Tsingtao Brewery Company Limited
The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this
announcement, makes no representation as to its accuracy or completeness and expressly disclaims
any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any
part of the contents of this announcement.
TSINGTAO BREWERY COMPANY LIMITED
(a joint stock limited company established in the People's Republic of China)
ISSUE OF A MAXIMUM OF 100,000,000 A SHARES
OF PAR VALUE OF RMB1.00 EACH
IN THE PRC
SUMMARY
Following the 2000 Extraordinary General Meeting, which had approved, among others, the
application for and implementation of the issue of additional A Shares and proposed listing of such
additional A Shares on the SSE in the PRC, the Board is pleased to announce that the approval of
the A Share Issue was granted by the CSRC on 17 January, 2001. An intended prospectus (the
"Intended Prospectus") of the A Share Issue has been published in the PRC newspapers on 20
January, 2001 and application will be made to the SSE for the listing of the A Shares.
The Company has written to the Stock Exchange of Hong Kong Limited requesting for suspension
of dealings of H Shares on 22 January 2001 pending the issue in Hong Kong of this announcement
and has applied for resumption of dealings of H Shares on 23 January 2001 (i.e. the day on which
this announcement is published).
Reference is made to the announcements of the Company dated 19 September, 2000 and 7
November, 2000 regarding, respectively, the proposed application for the issue of additional A
Shares of the Company and the resolutions passed at the Extraordinary General Meeting. Following
the 2000 Extraordinary General Meeting, which had approved, among others, the application for
and implementation of the issue of additional A Shares and proposed listing of such additional A
Shares on the SSE in the PRC, the Board is pleased to announce that the approval of the A Share
Issue was granted by the CSRC on 17 January, 2001. The Intended Prospectus of the A Share
Issue has been published in the PRC newspapers on 20 January, 2001 and application will be
made to the SSE for the listing of the A Shares. The Intended Prospectus of the A Share Issue
included a profit forecast of the Company for the years ended 31 December, 2000 and 31
December, 2001 (the "Profit Forecast") and the financial estimate of the current acquisitions.
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Tsingtao Brewery Company Limited
The Profit Forecast, which is compiled on the basis of the assumptions made by the directors
of the Company, has been prepared under the basis of the relevant generally accepted
accounting principles and regulations applicable to PRC enterprises ("PRC GAAP") and
accounting policies consistent in all material respects with those adopted by the Company as
set out in the Intended Prospectus of the A Share Issue. The preparation of the Profit Forecast
is the sole responsibility of the Company. The directors of the Company confirm that the
Profit Forecast and the financial estimate of the current acquisitions have been stated herein
after due and careful enquiry. The compilation and calculations of the Profit Forecast have
been reviewed by the Company's PRC auditors, Arthur Andersen -Hua Qiang Certified
Public Accountants. The Profit Forecast and the financial estimate of the current acquisitions
have not been reviewed by any independent financial adviser or auditor in Hong Kong and
may be subject to adjustment if they were to be compiled based on accounting principles
generally accepted in Hong Kong ("HK GAAP").
The directors of the Company assume responsibility for the correctness, accuracy and completeness
of the content of the Intended Prospectus of the A Share Issue. Any decision made by the securities
regulatory authority in the PRC in respect of the A Share Issue does not represent any substantive
judgement on or assurance of the value of the shares publicly offered by the Company or the
investment return for investors. Any representation to the contrary in the Intended Prospectus of the
A Share Issue would be a false and untrue statement.
A summary of the Intended Prospectus of the A Share Issue is set out below:
Stock
: SSE
exchange
for
the
proposed
listing of the
A Shares
Type
securities
of : Domestically listed ordinary shares denominated in Renminbi (A Shares)
Stock code in : 600600
domesticallylisted stock
exchange
Nominal value : RMB1.00 per share
Target
subscribers
Number
shares
: Domestic natural persons and institutional investors, including domestic legal
persons and securities investment funds other than those prohibited under the State
laws and regulations.
of : Maximum 100,000,000 A Shares; the ultimate
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Tsingtao Brewery Company Limited
to
issued
be number of shares issued shall be determined according to the applications to be
made under the Current Issue, and will be announced in the announcement of
results of the A Share Issue after the closing of application.
Structure
of : A combination of "book-building" process
the
A
Share outside the system network of SSE ("Network") targeting at institutional investors
Issue
outside the Network, and "book-building" process within the Network targeting at
public investors, within an indicative price range.
In order to qualify for the pre-emptive right in the proportion of 10:3, the
shareholders whose names appearing in the register of the members of the A
Shares of the Company in issue ("Existing Shareholders") at the close of business
on the date of entitlements.
Determination : The upper limit of the indicative price range will
of
the
be set at the simple arithmetic average of the
indicative
Price Range closing price of Tsingtao Beer A Share in the 20 trading days prior to the issue of
the Intended Prospectus of Tsingtao Brewery Company Limited, that is
RMB10.87 per Share, and the lower limit shall be set at 70% of the maximum
price, that is RMB7.61/Share. The indicative price range of the A Share Issue is
therefore RMB7.61/Share-RMB10.87/Share. The final issue price shall be
determined by the Issuer and the lead underwriter by reference to the results of the
book-building process targetting at institutional investors outside the Network, and
certain times of over-subscriptions.
Estimated
: It is estimated that the gross proceeds from the
gross
proceeds
A Share Issue will be RMB800,000,000 (inclusive
(inclusive of of issue expenses).
issue
expenses)
Use
proceeds
of : The capital deployment order of the investment projects is arranged according to
their significance to the Company and urgency for the use of the proceeds.
After receiving the proceeds, the Company will invest in the projects by stages
depending on their progress. The proceeds which are not for immediate use will be
used as additional working capital of the Company.
Expected Timetable for the A Share Issue
Time
Description
January 20
Publication of the Intended Prospectus and notices outside the Network
February 5
Publication of reminder and roadshow notices
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February 8
Registration of entitlements
February 6- Commencement of roadshows live and within the
February 8 network
February 9
Book-building targeting at institutional investors outside the Network
February 12 Assessment of applications and statistics of the book-building process and
determination of the issue price and number of shares to be issued
February 13 Announcement of the book-building results and the price determination
February 14 Price determination for applications by public investors
February 15 Proceeds made available
February 16 Capital verification
February 19 Announcement of ballot rates and the placing ratio applicable to institutional
investors
February 20 Announcement of ballot results, refunds, actual number of placing shares and making
up the difference by institutional investors
In the event of force majeure, the above schedule shall be postponed accordingly.
Expected Total issue expenses
Expenses relating to the A Share Issue include underwriting fee, registered accountant's fee
(auditing, capital verification and review of profit forecast, etc.), legal charges, issue expenses
within Network, listing sponsorship expenses, roadshow expenses and other expenses, total
approximately RMB29.54 million.
(RMB10,000)
Underwriting fee
1,740
Registered accountant's fee
350
Payable to both Arthur Andersen
and Arthur Andersen -Hua Qiang
Certified Public Accountants
Legal charges (of which RMB400,000 is PRC lawyer's fees) 80
Issue expenses within Network
284
Listing sponsorship expenses
100
Roadshow expenses
200
Other expenses
200
Total
Approx.
2,954
Changes of shareholding structure of the Company before and after the A Share Issue are as
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Tsingtao Brewery Company Limited
follows:
As the quantity and issue price of the A Share Issue are not yet determined, changes of the
shareholding of the Company will be disclosed after completion of the Current Issue.
(I) Use of the Proceeds
1. Not more than 100,000,000 additional A Shares will be issued by the Company. It is expected
that the proceeds from the issue will amount to RMB800 million (before deducting issue expenses)
and such proceeds have been planned to be used as follows:
(1) RMB339.99 million will be used to acquire the foreign investor equity in certain Sino-foreign
equity joint venture brewery production enterprises, which includes:
-RMB153.75 million will be used for the acquisition of the 75% foreign investor equity in
Carlsbrew Shanghai;
-an investment of RMB186.24 million will be made for the acquisition of 62.64% foreign investor
equity in Five Star Co. and 54% foreign investor equity in Three Ring Co.
(2) RMB423 million will be used to implement technology renovation for the wholly-owned
factories and subsidiaries of the Company, which includes:
-RMB68 million will be applied to the technology renovation project for the pure and draught beer
production line of Tsingtao Brewery Factory No.2;
-RMB120 million will be applied to the technology renovation project for the production line of
Xi'an Co. with annual production capacity of 50,000 tonnes of draught beer;
-RMB77 million will be applied to the technology renovation project Phase I for Ma'anshan Co.
with annual production capacity of 100,000 tonnes of beer;
-RMB58 million will be applied to the technology renovation project for Zhuhai Co. with annual
production capacity of 150,000 tonnes of beer;
-RMB90 million will be applied to the technology renovation project for Sanshui Co. with annual
production capacity of 200,000 tonnes of beer;
-RMB10 million will be used to establish an electronic sale network of the Company.
2.
Approval for individual project of the investments
Approval for
Project Name
individual project
Remarks
Acquisition of the 75%
Wai Jing Mao Bu (2000)
Approval from MOFTEC
foreign investor equity
Wai Jing Mao Zi Er
in Carlsbrew Shanghai
Han Zi No.982
Acquisition of the 62.64% Agreement
Approval procedures are
and 54% foreign
underway
investor equity in
Five Star Co. and
Three Ring Co
respectively
Technology renovation
Tsing Jing Ji Gai (2000)
Approving and reviewing
project for the pure
No. 557
the feasibility study report
and draught beer
Tsing Jing Ji Gai (2000)
-ditto production line of the
No. 556
Tsingtao Brewery
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Tsingtao Brewery Company Limited
Factory No.2
Technology renovation
Shi Jing Fa (2000) No.249 Approving and reviewing
project for the production the feasibility study report
line of Xi'an Co. with
Shi Jing Fa (2000) No.250 -ditto annual capacity of 50,000 Shi Jing Fa (2000) No.251 -ditto –
tonnes of pure and
Shi Jing Fa (2000) No.252 -ditto –
draught beer
Shi Jing Fa (2000) No.253 -ditto –
Shi Jing Fa (2000) No.254 -ditto Technology renovation
Wan Jin Mao Ji (2000)
Approving and reviewing
project phase I for
No.553
the project proposal
Ma'anshan Co. with
Jing Mao (2000) No.67
-ditto –
annual production
Jing Mao (2000) No.9
-ditto –
capacity of 100,000
tonnes of beer
Technology renovation
Zhu Ji Gong Ji (2000)
Approving and reviewing
project for Zhuhai Co.
No.31
the feasibility study report
with annual production Zhu Ji Gong Ji (2000)
-ditto –
capacity of 150,000
No.32
tonnes of beer
Technology renovation
Fo Jing Gai (1999) No.37 Approving and Reviewing
project for Sanshui Co.
the project proposal
with annual production Fo Jing Gai (2000) No.38 -ditto –
capacity of 200,000
Fo Jing Gai (2000) No.45 -ditto –
tonnes of beer
Fo Jing Gai (2000) No.102 -ditto Establishment of electronic Qing Jing Ji Gai (2000)
Approving and reviewing
sale network
No.631
the project proposal
of the Company
3. Basic information about the investment projects
RMB339.99 million will be used to acquire the equity interests held by foreign investors in certain
Sino-foreign equity joint venture brewery of the Acquisitions.
Objectives of the acquisitions
Beijing and Shanghai are two international cities in China with the largest population and most
developed economically. In recent years, as China further opens to the rest of the world, an
increasing number of foreign brewery enterprises have invested and set up production plants in the
mainland to produce beers of international brandnames, which have to a certain extent created
competition with the development of the domestic brewery industry. Taking the opportunity of the
withdrawal of ASIMCO I, ASIMCO VIII and Carlsberg HK from their disappointing investments
in Beijing and Shanghai, the Company acquired at low cost the foreign equity interests in Five Star
Co., Three Ring Co. and expand its operation scale, in an effort to protect the national brewery
industry, build up the reputation of Chinese beer brandnames as well as to increase the
competitiveness of domestic beer in the international market. The implementation of this
development strategy not only can contribute to the national brewery industry, but also serves to
create a new "platform" for rapidly enhancing the image of the Company's brandname. The
acquisitions will save time for the Company in the investment and establishment of new plants in
other regions. Through merging with its competitors in taking up a significant share in the domestic
market in a most efficient manner, the Company has founded solid base for rapidly upgrading
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Tsingtao Brewery Company Limited
"Tsingtao Beer" as an internationally recognised brandname of beers.
1. Acquisition of 75% foreign investor equity of Carlsbrew Shanghai
(i) Introduction of the company to be acquired
The investment amount of the project is RMB153.75 million and will be fully financed from the
proceeds of the A Share Issue. The Equity Transfer Agreement entered into between the Company
and Carlsberg HK has been approved by MOFTEC and has become effective.
Carlsbrew Shanghai is a Sino-foreign equity joint venture jointly invested and established by
Carlsberg HK and Songjiang Co. Its construction commenced in 1996 and was completed in 1998
for commercial production. The registered capital of the company is US$36,640,000, of which 95%
equity interests as to Carlsberg HK and 5% equity interests as to Songjiang Co. Its principal
activity is manufacturing and sales of beers. Its existing annual capacity is 100,000 tonnes.
According to the audit report Pu Hua Yong Dao (00) No. 28 issued by 普華永道中天會計師事務有限公司, as at 28th June, 2000, total assets of Shanghai Jialiang were RMB597.53 million with
total liabilities of RMB601.71 million, making negative net assets of RMB4.18 million. Sales
revenue for the year amounted to RMB45.13 million and net loss was RMB93.05 million.
(ii) Method of Acquisition and Consideration
According to the 上海財瑞資產評估有限公司 Hu Cai Ping Zi (2000) No.073 "Overall Asset
Valuation Report", the total value of the assets of Carlsbrew Shanghai was 390.36 million as at the
assessment date 28 June, 2000 with assessed aggregate liabilities of RMB524,330,000 and assessed
net asset of a negative amount of RMB133,970,000. Pursuant to the Equity Transfer Agreement
entered into between the Company and Carlsberg HK and the relevant documents. Carlsberg HK
agreed to the asset and debt restructuring whereby all debts of Carlsbrew Shanghai will be assumed
by Carlsberg HK, while only the assessed net asset of RMB265,000,000 will eventually remain
with Carlsbreg HK. The company intended to acquire the 75% equity interests of Carlsbrew
Shanghai held by Carlsberg HK upon reorganisation at a consideration of RMB153.75 million.
Meanwhile, Carlsberg HK would also perform the obligation to acquire 5% equity interests of
Carlsbrew Shanghai held by Songjiang Co.. Upon completion of the current acquisition, as far as
the shareholding structure of Carlsbrew Shanghai is concerned 75% equity interest will be held by
the Company and 25% Carlsberg HK. Moreover, Carlsbrew Shanghai will change its name to 青島
啤酒上海松江有限公司 and will continue to be entitled to the benefits enjoyed by Sino-foreign
equity joint ventures.
(iii) Financial estimate of the current acquisition
Upon the completion of the current acquisition, Tsingtao Brewery Shanghai Songjiang Co., Ltd.
will not assume any liabilities of Carlsbrew Shanghai prior to the acquisition. What the Company
actually purchases will be 75% of the productive assets and facilities of Carlsbrew Shanghai, which
will be used to produce Tsingtao beer and embark on marketing business. Production and operation
of Tsingtao Brewery Shanghai Songjiang Co., Ltd will have no continuity with Carlsbrew Shanghai
prior to acquisition.
It is estimated that Tsingtao Brewery Shanghai Songjiang Co., Ltd. will have annual capacity of
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Tsingtao Brewery Company Limited
100,000 tonnes of beers by 2002 with realized product sales revenue RMB368.09 million, total
profits RMB28,260,000 and payback period of 4.4 years.
(2) Acquisition of 62.64% and 54% foreign investor equity interests in Five Star Co. and
Three Ring Co. respectively
(i) Introduction of the company to be acquired
Five Star Co. is a Sino-foreign equity joint venture jointly invested and established by Five Star
Group and ASIMCO I and was established on 12 January, 1995. The registered capital of Five Star
Co. is RMB862 million, of which 37.36% equity interest is held by Five Star Group and 62.64%
ASIMCO I. Its principal activity is manufacturing of beer under the brandname "五星" and its
existing annual production capacity is 200,000 tonnes of beer. Three Ring Co. is a Sino-foreign
equity joint venture jointly invested and established by Five Star Three Ring Co. and ASIMCO VIII
and was established on 5 January, 1995. The registered capital of Three Ring Co. is US$29.8
million, of which 46% equity interests as is held Five Star Three Ring Co. and 54% ASIMCO VIII.
Its principal activity is manufacturing of beer under the brandname "雲湖" and its existing annual
production capacity is 200,000 tonnes of beer.
The shareholding structure of Five Star Co. and Three Ring Co. is as follows:
Five Star Co. currently owns two branch factories. Factory I is situated at Guang An Men Wei,
Xuan Wu District, Beijing with a site area 55 acres. Factory No 2 is located in the rural area of
Beijing called Xian Ping. The predecessor of Three County had a Ring Co. is 北京三環啤酒廠
which is situated at Miyun County, Beijing. It was established and commenced production in 1990
and had a site area of 203 acres.
According to the Accounting Report and Audit Report from Registered Accountants for the period
1 January, 2000 to 25 June, 2000 for Five Star Co. issued by Arthur Anderson 嘕 ua Qiang Certified
Public Accountants, total assets of Five Star Co. was RMB786.16 million, total liabilities was
RMB317.15 million, net assets was RMB469.01 million, sales revenue for the year amounted to
RMB40.40 million and net loss was RMB91.57 million.
According to the Accounting Report and Audit Report from Registered Accountants for the period
1 January 2000 to 25 June 2000 for Three Ring Co., issued by Arthur Anderson 嘕 ua Qiang
Certified Public Accountants, total assets of Three Ring Co. was RMB412.24 million, total
liabilities was RMB220.44 million, net assets was RMB191.80 million, sales revenue for the year
amounted to RMB101.32 million and net loss was RMB62.26 million.
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(ii) Method of Acquisition and Consideration
According to the Asset Valuation Report 中資資產評估有限公司 Zhong Zi Ping Bao Ji (2000)
No.051-1, as at the assessment date of 30 June, 2000, the net asset value of Five Star Co. was
RMB150.13 million. Based on such net asset value, the current transfer value of 62.64% equity
interest owned by its foreign investor, ASIMCO I is RMB94.04 million. Pursuant to the Equity
Transfer Agreement entered into between the Company and ASIMCO I, the Company intends to
acquire the 37.64% equity interest in Five Star Co. held by ASIMCO I with a consideration of
RMB6.01 million as 青島啤酒香港貿易有限公司, a wholly-owned subsidiary of the Company,
intend to acquire 25% equity interest in Five Star Co. as held by ASIMCO I at a consideration of
US$3.99 million.
According to the Asset Valuation Report 中資資產評估有限公司 Zhong Zi Ping Bao Ji (2000)
No.051-2, as at the assessment date of 30 June, 2000, the net asset value of Three Ring Co. was
RMB203.56 million. Based on such net asset value, the current transfer value of 54% equity
interest in Three Ring Co. as owned by its foreign investor ASIMCO VIII amounts RMB109.92
million. Pursuant to the Equity Transfer Agreement entered into between the Company and
ASIMCO VIII, the Company intend to acquire the 54% equity interest in Three Ring Co. as held by
ASIMCO VIII at a consideration of US$12.5 million.
In the above two transactions, the total current transfer value of the equity interest owned by the
foreign investors amounts to RMB203.96 million and the Company intends to apply US$22.5
million (equivalent to RMB186.24 million) to acquire the said equity interest.
(iii) Approvals
The above two transactions have been approved by the board of directors of the target company
meeting in accordance with its Articles of Association. The relevant contracts have been submitted
to the MOFTEC and the BFETC for approval. Upon completion of the acquisition, Five Star Co.
will maintain the status of Sino-foreign equity joint venture while Three Ring Co. will be
transformed from a Sino-foreign equity joint venture to a domestic enterprise.
(iv) Financial estimate for the current acquisition
It is estimated that Five Star Co. and Three Ring Co. will have realized product sales revenue of
RMB951.1 million (of which RMB458.94 million as to Five Star Co. and RMB492.16 million as to
Three Ring Co.), total profits of RMB58.12 million of which RMB19.79 million as to Five Star Co.
and RMB38.33 million as to Three Ring Co.) and the investment payback period of Five Star Co.
and Three Ring Co. is 4.23 years and 4.5 years respectively.
(3) Technology renovation project for pure and draught beer production line of Tsingtao
Brewery No.2 Factory
The total investment amount of the project is RMB68 million, of which RMB60.04 million is fixed
assets investment and RMB7.96 million is ancillary current capital. The project comprises of the
technology renovation and expansion of Tsingtao Brewery No.2 Factory and the 24,000
bottles/hour filling bottle production line of pure and draught bottle beers of Tsingtao Brewery No.2
Factory. The fixed asset investment of the 24,000 bottles/hour filling bottle production line of pure
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Tsingtao Brewery Company Limited
and draught bottle beers and technology renovation and expansion projects amounts to RMB41.43
million and RMB18.61 million respectively.
Approvals of the feasibility study reports for the projects for the 24,000 bottles/hour filling bottle
production line of pure and draught bottle beers and technology renovation and expansion have
been granted by the QABSA by documents Qing Jing Ji Gai (2000) No.556 and No.557,
respectively.
The construction period for the projects will last for 12 months. Upon the completion of the
projects, it will generate additional annual sales revenue of RMB247.55 million and profits of
RMB24.08 million.
(4) Technological renovation for the production lines of Xi'an Co. with an annual production
capacity of 50,000 tonnes of pure and draught beer
Total investment of the project amounts to RMB172.50. According to the resolutions passed at the
general meeting of Xi'an Co. held on 8 October 2000, the Company intends to make unilateral
contribution of RMB120 million out of the proceeds of the amount issue of A Shares to Xi'an Co.
for implementation of the project. The project comprises by the following six items: fresh beer
production lines, storage capacity, packaging production lines, storage capacity, packaging
production lines, supporting engineering, infrastructural and utilities engineering and barley juice
production lines. The Xian Municipal Economic Commission has approved the feasibility study
reports for the various technological renovation projects by its respective approval document ref.
Shi Jing Fa (2000) No.249, 250, 251, 252, 253 and 254.
The investment amounts of each of the said sub-project are as follow:
Technological Renovation Sub-Projects Investment
(RMB)
Fresh beer production lines
29,000,000
Storage capacity
29,000,000
Packaging production line
29,950,000
Supporting engineering
25,150,000
Infrastructural and utilities engineering 29,500,000
Barley juice production line
29,900,000
Total
172,500,000
Upon completion of the project, there will be an annual increase of RMB269 million in sales
revenue and RMB53.43 million in profit.
(5) Technological renovation Phase 1 for Ma' anshan Co. with an annual production
capacity of 100,000 tonnes
Total investment of the project amounts to RMB79.37 million. Pursuant to a resolution passed at
the general meeting of Ma' anshan Co. held on 8 October, 2000, the Company intends to make
unilateral contribution of RMB77 million out of the proceeds of the Current Issue of A Shares to
Ma' anshan Co., for implementation of the project. The project consists of four subprojects of
technological renovation: in the saccharification and fermentation system, air compression and
refrigeration, sewage treatment and packing. Approval for the project proposals for the subprojects
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Tsingtao Brewery Company Limited
has been granted by the Anhui Provincial Economic and Trade Commission in its document Wan
Jing Mao Ji (2000) No.553 and by the Maanshan Municipal Economic and Trade Commission in its
approval documents Jing Mao (2000) Nos.9 and 67.
The investment amounts for each of the said sub-project are as futures:
Technological Renovation sub-projects
Project Name
Investment
(RMB)
Saccharification
and
fermentation 29,910,000
system
Air compression and refrigeration
29,900,000
Sewage treatment
9,600,000
Packing
9,960,000
Total
79,370,000
Upon its completion, the investment project will result in an annual production capacity of 50,000
tonnes and an annual increase in sales revenue and profit of RMB153.72 million and RMB23.21
million respectively. It will also contribute to the gradual building up of full support for achieving
an annual production capacity of 100,000 tonnes.
(6) Technological renovation for annual production capacity of 150,000 tonnes of beer
Total investment of the project amounts to RMB58.15 million. Pursuant to a resolution passed at
the general meeting of Zhuhai Co. held on 8 October, 2000, the Company intends to the project
make unilateral contribution of RMB58 million out of the proceeds of the Current Issue of A Shares
to Zhuhai Co. for implementation of the project. The project consists of the core and the utilities
projects with investment amounts of RMB29.90 million and RMB28.25 million respectively.
Approval for the proposed subprojects has been granted by the Zhuhai Municipal Planning
Commission in its documents Zhu Ji Gong Zi (2000) Nos. 31 and 32.
Upon its completion, the investment project will result in an annual production capacity of 100,000
tonnes and an annual increase in sales revenue and profit of RMB169.96 million and RMB27.92
million respectively. It will also contribute to the gradual building up of full support for achieving
an annual production capacity of 150,000 tonnes.
(7) Technological renovation for annual production capacity of 200,000 tonnes of beer
Total investment of the project amounts to RMB119.672 million. Pursuant to a resolution passed at
the board meeting of Sanshui Co. held on 8 October, 2000, the Company and the other shareholder
of Sanshui Co. called 加拿大 EVG 企業有限公司 will implement the project by further
investment in proportion to their respective shareholdings in Sanshui Co. The Company will inject
RMB90 million, In this regard, while approval of the MOFTEC in the further investment by the
said foreign investor is still being awaited. The project consists of four subprojects of technological
renovation, relation to the saccharification, facilities in support of the annual beer production of
200,000 tonnes, environmental protection and utilities, as well as the fermentation system.
Approval for the project proposals for the subprojects has been granted by the Foshan Municipal
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Tsingtao Brewery Company Limited
Economic Commission in its documents Fo Jing Gai (1999) No. 37, Fo Jing Gai (2000) Nos. 38
and 45 and Fo Jing Gong (2000) No. 102.
The investment amounts of each sub-subprojects are as follow:
Technological Renovation of the said sub-Projects
Investment
(RMB)
Saccharification
29,871,700
Facilities in support of the annual
beer production of 200,000 tonnes 29,887,700
Environmental
protection
and 29,952,600
utilities
Fermentation system
29,960,000
Total
119,672,000
Upon its completion, the investment project will result in an annual production capacity of 150,000
tonnes and an annual increase in sales revenue and profit of RMB285 million and RMB36.61
million respectively. It will also contribute to the gradual building up of full support for achieving
an annual production capacity of 200,000 tonnes.
(8) Establishment electronic sale network
Total investment of the proposed project, the project proposal which has been approved by the
Qingdao Municipal Economic Commission in its approval document (2000) No.631, amounts to
RMB10 million. The project primarily involves the application of computer and network
technologies in building up an electronic sale network for the Company to link up its sales offices
across the PRC. Through the re-planning and design of processes such as planning, warehousing
and transportation, network management of logistics and monetary settlement has been achieved
and the path into B2B E-commerce operation is followed. Upon completion of the project, the
required area for storage of products of the Company will be reduced, turnover rate of products will
increase, transportation and wastage. Upon completion of the project, annual savings of storage and
selling expenses will amount to RMB35 million and RMB5 million respectively.
Schedule of investment, expected profit-generating year and payback period for the investment
projects:
Investment
funded by
Profitproceeds Planned
gener- Payuse
Total
from
of proceeds
ating back
Project
investment share issue 2001
2002
year period
(RMB)
(RMB)
(RMB)
(RMB)
(year(s))
Acquisition of 75%
153,750,000 153,750,000 153,750,000 2001 4.4
foreign investor equity
interest in
Carlsbrew Shanghai
Projects of acquisition
186,240,000 186,240,000 186,240,000 2001 4.23
Tsingtao Brewery Company Limited
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12
Tsingtao Brewery Company Limited
of 62.64% foreign
investor equity
interests in Five Star
Co. and 54%
foreign investor
equity interest in
Three Ring Co.
Technological renovation 68,000,000 68,000,000 40,000,000
project for production
lines of Tsingtao
Brewery No.2 Factory
Technological renovation 172,500,000 120,000,000 120,000,000
projects of production
lines of Xi'an Co. with
an annual capacity of
50,000 tonnes of
pure and draught beer
Technological renovation 79,370,000 77,000,000 77,000,000
project phase I for
Ma'anshan Co. with an
annual capacity of
100,000 tonnes of beer
Technological renovation 58,150,000 58,000,000 46,520,000
project for Zhuhai Co.
with an annual capacity
of 150,000 tonnes of
beer
Technological renovation 119,672,000 90,000,000 90,000,000
project for Sanshui Co.
with an annual capacity
of 200,000 tonnes beer
Establishment
of 10,000,000 10,000,000 7,000,000
electronic
sales network
of the Company
Total
(
Five Star Co)
4.5
(Three
Ring Co.)
28,000,000 2003
5.05
-
2003
3.27
-
2001
4.73
11,480,000 2002
4.96
-
5.36
2002
3,000,000 2001
3
847,682,000 762,990,000 720,510,000 42,480,000
Investments in the above projects totally RMB847.682 million of which RMB762.99 million is
intended to be funded by the proceeds of the Current Issue. Proceeds from the Current Issue
RMB251.63 million in excess of the required capital injection will be used as the working capital
of the Company, while any shortfall will be satisfied by the Company itself.
The application of the said proceeds in the above projects will be subject to their priority. It is
expected that the of the Company will increase its annual sales revenue and profit by RMB2.44442
billion and RMB251.63 million upon full operation of all the projects financed by the proceeds.
The use of proceeds from the Current Issue of the Company is to continue its advanced
development, and low-cost expansion strategies, and to increase its core competitiveness. Through
technological renovation of affiliates and subsidiaries, adjustment and optimisation of the product
Tsingtao Brewery Company Limited
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Tsingtao Brewery Company Limited
mix and resource allocation; management and technological expertise will further be enhanced by
technological renovation of the corporate marketing network and network information technology.
All the investment projects are in line with the State industry policy and are expected to achieve
promising returns. The implementation of the projects will further expand the scale of production
of the Company and its market share, which will in turn facilitate the adjustment of the national
beer industry structure and enhance the international competitiveness of the domestic beer industry.
Description of the use of the previous proceeds
(Notice of which has already been sent to holders of H Shares by the Company on 22 September
2000)
Profit Forecast
Investors are reminded that owing to the uncertainty of the assumptions on which the Profit
Forecast is based, investors should not rely on the forecast in making investment decisions. The
said profit forecast has been reviewed by Arthur Andersen -Hua Qiang Certified Public
Accountants and their report, the text of which is translated from Chinese, is set out below.
Profit Forecast Review Report
To the Shareholders of Tsingtao Brewery Company Limited
Arthur Andersen -Hua Qiang Certified Public Accountants ("We") have been appointed to review
the basic assumptions on which the Profit Forecast of Tsingtao Brewery Company Limited (the
"Company") and its subsidiaries (the "Group") for the fiscal years 2000 and 2001 is based, the
accounting policies adopted and the basis of preparation and calculation methods. The management
of the Company and the Group is solely responsible for the reasonableness of the assumptions on
which the Profit Forecast is based, the consistency of the accounting policies adopted, the
appropriateness of the basis of preparation and calculation methods and the realization of the
forecast objectives. We are not responsible and do not warrant the realizability of the forecasted
results. Our responsibility is to express an opinion on the basic assumptions on which the Profit
Forecast is based, the accounting policies adopted, the basis of preparation and the calculation
methods based on our review. We have conducted our review in accordance with "Independent
Auditing Practice Notice No. 4 -Review of Profit Forecast" issued by the Chinese Institute of
Certified Public Accountants, and have carried out all the review procedures we consider necessary.
In our opinion, the basic assumptions on which the Profit Forecast for the fiscal years 2000 and
2001 is based, the accounting policies adopted, and the basis of preparation as mentioned above
have been adequately disclosed, and there is no evidence that these basic assumptions, basis of
preparation and calculation methods are unreasonable. The Profit Forecast has been prepared on the
disclosed basis of preparation and the accounting policies and calculation methods used are
consistent in all material aspects with those normally adopted by the Company and the Group.
Arthur Andersen -Hua Qiang
Certified Public Accountants
Luo Zhan En
PRC Certified
Public Accountant
Tsingtao Brewery Company Limited
22/1/2001
14
Zhang Xiang Ji
PRC Certified
Public Accountant
Tsingtao Brewery Company Limited
Beijing, the PRC
17 November, 2000
The following information is extracted from the Profit Forecast
I. Consolidated Profit Forecast of Tsingtao Brewery Company Limited and Its Subsidiaries
(Prepared in accordance with PRC accounting standards and regulations)
Forecast Period: Fiscal Years 2000 and 2001
January 1 ,
to June 30,
1999
2000
2000
2001
Items
(audited)
(audited) (forecast) (forecast)
In 10,000 Yuan (except the earnings
per share, which is in RMB)
1. Turnover
244,544
186,354
390,803
590,339
Less: Cost of sales
146,382
113,368
244,384
360,119
Taxes and surcharges
20,683
16,181
31,481
51,886
2. Gross profit
77,479
56,805
114,938
178,334
Add: Profit from other operations
6
927
993
166
Less: Provision for diminution
in values of inventories
267
506
800
500
Selling expenses
43,168
30,795
59,446
90,682
General and administration expenses 19,967
14,799
31,498
44,780
Financial expenses, net
5,411
4,117
10,816
12,420
3. Operating profit
8,672
7,515
13,371
30,118
Add: Investment income
1,006
518
740
740
Subsidy income
3,854
1,177
2,730
-Non-operating income
574
187
775
Less: Non-operating expenses
1,011
108
419
4. Profit before tax and minority 13,095
9,289
17,197
30,858
interests
Less: Income tax
3,784
2,050
4,993
7,836
Less: Minority interests
364
951
2,446
5,971
5. Net profit
8,947
6,288
9,758
17,051
6. Earnings per share
RMB0.0994 RMB0.0699 RMB0.1084 RMB0.1705
Legal Representative: Li Gui Rong
Financial Controller: Sun Yu Guo
Prepared by: Yu Zhu Ming
II. Basis of preparation
This Profit Forecast has been prepared based on the operating results of Tsingtao Brewery
Company Limited (the "Company") and its subsidiaries (the "Group") for the three years ended 31
December, 1999 and the six months ended 30 June, 2000, together with the production and
operation plans of the Company and the Group for the fiscal years 2000 and 2001, and the existing
production and technological conditions after taking into consideration the market condition and
the plans for business pursuit. The accounting principles adopted for this Profit Forecast have
complied in all material aspects with the relevant provisions of the existing PRC laws, regulations
and the financial accounting system, and are consistent with the accounting policies and the basis of
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Tsingtao Brewery Company Limited
preparation of financial statements adopted by the Company and the Group.
III. Basic assumptions
The basic assumptions adopted in the Profit Forecast of the Company and the Group for the fiscal
years 2000 and 2001 are as follows:
(1) there will be no material change in the existing PRC laws, regulations and policies with which
the Company and the Group shall comply, and the social environment of the region where the
Group is located;
(2) there will be no material change in the existing relevant political, economic, legal conditions
and regulations, policies and economic environment of the countries or territories where the
Company and the Group operate;
(3) there will be no material change in the supply of the major raw materials, energy and the
markets for the sale of goods of the Company and the Group, which is unforeseeable and will have
material adverse impacts on the supply of major raw materials, energy and the prices of the goods;
(4) there will be no material adverse impact on the operations and the results of the Company and
the Group caused by unforeseeable actions of the government, the industry or labour disputes;
(5) there will be no material adverse impact on the anticipated sales and selling prices of goods of
the Company and the Group caused by unforeseeable factors;
(6) there will be no material change in the tax rates, exchange rates, interest rates and market
conditions during the forecast period; and
(7) there will be no material adverse impact caused by force majeure and unforeseeable factors.
IV. Statement of Profit Forecast of Tsingtao Brewery Company Limited and Its Subsidiaries
for the Fiscal Years 2000 and 2001
1. Description of the Company
The predecessor of the Company is the State-owned Qingdao Brewery Factory which was founded
in 1903 and is the earliest-established brewery factory in China. The Company was incorporated on
16 June, 1993, with the State-owned Qingdao Brewery Factory as its promoter and absorbing
Tsingtao Brewery No. 2 Factory and Tsingtao Brewery No. 4 Factory. Its scope of business includes
manufacture and sales of beer and related businesses. In the same year, the Company issued H
Shares in Hong Kong and was listed on the Stock Exchange of Hong Kong Limited on 15 July,
becoming the first PRC enterprise listed in Hong Kong. Later on, the Company issued A Shares in
the PRC and was listed on the SSE on 27 August in the same year. The total share capital of the
Company amounts to RMB900 million, 44.42% of which is State-owned shares, 5.93% of which is
legal person shares, 11.11% of which is domestically listed A Shares, and 38.54% of which is
overseas listed H Shares. There has been no additional issuance or placing of shares since the
listing of the Company seven years ago.
In 1999, the Company's total production capacity amounted to 1.07 million tonnes. The operating
results as audited by Arthur Andersen -Hua Qiang Certified Public Accountants is as follows: the
consolidated total assets amounted to RMB5.173 billion; the consolidated turnover amounted to
RMB2.445 billion; the consolidated profit before tax and minority interests amounted to RMB131
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Tsingtao Brewery Company Limited
million; and the consolidated net profit amounted to RMB89 million.
2. Basis and methodology of preparation for Profit Forecast
The operating results of the Company and the Group for each of the three years ended 31 December,
1997, 1998 and 1999 and the six months ended 30 June, 2000 (the "Relevant Periods"), in relation
to their manufacture and sale of beer and related businesses, are included in the financial statements
for the Relevant Periods. The Profit Forecast is prepared on the same basis and methodology as
adopted for the Relevant Periods.
3. Principal Accounting Policies, Accounting Estimates and Basis of Preparation for Profit
Forecast
(1) Accounting standards
The Company and its subsidiaries (collectively referred to as the "Group") have adopted use of the
"Accounting Standards for Joint Stock Limited Companies" of the PRC. The books and records are
maintained on the accrual basis using the the historical cost convention.
(2) Financial year
The financial year runs from 1 January to 31 December of each calendar year.
(3) Reporting currency and foreign currency translation
The Group maintains its books and records in Renminbi ("RMB"). Foreign currency transactions
are translated into RMB at the average exchange rate announced by the People's Bank of China
("Market Rate") on the dates of the transactions. On the last day of each month, monetary assets
and liabilities denominated in foreign currencies are translated into RMB at the Market Rate
prevailing at the end of each month. The exchange differences arising from the translation are dealt
with in the statements of income.
(4) Bases of entries and valuation
The Group maintains its books and records on an accrual basis. All assets are stated at their actual
costs when they are acquired or constructed, except those subject to revaluation, which will be
stated at revaluation.
(5) Turnover
The Group and the Company provided delivery services to major distributors and the sales prices of
its products (invoiced value of goods) were adjusted to cover the necessary transportation costs.
Sales are recognised when title of goods passes to customers.
(6) Bad debts
The Group makes provision for bad debts. Generally, receivable balances aged three years or above
would be fully provided for. For receivables aged between one to three years, a general provision of
10% to 50% is provided. Moreover, specific provision is made against individual receivable
balances as required.
(7) Inventories
Inventories are stated at the lower of cost, calculated using the weighted average method, and net
realisable value. Costs of work-in-progress and finished goods comprise direct materials, direct
labour, and an attributable proportion of production overheads. Net realisable value represents the
Tsingtao Brewery Company Limited
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Tsingtao Brewery Company Limited
estimated selling price less all further costs to completion and costs to be incurred in marketing and
distribution. Low-value consumables are amortised into expenses over 2-5 years using the
straight-line method.
(8) Long-term equity investments
Investment in other enterprises are accounted for using the equity method in the Company's
financial statements and is consolidated in preparing the consolidated financial statements if the
investment represents a 50% above holding in the voting capital of the investee.
If the investment represents less than 20% of the voting capital of the investee, or a holding of 20%
or above of the voting capital but the Company is not able to exercise significant influence over the
investee, it is stated at cost less provision for permanent diminution in value. If the investment
represents a 20% or above holding of the voting capital of the investee, or a less than 20% holding
of the voting capital but the Company is able to exercise significant influence over the investee, it is
accounted uisng the equity method.
For investees accounted for using the equity method, the difference between the acquisition cost of
the investments and the Group's share of the shareholders' equity of the investees ("Goodwill") is
amortised into the statements of income over 10 years.
Dividend income from other long-term investments is recognised when cash is received.
(9) Long-term debt investments
Long-term debt investments are stated at cost less provision for any permanent diminution in value.
The discount or premium on purchases of bonds is amortised against interest income over the
period to maturity of the bonds. Interest income arising from bonds is accounted for using the
accrual basis.
(10) Fixed assets and depreciation
Fixed assets are stated at cost or revalued amount less accumulated depreciation. Depreciation is
provided on a straight-line basis to write off the cost of fixed assets over their estimated useful lives,
after taking into account their estimated residual value of 3% of cost. The estimated useful lives of
fixed assets are as follows:
Buildings
20-40 years
Plant
and 10-14 years
machinery
Motor vehicles
5-12 years
Certain fixed asset were injected by the founding shareholders into the Company on 16 June, 1993
at the value agreed amongst the founding shareholders and as approved by the State Owned Assets
Administration Bureau of the PRC as a result of a group reorganisation. Since that date,
depreciation of these fixed assets is provided on a straight-line basis to write off the revalued
amount of the assets over their remaining estimated useful lives. All fixed assets acquired or
constructed subsequent to that date are stated at cost.
(11) Construction-in-progress
Construction-in-progress represents factory buildings, plant and machinery and other fixed assets
under construction and is stated at cost. Cost includes direct cost of construction as well as interest
Tsingtao Brewery Company Limited
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Tsingtao Brewery Company Limited
charges used to finance the construction during the construction, installation and testing periods.
Construction-in-progress is transferred to fixed assets when it is in a condition for use in
commercial production.
(12) Intangible assets
Intangible assets include mainly the "TSINGTAO BEER" trademark injected by the founding
shareholders as capital during the reorganisation of the Group. The recorded value of the trademark
was based on the valuation amount approved by the State Owned Assets Administration Bureau of
the PRC. Intangible assets also include the recorded value of land use rights which was based on
actual consideration paid or valuation, and the brewing technology know-how of the subsidiaries.
Intangible assets are amortised into general and administrative expenses over the period of use or
estimated useful lives of the assets using the straight-line method. The periods of amortisation are
as follows:
Trademark
40 years
Land use rights
50 years
Technology know-how
10 years
(13) Pre-operating expenses
Pre-operating expenses represent the expenses incurred during the period prior to operation and
during transfer of assets into subsidiaries. They are amortised into general and administrative
expenses over five years using the straight-line method, starting from the commencement of normal
production.
(14) Long-term deferred expenses
Long-term deferred expenses represent various expenses (excluding pre-operating expenses) with
an amortisation period over 1 year. They are generally amortised into general and administrative
expenses over 2 to 5 years using the straight-line method.
(15) Taxation
1. Enterprise income tax
Income tax is levied on the assessable income of the year calculated in accordance with the relevant
regulations of the PRC after considering all the available tax benefits from refunds and allowances.
Income tax is accounted for using the tax payable method.
In accordance with an approval document dated 18 April, 1994 issued by the State Administration
for Taxation ("SAT") of the PRC, net profit earned by the Company is subject to income tax at 15%
effective from the date of establishment of the Company. This rate will remain effective until and
unless the enterprise income tax law and regulations provide otherwise. The Company received
confirmation of continuation of application of the preferential tax from the Qingdao Ministry of
Finance on 23 March, 1997 but this preferential tax rate is not applicable to the other subsidiaries.
Except for Tsingtao Brewery Xi'an Company Limited which received approval from Xi'an
Municipal government at the time of its acquisition to use 15% as the income tax rate, other
subsidiaries are subject to income tax at 33%.
2. Value-added tax
Under the current tax regulations, the Company is subject to value-added tax ("VAT") which is the
Tsingtao Brewery Company Limited
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Tsingtao Brewery Company Limited
principal indirect tax on the sale of goods and the provision of certain specified services ("output
VAT"). Output VAT is calculated at 17% of the invoiced value of sales and is payable by the
customer in addition to the invoiced value of sales. The Company pays VAT on its purchases
("input VAT") which is deducted against output VAT in arriving at the net VAT amount payable to
the government. All VAT paid and collected are recorded through the VAT payable account
included in tax payable on the balance sheet.
3. Consumption tax
Pursuant to the SAT regulations, consumption tax of RMB220 per tonne is charged on the sale of
beer.
4. Deferred taxation
Deferred taxation is provided for using the liability method in respect of the tax effects of
significant timing differences between profit as computed for taxation purposes and profits as
stated in financial statements to the extent that a liability is likely to crystallise in the foreseeable
future. Deferred tax assets are not recognised, except when the deferred tax assets are likely to
crystallise in the foreseeable future.
4. Description of Profit Forecast Items
Description of Consolidated Profit Forecast
The consolidated Profit Forecast has been prepared on the basis of the profit forecast of the
Company and its subsidiaries for the fiscal years of 2000 and 2001 adopting the consistent method
of preparation of the consolidated financial statements of the Group. All significant intra-group
transactions have been eliminated in the preparation of the consolidated Profit Forecast.
As compared with the year of 2000, the scope of consolidation for 2001 has been extended with the
addition of the following subsidiaries:
i. Beijing Asia Shuang He Sheng Five Star Beer Co., Ltd. (company's name to be changed)
ii. Beijing Three Ring Asia Pacific Company Limited (company's name to be changed)
iii. Carlsbreg Brewery (Shanghai) Limited (company's name to be changed)
iv. Tsingtao Brewery (No.5) Company Limited
(1) The sale and products mix
The sales of the Group for the year of 1999 was 1.05 million tonnes while its sales for the six
months ended 30 June, 2000 was 0.7 million tonnes, with an estimated sales for the whole year
being 1.41 million tonnes, representing an increase of 34% or 360,000 tonnes as compared with
that of the year of 1999. By year 2001, it is expected that the sales of the Group will reach 2.1
million tonnes, representing an increase of 49% or 0.69 million tonnes as compared with that of the
year of 2000, This is mainly a result of additional investments and expansion as by the Group.
In the year of 2001, the total sales of Tsingtao Beer is expected to be 0.82 million tonnes (or 39% of
the expected total sales volume), representing an increase of 49% or 0.27 million tonnes as
compared with that of the year 2000. The increase is mainly attributable to new and expanded
projects. Sales volume of the Company products under other brandnames is expected to reach 1.28
million tonnes (or 61% of the expected total turnover), representing an increase of 49% or 0.42
Tsingtao Brewery Company Limited
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Tsingtao Brewery Company Limited
million tonnes over year 2000.
There will be no significant increase or change in the sales volume and the products mix of the
Company and its subsidiaries in 2001 as compared with those of 2000, except for certain new and
expansion projects as particularly mentioned below.
(2) Turnover
The consolidated turnover for the year 1999 was RMB2,445.44 million. For the six months ended
30 June, 2000, the consolidated turnover was RMB1,863.54 million, with a forecast consolidated
turnover for the whole year of RMB3,908.03 million, representing an increase of 60% or
RMB1,462.59 million as compared with that of 1999. The principal reason for the growth is that in
the past two years, the Group acquired at low cost twenty odd brewery factories in various places of
the country including the Shandong Province and engaged in massive marketing activities. Its
production and market capacity were hence increased.
The forecasted consolidated turnover for the year 2001 is RMB5,903.39 million, an increase of
51% or RMB1,995.36 million as compared with that of 2000. The principal reason for the growth
is that the scale of the Group continues to expand. The new and expansion projects mentioned
below are expected to increase the consolidated turnover of 2001 by RMB1,587.66 million which
constitutes 80% of the increase. There will also be an increase of 20% or RMB407 million from the
Company and other subsidiaries, representing a normal growth.
(3) Consolidated Cost of sales
The consolidated cost of sales of the Group for the year 1999 was RMB1.46382 billion. For the six
months ended 30 June, 2000, the consolidated cost of sales of the Group was RMB1,133.68 million
with a forecasted cost of sales for the whole year of 2000 is RMB2,443.84 million, an increase of
67% or RMB980.02 million compared to that of year 1999. The increase is mainly attributed to the
increase in sales volume and the increase in number of the subsidiaries. At the same time, owing to
the impact of the technological renovation and the expanded projects in 2000 on normal production,
the cost of production in respect of certain subsidiaries increased at a relatively higher rate. It is
expected that in the coming year when each of the subsidiaries enter normal operation, the average
cost may decrease.
The forecasted consolidated cost of sales for the year 2001 is RMB3,601.19 million, representing
an increase of 47% or RMB1,157.35 million over that of year 2000. The principal reason for the
increase is that the scale of the Group continues to expand. The new and expansion projects
mentioned below are expected to increase the consolidated cost of sales of 2001 by RMB922.51
million, which contribute 80% of the increase. There will only be an increase of 20% or
RMB234.84 million for the Company and its subsidiaries, representing a normal increase.
(4) Tax and surcharge on principal operating activities
The tax and surcharge includes consumption tax and city maintenance and construction tax and
education surcharge calculated on the basis of sales tax and value-added tax.
(5) Gross profit
The gross profit of the Group for the year 1999 was RMB774.79 million, representing an average
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Tsingtao Brewery Company Limited
gross profit margin of 32%. For the six months ended 30 June, 2000, the gross profit of the Group
was RMB568.05 million, representing an average gross profit margin of 30%. The forecasted gross
profit for the whole year of 2000 is RMB1,149.38 million, representing an average gross profit
margin of 29%. The increase in gross profit is primarily attributed to the increase in the turnover.
But at the same time, since the increase is mainly derived from the middle to low-end markets,
there is a decrease in the average gross profit margin.
The forecasted gross profit of the Group for the year 2001 is 1,783.34 million, representing an
average gross profit margin of 30% compared to the year 2000, this represents a growth in the gross
profit margin. The growth is primarily attributed to the fact that the new and expansion projects are
concentrated in the high to middle-end markets. A higher profit can therefore be attained.
(6) Selling expenses
In 1999, the selling expenses of the Group was RMB431.68 million (representing 18% of the
consolidated turnover). For the six months ended 30 June, 2000, the selling expenses of the Group
was RMB307.95 million (representing 17% of the consolidated turnover). The forecasted expenses
for the whole year of 2000 is RMB594.46 million (representing 15% of the forecasted consolidated
turnover), representing an increase of 38% or RMB162.78 million as compared with that of 1999.
The major reason for the increase is that there are vigorous marketing activities with a view to
increase the turnover and build a foundation for the future development of the newly developed
markets. Since there is a substantial increase in the turnover and the Group has already established
itself in certain markets, the proportion of the selling expenses out of the turnover has decreased.
In 2001, the forecasted selling expenses of the Group is RMB906.82 million (or 15% of the
forecasted consolidated turnover), representing an increase of 53% or RMB312.36 million as
compared with that of 2000. The major reason for the increase is the continual expansion of the
Group and the rapid increase in the sales volume, there comes an increase in the cost of
advertisements, the cost of transportation, the cost of after sales services and other related expenses.
The new and expansion projects mentioned below are expected to increase the selling expenses of
2001 by RMB275.87 million representing 88% of the increase. There will only be an increase of
10% or RMB36.49 million in the Company and its other subsidiaries, representing normal
increases.
(7) General and administration expenses
In 1999, the general and administration expenses of the Group was RMB199.67 million. For the six
months ended 30 June, 2000, the general and administration expenses of the Group was
RMB147.99 million. The forecasted general and administrative expenses for the whole year of
2000 is RMB314.98 million, representing an increase of 58% or RMB115.31 million as compared
with that of year 1999. The increase is primarily attributed to the increase in the number of
subsidiaries, which in turn, increases the administration costs and other related expenses.
The forecasted general and administration expenses of the Group for year 2001 is RMB447.8
million, representing an increase of 42% or RMB132.82 million as compared with that of year
2000. The major reason is that in 2001, the Group is expected to increase its acquisition and
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Tsingtao Brewery Company Limited
construction projects. With the continual increase in scale and the rapid increase in production and
sales, there will be corresponding increases in the salaries and other salary-related expenses for the
additional manpower, depreciation of fixed assets, general overhead costs, product development
costs, and the cost of amortisation of various assets. The new and expansion projects mentioned
below are expected to increase the general and administration expenses of 2001 by RMB97.13
million, representing 73% of the increase. There will also be an increase of 24% or RMB35.69
million in the Company and other subsidiaries. The main reason is that the Company intends to
implement various comprehensive management measures for each of its subsidiaries, which will
result in an increase in part of the general and administration expenses. However, with the
improved cost control system and the full adherence to the management principles of the Group,
the expenses will be controlled and reduced remarkably in future.
(8) Financial expenses
In 1999, the financial expenses of the Group was RMB54.11 million. For the six months ended 30
June, 2000, the financial expenses of the Group was RMB41.17 million, the forecasted financial
expenses for the whole year of 2000 is RMB108.16 million, representing an increase of 100% or
RMB54.05 million as compared with that of 1999. The reason for the increase is that, with the
continual expansion of the scale of the Group and injection of capital, there will be an increase in
banking facilities and related interest expenses.
The forecasted financial expenses of the Group for year 2001 is RMB124.2 million, an increase of
15% over that of year 2000, which is mainly attributable to the greater working capital requirement
upon the increase in the scale of subsidiaries.
(9) Subsidy income
As part of the merger with or acquisition of subsidiaries by the Group in the current year and prior
years, the Group entered into agreements with the relevant municipal governments. Under the
terms of agreements, these subsidiaries will various financial incentives granted by the relevant
municipal governments, the main one being financial subsidies granted based upon the amount of
tax paid by the subsidiaries.
The income is recognized when it is actually received. Owing to the uncertainties of such income, it
is not included in the profit forecast of the Group for year 2001.
(10) Profit tax
Since the Company is listed in Hong Kong and is considered as a Sino-foreign joint venture, it is
subject to profit tax 15%. The income tax of each of the subsidiaries is provided on the basis of
their assessable profit of that year in accordance with relevant regulations.
(11) Profit
As summarized from above, the forecasted profit before tax and minority interest of the Group for
year 2000 is RMB171.97 million and net profit is RMB97.58 million. The forecasted profit before
tax minority interests for 2001 is RMB308.58 million and net profit is RMB170.51 million.
(12) Minority interest
The minority interest is calculated based on the interests of the minority shareholders in the
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Tsingtao Brewery Company Limited
subsidiaries and the forecasted profit of the subsidiaries for that year.
(13) Calculation of earnings per share
It is expected that the proceeds will be available in January, 2001. The earnings per share for 2000
are arrived at after dividing the forecasted net profit in 2000 by 900 million shares. The earnings
per share for 2001 are arrived at after dividing the forecast net profit for 2001 by 1 billion shares, of
which 100 million shares are the additional A Shares expected to be issued on this occasion.
Development plan for the company
1. Strategy for production and operation development
In order to raise the core competitive strength, the Company makes wide use of information
technology, upgrades plant and equipment and production techniques and modernized management;
and puts in place scientific effective personnel training. In the shortest possible time, our national
brand name -Tsingtao Beer will rank within the ten biggest in the industry all over the world.
High level development: the Company will select suitable location, adopt advanced beer production
techniques and establish some modern enterprises to produce high quality Tsingtao Beer. The
market share at the higher end will be increased.
Low cost expansion: The Company will consistently follow "low cost expansion" strategy. In
selecting targets for acquisition and merger, the Company will especially consider location with
great market capacity, high consumption level and good water quality. In the process of acquisition
and merger, the Company will use its best endeavours to eliminate inferior equipment, decrease
exaggerated assets, obtain preferential treatment so as to achieve "low cost" expansion.
Expansion and reorganization: The Company will undergo technical reorganization of the
enterprises just purchased or merged so as to achieve economies of scale, good peripheral
enterprises will be absorbed around the centre of the Company. In this way, competitive advantages
at a certain location will be increased.
Multi-development: With beer production at the core, the Company will go for vertical integration,
producing beer flowers, rye sprouts and mineral water at the upper end as well as observing
bio-pharmaceutics at the lower end. Therefore, new profit centres will be generated.
2. Development objectives and scale
The development objectives for the Company up to the year of 2003 are: 3 million tonnes of beer
production and sales, 10% market share (including sales of over 1.2 million tonnes of Tsingtao
Beer). This will further consolidate the position of the Company as the leading beer production
enterprise in the country, and their stable competitive advantages will enhance their position as one
of the ten biggest enterprises in the world, the long term objectives of the Company up to the year
of 2005 are: 5 million tonnes beer production, 12% to 15% market share of which 40% are Tsingtao
Beer. This will make the Company as one of the most important beer producers in the world.
3. Market development plan
The Company follow the principle of "common network, share resources" for the leading
brandnames "Tsingtao Beer" and other brandnames. The traditional sales system will be modified
with electronic network management for materials, information and cash flows. Meanwhile, the
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Tsingtao Brewery Company Limited
Company will endeavour to increase their market share in eastern and coastal regions, and raise
their sales gradually in central and western regions.
4. Sales plan
Up to 2003, the annual beer sales of the Company amount to 3 million tonnes, of which 1.2 million
tonnes are Tsingtao Beer and 1,800,000 tonnes other brandnames. The sales system of the
Company will also follow the principle of "common network, share resource" for fully dimensional
domestic market. In addition, the market segments will further be subdivided to aim at the younger
generation, promotion will be done with strong advertising campaigns.
Product exports: In the next four to five years' time, the Company will, on the basis of present
market, expand into some important markets such as Hong Kong, Macau, Europe, South Africa and
U.S.A. Feasibility studies on overseas plant establishments will also be completed.
5. Production and operation plan
The Company will carry out the development and sales plans to reach the objectives; set up
scientific assessment system related to market performance; develop strict quality control and
brandname recognition strategy. In 2001, the Company will fully implement ISO9000-2000
standard, and start ISO14000 environment management so as to make green production spaces for
the factories of the Company and major subsidiaries within the next three to five years.
The Company will raise operational efficiency with information technology such as e-commerce. It
will be implemented in three stages: Firstly, sales management and financial management systems;
secondly, gradual electronic management of supply, production, human resources and customers
information; thirdly, B2B e-commerce on the basis of internal information system.
6. Investment plan for fixed assets and renewed equipment
In the next five years, the production scale will be expanded, the enterprises just purchased or
merged will, upon market research, develop in areas with abundant water resources according to
their capabilities the equipment will be replaced with new domestic products, and some strategic
equipment will be imported the total investment for the five years will be about RMB450 million,
7. Workforce expansion plan
The Company currently has 19,146 staff. In the coming three to five years, the Company plans to
maintain a steady growth in the total number of staff, increasing both the profitability and
productivity per staff. Regarding existing staff, the Company aims to optimize its workforce, raise
work efficiency by cutting redundant manpower and fitting the right person for the right post. The
Company will use between fly the right person for the right post. The Company will use scientific
human resources recruitment mechanism to absorb high calibre personnel for suitable vacancies
through open recruitment.
8. Fund raising and utilization plan
The Company will make the best use of the proceeds from the A Share Issue. In order to satisfy, the
funding requirements for various development projects, the Company intends to raise capital from
different sources, primarily through the capital market for long-term funding, and the use of
internal resources and short-term funding, and the use of internal resources and short-time bank
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Tsingtao Brewery Company Limited
loans to meet the immediate funding requirement. In the process of fund raising, the Company will
look for opportunities in getting favourable terms with financial institutions to reduce its cost of
funding as well as to minimize its debt expenses.
Material Contracts and Significant Litigations
Material Contracts
The material contracts that shall be performed, are being performed and had been performed by the
Company but with potential disputes including those material contracts under the accounts
receivable and payable set out in the Company's audited interim report ("Material Contracts"),
mainly consist of the following:
(1) Assets Swap Contract
On 30 August, 2000, the Company entered into an assets swap agreement with Tsingtao Brewery
Group Co., Ltd. (the "Group Co."), whereby the Group Co. contracted to exchange its assets with
those of the Company. A brief description of the agreement was set out in the announcement of the
Company dated 31 August, 2000.
(2) Loan Guarantee Contract
The Company has provided guarantees for the loans of three subsidiaries, namely Shenzhen
Tsingtao Beer Asahi Company Limited, Tsingtao Brewery Xian Company Limited and Tsingtao
Brewery No. 3 Company Limited, in a total amount of RMB170.4 million.
(3) Trademark Licensing Agreements
The Company has entered into trademark licensing agreements with each of its 16 subsidiaries and
one investee company, whereby those companies are licensed to use the registered trademarks
owned by the Company at nil consideration.
(4) Equity Transfer Agreement for the Acquisition of the Foreign Equity Interest in
Carlsbrew Shanghai
On 9 August, 2000, the Company entered into an equity transfer agreement with Carlsberg HK,
whereby the Company agreed to acquire from Carlsberg HK its 75% equity interest in Carlsbrew
Shanghai. A brief description of the Agreement was set out in the announcement of the Company
dated 11 August, 2000.
(5) Equity Transfer Agreement for the Acquisition of the Equity Interests of the Foreign
Investors in Beijing Asia Shuang He Sheng Five Star Beer Co., Ltd. and Beijing Three Ring
Asia Pacific Beer Company Limited
On 18 August, 2000, the Company and its wholly-owned subsidiary Tsingtao Brewery (Hong Kong)
Trading Company Limited ("Tsingtao HK") entered into an equity transfer agreement ASIMCO I.
whereby the Company shall acquire from ASIMCO I its 37.64% interests in Five Star Co. On the
same date, the Company and ASIMCO VIII entered into an equity transfer agreement, whereby the
Company shall acquire from ASIMCO VIII its 54% interests in Three Ring Co. A brief description
of the Agreement was set out in the announcement of the Company dated 21 August, 2000.
(6) Transitional Agreement in respect of Five Star Co.
On 18 August, 2000, the Company entered into a transitional agreement with ASIMCO I. The
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Tsingtao Brewery Company Limited
agreement provided that before the transfer of the equity interest in Five Star Co. is completed,
designated personnel of the Company holding letters of authorization issued by the directors of
Five Star Co. as appointed by ASIMCO I could exercise the authority of such directors of Five Star
Co..
(7) Asset Acquisition Agreement of 山東盧堡啤酒有限公司
On 1 September, 2000, the Company entered into an agreement with Shouguang City People's
Government, China Industrial and Commercial Bank Shouguang Branch, China Construction Bank
Shouguang Branch, Shouguang Town and Village Credit Co-operative Association (Shouguang
City People's Government, China Industrial and Commercial Bank Shouguang Branch, China
Construction Bank Shouguang Branch, Shouguang Town and Village Credit Co-operative
Association collectively the "Creditors"). The agreement provided that the Creditors shall transfer
to the Company the assets valued at RMB70.75 million of 山東盧堡啤酒有限公司 assumed by
the Credits according to law for a consideration of RMB70 million. The Company will establish a
limited liability company to be tentatively named Tsingtao Brewery (Shouguang) Company
Limited jointly with 山東濰坊藍仔啤酒有限公司. The Company will contribute the assets
transferred from the Creditors at a value of RMB60 million to the new joint venture company
whereas 山東濰坊藍仔啤酒有限公司 will make capital contribution of RMB6.67 million in cash
to the new joint venture company, for the transfer consideration of RMB70 million, RMB60 million
will be paid by the Company to the Creditors and the remaining RMB10 million shall be paid to the
Creditors by Tsingtao Brewery (Shouguang) Company Limited. Pursuant to the asset acquisition
agreement, Shouguang City People's Government has undertaken to grant a series of preferential
financial treatments to Tsingtao Brewery (Shouguang) Company Limited.
(8) Renminbi loan contracts
To date, the Company has the following seven material contracts of Renminbi loans:
Serial
No. Lender Banks
1
2
3
4
5
6
7
Amount
Date of Expiry
('000)
26 June, 2000 to
中國銀行山東省分行 70,000
25 June, 2001
400,000
27 August, 1999 to
中國銀行-行
27 August, 2001
17 July, 2000 to
中國農業銀行青島市 70,000
17 July, 2001
四方支行
70,000
30 December, 1999 to
中國工-銀行-行
30 November, 2000
7 November, 2000 to
中國工-銀行青島市 50,000
7 October, 2001
市南區第二支行
24 July, 2000 to
中國工-銀行青島市 50,000
23 July, 2003
市南區第二支行
350,000
30 August, 2000 to
中國建設銀行-行
29 August, 2003
營業部
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Tsingtao Brewery Company Limited
Total
1,060,000
(9) Japanese Yen loans re-lending agreements
On 16 October, 1997, the Company and the Bank of China, Qingdao Branch, entered into a
re-lending agreement whereby the Bank of China, Qingdao Branch, shall advance to the Company
a re-lending loan of the 日本輸出輸入銀行 in an aggregate amount of not more than 597.6
million Japanese Yen in respect of the importation by the Company of the equipment and
technology of the fund-raising cost incurred by the 日本輸出輸入銀行 plus 0.15% projects. The
interest to be charged thereon shall be based on the fund-raising cost incurred by the 日本輸出輸
入銀行 plus 0.15% and the Bank of China, Qingdao Branch, shall receive a 0.6% of the re-lending
fee annually. The said loan shall be payable by ten instalments with effect from 20 July 1999 with
the last due date of repayment to fall on 20 January 2004.
Litigation of material importance
To date, the Company is subject to the following major litigations:
Since 1997, 青島宏隆-貿有限公司 ("宏隆公司") has been buying a variety of beer from the
Company. As at 31 December 1999, 宏隆公司 owed the Company RMB16.33 million for beer
payment. On 17 March 2000, the Company filed an action with the Qingdao Intermediate People's
Court to claim the said outstanding amount from 宏隆公司, and on 28 March 2000, applied to join
in 宏隆公司, shareholders Li Long and Cui Hong as new defendants of the case. On 29 March,
2000, upon the petition of the Company, the Qingdao Intermediate People's Court ordered the
freezing of the bank deposits RMB2 million in the name of 宏隆公司, Li Long and Cui Hong or
the seizure of an equivalent amount of their assets.
At present, the verdict of the case by Qingdao Intermediate People's Court is pending.
Other significant events
Save as disclosed herein, there are no further discloseable events that should have been disclosed
and might have a major influence over investment decisions by investors.
suspension of dealings of H shares
The Company has written to the Stock Exchange of Hong Kong Limited requesting for suspension
of dealings of H Shares on 22 January, 2001 pending the issue in Hong Kong of this announcement
and has applied for resumption of dealings of H Shares on 23 January, 2001 (i.e. the day on which
this announcement is published).
Definitions
In this Annoumement, unless otherwise provided, the following expressions have the meanings set
out below:
"A Shares"
registered ordinary shares denominated in RMBof RMB1.00 each
"ASIMCO"
Asia Strategic Investment Company of US, also known as "Yetou"
"ASIMCO I"
a subsidiary of ASIMCO established under the Cayman Islands laws, which is the
foreign investor of Five Star Co.
"ASIMCO
a subsidiary of ASIMCO established under the Cayman Islands laws, which is the
VIII"
foreign investor of Three Ring Co.
"BFETC"
Beijing Foreign Economic and Trade Commission
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Tsingtao Brewery Company Limited
"Carlsberg HK" Carlsberg Brewery Hong Kong Limited, a company established under the laws of
the Hong Kong Special Administration Region of the PRC, which is the foreign
investor of Carlsbrew Shanghai
"Carlsbrew
Carlsbrew Brewery (Shanghai) Limited, a Sino-foreign equity joint venture
Shanghai"
established in Songjiang, Shanghai, PRC, which is also one of the target
companies of the current acquisition by the Company
"Company"
Tsingtao Brewery Company Limited, also known as the "Issuer"
"CSRC"
China Securities Regulatory Commission
"Current Issue" the issue of not more than 100,000,000 A Shares to domestic institutional and
retail investors, also known as the "Current Additional Issue" or "A Share Issue"
"Five Star Co." Beijing Asia Shunag He Sheng Five Star Beer Co., Ltd., which is one of the target
companies of the current acquisition by the Company
"Five
Star Beijing Asia Shuang He Sheng Five Star Beer Group Co., Ltd., the Chinese
Group"
investor of Five Star Co.
"Five Star Three Beijing Sheung He Sheng Five Star Beer
Ring Co."
Three Ring Company Limited, which is the Chinese investor of Three Ring Co.
"Group Co."
Tsingtao Brewery Group Co., Ltd.
"H Shares"
foreign shares denominated in Renminbi of RMB1.00 each listed on The Stock
Exchange of Hong Kong Limited for subscription and settlement in Hong Kong
dollars
"Lead
國泰君安証券股份有限公司
Underwriter"
"Listing"
the permitted listing and trading of the shares of the Company on the SSE
"Ma'anshan
Tsingtao Brewery (Ma'anshan) Co., Ltd.
Co."
"MOFTEC"
Ministry of Foreign Trade and Economic Cooperation of the PRC
"PRC"
the People's Republic of China
"QABSA"
Qingdao Administration Bureau of State-owned Assets
"RMB"
Renminbi, the lawful currency of PRC
"Sanshui Co." Tsingtao Brewery (Sanshui) Co., Ltd.
"Songjiang Co." Shanghai Songjiang Economic and Technological Development Group Company,
which is the Chinese investor of Carlsbrew Shanghai
"SSE"
Shanghai Stock Exchange of the PRC
"Three
Ring Beijing Three Ring Asia Pacific Company Limited, which is one of the target
Co."
companies of the current acquisition by the Company
"Xi'an Co."
Tsingtao Brewery (Xi'an ) Limited Liability Company
"Zhuhai Co."
Tsingtao Brewery (Zhuhai ) Co., Ltd.
By Order of the Board
Tsingtao Brewery Company Limited
Zhang Xue Ju/Yuan Lu
Joint Company Secretaries
Qingdao, the PRC, 22 January 2001
Please also refer to the published version of this announcement in the i Mail dated 23/1/2001.
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