subject
nevertheless to the provisions of the Cayman Companies Law and of the Articles of Association and
to any regulation from time to time made by the Company in general meeting not being inconsistent
with such provisions or the Articles of Association, provided that no regulation so made shall
invalidate any prior act of the Directors which would have been valid if such regulation had not been
made.
(c)
Compensation or payment for loss of office
Payment to any 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 entitled) must first be approved by the Company in general meeting.
(d)
Loans to Directors
There are provisions in the Articles of Association prohibiting the making of loans to Directors
or their respective close associates which are equivalent to the restrictions imposed by the Companies
Ordinance.
(e)
Financial assistance to purchase Shares
Subject to all applicable laws, the Company may give financial assistance to Directors and
employees of the Company, its subsidiaries or any holding company or any subsidiary of such holding
company in order that they may buy shares in the Company or any such subsidiary or holding
company. Further, subject to all applicable laws, the Company may give financial assistance to a
trustee for the acquisition of shares in the Company or shares in any such subsidiary or holding
company to be held for the benefit of employees of the Company, its subsidiaries, any holding
company of the Company or any subsidiary of any such holding company (including salaried
Directors).
(f)
Disclosure of interest in contracts with the Company or any of its subsidiaries
No Director or proposed 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 contract or
arrangement entered into by or on behalf of the Company with any person, company or partnership
of or in which any Director shall be a member or otherwise interested be capable on that account of
being avoided, nor shall any Director so contracting or being any member or so interested be liable
to account to the Company for any profit so realised by any such contract or arrangement by reason
only of such Director holding that office or the fiduciary relationship thereby established, provided
— IV-2 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX IV
SUMMARY OF THE CONSTITUTION OF OUR COMPANY
AND CAYMAN COMPANIES LAW
that such Director shall, if his interest in such contract or arrangement is material, declare the nature
of his interest at the earliest meeting of the board of Directors at which it is practicable for him to do
so, either specifically or by way of a general notice stating that, by reason of the facts specified in
the notice, he is to be regarded as interested in any contracts of a specified description which may be
made by the Company.
A Director shall not be entitled to vote on (nor shall be counted in the quorum in relation to) any
resolution of the Directors in respect of any contract or arrangement or any other proposal in which
the Director or any of his close associates (or, if required by the Listing Rules, his other associates)
has any material interest, and if he shall do so his vote shall not be counted (nor is he to be counted
in the quorum for the resolution), but this prohibition shall not apply to any of the following matters,
namely:
(i)
the giving to such Director or any of his close associates of any security or indemnity 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;
(ii)
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 any of his close
associates has himself/themselves assumed responsibility in whole or in part and whether
alone or jointly under a guarantee or indemnity or by the giving of security;
(iii) any proposal concerning an offer of shares, 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 any of his close associates is/are or is/are
to be interested as a participant in the underwriting or sub-underwriting of the offer;
(iv) any proposal or arrangement concerning the benefit of employees of the Company or any
of its subsidiaries including:
(A) the adoption, modification or operation of any employees’ share scheme or any share
incentive scheme or share option scheme under which the Director or any of his close
associates may benefit; or
(B) the adoption, modification or operation of a pension or provident fund or retirement,
death or disability benefits scheme which relates both to Directors, their close
associates and employees of the Company or any of its subsidiaries and does not
provide in respect of any Director or any of his close associates, as such any privilege
or advantage not generally accorded to the class of persons to which such scheme or
fund relates; and
(v)
any contract or arrangement in which the Director or any of his close associates 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.
— IV-3 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX IV
(g)
SUMMARY OF THE CONSTITUTION OF OUR COMPANY
AND CAYMAN COMPANIES LAW
Remuneration
The Directors shall be entitled to receive by way of remuneration for their services such sum as
shall from time to time be determined by the Directors, 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 less than the whole of the relevant
period in respect of which the remuneration is paid shall only rank in such division in proportion to
the time during such period for which he has held office. 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.
The Directors shall also be entitled to be paid all expenses, including travel expenses, reasonably
incurred by them in or in connection with the performance of their duties as Directors including their
expenses of travelling to and from board meetings, committee meetings or general meetings or
otherwise incurred whilst engaged on the business of the Company or in the discharge of their duties
as Directors.
The Directors may grant special remuneration to any Director who shall perform any special or
extra services at the request of the Company. Such special remuneration may be made payable to such
Director in addition to or in substitution for his ordinary remuneration as a Director, and may be made
payable by way of salary, commission or participation in profits or otherwise as may be agreed.
The remuneration of an executive Director or a Director appointed to any other office in the
management of the Company shall from time to time be fixed by the Directors and may be by way of
salary, commission or participation in profits or otherwise or by all or any of those modes and with
such other benefits (including share option and/or pension and/or gratuity and/or other benefits on
retirement) and allowances as the Directors may from time to time decide. Such remuneration shall
be in addition to such remuneration as the recipient may be entitled to receive as a Director.
(h)
Retirement, appointment and removal
The Directors shall have power at any time and from time to time to appoint any person to be
a Director, either to fill a casual vacancy or as an addition to the existing Directors. Any Director so
appointed shall hold office only until the next general meeting of the Company and shall then be
eligible for re-election at that meeting.
The Company may by ordinary resolution remove any Director (including a Managing Director
or other executive Director) before the expiration of his period of office notwithstanding anything in
the Articles of Association or in any agreement between the Company and such Director (but without
prejudice to any claim for compensation or damages payable to him in respect of the termination of
his appointment as Director or of any other appointment of office as a result of the termination of this
appointment as Director). The Company may by ordinary resolution appoint another person in his
place. Any Director so appointed shall hold office during such time only as the Director in whose place
he is appointed would have held the same if he had not been removed. The Company may also by
— IV-4 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX IV
SUMMARY OF THE CONSTITUTION OF OUR COMPANY
AND CAYMAN COMPANIES LAW
ordinary resolution elect any person to be a Director, either to fill a casual vacancy or as an addition
to the existing Directors. Any Director so appointed shall hold office only until the next following
general meeting of the Company and shall then be eligible for re-election but shall not be taken into
account in determining the Directors who are to retire by rotation at such meeting. No person shall,
unless recommended by the Directors, be eligible for election to the office of Director at any general
meeting unless, during the period, which shall be at least seven days, commencing no earlier than the
day after the despatch of the notice of the meeting appointed for such election and ending no later than
seven days prior to the date of such meeting, there has been given to the Secretary of the Company
notice in writing by a member of the Company (not being the person to be proposed) entitled to attend
and vote at the meeting for which such notice is given of his intention to propose such person for
election and also notice in writing signed by the person to be proposed of his willingness to be elected.
There is no shareholding qualification for Directors nor is there any specified age limit for
Directors.
The office of a Director shall be vacated:
(i)
if he resigns his office by notice in writing to the Company at its registered office or its
principal office in Hong Kong;
(ii)
if an order is 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
Directors resolve that his office be vacated;
(iii) if, without leave, he is absent from meetings of the Directors (unless an alternate Director
appointed by him attends) for 12 consecutive months, and the Directors resolve that his
office be vacated;
(iv) if he becomes bankrupt or has a receiving order made against him or suspends payment or
compounds with his creditors generally;
(v)
if he ceases to be or is prohibited from being a Director by law or by virtue of any provision
in the Articles of Association;
(vi) 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) for the time being then in office; or
(vii) if he shall be removed from office by an ordinary resolution of the members of the
Company under the Articles of Association.
At every annual general meeting of the Company one-third of the Directors for the time being,
or, if their number is not three or a multiple of three, then the number nearest to, but not less than,
one-third, shall retire from office by rotation, provided that every Director (including those appointed
— IV-5 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX IV
SUMMARY OF THE CONSTITUTION OF OUR COMPANY
AND CAYMAN COMPANIES LAW
for a specific term) shall be subject to retirement by rotation at least once every three years. A retiring
Director shall retain office until the close of the meeting at which he retires and shall be eligible for
re-election thereat. The Company at any annual general meeting at which any Directors retire may fill
the vacated office by electing a like number of persons to be Directors.
(i)
Borrowing powers
The Directors may from time to time at their discretion exercise all the powers of the Company
to raise or borrow or to secure the payment of any sum or sums of money for the purposes of the
Company and to mortgage or charge its undertaking, property and assets (present and future) and
uncalled capital or any part thereof.
(j)
Proceedings of the Board
The Directors may meet together for the despatch of business, adjourn and otherwise regulate
their meetings and proceedings as they think fit in any part of the world. 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.
2.3
Alteration to constitutional documents
No alteration or amendment to the Memorandum or Articles of Association may be made except
by special resolution.
2.4
Variation of rights of existing shares or classes of shares
If at any time the share capital of the Company is divided into different classes of shares, all or
any of the rights attached to any class of shares for the time being issued (unless otherwise provided
for in the terms of issue of the shares of that class) may, subject to the provisions of the Cayman
Companies Law, be varied 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 meeting of the holders of the shares of that class. To every such
separate meeting all the provisions of the Articles of Association relating to general meetings shall
mutatis mutandis apply, but so that the quorum for the purposes of any such separate meeting and of
any adjournment thereof shall be a person or persons together holding (or representing by proxy or
duly authorised representative) at the date of the relevant meeting not less than one-third in nominal
value of the issued shares of that class.
The special rights conferred upon the holders of shares of any class shall not, unless otherwise
expressly provided in the rights attaching to or the terms of issue of such shares, be deemed to be
varied by the creation or issue of further shares ranking pari passu therewith.
— IV-6 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX IV
2.5
SUMMARY OF THE CONSTITUTION OF OUR COMPANY
AND CAYMAN COMPANIES LAW
Alteration of capital
The Company may, from time to time, whether or not all the shares for the time being authorised
shall have been issued and whether or not all the shares for the time being issued shall have been fully
paid up, by ordinary resolution, increase its share capital by the creation of new shares, such new
capital to be of such amount and to be divided into shares of such respective amounts as the resolution
shall prescribe.
The Company may from time to time by ordinary resolution:
(a)
consolidate and divide all or any of its share capital into shares of a larger amount than its
existing shares. On any consolidation of fully paid shares and division into shares of larger
amount, the Directors may settle any difficulty which may arise as they think expedient and
in particular (but without prejudice to the generality of the foregoing) may as between the
holders of shares to be consolidated determine which particular shares are to be
consolidated into each consolidated share, and if it shall happen that any person shall
become entitled to fractions of a consolidated share or shares, such fractions may be sold
by some person appointed by the Directors for that purpose and the person so appointed
may transfer the shares so sold to the purchaser thereof and the validity of such transfer
shall not be questioned, and so that the net proceeds of such sale (after deduction of the
expenses of such sale) may either be distributed among the persons who would otherwise
be entitled to a fraction or fractions of a consolidated share or shares rateably in accordance
with their rights and interests or may be paid to the Company for the Company’s benefit;
(b)
cancel any 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 subject to the provisions of the Cayman Companies Law;
and
(c)
sub-divide its shares or any of them into shares of smaller amount than is fixed by the
Memorandum and Articles of Association, subject nevertheless to the provisions of the
Cayman Companies Law, and so that the resolution whereby any share is sub-divided may
determine that, as between the holders of the shares resulting from such sub-division, one
or more of the shares may have any such preferred or other special rights, over, or may have
such deferred rights or be subject to any such restrictions as compared with the others as
the Company has power to attach to unissued or new shares.
The Company may by special resolution reduce its share capital or any capital redemption
reserve in any manner authorised and subject to any conditions prescribed by the Cayman Companies
Law.
2.6
Special resolution — majority required
A “special resolution” is defined in the Articles of Association to have the meaning ascribed
thereto in the Cayman Companies Law, for which purpose, the requisite majority shall be not less than
— IV-7 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX IV
SUMMARY OF THE CONSTITUTION OF OUR COMPANY
AND CAYMAN COMPANIES LAW
three-fourths of the votes of such members of the Company as, being entitled to do so, vote in person
or, in the case of corporations, by their duly authorised representatives or, where proxies are allowed,
by proxy at a general meeting of which notice specifying the intention to propose the resolution as a
special resolution has been duly given and includes a special resolution approved in writing by all of
the members of the Company entitled to vote at a general meeting of the Company in one or more
instruments each signed by one or more of such members, and the effective date of the special
resolution so adopted shall be the date on which the instrument or the last of such instruments (if more
than one) is executed.
In contrast, an “ordinary resolution” is defined in the Articles of Association 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 corporations, by their duly authorised representatives or, where
proxies are allowed, by proxy at a general meeting held in accordance with the Articles of Association
and includes an ordinary resolution approved in writing by all the members of the Company aforesaid.
2.7
Voting rights
Subject to any special rights, privileges or restrictions as to voting for the time being attached
to any class or classes of shares, at any general meeting on a poll every member present in person (or,
in the case of a member being a corporation, by its duly authorised representative) or by proxy shall
have one vote for each share registered in his name in the register of members of the Company.
Where any member is, under the Listing Rules, required to abstain from voting on any particular
resolution or restricted to voting only for or only against any particular resolution, any votes cast by
or on behalf of such member in contravention of such requirement or restriction shall not be counted.
In the case of joint registered holders of any share, any one of such persons may vote at any
meeting, either personally or by proxy, in respect of such share as if he were solely entitled thereto;
but if more than one of such joint holders be present at any meeting personally or by proxy, that one
of the said persons so present being the most or, as the case may be, the more senior shall alone be
entitled to vote in respect of the relevant joint holding and, for this purpose, seniority shall be
determined by reference to the order in which the names of the joint holders stand on the register in
respect of the relevant joint holding.
A member of the Company in respect of whom an order has been 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 may vote by any person authorised in such circumstances to do so and such
person may vote by proxy.
Save as expressly provided in the Articles of Association or as otherwise determined by the
Directors, no person other than a member of the Company duly registered and who shall have paid all
sums for the time being due from him payable to the Company in respect of his shares shall be entitled
to be present or to vote (save as proxy for another member of the Company), or to be reckoned in a
quorum, either personally or by proxy at any general meeting.
— IV-8 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX IV
SUMMARY OF THE CONSTITUTION OF OUR COMPANY
AND CAYMAN COMPANIES LAW
At any general meeting a resolution put to the vote of the meeting shall be decided by way of
a poll save that the chairman of the meeting may allow a resolution which relates purely to a
procedural or administrative matter as prescribed under the Listing Rules to be voted on by a show
of hands.
If a recognised clearing house (or its nominee(s)) is a member of the Company it may authorise
such person or persons as it thinks fit to act as its proxy(ies) or representative(s) at any general
meeting of the Company or at any general 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 pursuant to this
provision shall be entitled to exercise the same rights and powers on behalf of the recognised clearing
house (or its nominee(s)) which he represents as that recognised clearing house (or its nominee(s))
could exercise as if it were an individual member of the Company holding the number and class of
shares specified in such authorisation, including, where a show of hands is allowed, the right to vote
individually on a show of hands.
2.8
Annual general meetings
The Company shall hold a general meeting as its annual general meeting each year, within a
period of not more than 15 months after the holding of the last preceding annual general meeting (or
such longer period as the Stock Exchange may authorise). The annual general meeting shall be
specified as such in the notices calling it.
2.9
Accounts and audit
The Directors shall cause to be kept such books of account as are necessary to give a true and
fair view of the state of the Company’s affairs and to show and explain its transactions and otherwise
in accordance with the Cayman Companies Law.
The Directors shall from time to time determine whether, and to what extent, and at what times
and places and under what conditions or regulations, the accounts and books of the Company, or any
of them, shall be open to the inspection of members of the Company (other than officers of the
Company) and no such member shall have any right of inspecting any accounts or books or documents
of the Company except as conferred by the Cayman Companies Law or any other relevant law or
regulation or as authorised by the Directors or by the Company in general meeting.
The Directors shall, commencing with the first annual general meeting, cause to be prepared and
to be laid before the members of the Company at every annual general meeting a profit and loss
account for the period, in the case of the first account, since the incorporation of the Company and,
in any other case, since the preceding account, together with a balance sheet as at the date to which
the profit and loss account is made up and a Director’s report with respect to the profit or loss of the
Company for the period covered by the profit and loss account and the state of the Company’s affairs
as at the end of such period, an auditor’s report on such accounts and such other reports and accounts
as may be required by law. Copies of those documents to be laid before the members of the Company
at an annual general meeting shall not less than 21 days before the date of the meeting, be sent in the
— IV-9 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX IV
SUMMARY OF THE CONSTITUTION OF OUR COMPANY
AND CAYMAN COMPANIES LAW
manner in which notices may be served by the Company as provided in the Articles of Association to
every member of the Company and every holder of debentures of the Company provided that the
Company shall not be required to send copies of those documents to any person of whose address the
Company is not aware or to more than one of the joint holders of any shares or debentures.
The Company shall at every annual general meeting appoint an auditor or auditors of the
Company who shall hold office until the next annual general meeting. The remuneration of the
auditors shall be fixed by the Company at the annual general meeting at which they are appointed
provided that in respect of any particular year the Company in general meeting may delegate the fixing
of such remuneration to the Directors.
2.10 Notice of meetings and business to be conducted thereat
An annual general meeting shall be called by not less than 21 days’ notice in writing and any
extraordinary general meeting shall be called by not less than 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 shall specify the time, place and agenda of the meeting, particulars of the resolutions
and the general nature of the business to be considered at the meeting. The notice convening an annual
general meeting shall specify the meeting as such, and the notice convening a meeting to pass a special
resolution shall specify the intention to propose the resolution as a special resolution. Notice of every
general meeting shall be given to the auditors and all members of the Company (other than those who,
under the provisions of the Articles of Association or the terms of issue of the shares they hold, are
not entitled to receive such notice from the Company).
Notwithstanding that a meeting of the Company is called by shorter notice than that mentioned
above, it shall be deemed to have been duly called if it is so agreed:
(a)
in the case of a meeting called as an annual general meeting, by all members of the
Company entitled to attend and vote thereat or their proxies; and
(b)
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 shares giving that right.
2.11 Transfer of shares
Transfers of shares may be effected by an instrument of transfer in the usual common form or
in such other form as the Directors may approve which is consistent with the standard form of transfer
as prescribed by the Stock Exchange.
The instrument of transfer shall be executed by or on behalf of the transferor and, unless the
Directors otherwise determine, the transferee, 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. All instruments of transfer shall be retained by the Company.
— IV-10 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX IV
SUMMARY OF THE CONSTITUTION OF OUR COMPANY
AND CAYMAN COMPANIES LAW
The Directors may refuse to register any transfer of any share which is not fully paid up or on
which the Company has a lien. The Directors may also decline to register any transfer of any shares
unless:
(a)
the instrument of transfer is lodged with the Company accompanied by the certificate for
the shares to which it relates (which shall upon the registration of the transfer be cancelled)
and such other evidence as the Directors may reasonably require to show the right of the
transferor to make the transfer;
(b)
the instrument of transfer is in respect of only one class of shares;
(c)
the instrument of transfer is properly stamped (in circumstances where stamping is
required);
(d)
in the case of a transfer to joint holders, the number of joint holders to whom the share is
to be transferred does not exceed four;
(e)
the shares concerned are free of any lien in favour of the Company; and
(f)
a fee of such amount not exceeding the maximum amount as the Stock Exchange may from
time to time determine to be payable (or such lesser sum as the Directors may from time
to time require) is paid to the Company in respect thereof.
If the Directors refuse to register a transfer of any share they shall, within two months after the
date on which the transfer was lodged with the Company, send to each of the transferor and the
transferee notice of such refusal.
The registration of transfers may, on 10 business days’ notice (or on 6 business days’ notice in
the case of a rights issue) being given by advertisement published on the Stock Exchange’s website,
or, subject to the Listing Rules, by electronic communication in the manner in which notices may be
served by the Company by electronic means as provided in the Articles of Association or by
advertisement published in the newspapers, be suspended and the register of members of the Company
closed at such times for such periods as the Directors may from time to time determine, provided that
the registration of transfers shall not be suspended or the register closed for more than 30 days in any
year (or such longer period as the members of the Company may by ordinary resolution determine
provided that such period shall not be extended beyond 60 days in any year).
2.12 Power of the Company to purchase its own shares
The Company is empowered by the Cayman Companies Law and the Articles of Association to
purchase its own shares subject to certain restrictions and the Directors may only exercise this power
on behalf of the Company subject to the authority of its members in general meeting as to the manner
in which they do so and to any applicable requirements imposed from time to time by the Stock
Exchange and the Securities and Futures Commission of Hong Kong. Shares which have been
repurchased will be treated as cancelled upon the repurchase.
— IV-11 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX IV
SUMMARY OF THE CONSTITUTION OF OUR COMPANY
AND CAYMAN COMPANIES LAW
2.13 Power of any subsidiary of the Company to own shares
There are no provisions in the Articles of Association relating to the ownership of shares by a
subsidiary.
2.14 Dividends and other methods of distribution
Subject to the Cayman Companies Law and Articles of Association, the Company in general
meeting may declare dividends in any currency but no dividends shall exceed the amount
recommended by the Directors. No dividend may be declared or paid other than out of profits and
reserves of the Company lawfully available for distribution, including share premium.
Unless and to the extent that the rights attached to any shares or the terms of issue thereof
otherwise provide, all dividends shall (as regards any shares not fully paid throughout the period in
respect of which the dividend is paid) be apportioned and paid pro rata according to the amounts paid
up on the shares during any portion or portions of the period in respect of which the dividend is paid.
For these purposes no amount paid up on a share in advance of calls shall be treated as paid up on
the share.
The Directors may from time to time pay to the members of the Company such interim dividends
as appear to the Directors to be justified by the profits of the Company. The Directors may also pay
half-yearly or at other intervals to be selected by them at a fixed rate if they are of the opinion that
the profits available for distribution justify the payment.
The Directors may retain any dividends or other monies payable on or in respect of a share upon
which the Company has a lien, and may apply the same in or towards satisfaction of the debts,
liabilities or engagements in respect of which the lien exists. The Directors may also deduct from any
dividend or other monies payable to any member of the Company all sums of money (if any) presently
payable by him to the Company on account of calls, instalments or otherwise.
No dividend shall carry interest against the Company.
Whenever the Directors or the Company in general meeting have resolved that a dividend be paid
or declared on the share capital of the Company, the Directors may further resolve: (a) that such
dividend be satisfied wholly or in part in the form of an allotment of shares credited as fully paid up
on the basis that the shares so allotted are to be of the same class as the class already held by the
allottee, provided that the members of the Company entitled thereto will be entitled to elect to receive
such dividend (or part thereof) in cash in lieu of such allotment; or (b) that the members of the
Company 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 Directors may think fit on the
basis that the shares so allotted are to be of the same class as the class already held by the allottee.
The Company may upon the recommendation of the Directors by ordinary resolution resolve in respect
of any one particular dividend of the Company that notwithstanding the foregoing a dividend may be
satisfied wholly in the form of an allotment of shares credited as fully paid without offering any right
to members of the Company to elect to receive such dividend in cash in lieu of such allotment.
— IV-12 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX IV
SUMMARY OF THE CONSTITUTION OF OUR COMPANY
AND CAYMAN COMPANIES LAW
Any dividend, interest or other sum payable in cash to a holder of shares may be paid by cheque
or warrant sent through the post addressed to the registered address of the member of the Company
entitled, or in the case of joint holders, to the registered address of the person whose name stands first
in the register of members of the Company in respect of the joint holding or to such person and to such
address as the holder or joint holders may in writing direct. Every cheque or warrant so sent shall be
made payable to the order of the holder or, in the case of joint holders, to the order of the holder whose
name stands first on the register of members of the Company in respect of such shares, and shall be
sent at his or their risk and the payment of any such cheque or warrant by the bank on which it is drawn
shall operate as a good discharge to the Company in respect of the dividend and/or bonus represented
thereby, notwithstanding that it may subsequently appear that the same has been stolen or that any
endorsement thereon has been forged. The Company may cease sending such cheques for dividend
entitlements or dividend warrants by post if such cheques or warrants have been left uncashed on two
consecutive occasions. However, the Company may exercise its power to cease sending cheques for
dividend entitlements or dividend warrants after the first occasion on which such a cheque or warrant
is returned undelivered. 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.
Any dividend unclaimed for six years from the date of declaration of such dividend may be
forfeited by the Directors and shall revert to the Company.
The Directors may, with the sanction of the members of the Company in general meeting, direct
that any dividend be satisfied wholly or in part by the distribution of specific assets of any kind, and
in particular of paid up shares, debentures or warrants to subscribe securities of any other company,
and where any difficulty arises in regard to such distribution the Directors may settle it as they think
expedient, and in particular may disregard fractional entitlements, round the same up or down or
provide that the same shall accrue to the benefit of the Company, and may fix the value for distribution
of such specific assets and may determine that cash payments shall be made to any members of the
Company upon the footing of the value so fixed in order to adjust the rights of all parties, and may
vest any such specific assets in trustees as may seem expedient to the Directors.
2.15 Proxies
Any member of the Company entitled to attend and vote at a meeting of the Company shall be
entitled to appoint another person who must be an individual as his proxy to attend and vote instead
of him and a proxy so appointed shall have the same right as the member to speak at the meeting. A
proxy need not be a member of the Company.
Instruments of proxy shall be in common form or in such other form as the Directors may from
time to time approve provided that it shall enable a member to instruct his proxy to vote in favour of
or against (or in default of instructions or in the event of conflicting instructions, to exercise his
discretion in respect of) each resolution to be proposed at the meeting to which the form of proxy
relates. The instrument of proxy shall be deemed to confer authority to vote on any amendment of a
— IV-13 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX IV
SUMMARY OF THE CONSTITUTION OF OUR COMPANY
AND CAYMAN COMPANIES LAW
resolution put to the meeting for which it is given as the proxy thinks fit. The instrument of proxy
shall, unless the contrary is stated therein, be valid as well for any adjournment of the meeting as for
the meeting to which it relates provided that the meeting was originally held within 12 months from
such date.
The instrument appointing a proxy shall be in writing under the hand of the appointor or his
attorney authorised in writing or if the appointor is a corporation either under its seal or under the
hand of an officer, attorney or other person authorised to sign the same.
The instrument appointing a proxy and (if required by the Directors) the power of attorney or
other authority (if any) under which it is signed, or a notarially certified copy of such power or
authority, shall be delivered at the registered office of the Company (or at such other place as may be
specified in the notice convening the meeting or in any notice of any adjournment or, in either case,
in any document sent therewith) not less than 48 hours before the time appointed for holding the
meeting or adjourned meeting at which the person named in the instrument proposes to vote or, in the
case of a poll taken subsequently to the date of a meeting or adjourned meeting, not less than 48 hours
before the time appointed for the taking of the poll and in default the instrument of proxy shall not
be treated as valid. No instrument appointing a proxy shall be valid after the expiration of 12 months
from the date named in it as the date of its execution. Delivery of any instrument appointing a proxy
shall not preclude a member of the Company from attending and voting in person at the meeting or
poll concerned and, in such event, the instrument appointing a proxy shall be deemed to be revoked.
2.16 Calls on shares and forfeiture of shares
The Directors may from time to time make calls upon the members of the Company in respect
of any monies unpaid on their shares (whether on account of the nominal amount of the shares or by
way of premium or otherwise) and not by the conditions of allotment thereof made payable at fixed
times and each member of the Company shall (subject to the Company serving upon him at least 14
days’ notice specifying the time and place of payment and to whom such payment shall be made) pay
to the person at the time and place so specified the amount called on his shares. A call may be revoked
or postponed as the Directors may determine. A person upon whom a call is made shall remain liable
on such call notwithstanding the subsequent transfer of the shares in respect of which the call was
made.
A call may be made payable either in one sum or by instalments and shall be deemed to have been
made at the time when the resolution of the Directors authorising the call was passed. The joint holders
of a share shall be jointly and severally liable to pay all calls and instalments due in respect of such
share or other monies due in respect thereof.
If a sum called in respect of a share shall not be paid before or on the day appointed for payment
thereof, the person from whom the sum is due shall pay interest on the sum from the day appointed
for payment thereof to the time of actual payment at such rate, not exceeding 15% per annum, as the
Directors may determine, but the Directors shall be at liberty to waive payment of such interest wholly
or in part.
— IV-14 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX IV
SUMMARY OF THE CONSTITUTION OF OUR COMPANY
AND CAYMAN COMPANIES LAW
If any call or instalment of a call remains unpaid on any share after the day appointed for
payment thereof, the Directors may at any time during such time as any part thereof remains unpaid
serve a notice on the holder of such shares requiring payment of so much of the call or instalment as
is unpaid together with any interest which may be accrued and which may still accrue up to the date
of actual payment.
The notice shall name a further day (not being less than 14 days from the date of service of the
notice) on or before which, and the place where, the payment required by the notice is to be made,
and shall state that in the event of non-payment at or before the time and at the place appointed, the
shares in respect of which such call was made or instalment is unpaid will be liable to be forfeited.
If the requirements of such notice are not complied with, any share in respect of which such
notice has been given may at any time thereafter, before payment of all calls or instalments and
interest due in respect thereof has been made, be forfeited by a resolution of the Directors to that
effect. Such forfeiture shall include all dividends and bonuses declared in respect of the forfeited
shares and not actually paid before the forfeiture. A forfeited share shall be deemed to be the property
of the Company and may be re-allotted, sold or otherwise disposed of.
A person whose shares have been forfeited shall cease to be a member of the Company in respect
of the forfeited shares but shall, notwithstanding the forfeiture, 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 Directors shall in their discretion so require) interest thereon at such rate not
exceeding 15% per annum as the Directors may prescribe from the date of forfeiture until payment,
and the Directors may enforce payment thereof without being under any obligation to make any
allowance for the value of the shares forfeited, at the date of forfeiture.
2.17 Inspection of register of members
The register of members of the Company shall be kept in such manner as to show at all times
the members of the Company for the time being and the shares respectively held by them. The register
may, on 10 business days’ notice (or on 6 business days’ notice in the case of a rights issue) being
given by advertisement published on the Stock Exchange’s website, or, subject to the Listing Rules,
by electronic communication in the manner in which notices may be served by the Company by
electronic means as provided in the Articles of Association or by advertisement published in the
newspapers, be closed at such times and for such periods as the Directors may from time to time
determine either generally or in respect of any class of shares, provided that the register shall not be
closed for more than 30 days in any year (or such longer period as the members of the Company may
by ordinary resolution determine provided that such period shall not be extended beyond 60 days in
any year).
Any register of members kept in Hong Kong shall during normal business hours (subject to such
reasonable restrictions as the Directors may impose) be open to inspection by any member of the
Company without charge and by any other person on payment of a fee of such amount not exceeding
the maximum amount as may from time to time be permitted under the Listing Rules as the Directors
may determine for each inspection.
— IV-15 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX IV
SUMMARY OF THE CONSTITUTION OF OUR COMPANY
AND CAYMAN COMPANIES LAW
2.18 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, but the absence of a quorum shall not preclude the appointment, choice
or election of a chairman which shall not be treated as part of the business of the meeting.
Two members of the Company present in person or by proxy shall be a quorum provided always
that if the Company has only one member of record the quorum shall be that one member present in
person or by proxy.
A corporation being a member of the Company shall be deemed for the purpose of the Articles
of Association to be present in person if represented by its duly authorised representative being the
person appointed by resolution of the directors or other governing body of such corporation or by
power of attorney to act as its representative at the relevant general meeting of the Company or at any
relevant general meeting of any class of members of the Company.
The quorum for a separate general meeting of the holders of a separate class of shares of the
Company is described in paragraph 2.4 above.
2.19 Rights of minorities in relation to fraud or oppression
There are no provisions in the Articles of Association concerning the rights of minority
shareholders in relation to fraud or oppression.
2.20 Procedure on liquidation
If the Company shall be wound up, and the assets available for distribution amongst the members
of the Company 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 of the Company
in proportion to the capital paid up, or which ought to have been paid up, at the commencement of
the winding up on the shares held by them respectively. If in a winding up 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, the excess shall be distributed amongst
the members of the Company in proportion to the capital paid up at the commencement of the winding
up on the shares held by them respectively. The foregoing is without prejudice to the rights of the
holders of shares issued upon special terms and conditions.
If the Company shall be wound up, the liquidator may with the sanction of a special resolution
of the Company and any other sanction required by the Cayman Companies Law, divide amongst the
members of the Company in specie or kind the whole or any part of the assets of the Company
(whether they shall consist of property of the same kind or not) and may, for such purpose, set such
value as he deems fair upon any 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 of the Company.
The liquidator may, with the like sanction, vest the whole or any part of such assets in trustees upon
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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX IV
SUMMARY OF THE CONSTITUTION OF OUR COMPANY
AND CAYMAN COMPANIES LAW
such trusts for the benefit of the members of the Company as the liquidator, with the like sanction and
subject to the Cayman Companies Law, shall think fit, but so that no member of the Company shall
be compelled to accept any assets, shares or other securities in respect of which there is a liability.
2.21 Untraceable members
The Company shall be entitled to sell any shares of a member of the Company or the shares to
which a person is entitled by virtue of transmission on death or bankruptcy or operation of law if: (a)
all cheques or warrants, not being less than three in number, for any sums payable in cash to the holder
of such shares have remained uncashed for a period of 12 years; (b) the Company has not during that
time or before the expiry of the three month period referred to in (d) below received any indication
of the whereabouts or existence of the member; (c) during the 12 year period, at least three dividends
in respect of the shares in question have become payable and no dividend during that period has been
claimed by the member; and (d) upon expiry of the 12 year period, the Company has caused an
advertisement to be published in the newspapers or subject to the Listing Rules, by electronic
communication in the manner in which notices may be served by the Company by electronic means
as provided in the Articles of Association, giving notice of its intention to sell such shares and a period
of three months has elapsed since such advertisement and the Stock Exchange 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 for an amount equal
to such net proceeds.
SUMMARY OF CAYMAN ISLANDS COMPANY LAW AND TAXATION
1
Introduction
The Cayman Companies Law is derived, to a large extent, from the older Companies Acts of
England, although there are significant differences between the Cayman Companies Law and the
current Companies Act of England. Set out below is a summary of certain provisions of the Cayman
Companies Law, although this does not purport to contain all applicable qualifications and exceptions
or to be a complete review of all matters of corporate law and taxation which may differ from
equivalent provisions in jurisdictions with which interested parties may be more familiar.
2
Incorporation
The Company was incorporated in the Cayman Islands as an exempted company with limited
liability on 29 March 2016 under the Cayman Companies Law. As such, its operations must be
conducted mainly outside the Cayman Islands. 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 size
of its authorised share capital.
3
Share Capital
The Cayman Companies Law permits a company to issue ordinary shares, preference shares,
redeemable shares or any combination thereof.
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THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX IV
SUMMARY OF THE CONSTITUTION OF OUR COMPANY
AND CAYMAN COMPANIES LAW
The Cayman Companies Law provides that where a company issues shares at a premium, whether
for cash or otherwise, a sum equal to the aggregate amount of the value of the premia on those shares
shall be transferred to an account called the “share premium account”. At the option of a company,
these provisions may not apply to premia on shares of that company allotted pursuant to any
arrangement in consideration of the acquisition or cancellation of shares in any other company and
issued at a premium. The Cayman Companies Law provides that the share premium account may be
applied by a 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:
(a)
paying distributions or dividends to members;
(b)
paying up unissued shares of the company to be issued to members as fully paid bonus
shares;
(c)
in the redemption and repurchase of shares (subject to the provisions of section 37 of the
Cayman Companies Law);
(d)
writing-off the preliminary expenses of the company;
(e)
writing-off the expenses of, or the commission paid or discount allowed on, any issue of
shares or debentures of the company; and
(f)
providing for the premium payable on redemption or purchase of any shares or debentures
of the company.
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.
The Cayman Companies Law provides that, subject to confirmation by the Grand Court of the
Cayman Islands, 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, by special resolution reduce its share capital
in any way.
Subject to the detailed provisions of the Cayman Companies Law, 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 shareholder. In addition, such a company may, if authorised to do so by its articles of
association, purchase its own shares, including any redeemable shares. The manner of such a purchase
must be authorised either by the articles of association or by an ordinary resolution of the company.
The articles of association may provide that the manner of purchase may be determined by the
directors of the company. At no time may a company redeem or purchase its shares unless they are
fully paid. A company may not redeem or purchase any of its shares if, as a result of the redemption
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THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX IV
SUMMARY OF THE CONSTITUTION OF OUR COMPANY
AND CAYMAN COMPANIES LAW
or purchase, there would no longer be any member of the company holding shares. 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.
There is no statutory restriction in the Cayman Islands on the provision of financial assistance
by a company for the purchase of, or subscription for, its own or its holding company’s shares.
Accordingly, a company may provide financial assistance if the directors of the company consider, in
discharging their duties of care and to act in good faith, for a proper purpose and in the interests of
the company, that such assistance can properly be given. Such assistance should be on an arm’s-length
basis.
4
Dividends and Distributions
With the exception of section 34 of the Cayman 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 in this area, dividends may be paid only out of profits. In addition,
section 34 of the Cayman 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 paragraph 3 above for details).
5
Shareholders’ Suits
The Cayman Islands courts can be expected to follow English case law precedents. The rule in
Foss v. Harbottle (and the exceptions thereto which permit a minority shareholder to commence a class
action against or derivative actions in the name of the company to challenge (a) an act which is ultra
vires the company or illegal, (b) an act which constitutes a fraud against the minority where the
wrongdoers are themselves in control of the company, and (c) an action which requires a resolution
with a qualified (or special) majority which has not been obtained) has been applied and followed by
the courts in the Cayman Islands.
6
Protection of Minorities
In the case of a company (not being a bank) having a share capital divided into shares, the Grand
Court of the Cayman Islands may, on the application of members holding not less than one-fifth of the
shares of the company in issue, appoint an inspector to examine into the affairs of the company and
to report thereon in such manner as the Grand Court shall direct.
Any shareholder of a company may petition the Grand Court of the Cayman Islands 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.
Claims against a company by its shareholders must, as a general rule, be based on the general
laws of contract or tort applicable in the Cayman Islands or their individual rights as shareholders as
established by the company’s memorandum and articles of association.
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THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX IV
SUMMARY OF THE CONSTITUTION OF OUR COMPANY
AND CAYMAN COMPANIES LAW
The English common law rule that the majority will not be permitted to commit a fraud on the
minority has been applied and followed by the courts of the Cayman Islands.
7
Disposal of Assets
The Cayman Companies Law contains no specific restrictions on the powers of directors to
dispose of assets of a company. As a matter of general law, in the exercise of those powers, the
directors must discharge their duties of care and to act in good faith, for a proper purpose and in the
interests of the company.
8
Accounting and Auditing Requirements
The Cayman Companies Law requires that a company shall cause to be kept proper books of
account with respect to:
(a)
all sums of money received and expended by the company and the matters in respect of
which the receipt and expenditure takes place;
(b)
all sales and purchases of goods by the company; and
(c)
the assets and liabilities of the company.
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.
9
Register of Members
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 without
the Cayman Islands, as its directors may from time to time think fit. There is no requirement under
the Cayman Companies Law for an exempted company to make any returns of members to the
Registrar of Companies of 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.
10
Inspection of Books and Records
Members of a company will have no general right under the Cayman 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.
— IV-20 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX IV
11
SUMMARY OF THE CONSTITUTION OF OUR COMPANY
AND CAYMAN COMPANIES LAW
Special Resolutions
The Cayman Companies Law provides that a resolution is a special resolution when it has been
passed by a majority of at least two-thirds of such members as, being entitled to do so, vote in person
or, where proxies are allowed, by proxy at a general meeting of which notice specifying the intention
to propose the resolution as a special resolution has been duly given, except that a company may in
its articles of association specify that the required majority shall be a number greater than two-thirds,
and may additionally so provide that such majority (being not less than two-thirds) may differ as
between matters required to be approved by a special resolution. Written resolutions signed by all the
members entitled to vote for the time being of the company may take effect as special resolutions if
this is authorised by the articles of association of the company.
12
Subsidiary Owning Shares in Parent
The Cayman Companies Law does not prohibit a Cayman Islands company acquiring and holding
shares in its parent company provided its objects so permit. The directors of any subsidiary making
such acquisition must discharge their duties of care and to act in good faith, for a proper purpose and
in the interests of the subsidiary.
13
Mergers and Consolidations
The Cayman Companies Law permits mergers and consolidations between Cayman Islands
companies and between Cayman Islands companies and non-Cayman Islands companies. For these
purposes, (a) “merger” means the merging of two or more constituent companies and the vesting of
their undertaking, property and liabilities in one of such companies as the surviving company, and (b)
“consolidation” means the combination of two or more constituent companies into a consolidated
company and the vesting of the undertaking, property and liabilities of such companies to the
consolidated company. In order to effect such a merger or consolidation, the directors of each
constituent company must approve a written plan of merger or consolidation, which must then be
authorised by (a) a special resolution of each constituent company and (b) such other authorisation,
if any, as may be specified in such constituent company’s articles of association. The written plan of
merger or consolidation must be filed with the Registrar of Companies of the Cayman Islands together
with a declaration as to the solvency of the consolidated or surviving company, a list of the assets and
liabilities of each constituent company and an undertaking that a copy of the certificate of merger or
consolidation will be given to the members and creditors of each constituent company and that
notification of the merger or consolidation will be published in the Cayman Islands Gazette.
Dissenting shareholders have the right to be paid the fair value of their shares (which, if not agreed
between the parties, will be determined by the Cayman Islands court) if they follow the required
procedures, subject to certain exceptions. Court approval is not required for a merger or consolidation
which is effected in compliance with these statutory procedures.
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THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX IV
14
SUMMARY OF THE CONSTITUTION OF OUR COMPANY
AND CAYMAN COMPANIES LAW
Reconstructions
There are statutory provisions which facilitate reconstructions and amalgamations approved by
a majority in number representing 75% in value of shareholders or creditors, depending on the
circumstances, as are present at a meeting called for such purpose and thereafter sanctioned by the
Grand Court of the Cayman Islands. Whilst a dissenting shareholder would have the right to express
to the Grand Court his view that the transaction for which approval is sought would not provide the
shareholders with a fair value for their shares, the Grand Court is 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 shareholder would
have no rights comparable to the appraisal rights (i.e. the right to receive payment in cash for the
judicially determined value of his shares) ordinarily available, for example, to dissenting shareholders
of United States corporations.
15
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 shareholders to transfer their shares on the terms of the offer. A dissenting
shareholder may apply to the Grand Court of the Cayman Islands within one month of the notice
objecting to the transfer. The burden is on the dissenting shareholder to show that the Grand 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 shareholders.
16
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, except to the extent any such provision may be
held by the Cayman Islands courts to be contrary to public policy (e.g. for purporting to provide
indemnification against the consequences of committing a crime).
17
Liquidation
A company may be placed in liquidation compulsorily by an order of the court, or voluntarily (a)
by a special resolution of its members if the company is solvent, or (b) by an ordinary resolution of
its members if the company is insolvent. The liquidator’s duties are to collect the assets of the
company (including the amount (if any) due from the contributories (shareholders)), settle the list of
creditors and discharge the company’s liability to them, rateably if insufficient assets exist to
discharge the liabilities in full, and to settle the list of contributories and divide the surplus assets (if
any) amongst them in accordance with the rights attaching to the shares.
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THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX IV
18
SUMMARY OF THE CONSTITUTION OF OUR COMPANY
AND CAYMAN COMPANIES LAW
Stamp Duty on Transfers
No stamp duty is payable in the Cayman Islands on transfers of shares of Cayman Islands
companies except those which hold interests in land in the Cayman Islands.
19
Taxation
Pursuant to section 6 of the Tax Concessions Law (2011 Revision) of the Cayman Islands, the
Company may obtain an undertaking from the Governor in Cabinet:
(a)
that no law which is enacted in the Cayman Islands imposing any tax to be levied on profits,
income, gains or appreciations shall apply to the Company or its operations; and
(b)
in addition, that no tax to be levied on profits, income, gains or appreciations or which is
in the nature of estate duty or inheritance tax shall be payable:
(i)
on or in respect of the shares, debentures or other obligations of the Company; or
(ii)
by way of the withholding in whole or in part of any relevant payment as defined in
section 6(3) of the Tax Concessions Law (2011 Revision).
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
executed in or brought within the jurisdiction of the Cayman Islands. The Cayman Islands are not
party to any double tax treaties that are applicable to any payments made by or to the Company.
20
Exchange Control
There are no exchange control regulations or currency restrictions in the Cayman Islands.
21
General
Maples and Calder, the Company’s legal advisers on Cayman Islands law, have sent to the
Company a letter of advice summarising aspects of Cayman Islands company law. This letter, together
with a copy of the Cayman Companies Law, is available for inspection as referred to in the section
headed “Documents available for inspection” in Appendix VI to this document. 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/she is more familiar is recommended to seek
independent legal advice.
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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX V
STATUTORY AND GENERAL INFORMATION
A.
FURTHER INFORMATION ABOUT OUR COMPANY AND OUR SUBSIDIARIES
1.
Incorporation
Our Company was incorporated in the Cayman Islands under the Cayman Companies Law as an
exempted company with limited liability on March 29, 2016. Our Company has established a place of
business in Hong Kong at Room 1501 (721), 15/F, SPA Centre, 53-55 Lockhart Road, Wanchai, Hong
Kong and was registered with the Registrar of Companies in Hong Kong as a non-Hong Kong company
under Part 16 of the Companies Ordinance on June 24, 2016. Mr. Yeung Wai Leung (楊偉樑先生) has
been appointed as the authorized representative of our Company for the acceptance of service of
process in Hong Kong.
As our Company was incorporated in the Cayman Islands, it operates subject to the Cayman
Companies Law and its constitution comprises of the Memorandum and the Articles of Association.
A summary of certain provisions of the Memorandum and the Articles of Association and relevant
aspects of the Cayman Companies Law is set forth in Appendix IV to this document.
2.
Changes in the share capital of our Company
The authorized share capital of our Company as of the date of its incorporation was US$50,000
divided into 50,000 Shares with a par share of US$1.00 each.
On March 29, 2016, one share with a par value of US1.00 was allotted and issued at par to
NovaSage Incorporations (Cayman) Limited as the initial subscriber credited as fully paid. The share
was transferred to Min Yu on the same day.
On March 29, 2016, our Company allotted and issued 6,999 shares, 2,850 shares and 150 shares,
each with a par value of US$1.00 to Min Yu, Zhen Lian and Ruby City, respectively.
Pursuant to the resolutions in writing of all our Shareholders passed on June 27, 2016, each share
of a par value of US$1.00 in the authorized share capital of the Company was subdivided into 100
ordinary Shares of a par value of US$0.01 each. As a result of the share sub-division, the authorized
share capital of the Company is US$50,000 divided into 5,000,000 ordinary Shares of a par value of
US$0.01 each.
Pursuant to the resolutions in writing of all our Shareholders passed on [●], the authorised share
capital of the Company was increased from US$50,000 to US$500,000,000 by the creation of an
additional 49,995,000,000 Shares ranking pari passu in all respects with the Shares then in issue.
Immediately following the [REDACTED] and completion of the [REDACTED] (assuming the
[REDACTED] is not exercised and excluding any Shares which may be allotted and issued pursuant
to the exercise of options which may be granted under the Share Option Scheme), the issued share
capital of our Company will be US$[REDACTED] divided into [REDACTED] Shares, all fully paid
or credited as fully paid and [REDACTED] Shares will remain unissued.
Save for aforesaid and as mentioned in the paragraph headed “A. Further Information about Our
Company and Our Subsidiaries—3. Resolutions in writing of all sole Shareholders passed on [date]”
below, there has been no alteration in the share capital of our Company since its incorporation.
— V-1 —
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THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX V
3.
STATUTORY AND GENERAL INFORMATION
Resolutions in writing of all our Shareholders passed on [●]
(i)
Pursuant to the resolutions in writing of all our Shareholders passed on [●]:
(a)
our Company approved and adopted the Articles of Association which will come into
effect upon [REDACTED];
(b)
the authorised share capital of the Company was increased from US$50,000 to
US$500,000,000 by the creation of an additional 49,995,000,000 Shares ranking pari
passu in all respects with the Shares then in issue;
(c)
conditional on (i) the Listing Committee of the Stock Exchange granting the approval
for the [REDACTED] of, and permission to deal in, the Shares in issue, Shares to be
issued (pursuant to the [REDACTED], the [REDACTED] and options which may be
granted under the Share Option Scheme); and (ii) the obligations of the [REDACTED]
under the [REDACTED] becoming unconditional (including, if relevant, as a result of
the waiver of any condition(s) by the [REDACTED]) (on behalf of the [REDACTED])
and the [REDACTED] not being terminated in accordance with their terms or
otherwise:
(i)
the [REDACTED] and the [REDACTED] were approved and our Directors were
authorized to effect the same and to allot and issue new Shares pursuant to the
[REDACTED];
(ii)
the proposed [REDACTED] was approved and our Directors were authorized to
implement the [REDACTED]; and
(iii) the rules of the Share Option Scheme, the principal terms of which are set forth
in the paragraph headed “D. Other Information — 1. Share Option Scheme” in
this appendix, were approved and adopted with effect from the [REDACTED]
and our Directors were authorized to grant options to subscribe for Shares
thereunder and to allot, issue and deal with Shares pursuant to the exercise of
options granted under the Share Option Scheme and to take all such actions as
may be necessary and/or desirable to implement and give effect to the Share
Option Scheme;
(d)
subject to the share premium account of our Company being credited as a result of the
issue of [REDACTED] pursuant to the [REDACTED], our Directors were authorized
to allot and issue a total of [REDACTED] Shares credited as fully paid at par value
to the holders of Shares on the register of members of our Company at the close of
business on the business day immediately preceding the [REDACTED] (or as they
may direct) in proportion to their respective shareholdings (save that no Shareholder
shall be entitled to be allotted or issued any fraction of a Share) by way of
capitalization of the sum of US$[REDACTED] standing to the credit of the share
premium account of our Company, and the Shares to be allotted and issued pursuant
to this resolution shall rank pari passu in all respects with the existing issued Shares;
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THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX V
(e)
STATUTORY AND GENERAL INFORMATION
a general unconditional mandate was granted to our Directors to, inter alia, allot, issue
and deal with Shares, securities convertible into Shares, or options, warrants or
similar rights to subscribe for any Shares or such convertible securities with an
aggregate nominal value not exceeding 20% of the aggregate nominal value of the
share capital of our Company in issue immediately following the [REDACTED]
referred to in sub-paragraph (d) above and completion of the [REDACTED].
This mandate does not cover Shares to be allotted, issued or dealt with under a rights
issue, any scrip dividend scheme or similar arrangement providing for the allotment
of Shares in lieu of the whole or part of a dividend on Shares in accordance with the
Articles of Association, specific authority granted by the Shareholders in general
meeting or upon the exercise of the [REDACTED] and options which may be granted
under the Share Option Scheme. Such mandate will expire:
(i)
at the conclusion of the next annual general meeting of our Company;
(ii)
at the end of the period within which the next annual general meeting of our
Company is required to be held under the applicable laws or the Articles of
Association; or
(iii) when revoked or varied by an ordinary resolution of our Shareholders at a
general meeting of our Company,
whichever occurs first;
(f)
a general unconditional mandate was given to our Directors to exercise all powers of
our Company to repurchase Shares with an aggregate nominal value not exceeding
10% of the aggregate nominal value of the share capital of our Company in issue
immediately following the [REDACTED] and completion of the [REDACTED]
(excluding Shares which may be allotted and issued upon the exercise of the options
which may be granted under the Share Option Scheme).
This mandate only relates to repurchase made on the Stock Exchange or on any other
stock exchange on which the Shares may be [REDACTED] (and which is recognized
by the SFC and the Stock Exchange for this purpose) and which are in accordance with
all applicable laws and regulations. Such mandate will expire:
(i)
at the conclusion of the next annual general meeting of our Company;
(ii)
at the end of the period within which the next annual general meeting of our
Company is required to be held under the applicable laws or the Articles of
Association; or
(iii) when revoked or varied by an ordinary resolution of our Shareholders at a
general meeting of our Company;
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THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX V
STATUTORY AND GENERAL INFORMATION
whichever occurs first; and
(g)
4.
the general unconditional mandate as mentioned in paragraph (e) above was extended
by the addition to the aggregate nominal value of the Shares which may be allotted and
issued or agreed to be allotted and issued by our Directors pursuant to such general
mandate of an amount representing the aggregate nominal value of the Shares
purchased by our Company pursuant to the mandate to repurchase Shares referred to
in paragraph (f) above (up to 10% of the aggregate nominal value of the Shares in
issue immediately following the [REDACTED] and completion of the [REDACTED],
excluding any Shares which may fall to be issued pursuant to the exercise of the
options which may be granted under the Share Option Scheme).
Reorganization
The companies comprising our Group underwent the Reorganization in preparation for the
[REDACTED]. Please see the section headed “History, Reorganization and Group Structure” in this
document for further details.
5.
Changes in the share capital of our subsidiaries
Save as disclosed below, there has been no alteration in the share capital of any of our
subsidiaries within the two years immediately preceding the date of this document:
Cenmingtang Hong Kong
On April 13, 2016, Cenmingtang Hong Kong was incorporated in Hong Kong under the
Companies Ordinance and allotted and issued 10,000 ordinary shares to our Company at a
consideration of HK$10,000.
6.
Particulars of our subsidiaries
Particulars of our subsidiaries are set forth in Note 1.1 to the Accountant’s Report, the text of
which is set forth in Appendix I to this document.
7.
Repurchase of Shares by our Company
(a)
Provisions of the Listing Rules
The Listing Rules permit companies whose primary listings are on the Main Board of the Stock
Exchange to repurchase their securities on the Stock Exchange subject to certain restrictions, the most
important of which are summarized below:
(i)
Shareholders’ approval
All proposed repurchases of securities on the Stock Exchange by a company with a primary
listing on the Stock Exchange must be approved in advance by an ordinary resolution of
shareholders, either by way of general mandate or by specific approval of a particular
transaction.
— V-4 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX V
STATUTORY AND GENERAL INFORMATION
(Note: Pursuant to the resolutions in writing of our sole Shareholder passed on [date], a general unconditional
mandate (the “Repurchase Mandate”) was granted to our Directors authorizing the repurchase by our
Company on the Stock Exchange, or on any other stock exchange on which the securities of our Company
may be [REDACTED] and which is recognized by the SFC and the Stock Exchange for this purpose, of
Shares with an aggregate nominal value not exceeding 10% of the aggregate nominal amount of the share
capital of our Company in issue and to be issued immediately following the [REDACTED] and completion
of the [REDACTED] (excluding Shares which may be issued upon the exercise of the options which may
be granted under the Share Option Scheme), at any time until the conclusion of the next annual general
meeting of our Company, the expiration of the period within which the next annual general meeting of our
Company is required by any applicable law or the Articles of Association to be held or when such mandate
is revoked or varied by an ordinary resolution of our Shareholders in general meeting, whichever is the
earliest.)
(ii)
Source of funds
Repurchases must be funded out of funds legally available for the purpose in accordance
with the Articles of Association and the laws of the Cayman Islands. A listed company may not
repurchase its own securities on the Stock Exchange at a consideration other than cash or for
settlement otherwise than in accordance with the trading rules of the Stock Exchange as amended
from time to time.
(b)
Reasons for repurchases
Our Directors believe that it is in the best interests of our Company and Shareholders for our
Directors to receive the general authority from our Shareholders to repurchase Shares in the market.
Repurchases of Shares will only be made when our Directors believe that such repurchases will benefit
our Company and Shareholders. Such repurchases may, depending on market conditions and funding
arrangements at the time, lead to an enhancement of the net value of our Company and its assets and/or
its earnings per Share.
(c)
Funding of repurchases
In repurchasing securities, our Company may only apply funds legally available for such purpose
in accordance with the Articles of Association and the applicable laws of the Cayman Islands.
Any payment for the repurchase of Shares will be drawn from the profits or share premium of
our Company or from the proceeds of a fresh issue of shares made for the purpose of the purchase or,
subject to the Cayman Companies Law, out of capital and, in the case of any premium payable on the
purchase, out of the profits of our Company or from sums standing to the credit of the share premium
account of our Company or, subject to the Cayman Companies Law, out of capital.
Our Directors do not propose to exercise the Repurchase Mandate to such an extent as would,
under the circumstances, have a material adverse effect in the opinion of our Directors on the working
capital requirements of our Company or its gearing levels. However, there might be a material adverse
impact on the working capital or gearing position of our Company as compared with the position
disclosed in this document in the event that the Repurchase Mandate is exercised in full.
— V-5 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX V
(d)
STATUTORY AND GENERAL INFORMATION
Share capital
Exercise in full of the Repurchase Mandate, on the basis of [REDACTED] Shares in issue
immediately after the [REDACTED] (but taking into no account of Shares which may be allotted and
issued pursuant to the exercise of the options which may be granted under the Share Option Scheme),
could accordingly result in up to [REDACTED] Shares being repurchased by our Company during the
period until:
(i)
the conclusion of the next annual general meeting of our Company;
(ii)
the expiration of the period within which the next annual general meeting of our Company
is required by any applicable law or the Articles of Association to be held; or
(iii) the date on which the Repurchase Mandate is revoked or varied by an ordinary resolution
of our Shareholders in general meeting,
whichever occurs first.
(e)
General
None of our Directors or, to the best of their knowledge, having made all reasonable enquiries,
any of their respective close associates (as defined in the Listing Rules), has any present intention to
sell any Shares to our Company or our subsidiaries.
Our Directors have undertaken to the Stock Exchange that, so far as the same may be applicable,
they will exercise the Repurchase Mandate in accordance with the Listing Rules and the applicable
laws of the Cayman Islands. Our Company has not repurchased any Shares since its incorporation.
No core connected person (as defined in the Listing Rules) of our Company has notified our
Company that he/she or it has a present intention to sell Shares to our Company, or has undertaken
not to do so, if the Repurchase Mandate is exercised.
If as a result of a securities repurchase pursuant to the Repurchase Mandate, a Shareholder’s
proportionate interest in the voting rights of our Company increases, such increase will be treated as
an acquisition for the purpose of the Hong Kong Code on Takeovers and Mergers (the “Code”）.
Accordingly, a Shareholder, or a group of Shareholders acting in concert, depending on the level of
the increase of our Shareholders’ interest, could obtain or consolidate control of our Company and
become obliged to make a mandatory offer in accordance with Rule 26 of the Code as a result. Save
as aforesaid, our Directors are not aware of any consequences which may arise under the Code if the
Repurchase Mandate is exercised.
If the Repurchase Mandate is fully exercised immediately following the [REDACTED] and
completion of the [REDACTED], then, taking no account of any Shares which may be allotted and
issued upon the exercise of the [REDACTED] and options which may be granted under the Share
Option Scheme, the total number of Shares which will be repurchased pursuant to the Repurchase
Mandate shall be [REDACTED] Shares (being 10% of the issued share capital of our Company based
— V-6 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX V
STATUTORY AND GENERAL INFORMATION
on the aforesaid assumptions). The shareholding percentage of Mr. Shi, the Controlling Shareholder,
will increase to approximately [REDACTED]% of the issued share capital of our Company
immediately following the full exercise of the Repurchase Mandate. In the event that the Repurchase
Mandate is exercised in full, the number of Shares held by the public would fall below 25% of the total
number of Shares in issue. Any repurchase of Shares which results in the number of Shares held by
the public being reduced to less than the prescribed percentage of the Shares then in issue may only
be implemented with the approval of the Stock Exchange to waive the requirement regarding the
[REDACTED] under Rule 8.08 of the Listing Rules. However, our Directors have no present intention
to exercise the Repurchase Mandate to such an extent that, under the circumstances, there would be
insufficient [REDACTED] as prescribed under the Listing Rules.
B.
FURTHER INFORMATION ABOUT OUR BUSINESS
1.
Summary of Material Contracts
The following contracts (not being contracts entered into in the ordinary course of our business)
have been entered into by us within the two years preceding the date of this document and are or may
be material:
(1)
a share transfer agreement dated April 29, 2016 entered into between Cenmingtang Hong
Kong and Mr. Shi, pursuant to which Mr. Shi agreed to transfer his 70.0% equity interest
in Hubei Cenmingtang to Cenmingtang Hong Kong at a consideration of RMB39,177,100;
(2)
a share transfer agreement dated April 29, 2016 entered into between Cenmingtang Hong
Kong and Mr. Zhang, pursuant to which Mr. Zhang agreed to transfer his 28.5% equity
interest in Hubei Cenmingtang to Cenmingtang Hong Kong at a consideration of
RMB15,950,700;
(3)
a share transfer agreement dated April 29, 2016 entered into between Cenmingtang Hong
Kong and the First [REDACTED] Investor, pursuant to which the First [REDACTED]
Investor agreed to transfer his 1.5% equity interest in Hubei Cenmingtang to Cenmingtang
Hong Kong at a consideration of RMB839,500;
(4)
the Deed of Indemnity;
(5)
the Deed of Non-Competition; and
(6)
the [REDACTED].
— V-7 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX V
2.
STATUTORY AND GENERAL INFORMATION
Intellectual property rights of our Group
Trademarks
(a)
Trademarks for which registration has been granted
(i)
As of the Latest Practicable Date, we were the registered owner of and had the right to use
the following trademarks which we consider to be or may be material to our business:
No.
1
Trademark
Place of
Registration
Registered
registration
No.
owner (1)
11479867
11483436
PRC
11483489
Class (2)
Valid period
Hubei Zhumu
29
February 14, 2014-
Langma Food
Limited Liability
30
February 13, 2024
32
Company
(“Hubei Zhumu
Langma”)
2
PRC
11471145
11471223
Hubei Zhumu
Langma
11471275
3
PRC
11479558
11479466
PRC
11479333
11479432
PRC
11479603
11479773
PRC
14030410
14030445
14030681
14030534
7
PRC
14030235
14030454
14030692
14030519
February 14, 2014February 13, 2024
29
30
February 14, 2014February 13, 2024
32
Hubei Zhumu
Langma
11479832
6
29
30
32
Hubei Zhumu
Langma
11479498
5
February 14, 2014February 13, 2024
32
Hubei Zhumu
Langma
11479512
4
29
30
29
30
February 14, 2014February 13, 2024
32
Hubei Zhumu
Langma
Hubei Zhumu
Langma
5
29
32
30
5
29
32
30
March 21, 2015March 20, 2025
April 14, 2015April 13, 2025
March 21, 2015March 20, 2025
April 14, 2015April 13, 2025
Notes:
(1)
The Company is still in the process of applying the name of the registered owner of the trademarks to be
changed from Hubei Cenmingtang’s former name, Hubei Zhumu Langma Food Limited Liability Company,
to Hubei Cenmingtang Food Limited Liability Company.
(2)
For details of the classification of goods for trademarks, please refer to the paragraph headed “B. Further
Information About Our Business—2. Intellectual property right of our Group—Trademarks—(c)
Classification of goods for trademarks” in this appendix.
— V-8 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX V
(b)
STATUTORY AND GENERAL INFORMATION
Trademarks under application
As of the Latest Practicable Date, we have made application for the registration of the following
trademarks which we consider to be or may be material to our business:
Place of
No.
Trademark
Applicant (1)
Class (2)
Application
Application No.
Application Date
1
Hong Kong
303724894
Hubei Cenmingtang
29, 30, 32 March 24, 2016
2
PRC
17195375
Hubei Zhumu
29, 30, 32 June 12, 2015
Langma
3
PRC
17195430
Hubei Zhumu
29, 30, 32 June 12, 2015
Langma
4
PRC
17250028
17250438
Hubei Zhumu
Langma
17265285
5
PRC
17250041
17250673
Hubei Zhumu
Langma
17265279
6
PRC
17250059
17250865
Hubei Zhumu
Langma
17265455
7
PRC
17250063
17250617
Hubei Zhumu
Langma
17264837
8
PRC
17250101
17250738
Hubei Zhumu
Langma
17265354
9
PRC
17250129
17250645
Hubei Zhumu
Langma
17265379
10
PRC
17250133
17250823
Hubei Zhumu
Langma
17265365
11
PRC
17250223
17250783
Hubei Zhumu
Langma
17265428
12
PRC
17250276
17250966
Hubei Zhumu
Langma
17265077
13
PRC
17250286
17251033
17265507
— V-9 —
Hubei Zhumu
Langma
29
June 19, 2015
30
32
June 23, 2015
29
June 19, 2015
30
32
June 23, 2015
29
June 19, 2015
30
32
June 23, 2015
29
June 19, 2015
30
32
June 23, 2015
29
June 19, 2015
30
32
June 23, 2015
29
June 19, 2015
30
32
June 23, 2015
29
June 19, 2015
30
32
June 23, 2015
29
June 19, 2015
30
32
June 23, 2015
29
June 19, 2015
30
32
June 23, 2015
29
June 19, 2015
30
32
June 23, 2015
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX V
STATUTORY AND GENERAL INFORMATION
Place of
No.
Trademark
Application
PRC
14
Application No.
Applicant (1)
17250334
Hubei Zhumu
29
17251003
Langma
30
17265430
PRC
15
PRC
PRC
June 19, 2015
Hubei Zhumu
29
Langma
30
32
June 23, 2015
17250384
Hubei Zhumu
29
June 19, 2015
17251082
Langma
30
17250412
Hubei Zhumu
17251106
Langma
17265682
18
June 19, 2015
June 23, 2015
17250337
17265597
17
Application Date
32
17251355
17265724
PRC
16
Class (2)
32
June 23, 2015
29
June 19, 2015
30
32
June 23, 2015
June 19, 2015
17250443
Hubei Zhumu
29
17251250
Langma
30
17265690
32
June 23, 2015
Notes:
(1)
For trademark no. 2 to 18 above, the Company is still in the process of applying the name of the applicant of the
trademarks to be changed from Hubei Cenmingtang’s former name, Hubei Zhumu Langma Food Limited Liability
Company, to Hubei Cenmingtang Food Limited Liability Company.
(2)
For details of the classification of goods for trademarks, please refer to paragraph headed “B. Further Information
About Our Business — 2. Intellectual property right of our Group- Trademarks-(c) Classification of goods for
trademarks” in this appendix.
(c)
Classification of goods for trademarks
The table below sets out the classification of goods for trademarks (the detailed classification in
relation to the relevant trademarks depends on the details set out in the relevant trademark certificates
and may differ from the list below):
Class Number
Goods
5
Pharmaceuticals, medical and veterinary preparations; sanitary
preparations for medical purposes; dietetic food and substances adapted
for medical or veterinary use, food for babies; dietary supplements for
humans and animals; plasters, materials for dressings; material for
stopping teeth, dental wax; disinfectants; preparations for destroying
vermin; fungicides, herbicides.
29
Meat, fish, poultry, and game; meat extracts; preserved, dried and
cooked fruits and vegetables; jellies, jams; eggs, milk and milk products;
edible oils and fats; salad dressings; preserves.
— V-10 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX V
STATUTORY AND GENERAL INFORMATION
30
Coffee, tea, cocoa, sugar, rice, tapioca, sago, artificial coffee; flour and
preparations made from cereals, bread, pastry and confectionery; honey,
treacle; yeast, baking-powder; salt, mustard, vinegar, sauces (except
salad dressings); spices; ice.
32
Beers; mineral and aerated waters and other non-alcoholic drinks; fruit
drinks and fruit juices; syrups and other preparations for making
beverages.
Patents
As of the Latest Practicable Date, we have been granted to use the following patents which we
consider to be or may be material to our business by its registered patent holder:
Place of
No.
1
Patent
A sterilization system for milk
Registration
PRC
Registration No.
ZL.201420228011.0
tea (一種奶茶的殺菌系統)
2
A filling system for bottle of
PRC
ZL.201420227850.0
black sesame mash
(一種黑芝麻漿瓶的灌裝系統)
3
A sterilization system for bottle
cap of eight-treasure porridge
Patent
Date of
Expiry
Holder
Grant
Date
Fujian
October 15, May 5,
Gongyuan
2014
Fujian
October 15, May 5,
Gongyuan
2014
2024
2024
PRC
ZL.201420228026.7
Fujian
Gongyuan
October 29, May 5,
2014
2024
(一種八寶粥瓶蓋消毒系統)
4
A buffering system for making
chrysanthemum tea
(一種製備菊花茶的緩衝系統)
PRC
ZL.201420228009.3
Fujian
Gongyuan
October 15, May 5,
2014
2024
5
A sterilization system for blender PRC
making banana milk
(一種香蕉牛奶機的消毒系統)
ZL.201420227894.3
Fujian
Gongyuan
October 15, May 5,
2014
2024
6
An automatic cleaning system for PRC
chrysanthemum tea drink
(一種菊花茶的自動清洗系統)
ZL.201420228067.6
Fujian
Gongyuan
October 15, May 5,
2014
2024
7
Packaging box for food
PRC
(Cenmingtang Black Sesame
Dense Mash)
(食品包裝盒(岑銘堂牌黑芝麻濃漿))
ZL.201430359899.7
Fujian
Gongyuan
April 22,
2015
September
24, 2024
8
Biscuit (Duole Bear)
(餅乾(多樂熊))
PRC
ZL.201430162668.7
Fujian
Gongyuan
November
5, 2014
June 4,
2024
9
Beverage bottle (飲料瓶)
PRC
ZL.201330344091.7
Fujian
Gongyuan
December
25, 2013
July 21,
2023
10
Packaging box for food
(Cenmingtang Matcha Mung
Bean Dense Mash)
(食品包裝盒(岑銘堂牌抹茶
綠豆濃漿))
PRC
ZL.201430359898.2
Fujian
Gongyuan
April 22,
2015
September
24, 2024
— V-11 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX V
STATUTORY AND GENERAL INFORMATION
Place of
No.
11
Patent
Packaging box for food
Registration
PRC
Registration No.
ZL.201430359896.3
Patent
Date of
Expiry
Holder
Grant
Date
Fujian
April 22,
September
Gongyuan
2015
24, 2024
Fujian
April 22,
September
Gongyuan
2015
24, 2024
Fujian
March 4,
September
Gongyuan
2015
24, 2024
Fujian
March 4,
September
Gongyuan
2015
24, 2024
Fujian
April 22,
September
Gongyuan
2015
24, 2024
ZL.201430359879.X
Fujian
Gongyuan
March 4,
2015
September
24, 2024
ZL.201430359819.8
Fujian
Gongyuan
March 4,
2015
September
24, 2024
(Cenmingtang Oatmeal Dense
Mash and Cereal Dense Mash)
(食品包裝盒(岑銘堂牌燕麥
濃漿穀物濃漿))
12
Packaging box for food
PRC
ZL.201430359880.2
(Cenmingtang Brown Rice Dense
Mash) (食品包裝盒
(岑銘堂牌糙米漿))
13
Packaging box for food (Naughty PRC
ZL.201430359877.0
Monitor Milk Beverage)
(食品包裝盒(淘氣班長牌
含乳飲料))
14
Packaging box for food
(Cenmingtang Banana Milk
Beverage)
PRC
ZL.201430359876.6
(食品包裝盒(岑銘堂牌香蕉
牛奶飲料))
15
Packaging box for food
PRC
ZL.201430359817.9
(Cenmingtang Red Bean Dense
Mash and Cereal Dense Mash)
(食品包裝盒(岑銘堂牌紅豆
濃漿穀物濃漿))
16
Packaging box for food (Naughty PRC
Monitor Milk Beverage)
(食品包裝盒(淘氣班長牌
含乳飲料))
17
Packaging box for food
(Cenmingtang Banana Milk
Beverage)
(食品包裝盒(岑銘堂牌香蕉
牛奶飲料))
PRC
Domain Names
As of the Latest Practicable Date, we have registered the following domain names which we
consider to be or may be material to our business:
Domain Name
Registrant
www.cenmingtang.net. . . . . . . . . . . . . . . . . . . . . . . . . . Hubei Cenmingtang
— V-12 —
Expiry Date
April 28, 2025
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX V
STATUTORY AND GENERAL INFORMATION
C.
FURTHER INFORMATION ABOUT OUR DIRECTORS AND SUBSTANTIAL
SHAREHOLDERS
1.
Directors
(a)
Disclosure of interest—interests and short positions of our Directors and the chief
executive of our Company in the Shares, underlying Shares and debentures of our
Company and its associated corporations
Immediately following the [REDACTED] and completion of the [REDACTED], assuming that
the [REDACTED] and options which may be granted under the Share Option Scheme are not
exercised, the interest or short position of our Directors or chief executives of our Company in the
Shares, underlying Shares and debentures of our Company or its associated corporations (within the
meaning of Part XV of the SFO) which will be required to be notified to our Company and the Stock
Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interest or short positions
which they were taken or deemed to have under such provisions of the SFO) or which will be required,
pursuant to section 352 of the SFO, to be entered in the register referred to therein, or which will be
required, pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers to be
notified to our Company and the Stock Exchange, once the Shares are [REDACTED], are as follows:
(i)
Interests in Shares of our Company
Name of Director
Nature of interest
Mr. Shi (1) . . . . . . . . . . . . . . Interest of controlled
corporation
Mr. Zhang (2) . . . . . . . . . . . . Interest of controlled
corporation
Number of
Shares
Percentage of
shareholding
[REDACTED]
[REDACTED]%
[REDACTED]
[REDACTED]%
Note:
(1)
Mr. Shi holds the entire issued share capital of Min Yu, which in turn owns [REDACTED] Shares. By virtue of
Part XV of the SFO, Mr. Shi is deemed to be interested in the Shares held by Min Yu.
(2)
Mr. Zhang holds the entire issued share capital of Zhen Lian, which in turn owns [REDACTED] Shares. By virtue
of Part XV of the SFO, Mr. Zhang is deemed to be interested in the Shares held by Zhen Lian.
(ii)
Interests in associated corporations
Name of Director
Nature of interest
Mr. Shi . . . . . . . . . . . . . . . Min Yu
Mr. Zhang . . . . . . . . . . . . . Zhen Lian
— V-13 —
Number of
share(s)
[REDACTED]
[REDACTED]
Percentage of
shareholding
[REDACTED]%
[REDACTED]%
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX V
(b)
STATUTORY AND GENERAL INFORMATION
Particulars of service contracts and letters of appointment
Each of Mr. Shi, Mr. Zhang and Mr. Wang Dongwei, being our executive Director, has entered
into a service contract with our Company on [Date]. Each service contract is for an initial term of three
years commencing from the [REDACTED].
Each of Mr. Chen Kewen, Mr. Chong Man Hong Jeffrey and Ms. Zou Jianjun, being our
independent non-executive Director, has entered into a letter of appointment with our Company on
[Date]. Each letter of appointment is for an initial term of three years commencing from the
[REDACTED].
(c)
Directors’ remuneration
The aggregate amount of remuneration (including fees, salaries, contribution to pension
schemes, housing allowances, other allowances and benefits-in-kind and discretionary bonuses) paid
to our Directors for the three years ended December 31, 2015 were RMB4.1 million.
There was no arrangement under which a Director has waived or agreed to waive any emoluments
for each of the three years ended December 31, 2015.
Save as disclosed above, no other payments have been made or are payable in respect of the three
years ended December 31, 2015 by any member of our Group to any of our Directors.
Our independent non-executive Directors have been appointed for a term of three years. Our
Company intends to pay a director’s fee of HK$180,000 per annum to each of the independent
non-executive Directors.
Under the arrangements currently in force, the aggregate amount of remuneration payable by our
Group to our Directors for the year ending December 31, 2016 will be RMB2.3 million. During the
Track Record Period, no remuneration was paid by us to, or receivable by, our Directors or the five
highest paid individuals as an inducement to join or upon joining our Company. No compensation was
paid by us to, or receivable by, our Directors, former Directors, or the five highest-paid individuals
for each of the three years ended December 31, 2015 for the loss of any office in connection with the
management of the affairs of any subsidiary of our Company.
Further details of the terms of the above service contracts are set forth in the paragraph headed
“C. Further Information About Our Directors And Substantial Shareholders—1. Directors—(b)
Particulars of service contracts and letters of appointment” in this appendix.
— V-14 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX V
2.
STATUTORY AND GENERAL INFORMATION
Substantial Shareholders
(a)
So far as our Directors are aware, immediately following the [REDACTED] and completion
of the [REDACTED] (assuming the [REDACTED] is not exercised and excluding any
Shares which may be allotted and issued pursuant to the exercise of options which may be
granted under the Share Option Scheme), the following persons (other than our Directors
and chief executive of our Company) will have or be deemed or taken to have an interest
and/or short position in the Shares or the underlying Shares which would fall to be
disclosed under the provisions of Division 2 and 3 of Part XV of the SFO:
Name
Ms. Lin Xiuhua
(1)
(林秀華女士) . . . . .
Mr. Cheung Wah Fung,
Christopher
(張華峯先生) (2) . . . . .
Second [REDACTED]
Investor (2) . . . . . . . . .
Ms. Chan Sin Wah
(陳倩華女士) (3) . . . .
Ms. Shi Biqiong
(石碧琼女士) (4) . . . . .
Capacity
Number of
Shares
Percentage of
shareholding
. . . Interest of spouse
[REDACTED]
[REDACTED]%
Interest of a controlled
. . . corporation
[REDACTED]
[REDACTED]%
. . . Beneficial Interest
[REDACTED]
[REDACTED]%
. . . Interest of spouse
[REDACTED]
[REDACTED]%
. . . Interest of spouse
[REDACTED]
[REDACTED]%
Notes:
(b)
3.
(1)
Ms. Lin Xiuhua is the spouse of Mr. Shi and is therefore deemed to be interested in the same number of
Shares in which Mr. Shi is interested under the SFO.
(2)
Mr. Cheung Wah Fung, Christopher directly owns the entire issued share capital of the Second
[REDACTED] Investor and will be deemed to be interested in the Shares held by the Second [REDACTED]
Investor.
(3)
Ms. Chan Sin Wah is the spouse of Mr. Cheung Wah Fung, Christopher and is therefore deemed to be
interested in the same number of Shares in which Mr. Cheung Wah Fung, Christopher is interested under
the SFO.
(4)
Ms. Shi Biqiong is the spouse of Mr. Zhang and is therefore deemed to be interested in the same number
of Shares in which Mr. Zhang is same number of Shares in which Mr. Zhang is interested under the SFO.
As of the Latest Practicable Date, so far as is known to our Directors, no persons were
interested in 10% or more of the nominal value of any class of share capital carrying rights
to vote in all circumstances at general meetings of any member of our Group or had options
in respect of such capital.
Personal Guarantees
Save as disclosed in this document, our Directors have not provided personal guarantees in
favour of lenders in connection with banking facilities granted to us.
— V-15 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX V
4.
STATUTORY AND GENERAL INFORMATION
Agency fees or commissions received
Save as disclosed in this document, no commissions, discounts, brokerages or other special terms
were granted within the two years preceding the date of this document in connection with the issue
or sale of any capital of any member of our Group.
5.
Related-Party Transactions
During the two years preceding the date of this document, we were engaged in related party
transactions as described in the Accountants’ Report set out in Appendix I to this document under the
paragraph headed “II. Notes to the Financial Information—24. Related Party Transactions.”
6.
Disclaimers
Save as disclosed herein:
(a)
none of our Directors or the chief executive of our Company has any interest or short
position in the Shares, underlying Shares or debentures of our Company or any of its
associated corporation (within the meaning of the SFO) which will have to be notified to
our Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO
or which will be required, pursuant to section 352 of the SFO, to be entered in the register
referred to therein, or which will be required to be notified to our Company and the Stock
Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed
Issuers once the Shares are [REDACTED];
(b)
none of our Directors or experts referred to under paragraph headed “D. Other
Information—10. Consents of Experts” in this appendix has any direct or indirect interest
in the promotion of our Company, or in any assets which have within the two years
immediately preceding the date of this document been acquired or disposed of by or leased
to any member of our Group, or are proposed to be acquired or disposed of by or leased to
any member of our Group;
(c)
none of our Directors is materially interested in any contract or arrangement subsisting at
the date of this document which is significant in relation to the business of our Group;
(d)
none of our Directors has any existing or proposed service contracts with any member of
our Group (excluding contracts expiring or determinable by the employer within one year
without payment of compensation (other than statutory compensation));
(e)
taking no account of Shares which may be taken up under the [REDACTED], none of our
Directors or chief executive knows of any person (not being a Director or chief executive
of our Company) who will, immediately following the [REDACTED] and completion of the
[REDACTED], have an interest or short position in the Shares or underlying shares of our
Company which would fall to be disclosed to our Company under the provisions of
Divisions 2 and 3 of Part XV of SFO or be interested, directly or indirectly, in 10% or more
of the nominal value of any class of share capital carrying rights to vote in all
circumstances at general meetings of any member of our Group; and
— V-16 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX V
(f)
STATUTORY AND GENERAL INFORMATION
so far as is known to our Directors, none of our Directors, their respective close associates
(as defined under the Listing Rules) or our Shareholders who are interested in more than
5% of the issued share capital of our Company has any interest in the five largest customers
or the five largest suppliers of our Group.
D.
OTHER INFORMATION
1.
Share Option Scheme
The following is a summary of the principal terms of the Share Option Scheme conditionally
adopted by the written resolutions of our Shareholders on [●].
(a)
Purpose
The purpose of the Share Option Scheme is to enable our Group to grant options to selected
participants as incentives or rewards for their contribution to our Group. Our Directors believe the
Share Option Scheme will enable our Group to reward our employees, our Directors and other selected
participants for their contributions to our Group. Given that our Directors are entitled to determine the
performance targets to be achieved as well as the minimum period that an option must be held before
an option can be exercised on a case by case basis, and that the exercise price of an option cannot in
any event fall below the price stipulated in the Listing Rules or such higher price as may be fixed by
our Directors, it is expected that grantees of an option will make an effort to contribute to the
development of our Group so as to bring about an increased market price of the Shares in order to
capitalize on the benefits of the options granted.
(b)
Who may join
Our Directors (which expression shall, for the purpose of this paragraph, include a duly
authorized committee thereof) may, at their absolute discretion, invite any person belonging to any of
the following classes of participants, who our Board considers, in its sole discretion, have contributed
or will contribute to our Group, to take up options to subscribe for Shares (collectively the “Eligible
Participants”):
(i)
any directors (including executive Directors, non-executive Directors and independent
non-executive Directors) and employees of any member of our Group; and
(ii)
any advisers, consultants, distributors, contractors, customers, suppliers, agents, business
partners, joint venture business partners, service providers of any member of our Group.
For the purposes of the Share Option Scheme, the options may be granted to any company wholly
owned by one or more persons belonging to any of the above classes of participants. For the avoidance
of doubt, the grant of any options by the Company for the subscription of Shares or other securities
of our Group to any person who falls within any of the above classes of participants shall not, by itself,
unless our Directors otherwise so determine, be construed as a grant of option under the Share Option
Scheme.
— V-17 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX V
STATUTORY AND GENERAL INFORMATION
The eligibility of any of the above class of participants to the grant of any option shall be
determined by our Directors from time to time on the basis of our Directors’ opinion as to the
participant’s contribution to the development and growth of our Group.
(c)
Maximum number of Shares
(i)
The maximum number of Shares which may be issued upon the exercise of all outstanding
options granted and yet to be exercised under the Share Option Scheme and any other share
option scheme of our Group shall not in aggregate exceed 30% of the issued share capital
of the Company from time to time.
(ii)
The total number of Shares which may be issued upon exercise of all options to be granted
under the Share Option Scheme and any other share option scheme of our Group shall not
in aggregate exceed 10% of the aggregate of the Shares in issue on the day on which trading
of the Shares commences on the Stock Exchange, and such 10% limit represents
[REDACTED] Shares (the “General Scheme Limit”).
(iii) Subject to paragraph (i) above and without prejudice to paragraph (iv) below, the Company
may issue a circular to its Shareholders and seek approval of its Shareholders in a general
meeting to extend the General Scheme Limit provided that the total number of Shares which
may be issued upon exercise of all options to be granted under the Share Option Scheme
and any other share options scheme of our Group shall not exceed 10% of the Shares in
issue as of the date of approval of the limit and, for the purpose of calculating the limit,
options (including those outstanding, cancelled, lapsed or exercised in accordance with the
Share Option Scheme and any other share option scheme of our Group) previously granted
under the Share Option Scheme and any other share option scheme of our Group will not
be counted. The circular sent by the Company to its Shareholders shall contain, among
other information, the information required under Rule 17.02(2)(d) of the Listing Rules and
the disclaimer required under Rule 17.02(4) of the Listing Rules.
(iv) Subject to paragraph (i) above and without prejudice to paragraph (iii) above, the Company
may seek separate Shareholders’ approval in a general meeting to grant options beyond the
General Scheme Limit or, if applicable, the extended limit referred to in paragraph (iii)
above to participants specifically identified by the Company before such approval is
sought. In such event, the Company must send a circular to its Shareholders containing a
general description of the identified participants, the number and terms of options to be
granted, the purpose of granting options to the identified participants with an explanation
as to how the terms of the options serve such purpose and all other information required
under Rule 17.02(2)(d) of the Listing Rules and the disclaimer required under Rule 17.02(4)
of the Listing Rules.
(d)
Maximum entitlement of each participant
The total number of Shares issued and to be issued upon exercise of the options granted and to
be granted under the Share Option Scheme and any other share option scheme of our Group (including
both exercised and outstanding options) to each participant in any 12-month period shall not exceed
— V-18 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX V
STATUTORY AND GENERAL INFORMATION
1% of the issued share capital of the Company for the time being (the “Individual Limit”). Any
further grant of options to a participant in aggregate in excess of the Individual Limit in any 12-month
period up to and including the date of such further grant shall be subject to the issue of a circular to
our Shareholders and our Shareholders’ approval in general meeting of the Company with such
participant and his close associates abstaining from voting. The number and terms (including the
exercise price) of options to be granted to such participant must be fixed before Shareholders’
approval and the date of board meeting for proposing such further grant should be taken as the date
of grant for the purpose of calculating the exercise price under Note (1) to Rule 17.03(9) of the Listing
Rules.
(e)
Grant of options to connected persons
(i)
Any grant of options under the Share Option Scheme to any Director, chief executive or
substantial shareholder of the Company or any of their respective associates must be
approved by our independent non-executive Directors (excluding any independent
non-executive Director who is the proposed grantee of the options).
(ii)
Where any grant of options to a substantial shareholder of the Company or an independent
non-executive Director or any of their respective associates would result in the Shares
issued and to be issued upon exercise of all options already granted and to be granted
(including options exercised, cancelled and outstanding) to such person in the 12-month
period up to and including the date of such grant:
(1)
representing in aggregate over 0.1% (or such other higher percentage as may from
time to time be specified by the Stock Exchange) of the Shares in issue; and
(2)
having an aggregate value, based on the closing price of the Shares as stated in the
daily quotations sheets issued by the Stock Exchange on the date of each grant, in
excess of HK$5 million (or such other higher amount as may from time to time be
specified by the Stock Exchange);
such further grant of options must be approved by our Shareholders in a general meeting.
The Company must send a circular to its Shareholders no later than the date on which the
Company gives notice of the general meeting to approve the Share Option Scheme. The
grantees, their associates and all core connected persons of the Company must abstain from
voting at such general meeting, except that they may vote against the relevant resolution
at the general meeting provided that any of their intention to do so has been stated in the
circular to be sent to the Shareholders in connection therewith. Any vote taken at the
general meeting to approve the grant of such options must be taken on a poll. Any change
in the terms of options granted to a substantial shareholder or an independent non-executive
Director or any of their respective associates must be approved by our Shareholders in a
general meeting.
(f)
Time of acceptance and exercise of option
An option may be accepted by a participant to whom the offer is made within 5 business days
from the date on which the letter containing the offer is delivered to that participant. An option may
— V-19 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX V
STATUTORY AND GENERAL INFORMATION
be exercised in accordance with the terms of the Share Option Scheme at any time during a period to
be determined and notified by our Directors to each grantee, which period may commence on a day
after the date upon which the offer for the grant of options is made but shall end in any event not later
than 10 years from the date of grant of the option subject to the provisions for early termination under
the Share Option Scheme. Unless otherwise determined by our Directors and stated in the offer of the
grant of options to a grantee, there is no minimum period required under the Share Option Scheme for
the holding of an option before it can be exercised.
(g)
Performance targets
Unless our Directors otherwise determine and state in the offer of the grant of options to a
grantee, a grantee is not required to achieve any performance targets before any options granted under
the Share Option Scheme can be exercised.
(h)
Subscription price for Shares and consideration for the option
The subscription price per Share under the Share Option Scheme will be a price determined by
our Directors, but shall not be less than the highest of (i) the closing price of the Shares as stated in
the Stock Exchange’s daily quotations sheet on the date of the offer of grant, which must be a business
day; (ii) the average closing price of the Shares as stated in the Stock Exchange’s daily quotations
sheets for the five business days immediately preceding the date of the offer of grant (provided that
in the event that any option is proposed to be granted within a period of less than five business days
after the trading of the Shares first commences on the Stock Exchange, the new issue price of the
Shares for the [REDACTED] shall be used as the closing price for any business day falling within the
period before [REDACTED] of the Shares on the Stock Exchange); and (iii) the nominal value of a
Share on the date of grant.
A nominal consideration of HK$1 is payable upon acceptance of the grant of an option.
(i)
Ranking of Shares
(i)
Shares allotted and issued upon the exercise of an option will be identical to the then
existing issued shares of the Company and subject to all the provisions of the Memorandum
and Articles of Association for the time being in force and will rank pari passu in all
respects with the fully paid Shares in issue on the date the name of the grantee is registered
on the register of members of the Company or, if that date falls on a day when the register
of members of the Company is closed, the first day of the re-opening of the register of
members (the “Exercise Date”) and accordingly will entitle the holders thereof to
participate in all dividends or other distributions paid or made on or after the Exercise Date
other than any dividend or other distribution previously declared or recommended or
resolved to be paid or made if the record date therefor shall be before the Exercise Date.
A Share allotted upon the exercise of an option shall not carry voting rights or rights to
participate in any dividends or distributions (including those arising on a liquidation of the
Company) declared or recommended or resolved to be paid to the Shareholders on the
register until the completion of the registration of the grantee on the register of members
of the Company as the holder thereof.
— V-20 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX V
(ii)
(j)
STATUTORY AND GENERAL INFORMATION
Unless the context otherwise requires, references to “Shares” in this paragraph include
references to shares in the ordinary equity share capital of the Company of such nominal
amount as shall result from a sub-division, consolidation, re-classification or
re-construction of the share capital of the Company from time to time.
Restrictions on the time of grant of options
No offer for grant of options shall be made after a price sensitive event has occurred or a price
sensitive matter has been the subject of a decision until such price sensitive information has been
announced in accordance with the requirements of the Listing Rules. In particular, during the period
commencing one month immediately preceding the earlier of (i) the date of the meeting of our
Directors (as such date is first notified to the Stock Exchange in accordance with the requirements of
the Listing Rules) for the approval of the Company’s results for any year, half-year, quarter or any
other interim period (whether or not required under the Listing Rules); and (ii) the last date on which
the Company must publish its announcement of its results for any year, half-year, quarter or any other
interim period (whether or not required under the Listing Rules), and ending on the date of the
announcement of the results, no offer for grant of options may be made.
Our Directors may not grant any option to a participant who is a Director during the period or
time in which Directors are prohibited from dealing in shares pursuant to the Model Code for
Securities Transactions by Directors of Listed Issuers prescribed by the Listing Rules or any
corresponding code or securities dealing restrictions adopted by the Company.
(k)
Period of the Share Option Scheme
The Share Option Scheme will remain in force for a period of 10 years commencing on the date
on which the Share Option Scheme is adopted.
(l)
Rights are personal to the grantee
An option is personal to the grantee and shall not be transferable or assignable and no grantee
shall in any way sell, transfer, charge, mortgage, encumber or otherwise dispose of or create any
interest in favor of or enter into any agreement with any other person over or in relation to any option,
except for the transmission of an option.
(m) Rights on ceasing employment
If the grantee of an option is an Eligible Participant and ceases to be an Eligible Participant for
any reason other than death, ill-health or retirement in accordance with his contract of employment
or for serious misconduct or other grounds referred to in sub-paragraph (o) below before exercising
his option in full, the option (to the extent not already exercised) will lapse on the date of cessation
and will not be exercisable unless our Directors otherwise determine in which event the grantee may
exercise the option (to the extent not already exercised) in whole or in part within such period as our
Directors may determine following the date of such cessation, which will be taken to be the last day
on which the grantee was physically at work with our Group or the relevant subsidiary whether salary
is paid in lieu of notice or not.
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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX V
(n)
STATUTORY AND GENERAL INFORMATION
Rights on death, ill-health or retirement
If the grantee of an option is an Eligible Participant and ceases to be an Eligible Participant by
reason of his death, ill-health or retirement in accordance with his contract of employment before
exercising the option in full, his personal representative(s), or, as appropriate, the grantee may
exercise the option (to the extent not already exercised) in whole or in part within a period of 12
months following the date of cessation which date shall be the last day on which the grantee was
physically at work with our Group or the relevant subsidiary whether salary is paid in lieu of notice
or not or such longer period as our Directors may determine.
(o)
Rights on dismissal
If the grantee of an option is an Eligible Participant and ceases to be an Eligible Participant by
reason that he has been guilty of serious misconduct or has committed any act of bankruptcy or has
become insolvent or has made any arrangements or composition with his creditors generally, or has
been convicted of any criminal offence (other than an offence which in the opinion of our Directors
does not bring the grantee or our Group or the relevant subsidiary into disrepute) or on any other
ground on which an employer would be entitled to terminate his or her employment summarily, his
option will lapse automatically and will not be exercisable on or after the date of ceasing to be an
Eligible Participant.
(p)
Rights on breach of contract
If our Directors shall at their absolute discretion determine that (i)(1) the grantee of any option
(other than an Eligible Participant) or his associate has committed any breach of any contract entered
into between the grantee or his associate on the one part and our Group or any relevant subsidiary on
the other part; or (2) that the grantee has committed any act of bankruptcy or has become insolvent
or is subject to any winding-up, liquidation or analogous proceedings or has made any arrangement
or composition with his creditors generally; or (3) the grantee could no longer make any contribution
to the growth and development of our Group by reason of the cessation of its relations with our Group
or by other reason whatsoever; and (ii) the option granted to the grantee under the Share Option
scheme shall lapse as a result of any event specified in items (1), (2) or (3) in (i) above, his option
will lapse automatically and will not be exercisable on or after the date on which our Directors have
so determined.
(q)
Rights on a general offer, a compromise or arrangement
If a general or partial offer, whether by way of take-over offer, share repurchase offer, or scheme
of arrangement or otherwise in like manner is made to all the holders of Shares, or all such holders
other than the offeror and/or any person controlled by the offeror and/or any person acting in
association or concert with the offeror, the Company shall use all reasonable endeavors to procure that
such offer is extended to all the grantees on the same terms, mutatis mutandis, and assuming that they
will become, by the exercise in full of the options granted to them, our Shareholders. If such offer
becomes or is declared unconditional or such scheme of arrangement is formally proposed to our
Shareholders, a grantee shall be entitled to exercise the option (to the extent not already exercised)
— V-22 —
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX V
STATUTORY AND GENERAL INFORMATION
to its full extent or to the extent specified in the grantee’s notice to the Company in exercise of his
option at any time before the close of such offer (or any revised offer) or the record date for
entitlements under such scheme of arrangement, as the case may be.
(r)
Rights on winding up
In the event of a resolution being proposed for the voluntary winding-up of the Company during
the option period, the grantee may, subject to the provisions of all applicable laws, by notice in writing
to the Company at any time not less than two business days before the date on which such resolution
is to be considered and/or passed, exercise his option (to the extent not already exercised) either to
its full extent or to the extent specified in such notice in accordance with the provisions of the Share
Option Scheme and the Company shall allot and issue to the grantee the Shares in respect of which
such grantee has exercised his option not less than one business day before the date on which such
resolution is to be considered and/or passed whereupon the grantee shall accordingly be entitled, in
respect of the Shares allotted and issued to him in the aforesaid manner, to participate in the
distribution of the assets of the Company available in liquidation pari passu with the holders of the
Shares in issue on the day prior to the date of such resolution. Subject thereto, all options then
outstanding shall lapse and determine on the commencement of the winding-up of the Company.
(s)
Grantee being a company wholly owned by Eligible Participants
If the grantee is a company wholly owned by one or more Eligible Participants: sub-paragraphs
(k), (m), (n) and (o) shall apply to the grantee and to the options to such grantee, mutatis mutandis,
as if such options had been granted to the relevant Eligible Participant, and such options shall
accordingly lapse or fall to be exercisable after the event(s) referred to in sub-paragraphs (k), (m), (n)
and (o) shall occur with respect to the relevant Eligible Participant, and the options granted to the
grantee shall lapse and determine on the date the grantee ceases to be wholly owned by the relevant
Eligible Participant provided that our Directors may in their absolute discretions decide that such
options or any part thereof shall not so lapse or determine subject to such conditions or limitations as
they may impose.
(t)
Adjustments to the subscription price
In the event of a capitalization issue, rights issue, sub-division or consolidation of Shares or
reduction of capital of the Company whilst an option remains exercisable, such corresponding
adjustments (if any) certified by the auditors for the time being of or an independent financial adviser
to the Company as fair and reasonable will be made to (i) the number or nominal amount of Shares
to which the Share Option Scheme or any option relates, so far as unexercised, and/or (ii) the
subscription price of the option concerned, and/or (iii) the method of exercise of the Option, provided
that (1) any adjustments shall give a grantee the same proportion of the issued share capital to which
he was entitled prior to such alteration; (2) the issue of Shares or other securities of our Group as
consideration in a transaction may not be regarded as a circumstance requiring adjustment; and (3) no
adjustments shall be made the effect of which would be to enable a Share to be issued at less than its
nominal value. In addition, in respect of any such adjustments, other than any adjustments made on
a capitalization issue, such auditors or independent financial adviser must confirm to our Directors in
writing that the adjustments satisfy the requirements of the relevant provisions of the Listing Rules
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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX V
STATUTORY AND GENERAL INFORMATION
and such other applicable guidance and/or interpretation of the Listing Rules from time to time issued
by the Stock Exchange (including, but not limited to, the “Supplementary Guidance on Main Board
Listing Rule 17.03(13) and the Note immediately after the Rule” attached to the letter from the Stock
Exchange dated September 5, 2005 to all issuers relating to share option schemes).
(u)
Cancellation of options
Any cancellation of options granted but not exercised must be subject to the prior written consent
of the relevant grantee.
When the Company cancels any option granted to a grantee but not exercised and issues new
option(s) to the same grantee, the issue of such new option(s) may only be made with available
unissued options (excluding the options so cancelled) within the General Scheme Limit or the new
limits approved by our Shareholders pursuant to sub-paragraphs (c) (iii) and (iv) above.
(v)
Termination of the Share Option Scheme
The Company by ordinary resolution in a general meeting or the Board may at any time terminate
the Share Option Scheme and in such event no further options shall be offered or granted but the
provisions of the Share Option Scheme shall remain in force to the extent necessary to give effect to
the exercise of any options (to the extent not already exercised) granted prior to the termination or
otherwise as may be required in accordance with the provisions of the Share Option Scheme. Options
(to the extent not already exercised) granted prior to such termination shall continue to be valid and
exercisable in accordance with the Share Option Scheme.
(w) Lapse of option
An option shall lapse automatically (to the extent not already exercised) on the earliest of:
(i)
the expiry of the period referred to in sub-paragraph (f);
(ii)
the date or the expiry of the periods or dates referred to in sub-paragraphs (k), (m), (n), (o),
(q) and (r);
(iii) the date on which the grantee commits a breach of the provision which restricts the grantee
to transfer or assign an option granted under the Share Option Scheme or sell, transfer,
charge, mortgage, encumber or otherwise dispose of or create any interest in favor of or
enter into any agreement with any other person over or in relation to any option except for
the transmission of an option on the death of the grantee to his personal representative(s)
on the terms of this scheme;
(iv) the date on which the grantee (being an employee or a director of any member of our Group)
ceases to be an Eligible Participant of the Share Option Scheme by reason of the
termination of his or her employment or engagement on the grounds that he or she has been
guilty of serious misconduct, or appears either to be unable to pay or to have no reasonable
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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX V
STATUTORY AND GENERAL INFORMATION
prospect of being able to pay his or her debts or has become bankrupt or has made any
arrangement or composition with his or her creditors generally, or has been convicted of
any criminal offence involving his or her integrity or honesty or on any other ground on
which an employer would be entitled to terminate his or her employment summarily;
(v)
the date on which the grantee joins a company which the Board believes in its sole and
reasonable opinion to be a competitor of the Company;
(vi) the date on which the grantee (being a corporation) appears either to be unable to pay or
to have no reasonable prospect of being able to pay its debts or has become insolvent or has
made any arrangement or composition with its creditors generally; and
(vii) unless our Board otherwise determines, and other than in the circumstances referred to in
sub-paragraphs (m) or (n), the date the grantee ceases to be an Eligible Participant (as
determined by a Board resolution) for any other reason.
(x)
Others
(i)
The Share Option Scheme is conditional on the Listing Committee of the Stock Exchange
granting or agreeing to grant approval of (subject to such condition as the Stock Exchange
may impose) the [REDACTED] of and permission to deal in such number of Shares to be
allotted and issued pursuant to the exercise of any options which may be granted under the
Share Option Scheme, such number representing the General Scheme Limit. Application
has been made to the Listing Committee of the Stock Exchange for the [REDACTED] of
and permission to deal in the Shares to be issued within the General Scheme Limit pursuant
to the exercise of any options which may be granted under the Share Option Scheme.
(ii)
The terms and conditions of the Share Option Scheme relating to the matters set forth in
Rule 17.03 of the Listing Rules shall not be altered to the advantage of grantees of the
options except with the approval of our Shareholders in a general meeting.
(iii) Any alterations to the terms and conditions of the Share Option Scheme which are of a
material nature or any change to the terms of options granted must be approved by our
Shareholders in a general meeting and the Stock Exchange, except where the alterations
take effect automatically under the existing terms of the Share Option Scheme.
(iv) The amended terms of the Share Option Scheme or the options shall comply with the
relevant requirements of Chapter 17 of the Listing Rules.
(v)
Any change to the authority of our Directors or the scheme administrators in relation to any
alteration to the terms of the Share Option Scheme shall be approved by our Shareholders
in a general meeting.
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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX V
(y)
STATUTORY AND GENERAL INFORMATION
Value of options
Our Directors consider it inappropriate to disclose the value of options which may be granted
under the Share Option Scheme as if they had been granted as of the Latest Practicable Date. Any such
valuation will have to be made on the basis of a certain option pricing model or other method that
depends on various assumptions including the exercise price, the exercise period, interest rate,
expected volatility and other variables. As no options have been granted, certain variables are not
available for calculating the value of options. Our Directors believe that any calculation of the value
of options granted as of the Latest Practicable Date would be based on a number of speculative
assumptions that are not meaningful and would be misleading to [REDACTED].
(z)
Grant of options
As of the date of this document, no options have been granted or agreed to be granted under the
Share Option Scheme.
Application has been made to the Listing Committee of the Stock Exchange for the
[REDACTED] of, and permission to deal in, the Shares which may fall to be issued pursuant to the
exercise of the options to be granted under the Share Option Scheme.
2.
Estate Duty
Our Directors have been advised that no material liability for estate duty is likely to fall on our
Company or any of our subsidiaries.
3.
Tax and Other Indemnity
Mr. Shi and Min Yu (together, the “Indemnifiers”) have entered into a deed of indemnity in
favour of our Group (being a material contract referred to in the paragraph headed “B. Further
Information About Our Business—1. Summary of Material Contracts” in this appendix) to provide the
indemnities on a joint and several basis in respect of, among other things, taxation resulting from
profits or gains earned, accrued or received on or before the date when the [REDACTED] becomes
unconditional.
4.
Litigation
During the Track Record Period and up to the Latest Practicable Date, save as disclosed in this
document and so far as our Directors are aware, we were not engaged in any litigation, arbitration or
claim of material importance and no litigation or claim of material importance (to our Group’s
financial condition or results of operation) is pending or threatened against any member of our Group.
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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX V
5.
STATUTORY AND GENERAL INFORMATION
Sole Sponsor
The Sole Sponsor has made an application on our behalf to the Listing Committee of the Stock
Exchange for the [REDACTED] of, and permission to deal in, the Shares in issue, the Shares to be
issued pursuant to the [REDACTED] and the Shares to be issued as mentioned in this document
(including any Shares which may fall to be issued pursuant to the exercise of the [REDACTED] and
options which may be granted under the Share Option Scheme). All necessary arrangements have been
made to enable such Shares to be admitted into [REDACTED].
The Sole Sponsor has declared its independence pursuant to Rule 3A.07 of the Listing Rules. The
amount of fees payable to the Sole Sponsor by our Company is HK$5,500,000.
6.
Preliminary Expenses
Our preliminary expenses are estimated to be approximately RMB43,130 and are payable by our
Company.
7.
Prom oter
We do not have any promoter for the purpose of the Listing Rules. Save as disclosed in this
document, within the two years immediately preceding the date of this document, no cash, securities
or other benefits have been paid, allotted or given nor are any proposed cash, securities or other
benefits to be paid, allotted or given to any promoters.
8.
Taxation of holders of Shares
(a)
Hong Kong
The sale, purchase and transfer of Shares registered with our Hong Kong branch register of
members will be subject to Hong Kong stamp duty. The current rate charged on each of the purchaser
and seller is 0.1% of the consideration of or, if higher, of the fair value of the Shares being sold or
transferred. Profits from dealings in the Shares arising in or derived from Hong Kong may also be
subject to Hong Kong profits tax. The Revenue (Abolition of Estate Duty) Ordinance 2005 came into
effect on February 11, 2006 in Hong Kong. No Hong Kong estate duty is payable and no estate duty
clearance papers are needed for a grant of representation in respect of holders of Shares whose death
occurs on or after February 11, 2006.
(b)
Cayman Islands
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.
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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX V
(c)
STATUTORY AND GENERAL INFORMATION
Consultation with professional advisers
Intending holders of the Shares are recommended to consult their professional advisers if they
are in any doubt as to the taxation implications of subscribing for, purchasing, holding or disposing
of or dealing in the Shares. It is emphasized that none of our Company, our Directors or the other
parties involved in the [REDACTED] will accept responsibility for any tax effect on, or liabilities of,
holders of Shares resulting from their subscription for, purchase, holding or disposal of or dealing in
the Shares or exercise of any rights attaching to them.
9.
Qualification of Experts
The followings are the qualifications of the experts who have given opinion or advice which are
contained in this document:
Name
Qualifications
Licensed corporation under the SFO to carry
China Investment Securities International
on type 6 (advising on corporate finance)
Capital Limited. . . . . . . . . . . . . . . . . . . . . . regulated activities
Jingtian & Gongcheng . . . . . . . . . . . . . . . . . . PRC legal adviser to the Company
Maples and Calder . . . . . . . . . . . . . . . . . . . . . Cayman Islands legal adviser to the Company
Grant Thornton Hong Kong Limited. . . . . . . . Certified public accountants
China Research and Intelligence Co., Ltd. . . Industry consultant
Jones Lang LaSalle Corporate Appraisal and Property valuer
Advisory Limited . . . . . . . . . . . . . . . . . . . .
10.
Consents of Experts
Each of China Investment Securities International Capital Limited, Jingtian & Gongcheng,
Maples and Calder, Grant Thornton Hong Kong Limited, China Research and Intelligence Co., Ltd.
and Jones Lang LaSalle Corporate Appraisal and Advisory Limited has given and has not withdrawn
its consent to the issue of this document with the inclusion of its report and/or letter and/or summary
of values and/or valuation certificates and/or legal opinion (as the case may be) and references to its
name included herein in the form and context in which it respectively appears.
None of the experts named above has any shareholding interest in our Company or any of our
subsidiaries or the right (whether legally enforceable or not) to subscribe for or to nominate persons
to subscribe for securities in our Company or any of our subsidiaries.
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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX V
11.
STATUTORY AND GENERAL INFORMATION
Particulars of the [REDACTED]
The particulars of the [REDACTED] are set out as follows:
Name
Description
Registered Office
Number of
[REDACTED] to
be sold
(assuming the
[REDACTED] is
exercised in full)
1
Min Yu
A company incorporated in
the BVI on January 5,
2016 and wholly-owned by
Mr. Shi
NovaSage Chambers,
Wickham’s Cay II, Road
Town, Tortola, British
Virgin Islands
[REDACTED]
2
Zhen Lian
A company incorporated in
the BVI on January 5,
2016 and wholly-owned by
Mr. Zhang
NovaSage Chambers,
Wickham’s Cay II, Road
Town, Tortola, British
Virgin Islands
[REDACTED]
12.
Bilingual Document
The English language and Chinese language versions of this document are being published
separately in reliance on the exemption provided in section 4 of the Companies Ordinance (Exemption
of Companies and Prospectus from Compliance with Provisions) Notice (Chapter 32L of the Laws of
Hong Kong).
13.
Binding Effect
This document shall have the effect, if an application is made in pursuance hereof, of rendering
all persons concerned bound by all of the provisions (other than the penal provisions) of sections 44A
and 44B of the Companies Ordinance so far as applicable.
14.
Miscellaneous
(a)
Save as disclosed in this document, within the two years immediately preceding the date of
this document:
(i)
no share or loan capital of our Company or any of our subsidiaries had been issued
or agreed to be issued or proposed to be fully or partly paid either for cash or a
consideration other than cash;
(ii)
no share or loan capital of our Company or any of our subsidiaries had been under
option or agreed conditionally or unconditionally to be put under option;
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THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX V
STATUTORY AND GENERAL INFORMATION
(iii) no commissions, discounts, brokerages or other special terms had been granted or
agreed to be granted in connection with the issue or sale of any share or loan capital
of our Company or any of our subsidiaries;
(iv) no commission had been paid or payable for subscription, agreeing to subscribe,
procuring subscription or agreeing to procure subscription of any share in our
Company or any of our subsidiaries;
(b)
save as disclosed in this document, there are no founder, management or deferred shares nor
any debentures in our Company or any of our subsidiaries;
(c)
save as disclosed in this document, none of the persons named under the sub-paragraph
headed “D. Other Information—10. Consents of Experts” in this appendix is interested
beneficially or otherwise in any shares of any member of our Group or has any right or
option (whether legally enforceable or not) to subscribe for or nominate persons to
subscribe for any securities in any member of our Group;
(d)
our Directors confirm that there has been no material adverse change in the financial or
trading position of our Group since December 31, 2015 (being the date to which the latest
audited consolidated financial statements of our Group were made up);
(e)
there has not been any interruption in the business of our Group which may have or has had
a significant effect on the financial position of our Group in the 12 months preceding the
date of this document;
(f)
the register of members of our Company will be maintained in Hong Kong by
[REDACTED]. All transfer and other documents of title of the Shares must be lodged for
registration with and registered by our share register in Hong Kong. All necessary
arrangements have been made to enable the Shares to be admitted to [REDACTED];
(g)
no company within our Group is [REDACTED] on any stock exchange or traded on any
trading system and at present, and our Group is not seeking or proposing to seek any
[REDACTED] of, or permission to deal in, the share or loan capital of our Company on any
other stock exchange; and
(h)
there is no arrangement under which future dividends are waived or agreed to be waived.
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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX VI
A.
DOCUMENTS DELIVERED TO THE REGISTRAR OF
COMPANIES AND AVAILABLE FOR INSPECTION
DOCUMENTS DELIVERED TO THE REGISTRAR OF COMPANIES
The documents attached to a copy of this document and delivered to the Registrar of Companies
in Hong Kong for registration were:
B.
(a)
copies of each of the [REDACTED];
(b)
a copy of each of the material contracts referred to in the section headed “Statutory and
General Information — B. Further Information About Our Business — 1. Summary of
Material Contracts” in Appendix V to this document;
(c)
the written consents referred to in the section headed “Statutory and General Information
— D. Other Information — 10. Consents of Experts” in Appendix V to this document; and
(d)
the statement of particulars of the [REDACTED].
DOCUMENTS AVAILABLE FOR INSPECTION
Copies of the following documents will be available for inspection at the office of Paul Hastings
at 21-22/F, Bank of China Tower, 1 Garden Road, Hong Kong during normal business hours up to and
including the date which is 14 days from the date of this document:
(a)
the Memorandum and Articles of Association;
(b)
the Accountants’ Report for the three years ended December 31, 2015 prepared by Grant
Thornton Hong Kong Limited, the text of which is set out in Appendix I to this document;
(c)
the letter issued by Grant Thornton Hong Kong Limited relating to our unaudited pro forma
financial information, the text of which is set out in Appendix II to this document;
(d)
the letter, summary of valuations and valuation certificates relating to the property interests
of our Group prepared by Jones Lang LaSalle Corporate Appraisal and Advisory Limited,
the text of which is set out in Appendix III to this document;
(e)
the PRC legal opinions issued by Jingtian & Gongcheng, our PRC Legal Adviser, in respect
of certain aspects of our Group and the property interests of our Group;
(f)
the letter of advice prepared by Maples and Calder, our legal adviser as to the laws of the
Cayman Islands, summarizing certain aspects of the Cayman Companies Law as referred to
in Appendix IV to this document;
(g)
the industry report issued by China Research and Intelligence Co., Ltd.;
(h)
the rules of the Share Option Scheme;
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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND
THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION
HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
APPENDIX VI
DOCUMENTS DELIVERED TO THE REGISTRAR OF
COMPANIES AND AVAILABLE FOR INSPECTION
(i)
the material contracts referred to in the section headed “Statutory and General Information
— B. Further Information About Our Business — 1. Summary of Material Contracts” in
Appendix V to this document;
(j)
the written consents referred to in the section headed “Statutory and General Information
— D. Other Information — 10. Consents of Experts” in Appendix V to this document;
(k)
the service contracts and the letters of appointment referred to in the section headed
“Statutory and General Information — C. Further Information About Our Directors And
Substantial Shareholders — 1. Directors — (b) Particulars of service contracts and letters
of appointment” in Appendix V to this document;
(l)
the statement of particulars of the [REDACTED]; and
(m) the Cayman Companies Law.
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