1. Art and Diseño

Admission to AIM
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt about
the contents of this document or as to the action you should take you should consult a person authorised under the
Financial Services and Markets Act 2000 as amended (“FSMA”) who specialises in advising on the acquisition of
shares and other securities in the United Kingdom. The whole of the text of this document should be read. You should
be aware that an investment in the Company involves a high degree of risk and prospective investors should carefully
consider the section entitled “Risk Factors” in Part II of this document.
This document comprises an AIM admission document drawn up in accordance with the AIM Rules for Companies.
This document does not constitute an offer to the public in accordance with the provisions of sections 85 and 102B
of FSMA and is not a prospectus for the purposes of the Prospectus Rules, nor has it been approved by delivered to or
filed with the UK Listing Authority or the UK Financial Conduct Authority (“FCA”) or with any other authority which
could be a competent authority for the purpose of the Prospectus Directive.
The Existing Directors and Proposed Directors, whose names and functions appear on page 8 of this document, and
the Company, accept responsibility for the information contained in this document, including individual and
collective responsibility for compliance with the AIM Rules for Companies. To the best of the knowledge and belief of
the Existing Directors and Proposed Directors (who have taken all reasonable care to ensure that such is the case), the
information contained in this document is in accordance with the facts and does not omit anything likely to affect the
import of such information.
Application has been made for all of the Ordinary Shares (in issue and to be issued) to be admitted to trading on
AIM (“Admission”). It is expected that Admission will become effective and that dealings in the Ordinary Shares will
commence on AIM on 3 February 2015. The Placing Shares and the Subscription Shares will rank pari-passu in all
respects with the Existing Ordinary Shares and will rank in full for all dividends and other distributions declared,
made or paid on the Ordinary Shares after Admission.
AIM is a market designed primarily for emerging or smaller companies to which a higher investment risk tends to
be attached than to larger or more established companies. AIM securities are not admitted to the Official List of the
United Kingdom Listing Authority. A prospective investor should be aware of the risks of investing in such companies
and should make the decision to invest only after careful consideration and, if appropriate, consultation with an
independent financial adviser. The risk factors are set out in Part II of this document. Notwithstanding this, the whole
of the text of this document should be read but viewed in light of these risk factors.
Each AIM company is required pursuant to the AIM Rules for Companies to have a nominated adviser. The
nominated adviser is required to make a declaration to the London Stock Exchange on admission in the form set out
in Schedule Two to the AIM Rules for Nominated Advisers. The London Stock Exchange has not itself examined or
approved the contents of this document. The AIM Rules are less demanding than those of the Official List. It is
emphasised that no application is being made for admission of the Ordinary Shares to the Official List pursuant to
the listing rules of the UK Listing Authority. The Ordinary Shares are not traded on any other recognised investment
exchange and no application has been made for the Ordinary Shares to be listed on any other recognised investment
exchange.
Aquatic Foods Group Plc
(Incorporated in Jersey under the Companies (Jersey) Law 1991 with Registered Number 116402)
ISIN: JE00BQQG1J93
Placing and Subscription of 13,226,081 new Ordinary Shares at a price of 70p per share
Admission to trading on AIM
Nominated Adviser and Broker
SP Angel Corporate Finance LLP
Share capital of the Company immediately following Admission
Issued Number 113,226,081
SP Angel Corporate Finance LLP, which is authorised and regulated in the United Kingdom by the FCA and is a member
of the London Stock Exchange, is acting as the Company’s nominated adviser and broker in connection with the
Placing, Subscription and Admission and is acting exclusively for the Company and no one else in connection with the
matters described herein and will not be responsible to any person other than the Company for providing the
regulatory and legal protections afforded to customers (as defined by the FCA Rules) of SP Angel Corporate Finance
LLP nor for providing advice in relation to the contents of this document or any matter, transaction or arrangement
referred to in it or for advising any other person in respect of the proposed Placing, Subscription and Admission.
The responsibilities of SP Angel Corporate Finance LLP as nominated adviser under the AIM Rules, are owed solely
to the London Stock Exchange and are not owed to the Company or any Director or Proposed Director or to any
other person in respect of their decision to acquire Ordinary Shares in reliance on any part of this document. No
person has been authorised to give any information or make any representations other than those contained in this
document and, if given or made, such information or representations must not be relied upon as having been so
authorised. No representation or warranty, express or implied, is made by SP Angel Corporate Finance LLP as to any
of the contents of this document. SP Angel Corporate Finance LLP has not authorised the contents of any part of this
document for any purpose and no liability whatsoever is accepted by SP Angel Corporate Finance LLP for the
accuracy of any information or opinions contained in this document. Neither the delivery of this document
hereunder nor any subsequent subscription or sale made for Ordinary Shares shall, under any circumstances, create
any implication that the information contained in this document is correct as of any time subsequent to the date of
this document.
Copies of this document will be available free of charge during normal business hours on any weekday (except
Saturdays, Sundays and public holidays) at the offices of SP Angel Corporate Finance LLP, Prince Frederick House,
35 – 39 Maddox Street, London, W1S 2PP from the date of this document and shall remain available for a period of
one month from Admission. Additionally, an electronic version of this document will be available on the Company’s
website, www.aquaticfoods-ir.com
A copy of this document has been delivered to the registrar of companies in accordance with Article 5 of the
Companies (General Provisions) (Jersey) Order 2002, and the registrar has given, and has not withdrawn, consent
to its circulation.
The Jersey Financial Services Commission has given, and has not withdrawn, its consent under Article 2 of the
Control of Borrowing (Jersey) Order 1958 to the issue of securities in the Company.
It must be distinctly understood that, in giving these consents, neither the registrar of companies nor the Jersey
Financial Services Commission takes any responsibility for the financial soundness of the Company or for the
correctness of any statements made, or opinions expressed, with regard to it.
If you are in any doubt about the contents of this document you should consult your stockbroker, bank manager,
solicitor, accountant or other financial adviser.
The directors of the Company have taken all reasonable care to ensure that the facts stated in this document are
true and accurate in all material respects, and that there are no other facts the omission of which would make
misleading any statement in the document, whether of facts or of opinion. All the Existing Directors and Proposed
Directors accept responsibility accordingly.
It should be remembered that the price of securities and the income from them can go down as well as up.
2
IMPORTANT INFORMATION
The distribution of this document and the making of the Placing and Subscription in certain
jurisdictions may be restricted by law and therefore persons into whose possession this document
comes should inform themselves about and observe any restrictions, including those set out below.
Any failure to comply with these restrictions may constitute a violation of the securities laws of any
such jurisdiction. In particular, the issue or circulation of this document may be prohibited in
countries other than those in relation to which notices are given below and, in such cases, only in
the circumstances set out in such notices.
No person has been authorised to give any information or to make any representation about the
Company and about the matters the subject of this document other than those contained in this
document. If any such information or representation is given or made then it must not be relied upon
as having been so authorised. The delivery of this document shall not imply that no change has
occurred in the Company’s affairs since the date of issue of this document or that the information in
this document is correct as at any time after the date of this document, save as shall be required to
be updated by law or regulation.
This document does not constitute an offer to buy or to subscribe for, or the solicitation of an offer to
buy or subscribe for, Ordinary Shares in any jurisdiction in which such offer or solicitation is
unlawful. This document ought not to be copied or distributed by recipients. In particular, the
Ordinary Shares have not been, and will not be, registered in the United States of America under the
United States Securities Act of 1933 (as amended) (the “Securities Act”) or qualified for sale under
the laws of any state of the United States or under the applicable laws of any of Canada, Australia,
the Republic of South Africa, or Japan and may not be offered or sold in the United States of America,
Canada, Australia, the Republic of South Africa, or Japan or to, or for the account or benefit of, US
persons (as such term is defined in Regulation S under the Securities Act) or to any national, resident
or citizen of Canada, Australia, the Republic of South Africa, or Japan. Neither this document nor any
copy of it may be distributed in or sent to or taken into the United States, Canada, Australia, the
Republic of South Africa, or Japan, nor may it be distributed to any US person (within the meaning
of Regulation S under the Securities Act). In addition, the securities to which this document relates
must not be marketed into any jurisdiction where to do so would be unlawful. Persons into whose
possession this document comes should inform themselves about, and observe, any such restrictions.
United Kingdom
This document does not constitute a general offer to investors resident in the United Kingdom and SP
Angel Corporate Finance LLP has not approved this document for the purposes of FSMA. This
document and the offering of the Ordinary Shares are only addressed to and directed at persons in
member states of the European Economic Area who are ‘‘qualified investors’’ within the meaning of
Article 2(1)(e) of the Prospectus Directive (Directive 2003/71/EC and amendments thereto including
Directive 2010/73/EU) as amended (‘‘Qualified Investors’’). In addition, in the United Kingdom, this
document is being distributed only to, and is directed only at, Qualified Investors who have
professional experience in matters relating to investments falling within Article 19(5) of the Financial
Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the ‘‘Order’’) or who
are high net worth entities falling within Article 49 of the Order, and to other persons to whom it may
otherwise lawfully be communicated (all such persons together being referred to as ‘‘relevant
persons’’). This document must not be acted on or relied upon in the United Kingdom by persons who
are not relevant persons. Any investment or investment activity to which this document relates is
available only in the United Kingdom to relevant persons, and will be engaged in only with such
persons. This document is being supplied to you solely for your information and may not be
reproduced, further distributed or published in whole or in part by any other person.
In relation to each member state of the European Economic Area which has implemented the
Prospectus Directive (each, a ‘‘Relevant Member State’’) no Ordinary Shares have been offered or
will be offered pursuant to the Placing or Subscription to the public in that Relevant Member State
3
prior to the publication of a prospectus in relation to the Ordinary Shares which has been approved
by the competent authority in that Relevant Member State or, where appropriate, approved in another
Relevant Member State and notified to the competent authority in that Relevant Member State, all in
accordance with the Prospectus Directive, except that offers of Ordinary Shares may be made to the
public in that Relevant Member State at any time under the following exemptions under the
Prospectus Directive, if they are implemented in that Relevant Member State:
(a)
to any legal entity which is a Qualified Investor;
(b)
to fewer than 150, natural or legal persons (other than Qualified Investors); or
(c)
in any other circumstances falling within Article 3(2) of the Prospectus Directive,
provided that no such offer of Ordinary Shares shall result in a requirement for the publication of a
prospectus pursuant to Article 3 of the Prospectus Directive or any measure implementing the
Prospectus Directive in a Relevant Member State. For the purposes of this provision, the expression
an ‘‘offer to the public’’ in relation to any Shares in any Relevant Member State means the
communication in any form and by any means of sufficient information on the terms of the offer and
any Ordinary Shares to be offered so as to enable an investor to decide to purchase any Ordinary
Shares, as the same may be varied in that member state by any measure implementing the Prospectus
Directive in that member state.
Hong Kong
The contents of this document have not been reviewed by any regulatory authority in Hong Kong.
Accordingly, this document may not be used for the purpose of, and does not constitute, an offer or
invitation in any jurisdiction or in any circumstances in which such an offer or invitation is not
authorised or to any person to whom it is unlawful to make such an offer or invitation. No invitation
may be made to the public in Hong Kong to subscribe for or purchase any of the Ordinary Shares.
You are advised to exercise caution in relation to the offer. If you are in doubt about any of the
contents of this document, you should obtain independent legal advice. This document is delivered
to the recipient solely for the purpose of evaluating a possible investment in the Company and may
not be used, copied, reproduced or distributed in whole or in part, to any other person (except if
permitted to do so under the securities laws of Hong Kong). This document may not be passed on and
applications from any person other than the person to whom it is addressed will not be accepted. The
arrangements for the issue of the Ordinary Shares have not been authorised by the Securities and
Futures Commission of Hong Kong (“SFC”), nor has this document (no matter whether in draft form
or in its finalised version) been approved by the SFC pursuant to section 105(1) of the Securities and
Futures Ordinance (Chapter 571 of the Laws of Hong Kong) (“SFO”) or section 342C(5) of the
Companies (Winding up and Miscellaneous Provisions) Ordinance (Chapter 32 of the Laws of Hong
Kong) (“Companies (Winding up and Miscellaneous Provisions) Ordinance”) or registered by the
Registrar of Companies of Hong Kong pursuant to section 342C(7) of Companies (Winding up and
Miscellaneous Provisions) Ordinance or been prepared in accordance with the requirements of
Companies (Winding up and Miscellaneous Provisions) Ordinance. Accordingly, the content and use
of this document must comply with each of the following SFO and Companies (Winding up and
Miscellaneous Provisions) Ordinance restrictions, namely:
(a)
under the SFO: this document is not and does not contain contrary to section 103 of SFO, an
invitation to the public of Hong Kong to acquire or subscribe for Ordinary Shares, other than
(1) an invitation only to professional investors (as defined in SFO) to do so, or (2) to the extent
that this document is not a prospectus (as defined in the Companies (Winding up and
Miscellaneous Provisions) Ordinance) by virtue of any of the maximum offer number,
minimum investment amount or other exclusions set out in the 17th schedule to the Companies
(Winding up and Miscellaneous Provisions) Ordinance (“Prospectus Exclusions”); and
(b)
under the Companies (Winding up and Miscellaneous Provisions) Ordinance: this document
must not, contrary to section 342 and 342C of Companies (Winding up and Miscellaneous
Provisions) Ordinance, be issued, circulated or distributed to any person in Hong Kong other
4
than (1) to persons whose ordinary business is to buy or sell shares or debentures, whether as
principal or agent, or (2) to professional investors (as defined in the SFO), or (3) in
circumstances in which this document is not a prospectus (as defined in the Companies
(Winding up and Miscellaneous Provisions) Ordinance) by virtue of any of the Prospectus
Exclusions, or (4) otherwise in circumstances that do not constitute an offer to the public.
Persons not falling within the restrictions set out in (a) and (b) above may not use or otherwise act
upon this document.
Singapore
This document has not been registered as a prospectus with the Monetary Authority of Singapore.
Accordingly, this document and any other document or material in connection with the offer or sale,
or invitation for subscription or purchase, of the Ordinary Shares may not be circulated or distributed,
nor may the Ordinary Shares be offered or sold, or be made the subject of an invitation for
subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an
institutional investor under Section 275(2) and under Section 274 of the Securities and Futures Act,
Chapter 289 of Singapore (“SFA”), (ii) to a relevant person pursuant to Section 275(2) and Section
275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions set out in
Section 275, of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions of, any
other applicable provisions of the SFA.
Where the Ordinary Shares are subscribed or purchased under Section 275 of the SFA by a relevant
person which is:
(a)
a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the
sole business of which is to hold investments and the entire share capital of which is owned by
one or more individuals, each of whom is an accredited investor; or
(b)
a trust (where the trustee is not an accredited investor) whose sole purpose is to hold
investments and each beneficiary of the trust is an individual who is an accredited investor,
shares, debentures and units of shares of that corporation or the beneficiaries’ rights and
interest (howsoever described) in that trust shall not be transferred within six months after that
corporation or that trust has acquired the Ordinary Shares pursuant to an offer made under
Section 275 of the SFA except:
(i)
to an institutional investor (for corporations, under Section 274 of the SFA) or to a
relevant person defined in Section 275(2) of the SFA, or to any person pursuant to an
offer that is made on terms that such shares, debentures and units of shares and
debentures of that corporation or such rights and interest in that trust are acquired at a
consideration of not less than SG$200,000 (or its equivalent in a foreign currency) for
each transaction, whether such amount is to be paid for in cash or by exchange of
securities or other assets, and further corporations, in accordance with the conditions
specified in section 275 of the SFA;
(ii)
where no consideration is or will be given for the transfer; or
(iii)
where the transfer is by operation of law.
5
PRC
The contents of this document have not been reviewed by any regulatory authority in the PRC. The
arrangements for the issue of the Ordinary Shares have not been approved by the China Securities
Regulatory Commission (“CSRC”) pursuant to Article 2 and Article 10 of Securities Law of the
People's Republic of China (2014 Revision), nor has this document (no matter whether in draft form
or in its finalised version) been approved by the CSRC pursuant to Article 52 of Securities Law of the
People's Republic of China (2014 Revision) and Article 134 of Company Law of the People’s Republic
of China (2013 Revision).
Accordingly, this document may not be used for the purpose of, and does not constitute, an offer or
invitation in any jurisdiction or in any circumstances in which such an offer or invitation is not
authorised or to any person to whom it is unlawful to make such an offer or invitation. No invitation
may be made to the public in the PRC to subscribe for or purchase any of the Ordinary Shares. This
document is delivered to the recipient solely for the purpose of evaluating a possible investment in
the Company and may not be used, copied, reproduced or distributed in whole or in part, to any
other person (except if permitted to do so under the securities laws of the PRC).
Accordingly, the content and use of this document must comply with Securities Law of the People's
Republic of China as follows: this document is not and does not contain contrary to section 2 Article
10 of Securities Law of the People's Republic of China (2014 Revision), an invitation to the public of
the PRC or accumulatively more than 200 specified objects to acquire or subscribe for Ordinary
Shares, other than an invitation only to specified objects not more than 200.
Any person who may be in doubt as to the restrictions set out in the SFA, the SFO or the laws,
regulations and directives in each jurisdiction in which it subscribes for, purchases, offers, sells or
delivers the Ordinary Shares or any interest therein or rights in respect thereof and the
consequences arising from a contravention thereof should consult his own professional advisers and
should make his own inquiries as to the laws, regulations and directives in force or applicable in
any particular jurisdiction at any relevant time.
6
CONTENTS
Page
EXISTING DIRECTORS, PROPOSED DIRECTORS, SECRETARY, REGISTERED OFFICE
AND ADVISERS OF THE COMPANY
8
DEFINITIONS
10
GLOSSARY
16
STATISTICS RELATING TO THE PLACING AND SUBSCRIPTION
17
EXPECTED TIMETABLE OF PRINCIPAL EVENTS
17
PART I
INFORMATION ON THE GROUP
18
PART II
RISK FACTORS
46
PART III
FINANCIAL INFORMATION ON THE GROUP
56
A. ACCOUNTANTS’ REPORT ON AQUATIC FOODS GROUP PLC
56
B. HISTORICAL FINANCIAL INFORMATION OF AQUATIC FOODS
GROUP PLC FOR THE PERIOD FROM 11 AUGUST 2014 TO
31 AUGUST 2014
58
C. ACCOUNTANTS’ REPORT ON THE PRO FORMA AGGREGATED
FINANCIAL INFORMATION ON THE OPERATING GROUP
FOR THE PERIOD FROM 1 JANUARY 2011 TO 30 JUNE 2014
64
D. PRO FORMA AGGREGATED FINANCIAL INFORMATION ON
THE OPERATING GROUP FOR THE PERIOD FROM
1 JANUARY 2011 TO 30 JUNE 2014
66
E.
F.
INTERIM FINANCIAL INFORMATION OF THE OPERATING
GROUP FOR THE SIX MONTHS ENDED 30 JUNE 2014
98
ACCOUNTANTS’ REPORT ON THE UNAUDITED PRO FORMA
STATEMENT OF AGGREGATED NET ASSETS OF THE GROUP
104
G. UNAUDITED PRO FORM STATEMENT OF AGGREGATED NET
ASSETS OF THE GROUP
106
PART IV
MARKET RESEARCH REPORT
107
PART V
ADDITIONAL INFORMATION
136
7
EXISTING DIRECTORS, PROPOSED DIRECTORS, SECRETARY,
REGISTERED OFFICE AND ADVISERS OF THE COMPANY
Existing Directors
Li Xianzhi
Kim Huat (Sean) Lim
(Chief Executive Officer)
(Chief Financial Officer)
Proposed Directors
Dr. Wang Shaodong
John McLean OBE
Mircle Yap Ching Chai
Richard Sweet
(Non
(Non
(Non
(Non
Company Secretary
Kim Huat (Sean) Lim
All of Registered Office
Queensway House
Hilgrove Street
St Helier
Jersey
JE1 1ES
Channel Islands
Principal Operating Subsidiary
Yantai Kanwa Food Co., Ltd.
Laishan Shengquan Economic Development Zone
Yantai City
Shandong Province
People’s Republic of China
Nominated Adviser and Broker
SP Angel Corporate Finance LLP
Prince Frederick House
35 – 39 Maddox Street
London
W1S 2PP
United Kingdom
Reporting Accountants and
Auditors to the Company
Crowe Clark Whitehill LLP
St Bride’s House
10 Salisbury Square
London
EC4Y 8EH
United Kingdom
Auditors to the Operating Group
Crowe Howarth AF 1018
Level 16 Tower C, Megan Avenue II
12 Jalan Yap Kwan Seng
50450 Kuala Lumpur
Malaysia
8
Executive
Executive
Executive
Executive
Chairman)
Deputy Chairman)
Director)
Director)
Solicitors to the Company
as to English Law
Olswang LLP
90 High Holborn
London
WC1V 6XX
United Kingdom
Solicitors to the Company
as to Chinese Law
Trend Associates
28/F Zhongshan Building
152 Hudong Road
Fuzhou Fujian
People’s Republic of China
Solicitors to the Company
as to Jersey Law
Appleby
13-14 Esplanade
St. Helier
Jersey
JE1 1BD
Channel Islands
Solicitors to the Company
as to Hong Kong Law
Brandt Chan & Partners
in association with Dentons HK LLP
Suite 3201
Jardine House
1 Connaught Place
Central
Hong Kong S.A.R
Solicitors to the Nominated
Adviser and Broker
Charles Russell Speechlys LLP
6 New Street Square
London
EC4A 3LX
United Kingdom
Market Research Consultant
Euromonitor International
60-61 Britton Street
London
EC1M 5UX
United Kingdom
Financial Public Relations Adviser
Abchurch Communications
125 Old Broad Street
London
EC2N 1AR
United Kingdom
Registrars
Computershare Investor Services (Jersey) Limited
Queensway House
Hilgrove Street
St Helier
Jersey
JE1 1ES
Channel Islands
Company Website
www.aquaticfoods-ir.com
9
DEFINITIONS
The following definitions apply throughout this document, unless the context requires otherwise:
“Act”
the UK Companies Act 2006, as amended;
“Admission Document”
this document;
“Admission”
admission of the entire issued and to be issued share
capital of the Company to trading on AIM, and such
admission becoming effective in accordance with the
AIM Rules;
“AIM Rules for Companies”
the AIM Rules for Companies published by the London
Stock Exchange, as amended from time to time;
“AIM Rules for Nominated Advisers”
the AIM Rules for Nominated Advisers published by the
London Stock Exchange, as amended from time to time;
“AIM Rules”
together, the AIM Rules for Companies and the AIM
Rules for Nominated Advisers;
“AIM”
the market of that name operated by the London Stock
Exchange;
“Articles”
the articles of association of the Company in effect as at
Admission a summary of which is set out in paragraph 8
of Part V of this Admission Document;
“BVI”
the British Virgin Islands;
“Certificated” or “in Certificated form”
a share or other security recorded on the relevant register
of the relevant company concerned as being held in
Certificated form in physical paper form (that is, not in
CREST);
“Circular 37”
the Circular No.[2014]37 released by SAFE dated 4 July
2014 on Issues Relating to the Administration of Foreign
Exchange in Respect of Offshore Investments, Financings
and Return Investments by Domestic Residents through
Special Purpose Vehicles;
“City Code”
the City Code on Takeovers and Mergers (as published by
the Panel);
“Companies Law”
the Companies (Jersey) Law 1991 (as amended);
“Company”
Aquatic Foods Group Plc, incorporated in Jersey under
Companies Law with registered number 116402;
“Controlling Shareholders”
Li Xianzhi and Oceanic Expert;
“Corporate Governance Code”
the UK Corporate Governance Code on the principles of
good corporate governance and code of best practice
published by the Financial Reporting Council, as the
same may be amended or varied;
10
“CREST Regulations”
the UK Uncertificated Securities Regulations 2001 (SI
2001/3755) and the Companies Uncertificated
Securities, (Jersey) Order 1999 as amended from time to
time, and any applicable rules made under those
regulations;
“CREST”
the relevant system (as defined in the CREST Regulations)
in accordance with which securities may be held or
transferred in uncertificated form, and in respect of
which Euroclear UK & Ireland is the Operator (as defined
in the CREST Regulations);
“CSRC”
China Securities Regulatory Commission;
“Directors” or “Board”
the board of directors of the Company as at the date of
this Admission Document;
“Disclosure Rules and Transparency Rules” the Disclosure Rules and Transparency Rules (in
accordance with section 73A(3) of FSMA) relating to the
disclosure of information in respect of financial
instruments which have been admitted to trading on a
regulated market or for which a request for admission to
trading on such a market has been made;
“DTR 5”
Chapter 5 of the Disclosure Rules and Transparency
Rules;
“Enlarged Share Capital”
the enlarged issued share capital of the Company
immediately following Admission, comprising the
Existing Ordinary Shares, the Placing Shares and the
Subscription Shares;
“Euroclear UK & Ireland”
Euroclear UK & Ireland Limited, the operator of CREST;
“Euromonitor”
Euromonitor International;
“Existing Directors”
the existing directors of the Company, whose names are
set out on page 8 of this Admission Document;
“Existing Ordinary Shares”
the 100,000,000 Ordinary Shares in issue as at the date
of this Admission Document;
“Existing Share Capital”
the share capital of the Company as at the date of this
Admission Document, comprising the Existing Ordinary
Shares;
“FCA”
the United Kingdom Financial Conduct Authority;
“Founder Investors”
together: O Weng Chan, Lim Geok Tin, Ye Yu Zhu, Yap
Son On, Thomas Tan Hock Nieh, Lim Koon Keong, Ke
Wendong, Tang Liu, Yue Jian Feng and Chen Ling;
“FSMA”
the UK Financial Services and Markets Act 2000, as
amended;
“Framework Agreement”
the conditional agreement dated 23 October 2014
between (1) the Company, (2) Li Xianzhi, (3) Oceanic
Expert, (4) the Founder Investors, (5) the Investor
Companies (as defined therein) and (6) Hong Kong Han
11
He relating to certain restructuring events prior to
Admission, details of which are set out in paragraph 10.9
of Part V of this Admission Document;
“FY”
the financial year ended 31 December in any particular
year;
“GBP” or “£” or “pence” or “p”
the lawful currency of the United Kingdom, including
Jersey;
“GDP”
Gross Domestic Product;
“Group”
the Company together with its Subsidiaries;
“HKD” or “HK$”
the lawful currency of Hong Kong;
“Hong Kong Han He”
Hong Kong Han He Holding Company Limited,
incorporated in Hong Kong under the Companies
Ordinance, with registered number 1247280;
“Hong Kong”
Hong Kong Special Administrative Region;
“HY”
the interim financial period ended 30 June in any
particular year;
“Investment Agreements”
the agreements entered into between Li Xianzhi and the
Founder Investors relating to the investment in the
Group’s business, details of which are set out in
paragraph 10.14 of Part V of this Admission Document;
“Jersey”
Bailiwick of Jersey, a British Crown Dependency;
“Jersey Takeover Law”
means the Companies (Takeovers and Mergers Panel)
(Jersey) Law 2009 and the Companies (Appointment of
Takeovers and Mergers Panel) (Jersey) Order 2009;
“Locked in Parties”
together, (1) Oceanic Expert, (2) Righton Investments
Limited, (3) Midasi (Malta) Investment Limited, (4)
Thomas Tan Hock Nieh, (5) Lim Koon Keong, (6) Eternal
View Investments Limited, (7) East Sincerity Capital
China Co. Limited, (8) First Honour Ventures Limited and
(9) United Talent Investments Limited;
“Lock-in and Orderly Market Agreement”
the agreement dated 28 January 2015 between (1) the
Locked in Parties, (2) the OM Parties, (3) SP Angel and (4)
the Company relating to the disposal of Ordinary Shares,
details of which are set out in paragraph 10.7 of Part V of
this Admission Document;
“Memorandum”
the memorandum of association of the Company in
effect as at the date of this Admission Document a
summary of which is set out in paragraph 8.1 of Part V of
this Admission Document;
“Middle Classes”
consumers in the PRC with household incomes in the
range of RMB 60,000 to RMB 106,000;
“MOFCOM”
Ministry of Commerce of the PRC;
12
“Oceanic Expert”
Oceanic Expert Holdings Limited, incorporated in the
BVI under the BVI Business Companies Act, 2004 with
registered number 1812333;
“Official List”
the official list of the UK Listing Authority;
“OM Parties”
together, (1) Pioneer Sky Investments Limited and (2)
One Capital Group Investment (Malta) Limited;
“Operating Group”
Hong Kong Han He, Yantai Kanwa and Zhenhaitang;
“Ordinary Shares”
ordinary shares of no par value in the capital of the
Company;
“Panel” or “Takeover Panel”
the UK Panel on Takeovers and Mergers;
“Placees”
those persons subscribing for or purchasing the Placing
Shares in the Placing at the Placing Price;
“Placing Agreement”
the conditional agreement dated 28 January 2015
between (1) the Company, (2) the Directors, (3) Li Xianzhi
and (4) SP Angel relating to the Placing, details of which
are set out in paragraph 10.1 of Part V of this Admission
Document;
“Placing Price”
70p per Placing Share;
“Placing Shares”
the 5,792,081 new Ordinary Shares which are the
subject of the Placing;
“Placing”
the proposed conditional placing by SP Angel on behalf
of the Company of the Placing Shares at the Placing Price
pursuant to the terms and conditions set out in the
Placing Agreement;
“PRC” or “China”
the People’s Republic of China excluding Hong Kong,
Macau and Taiwan;
“Proposed Directors”
the proposed directors of the Company, whose names
are set out on page 8 of this Admission Document;
“Prospectus Directive”
Directive 2003/71/EC, as amended;
“Prospectus Rules”
the prospectus rules of the UK Listing Authority made
pursuant to section 73A of FSMA in relation to offers of
securities to the public and admission of securities to
trading on a regulated exchange;
“QCA Guidelines”
the Corporate Governance Code for Small and Mid-Size
Quoted Companies published in May 2013 by the
Quoted Companies Alliance;
“Relationship Agreement”
the agreement dated 28 January 2015 between (1) the
Company, (2) SP Angel and (3) the Controlling
Shareholders, details of which are set out in paragraph
10.6 of Part V of the Admission Document;
“RIS”
Regulatory Information Service;
13
“RMB”, “Yuan” or “¥”
the lawful currency of the PRC;
“SAFE”
the State Administration of Foreign Exchange of the PRC;
“Securities Act”
the US Securities Act 1993 (as amended);
“SG$” or “SGD”
the lawful currency of Singapore;
“Shareholders”
holders of Ordinary Shares from time to time;
“SP Angel”
SP Angel Corporate Finance LLP, nominated adviser and
broker to the Company;
“SP Angel Warrants”
the warrants to buy Ordinary Shares at the Placing Price
to be issued to SP Angel, pursuant to the Warrant
Instrument;
“Subscribers”
investors who have conditionally agreed to subscribe for
the Subscription Shares at the Subscription Price
pursuant to the Subscription Letters;
“Subscription”
the proposed subscription by the Subscribers of the
Subscription Shares at the Subscription Price pursuant to
the Subscription Letters;
“Subscription Letters”
the letters entered into between the Company and each
of the Subscribers, further details of which are set out in
paragraph 10.2 of Part V of this document;
“Subscription Price”
70p per Subscription Share;
“Subscription Shares”
the 7,434,000 Ordinary Shares which the Company is
proposing to issue pursuant to the Subscription;
“Subsidiaries”
together Hong Kong Han He, Yantai Kanwa and
Zhenhaitang and the expression “Subsidiary” shall mean
either one of them;
“the London Stock Exchange”
London Stock Exchange plc;
“UK Listing Authority”
the FCA, acting in its capacity as the competent authority
for the purposes of Part VI of FSMA;
“UK” or “United Kingdom”
the United Kingdom of Great Britain and Northern
Ireland;
“uncertificated” or “in uncertificated
form”
a share or other security recorded on the relevant register
of the relevant company concerned as being held in
uncertificated form in CREST and title to which, by virtue
of the CREST Regulations, may be transferred by means
of CREST;
“USD” or “$”
the lawful currency of the United States of America;
“VAT”
means Value Added Tax;
“Warrant Instrument”
the instrument constituting the SP Angel Warrants
executed by the Company on 28 January 2015;
14
“WFOE”
a Wholly Foreign Owned Enterprise, being a PRC
registered company that is wholly-owned by persons
outside the PRC;
“Yantai Kanwa”
Yantai Kanwa Food Co., Ltd., incorporated in the PRC
with registration number 370600400007228; and
“Zhenhaitang”
Yantai Zhenhaitang Food Co., Ltd., incorporated in
China with registration number 370613228031086.
15
GLOSSARY
The following definitions apply throughout this Admission Document, unless the context requires
otherwise:
“BRC”
British Retail Consortium
“HACCP”
Hazard Analysis and Critical Control Points, a system
addressing food safety
“MSC”
Marine Stewardship Council, an organisation promoting
sustainable fishing practices
“ODM”
Original Design Manufacturing
“OEM”
Original Equipment Manufacturing
16
STATISTICS RELATING TO THE PLACING AND SUBSCRIPTION
Placing Price and Subscription Price
70p
Number of Existing Ordinary Shares
100,000,000
Number of Placing Shares to be issued by the Company pursuant to the Placing
5,792,081
Number of Subscription Shares to be issued by the Company pursuant to
the Subscription
7,434,000
Enlarged Share Capital on Admission
113,226,081
Percentage of Enlarged Share Capital represented by the Placing Shares and
Subscription Shares
11.7%
Gross proceeds of the Placing and Subscription
£9.3m
Approximate net proceeds of the Placing and Subscription receivable by the Company
£8.3m
Estimated market capitalisation at the Placing Price and Subscription Price
on Admission
£79.3m
International Securities Identification Number (ISIN) of the Ordinary Shares
JE00BQQG1J93
AIM ticker
AFG
SEDOL
BQQG1J9
EXPECTED TIMETABLE OF PRINCIPAL EVENTS
2015
Publication of this Admission Document
28 January
Admission and commencement of dealings in the Ordinary Shares on AIM 8.00 a.m. on 3 February
Settlement of Placing Shares and Subscription Shares through CREST
Despatch of definitive share certificates in respect of the Placing Shares and
Subscription Shares to placees and subscribers by no later than
8.00 a.m. on 3 February
20 February
Notes:
1. All references to times in this timetable are to London (GMT) times and each of the times and dates may be subject to change.
2. If any of the above times or dates should change, the revised times and/or dates will be notified to Shareholders by an
announcement on a RIS.
17
PART I
INFORMATION ON THE GROUP
1
Introduction
The Company is a Jersey holding company whose principal operating subsidiary, Yantai Kanwa is a
leading marine foods and seafood processor and supplier based in the PRC, supplying to the export
and local PRC markets respectively. Yantai Kanwa’s subsidiary, Zhenhaitang, owns the Group’s
“Zhenhaitang” brand; a marine foods and seafood brand well known in Eastern provinces in the PRC.
The Group also operates under the “Yantai Kanwa Food Co Limited” and “Kanwa Foodstuffs” names
and the brand is known as Kanwa Foodstuffs, particularly in the Japanese market. The Group offers a
wide range of quality marine foods and seafood. The Company’s main products are processed frozen
seafood, seaweed-based foods and marine snack foods.
The Group benefits from excellent food safety procedures developed over many years which the
Directors believe have helped the Group to build a strong track record of supplying its products into
overseas markets. The Existing Directors and Proposed Directors believe that this track record has
enhanced the perception of the quality and reliability of the Group’s products in the PRC and has
allowed the Group to expand significantly into local markets as demand for seafood products has
increased.
The Group seeks to address a more health conscious consumer base by offering sustainably sourced
deep sea and internationally sourced seafood.
The Group has experienced significant growth between 2011 and 2013 with turnover increasing from
RMB 276.4m to RMB 667.3m and net profit from RMB 38.2m to RMB 118.6m respectively. Sales
growth has been driven by a combination of increasing sales activity, improving the average unit price
of product sales and through introducing new products to the market. The Group is strongly cash
generative with an EBITDA margin of 23 per cent. during FY13.
The Group currently has processing capacity of approximately 16,000 tons of seafood per annum.
The Group also sells goods supplied pre-processed to the Group’s specifications using its distribution
network.
The Group’s operations are located in the Laishan Shengquan Economic Development Zone, Yantai
City, Shandong Province, in the PRC, a region well known for its seafood industry with the largest
fishing seaport in Shandong Province.
In order to expand the Group’s processing capacity to enable it to meet anticipated additional
customer demand, in particular, by the expected increased demand for processed seafood products
in the PRC, the Company will complete the Placing and Subscription to raise gross proceeds of
£8.3 million at 70p per Ordinary Share through the issue of 13,226,081 new Ordinary Shares in the
Company. In addition to expanding the Company’s processing capacity through new facilities and
increased automation, the proceeds are intended to provide the Company with working capital to
invest in the Group’s distribution network to allow the Company to further build its market presence
and increase demand for its products. The Existing Directors and Proposed Directors believe that
Admission will also provide the Group with an enhanced reputation as well as future access to capital
to support its strategic objectives.
2
Background and history of the Group
The Company was incorporated in Jersey on 11 August 2014.
The Company’s principal operating subsidiary, Yantai Kanwa, a WFOE, was incorporated in the PRC
on 15 November 1999.
18
The Group processes imported and locally sourced unprocessed seafood for sales in the PRC and
export to overseas markets.
The vast majority of the Group’s business is through sales under the Company’s own brands to PRC
based and international distributors. In addition the Group undertakes processing for OEMs in line
with specified customer requirements.
Having initially built its business through focussing on the export market (principally Japan under the
Yantai Kanwa Foods brand), the Group established the “Zhenhaitang” brand in 2007 in the PRC in
order to take advantage of growing demand in the PRC driven by growing disposable income within
the PRC Middle Classes and a more health conscious consumer base with a preference for healthier,
natural food.
The Group has established an extensive distribution network. As at 30 June 2014, the Group
marketed its products through 50 regional distributors covering 16 provinces, municipalities and
autonomous regions in the PRC. These regional distributors in turn sell the Company’s products to
their sub-distributors and retailers. The Group is active in supporting its distributor base and in
particular maintains a number of key relationships with key distributor customers in the PRC
supporting their sales activities.
During the year ended 31 December 2013 over 90 per cent. of the Group’s sales were in the PRC.
With the growth in China’s per capita wealth and resultant higher standard of living, demand has
started to move towards processed and ready to eat products as opposed to the procurement of daily
foods from traditional markets. Furthermore, many Chinese consumers are believed to be concerned
about food hygiene and safety and look to recognised branded goods where there is a perception of
enhanced food safety. To help to further service this demand during 2012, the Group made a strategic
decision to focus production towards higher value goods with an improved average selling price.
In order to further expand its presence in the PRC, the Group has supported the establishment of a
chain of “Zhenhaitang” branded retail stores. Trial openings of the first few “Zhenhaitang” retail stores
in Yantai City, Shandong Province and Jinjiang City, Fujian Province have been successful and the
Group expects to establish more retail stores in due course. There are currently 8 retail stores situated
in the Fujian (6) and Shandong (2) Provinces in the PRC. The Group supports its distributors by
providing sales support and contributing a percentage of sales for marketing and promotional activity.
The Group also contributes towards the initial capital expenditure of setting up each retail site.
Through marketing initiatives, the Group intends to increase market awareness of the Zhenhaitang
brand in conjunction with growth in the number of outlets.
In order to continue to grow its business the Group has maintained an active R&D program whereby
the Group seeks to develop additional products to seek to stimulate market demand. The Group
currently has 4 employees engaged in R&D activity and intends to expand this number following
Admission.
Some key milestones in the development of the business include the following:
1999
•
Incorporation of Yantai Kanwa
•
The Group initiated its international business with the export of frozen cod fillets and frozen
cooked scallops to Japan
2003
•
Phase 1 construction of Yantai Kanwa’s factory completed; the initial site was comprised of
3,498 square meters of processing plant including 1,500 tons of cold storage facilities
19
2006
•
Yantai Kanwa was awarded Provincial Advanced Hygienic Unit
2007
•
The ‘Zhenhaitang’ brand was established
•
Phase 2 construction of Yantai Kanwa’s factory completed; with an additional 7,315.35 square
meters of processing plant including 3,500 tons of cold storage facilities put into operation
2010
•
Food Production License approved by Shandong Province Quality and Technical Supervision
Board (a new requirement at that time)
•
Yantai Kanwa obtained MSC certification for sustainable development in the seafood industry
2012
•
Yantai Kanwa passed ISO 9001 Quality Management System certification, HACCP Food Safety
System certification and BRC certification
•
Yantai Kanwa registered and approved for export of seafood products to countries in the
European Union
•
Yantai Kanwa passed factory audit by Metro Hypermarket, the Group’s products qualified for
selling in Metro Hypermarket
•
Yantai Kanwa awarded “Leading Enterprise in Industrialization of Agriculture Sector” by Yantai
People’s Government
2013
•
Awarded the Marine Stewardship Council Certification for sustainable fishing
2014
•
Completion of new breading and frying production line
•
Products from breading and frying production line approved for export by Shandong Province
Quality and Technical Supervision Board
On Admission, the Group structure will be:
Aquatic Foods Group Plc (Jersey)
100%
Hong Kong Han He (Hong Kong)
100%
Yantai Kanwa (PRC)
100%
Zhenhaitang (PRC)
20
3
Key Strengths
The Existing Directors and Proposed Directors believe that the Group has the following key strengths:
History of growth in revenue and profitability
Between 2011 and 2013, the Group’s revenue has grown significantly, from RMB 276.4 million to RMB
667.3 million, a compound annual growth rate of 55 per cent. Over the same period, net profit has
risen from RMB 38.2 million to RMB 118.6 million, a compound annual growth rate of 76 per cent.
Leading market position in seafood processing
Since beginning its operations in 1999, the Group has built upon its good reputation in the Chinese
marine foods and seafood market and has established a well-regarded brand within this sector.
According to Euromonitor, the Group’s market share in the Packaged Frozen Sea Fish Manufacturers
sector in terms of production volume within the PRC in 2013 was 0.5% with the largest processor,
Pacific Andes Food Co., Ltd., only representing an estimated 1.8% of the market. This indicates a very
fragmented market.
Brand awareness of the Group’s “Zhenhaitang” brand
The Existing Directors and Proposed Directors believe that the Group has built a strong reputation for
its Zhenhaitang brand which is growing through the establishment of designated Zhenhaitang
branded outlets. The Company believes the continued success of the Zhenhaitang brand is critical to
the future of the business.
Excellent distribution platform
The Group works with a network of distributors to effectively market its products in the PRC. The
Group has continued to grow its distributor relationships and as at 30 June 2014 distributes its
products in 16 provinces, municipalities and autonomous regions in the PRC through 50 regional
distributors. This footprint allows the Group to access a wide range of customers and has helped to
increase sales over recent years. Retail points stocking the Group’s products include: convenience
stores, supermarket chains and hyper markets such as Metro, Wal-Mart, RT-Mart and FMart,
restaurants and hotels.
Strong and growing demand for seafood products and in particular “ready to eat” products
The Existing Directors and Proposed Directors believe that Chinese consumers will increasingly adopt
more convenience orientated consumption habits. The Group is therefore developing its product
offering for ready to eat and processed products in order to access this expected demand.
Product innovation
The Existing Directors and Proposed Directors believe that, in response to changing consumer
preferences and demand, product innovation and expansion of the current range offered will help to
secure a larger market share within the Group’s markets of operation, both domestically and
internationally. The Group has successfully introduced many new products over recent years. Please
refer to paragraph 4.4 of this Part I for further information on product innovation.
Barriers to entry
The Group sees the following key points as the main barriers to entry for prospective competitors:
•
Stricter foods safety and quality control requirements;
•
Access to long-term relationships with PRC based and international customers and suppliers;
and
•
Establishment of a trusted brand in the PRC market.
21
Adherence to international food standards and strong quality control procedures
The Group has an excellent record of food safety and has established stringent quality control
procedures. In a market that has seen regular public health scares relating to food safety the Group
considers that its adherence to these standards to be a key strength. The Group complies with, inter
alia, the following key standards:
•
ISO 9001 Quality Management System certification;
•
HACCP Food Safety System certification;
•
BRC certification; and
•
MSC.
In particular it should be noted that the Marine Stewardship Council Chain of Custody Standard has
been received in respect of fillets and portions of the following species:
•
Alaska Pacific Cod;
•
Alaska Pollock;
•
Alaska Salmon;
•
New Zealand Hoki;
•
North East Atlantic Mackerel; and
•
US North Pacific Halibut.
The Existing Directors and the Proposed Directors are focussed on the issue of sustainability of the
Group’s raw materials.
Long standing trading relationships
The Group has successfully established long term relationships with both distributors and suppliers.
The Existing Directors and Proposed Directors believe that these relationships benefit the Group in a
number of ways for example access to key potential customers in the case of distributors and the
ability to utilise additional cold storage when required in the case of suppliers.
Optimal location
Shandong Province is the third largest province in the PRC, ranked by GDP. In 2012 Shandong also
had the largest seafood production of all Chinese provinces.
According to the National Bureau of Statistics of China figures for production during 2012, Shandong
Province ranks first (6.86 million tons), Fujian Province second (5.46 million tons), and Guangdong
Province and Zhejiang Province almost the same in third and fourth (4.32 and 4.31 million tons).
Liaoning Province is the fifth largest seafood producer. The top five provinces supplied approximately
82 per cent. of the total seafood in the PRC in 2012.
Experienced management team
The Group’s management team is comprised of professionals with extensive experience in the marine
foods and seafood industry. The senior management team has extensive operational and management
experience in marketing and processing of marine foods and seafood. Yantai Kanwa’s Chairman, Li
Xianzhi, and Deputy General Manager, Feng Lei, both have more than 15 years’ experience in the
marine foods and seafood industry.
The Group’s management team handles business operations and develops and implements the
Group’s plans for future expansion and growth. The industry experience and knowledge of the
22
Group’s senior management has enabled the Group to successfully develop new products and
explore new business opportunities. The Existing Directors and the Proposed Directors believe that
effective management is key to the Group’s success to date and is a vital factor in the future growth
of the Group.
4
Description of the Group
4.1
Principal products
The Group’s diverse range of products sold to the PRC domestic market can be grouped into four
principal categories namely:
Fish
Including various species including (in order of sales during 2013):
Mackerel
Greenling
Cod
Croaker
Redfish
Plaice
Lucida Fish
Sardines
Sea Carp
Prepared in various ways including as fillets, seafood skewers, canned and other processes.
Sea Cucumbers
Sea cucumbers are used in fresh or dried form in various cuisines. In some cultural contexts the sea
cucumber is thought to have medicinal value. Most cultures in East and Southeast Asia regard sea
cucumbers as a delicacy.
As a delicacy sea cucumbers can command very high prices with the Group’s pure dried sea
cucumber retailing for as much as RMB 11,360 per kilogram.
The Group’s products in this category include variations of dried, frozen and ready to eat sea
cucumber and abalone.
Cephalopods
Principally octopus and squid.
Other
This includes gift boxes containing seaweed, shrimp and shellfish products. Gift boxes are often given
around the principal Chinese public holidays and other special occasions and can sell for as much
as RMB 4,380 for a sea cucumber gift box.
Revenue across these categories is set out in the figures below.
23
Table 1 Group Segmental Revenue: 2011 – 2013
Revenue (RMB m)
2011
%
2012
%
2013
%
Segment
Fish
Sea Cucumber
Cephalopod
Others
201.9
41.3
17.8
15.4
73
15
6
6
359.7
92.6
22.3
20.1
73
19
4
4
455.0
120.8
29.7
61.8
68
18
4
9
Total
276.4
494.7
667.3
Table 2 Group Segmental Gross Margin: 2011 – 2013
Gross profit (RMB m)
and margin
2011
%
2012
%
2013
%
Segment
Fish
Sea Cucumber
Cephalopod
Others
48.1
17.3
3.7
2.9
24
42
21
19
101.3
40.3
5.3
5.5
28
44
24
27
136.7
52.2
9.1
16.9
30
43
31
27
Total
72.0
26
152.4
31
214.9
32
The Group’s gross margin has increased from 26 per cent. to 32 per cent. between FY 2011 and
FY 2013 largely reflecting higher margins achieved on new product categories and a proportionately
larger increase in the sales of higher margin products.
4.2
Processing Capacity and Capability
The Group’s factory covers an area of c.21,000 square meters with six aseptic processing areas
covering 6,600 square meters of modern workshops and a modern cold storage facility with 5,000
tons capacity. The processing areas have the following equipment and capabilities: a cool dry
workshop, a low-temperature fermentation workshop, a single-freezing machine, a flat freezer,
peeling machines, cutting machines, vacuum packing machines, metal detectors and barbecue
cooking machinery and other advanced seafood processing equipment.
In addition to its principal premises, when required the Group uses two outsourced storage facilities
which are both located in Yantai. The Group started utilising the first facility in 2009 and the second
facility in 2013. These facilities can provide up to a further 50,000 tons of cold storage capacity
shared with other companies.
The Group currently has approximately 16,000 tons of annual seafood processing capacity for all
varieties of seafood products (14,400 tons net utilizable capacity). The Existing Directors and
Proposed Directors believe the principal limiting factors on increasing this capacity are the
availability of cold storage and the addition of further production areas.
The Existing Directors and Proposed Directors estimate that the Group’s current production facilities
will reach capacity within the next 18 months on the basis that production continues to grow as it
has done to date and are therefore evaluating options for expanding capacity both through increasing
process automation and expanding to an additional site or acquiring an existing factory from a third
party.
24
The Group is also seeking to acquire additional equipment. In particular the Group will require
further quick freeze capability in order to meet expected increasing production as current cooling
facilities are estimated to be operating at approximately 90 per cent. capacity.
In 2013 the Group produced c.12,250 tons of seafood products. To 30 September 2014, c.10,150
tons of seafood products have been produced during 2014.
4.3
Processing Partners
Various of the Group’s processing activities are carried out by trusted partners from whom products
already sourced are processed to the Group’s specifications.
The Group selects processing partners only after they have been visited by its Quality Assurance and
purchasing departments and are assessed on a number of criteria including:
•
Regulatory status; and
•
Food standard certification.
During FY 2013 the Group’s largest processing partner, Yantai Hong Run Hai, Ocean Bio-Technology
Co. Ltd, accounted for 6.9 per cent. of the Group’s aggregate sales. In total, processing partners in
aggregate were responsible for 21 per cent. of sales in FY 2013 (FY 2012, 18.3 per cent.).
The Group has the ability to rely on trusted processing partners for example due to capacity
constraints or where specialist equipment is required.
Currently all of the Group’s sea cucumber sales relate to products processed to the Group’s
specifications by suppliers.
4.4
Product Innovation
Over the years, through strong product development efforts, Yantai Kanwa has expanded its range of
seafood products offered to consumers and has continued to improve the quality of these products.
The Group collects market information from its sales and marketing department in order to develop
new product lines and improve and expand product offerings. Every year, the Group strives to offer
a variety of new species and/or products. In recent years product offerings have been successfully
expanded and currently more than 1,000 product items are sold (seafood from different origins,
various gift packs and different ingredient combinations).
Yantai Kanwa’s R&D team focuses mainly on developing new recipes and flavours for products to
provide competitive offerings to consumers. Yantai Kanwa aims to continuously innovate and improve
products to meet the changing tastes of consumers’ preferences, with particular emphasis on product
taste, texture and packaging while maintaining sales prices at affordable levels. In addition to internal
research and product development, the Group is also seeking to collaborate with academic and
research institutions (such as Yantai University) to develop new products.
The Group’s R&D product innovation activities include collaboration efforts with distributors as well
as development arising from customer requests.
For example new products introduced during 2013 include diced cod, Pacific cod fillets, grilled
mackerel fillets, longevity fish, yellowtail cut mirin, king crab, jade shrimp, red hemmi, shrimp cake,
frozen ready to eat sea cucumber and lucida fish.
R&D costs during FY 2013 were RMB 251,000 (FY 2012, RMB 227,000).
4.5
Quality Control & Food Safety
Yantai Kanwa is committed to maintaining high quality standards for all of its products and follows
strict quality control procedures in the production process. Yantai Kanwa has a Food Production
25
License for all of the processing plant and passed ISO 9001 Quality Management System
certification, HACCP Food Safety System certification and BRC certification. Yantai Kanwa also has
proven research and product development capabilities, continuously striving to improve on the
current product mix offered and subsequently launch new and improved seafood products as a result.
The Group has established a dedicated quality control team led by the Deputy General Manager,
Feng Lei, to ensure internal quality control procedures are complied with.
Yantai Kanwa’s Quality Control staff closely monitor the production processes and control procedures
generally including testing of raw materials delivered, maintenance of production equipment and
environment in the production area, monitoring of the production process to detect possible harmful
pollution, testing of samples of the final product and maintenance of the inventory storage area in
order to prevent product deterioration.
Yantai Kanwa also reviews the quality control procedures of its suppliers to assure the quality of the
products that they produce for the Group. Yantai Kanwa carries out random checks on materials
delivered to ensure that supplied products meet internal quality standards.
A Food Safety Risk Monitoring Program (“Monitoring Program”) has been established based on
national and industry rules and tailored to the Group’s products and production environment.
The Monitoring Program specifies the following:
•
the monitoring frequency;
•
what metal and chemical elements to check for;
•
the checking method (i.e. self-monitoring or by third-parties); and
•
the number of samples required.
Once the products are delivered to distributors or to international customers, following the quality
checks, the responsibility for storage and preservation of the frozen products passes to the customer.
4.6
Distribution
The Group has established an extensive sales and distribution network in Eastern China. The Group
sells its products to its regional distributors and in turn they sell to their sub-distributors and retailers.
As at 30 June 2014, the Group has 50 regional distributors with geographical coverage of 16
provinces, municipalities and autonomous regions in the PRC. The Group has built strong
relationships with its distribution network over a number of years. The Existing Directors and
Proposed Directors believe that maintaining good working relationships with its distributors is also
an important factor for the Group’s continued success.
The Group helps its distributors by providing marketing and promotion support for the Group’s
product range in different regions of the PRC.
The Existing Directors and Proposed Directors believe that the Group generally adopts a flexible and
mutually beneficial pricing policy. It offers competitive wholesale prices to its regional distributors
such that they are incentivised to grow the Group’s sales. The Existing Directors and Proposed
Directors believe that these measures combined with effective management policies help the Group
to maintain strong relationships with its regional distributors.
With the growth of business operations, the Group has established close partnerships with key
distributor customers. The Existing Directors and Proposed Directors believe that the Group’s
relationships with these key distributor customers will help Yantai Kanwa to strengthen its market
position.
26
The Existing Directors and Proposed Directors believe that sound and effective management of its
distribution network, as well as good relations with distributors provide support for future growth.
4.6.1 Regional Distributors
The Group enters into one year agreements with regional distributors as agents for the Group’s brand.
Annual sales target are set for each regional distributor in conjunction with the marketing department
who track and monitor performance. Upon receipt of purchase orders, the Group arranges for
delivery of the finished products available for sale in Yantai Kanwa’s warehouse or plans production
to meet the demand.
The Group will generally suggest retail prices to distributors but will not set price caps for them.
However, the Group requests that retailers and supermarket chains do not sell the Group’s products
at prices lower than a prescribed minimum price. The Existing Directors and Proposed Directors
believe that this pricing practice is consistent with market practice for the wider PRC marine foods
industry. The Existing Directors and Proposed Directors believe that this flexible pricing policy allows
distributors to retain an acceptable profit margin and helps to incentivise growing sales as well as to
build long term partnerships.
The Group appoints regional distributors on an exclusive basis for a fixed one year period and may
replace any given distributor at the end of the contracted period, particularly where the agreed sales
targets are not met.
The Group works with its distributors to provide marketing support with each distributor responsible
for providing storage space for the Group’s products, logistical support and onward distribution of the
Group’s products in their own exclusive region.
The selection of distributors is based on three principal criteria:
•
Strong distribution network;
•
Financial strength; and
•
Marketing strategy.
Currently the Group’s distributors are primarily located in Eastern China reflecting higher demand
from this region and more developed infrastructure.
Following Admission, the Group intends to appoint more distributors to expand its customer base into
regions that it does not already cover, in particular the Existing Directors and Proposed Directors
intend to focus on growing the landlocked Western Chinese region distributors, in particular targeting
smaller cities.
27
The following map shows areas where the Group currently has distribution relationships in the PRC.
The contribution from the top 10 customers to the Operating Group’s total revenue has increased
from 48 per cent. in FY 2011 to 59.6 per cent. in FY 2013.
For FY 2011 to FY 2013, sales to the Group’s top 5 customers represented 25.6 per cent., 30.9 per
cent. and 33.8 per cent. respectively of its total turnover. During the same financial period, sales to
its largest customer represented 5.6 per cent., 6.8 per cent. and 7.5 per cent. respectively of the
Group’s total turnover.
Distribution costs increased as a percentage of revenue from 6.6 per cent. in FY 2011 to 7.9 per cent.
in FY 2013, which was mainly driven by an increase in marketing expenses.
4.6.2 Sub – Distributors
The Group does not work directly with sub-distributors. The Group has authorised its regional
distributors to select their sub-distributors and to negotiate the terms and conditions of the agreement
between the regional distributors and the sub-distributors as they wish. The Group relies on its
regional distributors to confine their sub-distributors to their respective designated region of
distribution or retail outlets.
4.6.3 Key Customers
As at 30 September 2014, the Group has a total of 12 key customer relationships. Some of these
relationships have been in place for more than five years.
In January 2014, the Group appointed several employees to provide dedicated customized services
to key customers. With this new sales model, the Group aims to develop a closer relationship with
its customers and help them by providing marketing and promotion support for the Group’s product
range in different regions of the PRC. In addition the Group grants a longer credit period of 90 days
to its key customers (as compared to standard terms of 30-60 days).
4.6.4 Key End Retailers
End retailers include traditional grocery stores, local convenience stores and transnational, national
and regional retailers.
28
As part of its mid to long-term business strategy, the Group plans to increase the proportion of
products sold directly to key end retailers to increase the efficiency of the Group’s supply chain.
Currently the Group only has a direct end retailer relationship with Metro and indirect end retailer
relationships through its distributors with Wal-Mart, RT-Mart and FMart.
4.6.5 Export Sales
Currently, the Group’s export sales are mainly to OEM/ODM customers, some are sold under
customer brands and some are sold using the Group’s own export brand “Kanwa Foodstuffs”. In 2013
export sales accounted for 10 per cent. of the Group sales.
Consistent with industry practice, the Group does not generally enter into long-term sales contracts
with overseas OEM/ODM customers, most of the sales are on a short-term contracts (order cycle
typically ranges from one to eight weeks).
In recent years the Group has focussed on meeting the growing demand in the PRC, however in the
longer term, the Company intends to continue its participation in trade shows to increase
international product and brand awareness while working on a number of further initiatives to grow
export sales.
The Group utilises distributors to sell its products on its behalf. Sales agencies do not work exclusively
for the Group but will not distribute competing seafood products.
The Group’s products have been exported to more than 11 countries. The Group’s major export
markets during FY 2013 were Japan (72 per cent. of international sales), South Korea (19 per cent. of
international sales) and the USA (5 per cent. of international sales).
4.7
Suppliers
The Group has 45 suppliers in total with the largest five of these representing 28 per cent. of FY 2013
revenue. The Group seeks to maintain good, long term relationships with its suppliers.
The Group looks to mitigate supply risk by using more than one source for key products (for example
sea cucumbers are sourced from each of the Group’s three largest suppliers).
The Group has framework agreements in place with its suppliers whereby price and certain other
parameters are agreed on a monthly basis. Purchase contracts with all suppliers are renewable on a
monthly basis which varies depending on demand requirements.
Suppliers are assessed on their product quality as well as their infrastructure capacity in terms of
storage and logistics.
The Group conducts a site visit of all potential local suppliers and starts with low order sizes when
integrating new suppliers into the supply chain.
5
Market Research
The Company has commissioned a market research report prepared by Euromonitor on 20 June 2014.
This report has been used as the source of certain information in Part I of this Admission Document
and has been reproduced in full in Part IV of this Admission Document.
6
Zhenhaitang
Zhenhaitang is the principal brand under which the Group operates in the PRC. In order to build the
reputation and awareness of the “Zhenhaitang” brand, the Group plans to invest in advertising and
promotion in order to develop the brand. The Group also intends to carry out further cross-promotion
in its different product types. The Existing Directors and Proposed Directors believe that this will
facilitate further development for the core “Zhenhaitang” brand in the future.
29
For the export market the Group intends to continue to build on its “Kanwa Foodstuffs” brand.
The Group expects to work with its distributors to further grow the number of Zhenhaitang branded
retail stores from the current 8 which is also expected to help build awareness of the brand.
The Group currently has 6 retail stores in Fujian Province and 2 are located in the Shandong
Province. The Group expects to work with its distributors to open a further 16 stores during FY 2015.
The Group expects to contribute approximately RMB500,000 towards the initial capital fit out works
of each new store.
7
Pricing of Raw Materials and Finished Goods
Prices are typically influenced by market related factors, such as inflation, shortage of certain supply
or economic factors. Historically, the Group has had sufficient notice to react to such price changes,
and also benefits from being able to access alternative suppliers for all product lines.
The average sales price per kilogram of the Group’s largest two product categories, fish and sea
cucumber, has increased by 25 per cent. and 123 per cent. respectively from FY 2011 to FY 2013.
The average cost per unit of these categories has increased by 18 per cent. and 118 per cent.
respectively from FY 2011 to FY 2013.
In part, reflecting the above pricing changes, the cost of raw materials has decreased as a percentage
of the Group’s aggregate sales from 47.9 per cent. in FY 2011 to 41.7 per cent. in FY 2013. During
that time direct labour has remained a broadly stable percentage of aggregate sales, falling from 3.6
per cent. in FY 2011 to 3.4 per cent. in FY 2013.
8
Regulatory environment
As a processor of seafood products, the Group is subject to various regulations, including
requirements as to the on-going licensing of its operations and compliance with applicable
environmental laws. The following summary details the material regulatory provisions to which the
Group is subject:
(1)
Certificate of Consignee and Consignor Declaration Registration for Import and Export Goods
No. 3706948569 and No. 3706969367 issued on 19 December 2000 and 4 May 2008 (no
renewals are required for either of those permits).
(2)
National Industrial Product Production Permit for frozen products (Freezing prepared foods
SB/T10379) no Q537061010482 issued on 5 March 2013 and valid until 17 March 2016.
(3)
Natural Industrial Product Production Permit for aquatic products (Dried Sea Cucumber,
SC/T3206; Dried aquatic products, Q/YKW00015) No. QS 370622011296 issued on 5 March
2013 and valid until 4 March 2016.
(4)
Food Circulating Permit No. 3706021010009531 issued on 1 April 2013 and valid until
8 March 2016.
9
Local recognition
Recent awards granted to the Group from relevant associations include:
2014 – Award for Enterprise Excellence for Safe Production Environment and Creation of Healthy
Community in the year 2013. Awarded by Yantai Laishan Economic Development Zone
Working Committee and Management Committee
2013 – Vice-President grade (equivalent to silver medal) Enterprise Award by the Chinese Aquatic
Production Chamber of Commerce Jiaodong Branch
30
2013 – Vice-President grade (equivalent to silver medal) Enterprise Award by the Chinese Aquatic
Production Chamber of Commerce (National)
2013 – Enterprise of Work Safety Standardization Level III awarded by Yantai Administration of Work
Safety
2013 – Leading Enterprise in Safe Production of 2012 awarded by Yantai Laishan Economic
Development Zone Working Committee and Management Committee
10
Financial Summary
The financial information set out below is extracted from the audited non statutory financial
information of the Operating Group for the three years ended 31 December 2011, 2012 and 2013,
which are set out in Part III of this Admission Document and which should be read in its entirety.
Year ended 31 December
2011
RMB’000
2012
RMB’000
2013
RMB’000
276,422
(205,589)
494,670
(343,846)
667,276
(454,480)
Gross profit
Other income
Selling and distribution expenses
Administrative expenses
Other expenses
70,833
4,141
(18,531)
(7,039)
(90)
150,824
6,918
(37,244)
(10,126)
(26)
212,796
8,891
(52,867)
(13,067)
(121)
Operating profit
Finance income
Finance costs
49,505
261
(1,293)
110,346
285
(1,889)
155,632
471
(2,535)
Profit before tax
Income tax expense
48,475
(10,315)
108,742
(24,275)
153,568
(35,531)
Profit after tax
38,158
84,467
118,037
Gross margins
Net margins
26%
14%
30%
17%
32%
18%
Revenue
Cost of sales
31
11
Interim Figures and Current Trading
The financial information set out below is extracted from the audited interim financial information of
the Operating Group for the six months ended 30 June 2014 and the unaudited interim financial
information of the Operating Group for the six months ended 30 June 2013, which are set out in Part
III of this Admission Document and which should be read in its entirety.
Six months Six months
ended
ended
30 June
30 June
2013
2014
(Unaudited)
(Audited)
RMB’000
RMB’000
Revenue
Cost of sales
272,316
(185,001)
353,130
(241,033)
Gross profit
Other income
Selling and distribution expenses
Administrative expenses
Other expenses
87,315
4,932
(21,697)
(5,168)
(29)
112,097
3,669
(29,158)
(6,198)
(183)
Operating profit
Finance income
Finance costs
65,288
138
(1,298)
80,227
293
(1,394)
Profit before tax
Income tax expense
63,990
(14,437)
79,126
(18,551)
Profit after tax
49,553
60,575
Gross margins
Net margins
32%
19%
32%
17%
Revenue breakdown by product category
FY13
HY13
HY14
Currency: RMB’000
Fish
Sea Cucumbers
Cephalopods
Others
454,976
120,832
29,684
61,784
68%
18%
4%
9%
173,140
58,183
20,380
21,613
64%
21%
7%
8%
224,516
57,243
22,608
48,762
64%
16%
6%
14%
Total
667,276
100%
272,316
100%
353,129
100%
FY13
HY13
HY14
30%
43%
31%
27%
27%
43%
27%
27%
29%
43%
27%
29%
Gross Margin by Product Category
Gross margin
Fish
Sea cucumbers
Cephalopods
Others
32
Fish
Sales of fish products have continued to increase (up 29.6 per cent. from HY 2013 to HY 2014) with
margins also increasing from HY 2013 to HY 2014 (although margins were stronger in the second
half of FY 2013).
Sea Cucumbers
Sales were broadly flat in HY 2014 on the same period last year, the Existing Directors and Proposed
Directors believe this to be partly as a result of increased pressure on the giving of high value gifts,
such as sea cucumbers. Margins have remained steady at 43 per cent.
Cephalopods
Sales of Cephalopods have made a strong recovery in HY 2014 following a disappointing second half
of HY 2013 in part due to increased management focus. Cephalopod sales in the second half of
FY 2014 are expected to maintain the strong performance seen in HY 2014
Others
Sales have increased substantially on the same period last year particularly as a result of strong gift
box sales.
Current trading to 30 September 2014
Unaudited aggregate revenues for the Operating Group for the 9 months to 30 September 2014 were
approximately RMB 566 million which was approximately 32 per cent. higher compared to the same
period last year. Growth in revenue was achieved in all product categories, with fish accounting for
approximately 64 per cent. of revenues, followed by sea cucumber at approximately 16 per cent..
Unaudited revenue for the 9 month period to 30 September 2014 for each of the Group’s principal
product categories were as follows:
Fish – approximately RMB 361.2m
Sea Cucumber– approximately RMB 90.2m
Cephalopods – approximately RMB 37.0m
Other – approximately RMB 77.5m
Compared to the corresponding period last year, revenue generated from fish and sea cucumber
increased by approximately 25 per cent. and 10 per cent. respectively. The proportion of revenue
contributed by cephalopods and others (including shellfish and shrimp) increased from
approximately 16 per cent. to 20 per cent. with the largest increase from others (gift boxes containing
seaweed, shrimp and shellfish products).
Unaudited gross margins were relatively stable across all product categories, achieving
approximately 31 per cent. in aggregate in the period.
12
Existing Directors, Proposed Directors and directors of the Subsidiaries
On Admission, the Board will comprise the two Existing Directors and four Proposed Directors whose
biographies are set out below. Further details are also set out in paragraph 7 of Part V of this Admission
Document. The Existing Directors and Proposed Directors will be responsible for the management
and operation of the Company.
33
Directors
Li Xianzhi aged 46, Chief Executive Officer
Mr. Li Xianzhi is the Chief Executive of the Group and is primarily responsible for Group’s overall
strategies, planning and business development. He has more than 20 year’s experience in the seafood
industry and founded Yantai Kanwa in 1999. He graduated in 1991 from the Yantai University of
International Business and Economics with a diploma majoring in International Trading.
Kim Huat (Sean) Lim aged 39, Chief Financial Officer and Company Secretary
Mr. Sean Lim is the Chief Financial Officer of the Group. He is a member of the Association of
Chartered Certified Accountants and Institute of Singapore Chartered Accountants. He has more than
15 years’ experience in areas of financial reporting, tax, corporate finance, treasury, risk management
and audit.
He joined the Group in July 2014 and is responsible for overseeing the Group’s accounting and
financial reporting functions, regulatory reporting as well as investor relations matters. Prior to joining
the Group, he was the Chief Financial Officer of VSIP Group.
Proposed Directors
Dr. Wang Shaodong aged 52, Non-Executive Chairman
Dr. Wang was the chief executive officer of Shenzhen Xinyong Fanglue Investment Management
Company Limited mainly responsible for identifying projects for private equity investments and
execution of merger and acquisition projects. Since May 2013, Dr. Wang has worked as the chief
executive officer for China Bright Stone Investment Management Group Limited which is a leading
investment company specialized in fund management, financial advisory and direct investment in
listed or non-listed companies in the PRC. From 1991 to 1994, Dr Wang worked as an associate
professor and professor in the Chongqing University of the PRC. From 2001 to 2004, Dr. Wang was
a doctorate supervisor (instructing professor) at Economics at Shandong University of the PRC. Dr.
Wang obtained his Bachelor of Science Degree from Wuhan University of Technology and Master of
Science Degree from Chongqing University in 1982 and 1987 respectively, and the Degree of Doctor
of Philosophy from Imperial College of Science, Technology and Medicine, University of London in
1995.
Dr. Wang is also an executive director of Synertone Communications Ltd, a company listed on the
Hong Kong Stock Exchange (Stock Code – HK1613).
John McLean OBE aged 61, Non-Executive Deputy Chairman
Mr. McLean is a non-executive director of the China Britain Business Council (CBBC) and is Chair of
VSO China. In addition, he is also a member of the VSO Federation Council. In 2007 he joined the
board of Humberts plc, the estate agent, and became its Executive Chairman to lead its rescue and
ultimate disposal. Prior to this, he carried out a strategic review for Gamma Holdings NV of their UK
interests, including Sanderson, the textile and wallpaper company, and as its UK group managing
director successfully implemented the turnaround and disposal plan. Sanderson was a global
company which was brand and design led and had operations in America, Asia and China. In the
nineties, he was Finance Director and then General Manager of ICS, the UK logistics and overnight
courier business and co-led a management buy-out of the company with 3i, prior to its successful
disposal to Hays plc. Mr. McLean qualified as a Chartered Accountant and was previously with
Coopers & Lybrand in both London and New York.
Mr. McLean is Chairman of China Food Company plc, a leading manufacturer and seller of soya
sauce in Northern China and is also Chairman of Sorbic International Plc, a major Chinese sorbate
producer and distributor.
34
Richard Sweet aged 54, Non-Executive Director
Mr. Sweet has over 25 years’ experience in the retail industry, primarily in the clothing sector. He
initially worked for Selfridges plc and then worked for over 20 years at Marks and Spencer plc up
until 2009, with 10 years in buying and merchandising, and with extensive experience of
procurement from China and the Far East. Mr. Sweet was Head of International Franchise for Marks
and Spencer and managed franchised stores across Europe, the Middle East and Asia. Mr. Sweet was
Managing Director of Marks and Spencer China, where he was responsible for leading the market
analysis and entry strategy for the group in China and this led him to live in Shanghai for 3 years.
Mr. Sweet was the Managing Director for the commercial arm of the UK charity Shelter where he was
responsible for their trading activities and manages over 120 stores in the UK. Mr. Sweet is currently
Commercial Director for the Museum of London based in the City.
Mr. Sweet is a non-executive director of AIM listed Camkids Group plc.
Mircle Yap Ching Chai aged 37, Non-Executive Director
Mr. Yap has over ten years’ experience in the finance industry, primarily in South East Asia as a
director and investment adviser. Mr Yap currently works as a strategic investment adviser for One
Capital Group Investment Ltd. (“One Capital”) where he is responsible for developing strategies and
implementing the organisation’s financial plans. Prior to working at One Capital, Mr. Yap was a
strategic investment adviser at Quarto Capital LLC from 2007 to 2011. He was an executive director
at Exalt Global Investment & Co. from 2004 to 2006.
Mr. Yap is also a non-executive director of AIM listed Camkids Group plc and JQW plc.
Senior Management
Feng Lei aged 41, Deputy General Manager
Mr. Feng has held senior sales positions in the seafood processing industry since 1998 and he has
been with the Group since February 2000. Mr. Feng is responsible for setting the Group’s marketing
strategy and negotiating contracts with the Group’s key distributors. Prior to joining the Group
Mr. Feng has worked with the Yantai branch of the Shandong Foreign Trade Organisation. Mr. Feng is
a director of Yantai Kanwa.
Subsidiaries
Hong Kong Han He
On Admission, all of the Existing Directors and Proposed Directors will be the directors of Hong Kong
Han He.
Yantai Kanwa
On Admission, Li Xianzhi, Sean Lim and Feng Lei will be the directors of Yantai Kanwa.
Zhenhaitang
On Admission, Li Xianzhi will be the sole director of Zhenhaitang. It is intended that following
Admission and the receipt of relevant approvals Kim Huat (Sean) Lim and Feng Lei will be appointed
as Directors of Zhenhaitang.
13
Employees
The Group has undergone significant expansion over recent years, with full time employee numbers
rising from 546 at 31 December 2011 to 725 as at 30 June 2014.
As can be seen from the table below, the majority of staff are employed in the production department.
Production work tends to be flexible in nature with many workers coming from outside of Yantai to
35
work in periods of high demand. The Existing Directors and Proposed Directors believe that the
Group has not had any historic difficulties in recruiting suitably skilled production staff.
There are two 8-hour shifts every day during day and night. The production department works 6 days
every week with production facilities closed on Thursdays.
Table 2 Number of employees as at 30 June 2014
Hong
Kong
Han He Zhenhaitang
Working
in both
companies
Total
Department
Management
Administrative Division
Finance Department
Procurement Department
Marketing Department
Quality Control Department
Logistics Department
R&D Department
Production Department (management)
Production Department (excl. management)
Power and Equipment Department
2
13
7
4
7
8
8
4
22
597
12
2
5
6
4
25
3
7
0
0
0
0
2
2
2
1
2
1
1
0
0
0
0
2
16
11
7
30
10
14
4
22
597
12
Total
684
52
11
725
The Existing Directors and Proposed Directors believe that the success of the Group will depend to
a high degree on the retention and future performance of management. The Existing Directors and
Proposed Directors also recognise the importance of ensuring high levels of employee welfare and
that all employees are well motivated and identify with the success of the Group.
Board of Directors
General Manager
Deputy General Manager
Finance
Department
Production
Division
Production
Department
Raw
Material
Warehouse
14
Ancilliary
Material
Warehouse
Packaging
Material
Warehouse
Quality
Control
Department
Production
Statistics
Engineering
Department
Marketing
Division
R&D
Department
Procurement
department
Sales
Department
Workshop
Domestic
Administration
Division
Administration
Department
Warehouse
Export
Security
Team
Rear
Service
Team
HR Team
Cleaning
Team
Restructuring
Prior to its application for Admission, the Group has undergone a number of restructuring activities.
The Company was incorporated in Jersey on 11 August 2014. On 26 August 2014, the Company
completed its subscription of 100,000 shares in Hong Kong Han He and on 2 September 2014 the
Company completed its purchase of 10,000 shares in Hong Kong Han He from Li Xianzhi. Following
36
such subscription and acquisition, the Company owns 100 per cent. of the issued share capital of
Hong Kong Han He.
On 16 September 2014, Yantai Kanwa completed its acquisition of 100 per cent. of the issued share
capital of Zhenhaitang and the aquisition was duly registered with the Yantai Administration for
Industry and Commerce.
15
Reasons for the Placing, Subscription and Admission
The Group’s business objective is to be the leading processed seafood supplier in the PRC. The Group
plans to achieve this through the following four strategies:
•
Expansion of production;
•
Increasing brand awareness;
•
Increasing distribution network in the PRC; and
•
Product innovation.
The Existing Directors and Proposed Directors believe that the Placing, Subscription and Admission
will assist in all of these key areas.
The Existing Directors and Proposed Directors intend to use the net proceeds of the Placing and
Subscription to expand Yantai Kanwa’s processing capabilities, through the purchase of machinery to
increase process automation as well as expanding into additional facilities to ensure that the Group
can meet the anticipated increase in production demand.
The Existing Directors and Proposed Directors also intend to increase sales through investment in
continued product innovation and further expanding its distributor network across the PRC. This will
also involve committing funds to assist the Company in expanding the “Zhenhaitang” chain of stores
in the PRC to exclusively sell its range of products.
The net proceeds of the Placing and Subscription are expected to be approximately £8.3 million and
in addition to the Company’s current net cash resources* are intended to be used as follows.
£
Use of funds
Expansion of production capacity through building (c.£5m – buildworks, c.£4.5m –
land use right and c.£2.5m for equipment) or purchasing an additional facility
Investment in equipment to increase automation
Investment in distribution network including funds to assist distributors
opening Zhenhaitang stores
Advertising and brand awareness
Total
12.0
2.3
2.3
2.0
18.6
* Net cash at 30 June 2014 of £13.4 million.
In addition to the above, the Existing Directors and Proposed Directors believe that Admission is an
important step in the development of the Group and that it will:
•
enable the Company to broaden its investor base and assist it in raising funds in the future;
•
create a tradable currency in the Company’s shares; and
•
raise the Group’s corporate profile because the Company’s shares are traded on AIM.
37
16
Future Strategy and Prospects
Enhance Brand Awareness and Strengthen Market Position
The Existing Directors and Proposed Directors believe that successful brand building is key to
continued business success. The Existing Directors and Proposed Directors believe that through
successful marketing and promotion strategies, the Group’s core brand “Zhenhaitang” has, in recent
years, achieved wider recognition and awareness in the marine foods and seafood industry in the
PRC. The Group plans to focus on advertising and promotion and will carry out further crosspromotion in its different product types. The Existing Directors and Proposed Directors believe that
this will facilitate further development for the core “Zhenhaitang” brand in the future.
The Existing Directors and Proposed Directors plan to enhance its brand image by adopting multichannel advertising strategies in addition to print media advertising and other traditional advertising
channels. The Existing Directors and Proposed Directors intend to increase advertising on prime-time
television on national and regional satellite television network and sponsor a number of popular
television programs and festivals. The Existing Directors and Proposed Directors also intend to utilise
video production on promoting the Group’s brands and products to strengthen advertising on the
internet. The Existing Directors and Proposed Directors believe this will help to reach out to younger
consumers. The Group together with its distributors intends to conduct regular in-store product
promotion activities in order to increase sales.
The Existing Directors and Proposed Directors plan to grow its participation in industry and trade
shows to promote the Group’s brand and increase product awareness in the PRC marine foods and
seafood industry, and also to attract new customers.
Broaden Distribution Network in the PRC and Strengthen Relationships with Distributors and Key
Customers
The Existing Directors and Proposed Directors believe that further expansion of the existing
distribution network is critical to expand the Group’s market share and coverage and to better grasp
the increasing spending power of end consumers. This is especially necessary in terms of smaller
cities benefited from the PRC continued economic development and urbanization. Therefore, the
Existing Directors and Proposed Directors intend to increase advertising and promotion activities in
these cities and extend the Group’s existing distribution network to other Chinese peripheral markets
with growth potential and appoint more regional distributors to sell its products to retailers. The
Existing Directors and Proposed Directors believe that improved market penetration will help the
Group to reach a wider end consumer base and contribute to future growth.
In addition, the Existing Directors and Proposed Directors intend to focus on regional market
expansion to facilitate higher demand growth for certain targeted regional markets. The Existing
Directors and Proposed Directors have already identified Western China as a key regional market and
will expand its distribution network and seek more key customers within this geographical region.
The Group will continue to work closely with its existing regional distributors to strengthen relations
and assist in the marketing of its products. The Existing Directors and Proposed Directors believe that
the increasing use of key account agents will help the Group to respond quickly to the needs of key
customers. The Existing Directors and Proposed Directors also plan to sell the Group’s products
directly to certain key end retailers in order to broaden distribution channels.
Product Innovation and Differentiation
The Existing Directors and Proposed Directors believe continuous product development to expand
and enhance product offerings is an important factor to expand market share. The Existing Directors
and Proposed Directors plan to invest and strengthen market-oriented product development activities
to continue to provide innovative products in order to stand out from competition and to meet
changing consumer preferences. For example, as consumers are increasingly health conscious on
38
marine foods consumption, the Existing Directors and Proposed Directors intend to focus product
development efforts on developing a series of seaweed based products.
The Existing Directors and Proposed Directors believe that in order to stay competitive in the PRC
marine and seafood foods industry the Group will need to expand its product range and adjust its
product mix in order to meet changing consumer tastes and preferences. For example, the Existing
Directors and Proposed Directors intend to further expand its product range and introduce a readyto-eat Fried Seafood range of products. The Group set up an additional production line in anticipation
of this new product series in June 2014.
The Existing Directors and Proposed Directors expect that a more comprehensive product portfolio
will increase the Group’s commercial attractiveness to customers, attract customers to purchase more
types of marine foods and seafood and help to reduce the impact of seasonal fluctuations in sales of
certain products. The Existing Directors and Proposed Directors believe that the Group’s strong
product development capabilities, coupled with a good brand reputation and extensive distribution
network provide a solid foundation for the launch of its new and innovative marine food products.
While the Group’s growth strategy is expected to increase expenses as a proportion of sales
(particularly advertising and market expenditure), the Group expects to secure increasing revenues
and to grow market share.
17
Details of the Placing
The Company is proposing to issue to Placees 5,792,081 Placing Shares in aggregate at 70 pence per
Placing Share pursuant to the Placing to raise £4.1 million before expenses. Applications have been
received by Placees in respect of all the Placing Shares.
The Placing, which has not been underwritten or guaranteed, is conditional on Admission. The
Placing Shares will rank, on issue, pari passu in all respects with the Existing Ordinary Shares
including the right to receive all dividends and distributions paid or made in respect of the Ordinary
Shares following Admission. The Placing Shares will be issued free from all liens, charges and
encumbrances. The Placing Shares will represent 5.1 per cent. of the Enlarged Share Capital.
For Placing Shares in uncertificated form, it is expected that the appropriate CREST accounts of
Placees will be credited on or around 8.00 a.m. on 3 February 2015. In the case of Placees requesting
Placing Shares in certificated form, it is expected that the certificates in respect of such Placing Shares
will be despatched by post within fourteen days of the date of Admission.
18
Details of the Subscription
The Company is proposing to issue to Subscribers 7,434,000 Subscriber Shares in aggregate at
70 pence per Subscription Share pursuant to the Subscription to raise £5.2 million. Applications have
been received by Subscribers in respect of all the Subscription Shares.
The Subscription which has not been underwritten or guaranteed is conditional on Admission and
will occur at the same time as the Placing. The Subscription Shares will rank, on issue, pari passu, in
all respects with the Existing Ordinary Shares including the right to receive all dividends and
distributions paid or made in respect of the Ordinary Shares following Admission. The Subscription
Shares will be issued free from all lines, charges and circumstances. The Subscription Shares will
represent 6.6 per cent. of the Enlarged Share Capital.
For Subscription Shares in uncertificated form, it is expected that the appropriate CREST accounts of
Subscribers will be credited on or around 8.00 a.m. on 3 February 2015. In the case of Subscribers
requesting Subscription Shares in certificated form, it is expected that the certificates in respect of
such Subscription Shares will be despatched by post within fourteen days of the date of Admission.
39
19
Corporate Governance and Internal Controls
The UK Corporate Governance Code, which was updated in September 2014 (with effect from
financial years commencing after 1 October 2014), applies only to companies on the Official List and
not to companies admitted to AIM. However, the Existing Directors and the Proposed Directors
recognise the importance of sound corporate governance and intend that the Company will observe
the requirements of the UK Corporate Governance Code and the QCA Guidelines to the extent they
consider appropriate in light of the Company’s size, stage of development and resources.
The Company will hold regular Board meetings throughout the year at which reports relating to the
Group’s operations, together with financial reports, will be considered. The Board is responsible for
formulating, approving and reviewing the Group’s strategy, budgets, major items of expenditure and
senior personnel appointments. Pursuant to the Articles (further details of which are set out in
paragraph 8 of Part V of this Admission Document), the non-executive director designated by
resolution of the Board as senior non-executive director shall have a second or casting vote at Board
meetings. On 27 January 2015, pursuant to a board resolution, John McLean was appointed Senior
Non-executive Director, with effect from Admission.
The Company will establish the following committees of the Board with formally delegated duties and
responsibilities:
Audit Committee
An audit committee will be established on Admission. The audit committee will comprise Richard
Sweet, Mircle Yap Ching Chai and will be chaired by John McLean.
The committee will receive and review reports from management and from the auditor relating to the
interim and annual accounts and to the system of internal financial control. The audit committee will
be responsible for making recommendations to the Board on the appointment of the auditor and for
approving the terms of engagement and remuneration of the auditor.
The audit committee will also review reports from management and the Company’s auditor on the
financial accounts and internal control systems used throughout the Group.
Remuneration Committee
A remuneration committee will be established on Admission. The remuneration committee will
comprise John McLean, Dr. Wang Shaodong, Mircle Yap Ching Chai and will be chaired by Richard
Sweet. The role of the remuneration committee will be to determine and agree with the Board the
framework or broad policy for the remuneration of the Directors and such other members of the
executive management of the Group as the remuneration committee considers appropriate. This will
be done within the terms of the agreed policy, and in consultation with the Chairman as appropriate,
to determine the total individual remuneration package of each executive director and other senior
executives including bonuses, incentive payments and share options or other share awards, in all
cases with due regard to the interests of Shareholders.
The remuneration committee will also be responsible for reviewing the design of all share incentive
plans for approval by the Board and, if required, Shareholders. For any such plans, the remuneration
committee will determine each year whether awards will be made, and if so, the overall amount of
such awards, the individual awards to executive directors and other senior executives and the
performance targets to be used. In determining such remuneration packages and arrangements, due
regard will be given to any relevant legal requirements, the provisions and recommendations in the
AIM Rules and the QCA Guidelines.
Nomination Committee
A nomination committee will be established on Admission. The nomination committee will comprise
John McLean, Richard Sweet, Mircle Yap Ching Chai and will be chaired by Dr. Wang Shaodong. The
40
role of the nomination committee will be to assist the Board in discharging its responsibilities relating
to the composition and make-up of the Board. The nomination committee will be responsible for
evaluating the balance of skills, knowledge and experience of the Board, the size, structure and
composition of the Board, retirements and appointments of additional and replacement directors and
making appropriate recommendations to the Board on such matters.
AIM Compliance Committee
An AIM compliance committee will be established on Admission. The AIM compliance committee
will comprise Dr. Wang Shaodong, Mircle Yap Ching Chai, Li Xianzhi, Kim Huat (Sean) Lim and will
be chaired by John McLean. The role of the AIM compliance committee will be to ensure that the
Company has in place sufficient procedures, resources and controls to enable it to comply with the
AIM Rules for Companies. It is intended that the AIM compliance committee will make
recommendations to the Board and proactively liaise with the Company’s nominated adviser on
compliance with the AIM Rules for Companies. The AIM compliance committee will also monitor the
Company’s procedures to approve any share dealings by directors or employees in accordance with
the Company’s share dealing policy and ensure such dealings are notified to the Company’s
nominated advisor in accordance with the AIM Rules for Companies.
20
Related Parties
Further information on related party transactions is contained in Note 22 of Part III(D) of this
Admission Document.
21
Relationship Agreement
The Company, Li Xianzhi, Oceanic Expert (a company wholly owned by Li Xianzhi) and SP Angel
have entered into a relationship agreement dated 28 January 2015 that will take effect on Admission.
The principal purpose of the Relationship Agreement is to ensure that the Company is capable at all
times to operate independently of Li Xianzhi and Oceanic Expert. The Relationship Agreement will
remain in force for so long as the Controlling Shareholders beneficially hold 25 per cent. or more of
the equity share capital of the Company and the Ordinary Shares are admitted to trading on AIM or
the Main Market of the London Stock Exchange. Further details of the Relationship Agreement is set
out at paragraph 10.6 of Part V of this Admission Document.
22
Lock-in and Orderly Marketing Agreement
Each of the Locked in Parties, which together will hold 88,700,000 Ordinary Shares on Admission
(representing 78.3 per cent. of the Enlarged Share Capital) has undertaken to the Company and SP
Angel that it will not dispose of any of its interests in Ordinary Shares for a period of 18 months
following Admission. Each of the Locked in Parties further generally undertakes to SP Angel and the
Company that they will not dispose of any interest in Ordinary Shares save for the same be made in
accordance to the restrictions contained in the Lock-in and Orderly Market Agreement, full details of
which are set out in paragraph 10.7 of Part V of this Admission Document.
23
Share Dealing Code
The Company has adopted a share dealing code for its Directors and certain employees under the
same terms as the Model Code on Directors Dealings in Securities, published from time to time by
the UK Listing Authority. The Existing Directors and the Proposed Directors will comply with Rule 21
of the AIM Rules relating to directors’ dealings and will take all reasonable steps to ensure
compliance with that rule by the Company’s “applicable employees” (as defined in the AIM Rules for
Companies).
41
24
SP Angel Warrants
The Company has issued or has committed to issue the SP Angel Warrants amounting to 50,000
Ordinary Shares. The SP Angel Warrants are capable of being issued immediately upon Admission for
a period of five years.
Further details of the SP Angel Warrants are set out in paragraph 10.8 of Part V of this Admission
Document.
25
Admission to AIM
Application will be made to the London Stock Exchange for the Enlarged Share Capital to be admitted
to trading on AIM. Admission of the Ordinary Shares is expected to take place at 8.00 a.m. on
3 February 2015.
26
Dividend Policy
The Board recognises the importance of a regular dividend to Shareholders and the Company
proposes to pay a dividend representing a 2 per cent. annual yield based on the Placing Price in
support of its objective to maximise returns for Shareholders. The first dividend is expected to be
proposed for the year ending 31 December 2015 and the Company expects to propose an interim
dividend during that year. No dividend is expected to be proposed for the year ending 31 December
2014. The Board seeks to pay a progressive dividend. The Board will evaluate its dividend policy over
time. The payment by the Company of any dividends in the future and the amount thereof will depend
on the performance of the Group, its financial position, cash requirements, prospects and other
factors deemed by the Board to be relevant at the time.
The projected dividends set out are targets only and not profit forecasts. There can be no assurance
that these targets can or will be met and they should not be seen as an indication of the Company’s
expected or actual results or returns. Accordingly investors should not place any reliance on these
targets in deciding whether to invest in the Company nor assume that the Company will make any
distributions at all.
27
Settlement and CREST
The Articles permit the Company to issue shares in uncertificated form. CREST is a paperless
settlement system enabling securities to be evidenced other than by certificate and transferred other
than by written instrument in accordance with the CREST regulations. Application has been made for
the Ordinary Shares to be admitted to CREST.
28
Companies Law
28.1 Pre-emption on shares
As set out at paragraph 8.7 of Part V of this Admission Document, Companies Law does not grant
Shareholders the benefit of pre-emption rights in relation to the proposed allotment of new shares in
a company unless otherwise explicitly included in that company’s articles of association. The
Company has therefore voluntarily adopted pre-emption provisions in the Articles which are intended
to replicate those set out in the Act, details of which are set out in the summary of the Articles in
paragraph 8.2 of Part V of this Admission Document.
28.2 Allotment of shares
Jersey companies still have the concept of ‘authorised share capital’. The authorised share capital of
the Company is set out in the Memorandum and is an unlimited number of shares. The directors have
the power to allot shares up to the authorised share capital of the Company by virtue of the
Memorandum and Articles. Additional shareholder approval to allot shares is not required for a Jersey
company but the Company has voluntarily adopted allotment provisions in the Articles, details of
42
which are set out in the summary of the Articles in paragraph 8.2 of Part V of this Admission
Document.
28.3 Dividends
Under Companies Law, a Jersey company no longer needs to have distributable reserves to make a
distribution. Where a payment is to be made to a Shareholder, Companies Law sets out a solvency
test that must be applied. The directors who approve the distribution must satisfy themselves that
making it will not leave the Company unable to pay its debts and that the Company will continue to
be able to meet its liabilities for a year after making the distribution. Provided that the Directors can
make the statement as to solvency, the Company may make the payment from almost any account of
the company, other than the nominal capital account or a capital redemption reserve. Apart from the
statement of solvency, Companies Law does not otherwise set out detailed corporate procedures or
mechanisms for making these payments. The Articles allow for distributions to be made by the
Company as set out in Companies Law, as set out at paragraph 8.18 of Part V of this Admission
Document.
28.4 Directors
There is no prescribed method of removing directors under Companies Law, so the way directors are
removed is set out in the Articles. Please see paragraph 8.16 of Part V of this Admission Document
for a summary of the appointment, removal and retirement provisions in the Articles.
28.5 Secretary
The Company must have a secretary and such secretary must have certain prescribed qualifications,
as set out in Companies Law.
28.6 Resolutions
Special resolutions of the Company are required for a number of purposes including inter alia altering
the Memorandum and Articles, changing the company name or varying class rights. In order to be
effective, a special resolution must be passed by a majority of not less than two thirds of votes cast,
unless the Articles expressly state a higher majority in which case that higher majority will be
required. The Company has adopted a 75 per cent. threshold for special resolutions. Except for the
removal of an auditor, anything which may be done at a meeting may also be done in writing,
provided each member who would have been entitled to attend and vote at such meeting signs the
written resolution. Written resolutions can be passed in any number of counterparts for this purpose.
28.7 Financial Assistance
The historical prohibition on a Jersey company providing financial assistance in connection with the
acquisition of its shares has been abolished and, accordingly, a company can now provide financial
assistance in the acquisition of its shares (although, if such assistance amounts to a distribution of
assets or a reduction in capital, it may need to be sanctioned as a distribution in accordance with the
requirements of the Articles and Companies Law).
28.8 Security Register
The Security Interests (Jersey) Law 2012, as amended (the “Security Law”) introduced a register of
certain security interests (the “Security Register”) in Jersey. However a search of the Security Register
may not reveal all security interests which have been granted by a person, because, for example: (1)
some security interests can be established by establishing such possession or control; (2) the Security
Law does not apply to real property or tangible movable property situated in Jersey and the Security
Register will not necessarily reveal any security granted by a Jersey person over foreign property; (3)
there is no need to register any security interest created under the law which the Security Law has
43
replaced (being the Security Interests (Jersey) Law 1983, as amended), therefore, a search of the
Security Register may not reveal any subsisting security created pursuant to this previous law.
29
The Bribery Act
The government of the United Kingdom has issued guidelines setting out appropriate procedures for
companies to follow to ensure that they are compliant with the UK Bribery Act 2010. The Company
has drafted and implemented an anti-bribery policy that has been adopted by the Board. The
Company is also implementing appropriate procedures to prevent bribery, including arranging
training for the Existing Directors and the Proposed Directors and employees in order to comply with
the legislation.
30
The City Code
The Company is incorporated in Jersey, Channel Islands, and application will be made for the
Enlarged Share Capital to be admitted to trading on AIM. The City Code applies to all companies who
have their registered office in the UK, Channel Islands or Isle of Man and whose securities are traded
on a regulated market in the UK or a stock exchange in the Channel Islands or Isle of Man or a
multilateral trading facility. Accordingly, the City Code applies to the Company.
Under Rule 9 of the City Code, any person who acquires an interest in shares (as defined in the City
Code), whether by a series of transactions over a period of time or not, which (taken together with
any interest in shares held or acquired by persons acting in concert with him) in aggregate, carry 30
per cent. or more of the voting rights of a company which is subject to the City Code, is normally
required by the Panel to make a general offer to all of the remaining shareholders to acquire their
shares.
Similarly, when any person, together with persons acting in concert with him, is interested in shares
which in aggregate carry not less than 30 per cent. of the voting rights of such a company but does
not hold shares carrying more than 50 per cent. of such voting rights, a general offer will normally
be required if any further interests in shares are acquired by any such person.
An offer under Rule 9 must be in cash or be accompanied by a cash alternative and at the highest
price paid by the person required to make the offer, or any person acting in concert with him, for any
interest in shares of the company during the 12 months prior to the announcement of the offer.
Under the City Code, a concert party arises where persons who, pursuant to an agreement or
understanding (whether formal or informal), co-operate to obtain or consolidate control (as defined
below) of a company or to frustrate the successful outcome of an offer for a company. Control means
holding, or aggregate holdings, of shares carrying 30 per cent. or more of the voting rights of the
company, irrespective of whether the holding or holdings give de facto control.
31
Disclosure Rules and Transparency Rules
Following Admission, the Company will be required to comply with Rule 17 of the AIM Rules for
Companies.
The Companies Law does not require directors of a Jersey company to disclose to the company their
beneficial ownership of any shares in the company (although they must disclose to the company the
nature and extent of any direct or indirect interest which conflicts with, or may conflict with, a
transaction into which the company or any of its subsidiaries has entered or is proposing to enter).
Similarly, Companies Law does not grant the Directors of a Jersey company a statutory power to
request information concerning the beneficial ownership of shares. However, provisions have been
incorporated into the Articles, so as to enable the directors to request information in order to comply
with their obligations under the AIM Rules for Companies, which require directors and other persons
discharging managerial responsibilities to disclose certain transactions involving shares, as well as
44
requiring significant Shareholders to disclose to the Company their beneficial ownership of shares in
the Company.
Further details of these notification and disclosure requirements, including those for Shareholders
under DTR 5, are summarised in paragraph 8.12 of Part V of this Admission Document. Shareholders
should consider their notification and disclosure obligations carefully as a failure to make a
disclosure to the Company may result in disenfranchisement.
32
Taxation
General information regarding UK taxation and Jersey taxation is set out in Paragraph 23 Part V of this
Admission Document. These details are intended only as a general guide to the current tax position
under UK law and Jersey taxation law. If an investor is in any doubt as to his tax position he should
consult his own independent financial adviser. Investors subject to tax in other jurisdictions are
strongly urged to contact their tax advisers about the tax consequences of holding Ordinary Shares.
Further Information
The attention of investors is drawn to the information contained in Parts II to V of this Admission
Document which provides additional information on the Group and the Company, and in particular
Part II which sets out certain risk factors relating to the Group and the Company.
45
PART II
RISK FACTORS
An investment in the Ordinary Shares of the Company involves a high degree of risk. Prospective
investors should carefully consider all of the information in this Admission Document, including but
not limited to the following general and business specific risk factors, before deciding whether to
invest in the Company. The risk factors set out below do not necessarily form an exhaustive list of
risks that may be faced by the Company and are not set out in any particular order of priority.
Potential investors should also consider additional risk factors relevant to their particular
circumstances.
If any of the events described in the following risk factors actually occur, the Company’s business,
financial conditions, results or future operations could be adversely affected. In such a case, the
price of Ordinary Shares could decline and investors may lose all or part of their investment.
Additional risks and uncertainties not presently known to the Existing Directors and the Proposed
Directors, or which the Existing Directors and the Proposed Directors currently deem immaterial,
may also have an adverse effect upon the Company.
Risks relating to the business and operations of the Group
The Group relies on key executives and personnel
The success of the Group will depend largely upon the continued contribution of its key executive Li
Xianzhi and other senior management. The loss of one or more of the Existing Directors and Proposed
Directors could have an adverse effect on the business, financial condition and results of operations
of the Group. The Group’s future success will also depend, inter alia, on its future directors and local
management. The recruitment of suitable skilled directors and local management and retention of
their services cannot be guaranteed. The loss of Li Xianzhi’s services or those of any other of the
Group’s key personnel may disrupt operations, harm the Group’s business and/or have a material
adverse effect on the Group’s financial results. The Group may find it difficult to replace them or to
retrain appropriate personnel at all or in a timely manner. The Group may also incur significant
additional costs in recruiting and retaining suitable replacements.
There is no assurance that the Group’s growth strategies will be successful
The Group’s growth strategies include expanding production capacity, developing new products,
strengthening relationships with existing suppliers and customers, increasing advertising spending
and extending its distribution into further regions in Western and other regions of the PRC. If the
Group fails to successfully execute and manage these growth strategies, the prospects of the Group
could be materially and adversely affected.
Health and Safety regulation
Goods supplied in to the PRC are required to comply with various health and safety standards. Any
breach or non-compliance by the Group with the laws and regulations, in particular the laws and
regulations relating to food quality and safety, which the Group is subject to, may lead to the
termination, withdrawal or suspension of some or all the business activities or fines or other penalties
being imposed on the Group.
The Group’s products are subject to regular quality inspections carried out by the Authority For EntryExit Inspection & Quarantine of the PRC (“CIQ”) and the Administration of Quality Supervision,
Inspection and Quarantine of the PRC (“AQSIQ”). These inspections cover food preparation,
production and processing operations, as well as health checks of the employees. If the Group fails
to meet the required health and hygiene standards set forth by the CIQ and the AQSIQ, it may be
required to take remedial measures to meet these standards. In extreme cases, it may have its
46
license(s) or accreditation(s) for conducting its business cancelled or revoked, which would have a
material adverse effect on its business, financial condition and results of operations. In addition, the
CIQ periodically inspects the products that the Group exports. Any failure to meet the required
standards of hygiene may also affect the ability to export its products and meet customer deadlines.
Further, it may lead to restrictions on the ability to export the products, which would also materially
adversely affect it business, financial condition and results of operations.
Exported goods are required to comply with international standards and the standards of the countries
the goods are exported to. The international standards are in reference to the ones provided by the
Shandong Province Bureau of Aquatic Products Export Inspection Epidemic Diseases
(山东检验疫局出口水产品安全风险监控计划) and Implementation Program of 2014 by Yantai Bureau
of Aquatic Products Export Inspection Epidemic Diseases Aquatic Products Export
(烟台检验疫局２０１４年出口水产品实施方案). Should the Group cease to continue to comply with
relevant standards and regulations the Group may no longer be able to export its products with a
consequent fall in turnover and profitability.
The Group relies on key customers
The Group is dependent upon a relatively small number of key customers, five of which accounted
for approximately 33.8 per cent. of total revenue in FY 2013. The loss of one or more of these key
customers, may have a material adverse effect on the Group’s revenues.
The Group relies on the retention of key business relationships
The Group has established strong relationships with various parties including distributors, processing
partners and suppliers during its development. The loss of one or more of these key business
relationships may have a material adverse effect on the Group’s revenues.
The Group relies on third party distributors for access to consumer markets
The Group does not generally maintain direct relationships with end customers and utilises a model
whereby third party distributors sell its products to end customers. Though the Group will typically
ask for exclusivity, the distributors used by the Group may offer competing products to those
produced by the Group. Should the Group’s distributors fail to sell the Group’s products in sufficient
quantity the Group’s results may be adversely effected.
The Group may not be able to secure long term land use rights over any additional land necessary
to effect the Group’s expansion plans which may have an adverse effect on the Group’s operations
and financial performance
The Group intends to expand its operations through the acquisition of additional land use rights
and/or existing production facilities. The failure to acquire such land use rights or delay in
construction or facilities may constrain the Group’s ability to grow its production in line with the
Group’s growth strategy.
The Group may not be able to obtain or maintain relevant business licenses
Any delay, suspension or cancellation in obtaining or maintaining relevant business licenses may
interrupt the Group’s production or planned production expansion and may have a material adverse
effect on the Group’s revenues.
The Group may not be able to achieve its planned increase in production capacity in a timely
manner or at all
The Group plans to expand its seafood processing capacity. The costs and time involved in the
expansion of the production capacity may be affected by, among other matters, the shortage in supply
and/or changes in the prices of equipment or materials, and the sufficiency of capital (including the
net proceeds of the Placing and Subscription) for the proposed construction or acquisition of
47
production facilities. If the Group’s plans for expanding new production capacity experience delays
or even cancellations due to any of the above reasons, or the production capacity of any of the new
production facilities fails to reach the originally designed levels, or the costs involved in the
construction of any of the new production facilities substantially exceed the Group’s original plans,
the Group may not be able to attain the desired production capacity in a timely manner or at all,
which may adversely affect the Group’s ability to grow its revenues in the manner it currently
anticipates, which in turn may have adverse consequences for the Group’s business operations and
operating results.
The Group has only short term supply contracts with its key suppliers, and may be unable to secure
a sufficient supply of raw materials in the future
The Group relies on a number of key suppliers in respect of its principal raw materials. These
contracts are typically short term in nature and do not provide for the long term supply of key raw
materials, including for the Group’s principal fish and sea cucumber products. While the Existing
Directors and Proposed Directors believe that the Group will continue to secure sufficient raw
material for its production needs, any failure to do so could adversely affect the Group’s operations
and results.
A number of the Group’s principal raw materials are subject to fishing quota regulations in certain
jurisdictions. Significant changes to these regulations in one or more jurisdictions, including but not
limited to reductions in the size of the quotas, or extension of the restrictions to previously
unregulated species, may reduce the available supply of raw materials to the Group and or affect the
price of such materials, either of which may adversely affect the Group’s operations.
The Group only has short term contracts with outsourced providers of cold storage
The Group currently utilises outsourced cold storage services in order to store its raw materials and
finished goods. The contracts that the Group has with its cold storage providers are short term in
nature and do not provide for the long term provision of cold storage space. Should the Group’s
contracts with its cold storage suppliers lapse or otherwise be terminated and the Group is unable to
replace the lost cold storage capacity the Group’s operations and operating results may be adversely
effected.
Tariffs and duties on importing raw materials
All raw materials imported by the Company into the PRC from their suppliers abroad are subject to
the imposition of an import tariff or duties in accordance with the annual tariff schedule produced by
Yantai Customs of the People’s Republic of China which is currently around 10 per cent. (this varies
depending on the type of raw material). Historically the annual tariffs levied by Yantai Customs of the
People’s Republic of China have not been stable. Any increase in the applicable import tariff or duties
on the Company’s raw materials imposed by Yantai Customs of the People’s Republic of China may
result in a fall in the Company’s turnover and profitability.
Volatility of prices
The prices of raw materials used by the Group are dependent on a number of variables, including,
inter alia, origin, supply and demand of raw seafood. As a result, prices can vary from month to
month, although historically the Group has benefitted from relatively stable raw material costs. The
Group does not enter into fixed contracts for supply but instead orders raw materials subject to
production requirements and the price at which it can acquire them. When the prices of raw materials
rise, the Group passes on the increased costs as far as possible to its customers. However, increased
prices of raw materials cannot always be fully recovered and, subsequently, this can have an adverse
effect on achievable margins.
48
The Group relies on third party processors to carry out certain seafood processing operations
The Group outsources various processing activities to trusted partners. This can be due to capacity
constraints or where specialist equipment is required, for example the drying of sea cucumbers. The
failure of any partner to carry out processing work in accordance with the Group’s quantity or quality
requirements may adversely affect the Group’s reputation with its customers, business operations and
operating results.
Public health issues
The PRC has been affected by a number of public health concerns in recent years. Public health
concerns which may arise in relation to any of the Group’s principal product categories (whether or
not specifically in relation to any products produced by the Group) may adversely impact demand
for the Group’s products and could adversely affect the Group’s operations and results.
Consumer demand for seafood products and “ready to eat” products
The Group’s business operations depend on continued demand by consumers, principally in the PRC,
for seafood products and the Group’s expansion plans are based on further growth in consumer
demand for both traditional and “ready to eat” seafood products. Should consumer demand for the
Group’s products not continue or grow as the Directors expect, this could adversely affect the Group’s
operations and results.
Consumer acceptance of processed frozen seafood
The Group’s expansion plans are based to some extent on the continued adoption by Chinese
consumers of processed and frozen seafood. Should consumer acceptance of the Group’s products
not develop as the Company expects, this could adversely affect the Group’s operations and results.
Competition risk
While the seafood market in which the Group operates is fragmented, there are certain larger
competitors who may benefit from enhanced financial resources, brand awareness, scale advantages
or other such factors that cause them to take market share from the Group.
The Company and the Group may not have sufficient insurance cover for all or part of its operations
The Existing Directors and the Proposed Directors maintain insurance against losses and liabilities
resulting from fire or damage to buildings and contents, however it may not be possible to insure
against all possible operational risks, or the cost of such insurance may be prohibitive relative to the
perceived risks identified. Thus, no assurance can be given that the Company will be able to obtain
adequate insurance cover and losses may occur for uninsurable or uninsured risks or in amounts in
excess of the existing insurance. The occurrence of an event which is not insured or not fully insured
may have a material adverse impact on the activities and profitability of the Company. In addition,
some forms of insurance protection used in western countries, including but not limited to business
interruption insurance, may be unavailable in the PRC. Furthermore, projects in which the Group
may invest may become subject to liability for hazards that cannot be insured against or against
which the Group may elect not to be insured because of high premium costs. The Group may incur
liability to third parties (in excess of any insurance cover) arising from product liability or other
damage or injury which may have a material adverse effect on the Group’s financial condition.
Environmental regulation
The Group’s operations are subject to environmental and safety regulation in the PRC. Such
regulation covers a wide variety of matters, including, without limitation, prevention of waste,
pollution and protection of the environment, labour regulations and worker safety. The Existing
Directors and the Proposed Directors cannot guarantee that the Group will at all times be in
compliance with such laws, regulations and permits, or that it has previously complied with the same.
49
If the Group violates or fails to comply with the requirements, the Group could be fined or otherwise
sanctioned by regulators. Environmental legislation and permit regimes are likely to evolve in a
manner which will require stricter standards and enforcement, increased fines and penalties for noncompliance, more stringent environmental assessments of proposed projects and an elevated degree
of responsibility for companies and their directors and employees. The need to comply with any such
stricter requirements is likely to result in increased costs for the Group, which could in turn have a
material adverse effect on the financial results of the Group.
Social insurance and housing provident contributions
Under PRC national laws and regulations, companies incorporated in the PRC are required to make
mandatory contributions to a number of social insurance schemes, such as pension insurance, for
their employees who are eligible for such benefits. Failure to comply with the requirements may
subject the Group to sanctions and liabilities that could adversely affect the Group’s operations and
results.
Oceanic Expert has significant control over the Company’s management and affairs. Its interests
may differ from those of other Shareholders
As at the date of Admission, Oceanic Expert is expected to own approximately 45.0 per cent. of the
Enlarged Share Capital. This means that Oceanic Expert has the power to exercise significant
influence over all matters requiring shareholder approval, including the election and removal of
Directors, amendments to the Articles, approval of dividends and share buy-backs, compromises and
schemes of arrangement under the Companies Law. This could have the effect of preventing the
Company from entering into transactions that could be beneficial to it or its other Shareholders. Any
significant changes in Oceanic Expert’s shareholding through sale or other disposition, or significant
acquisitions by others, of the Ordinary Shares in the public market or by way of private transactions,
could result in changes in business focus or practices that may affect the profitability of the Group’s
business. This risk is mitigated to an extent by way of the Relationship Agreement described in
paragraph 10.6 of Part V of this Admission Document.
The reputation of brands used by the Group may be impaired
The Group’s seafood products, if not produced for OEMs, are branded as either “Zhenhaitang” or
“Kanwa Foodstuffs”. The standing and reputation of these brands is a key factor determining the
success of its products. Events may occur in the future that reduce the standing or reputation of the
brands presently used by the Group or other brands that it may use in the future. This could adversely
impact the business, development, financial condition, results of operations, prospects, profits and
cash flows of the Group.
Dependence on licences, registrations, certifications and accreditations
The Group depends on certain licences, registrations, certifications and accreditations. The Existing
Directors and Proposed Directors believe that all relevant applications have been successfully made
or such applications are in progress. Should any relevant application fail to be approved, be
suspended or fail to be renewed, the operations of the Group could be adversely affected.
Financial dependence on Subsidiaries
The Company is financially dependent on receiving distributions from its Subsidiaries. Were the
Company not to receive sufficient distributions from its Subsidiaries it may be materially adversely
affected in particular in relation to its ability to pay dividends to Shareholders in accordance with its
proposed dividend policy.
50
Certain operating risks are beyond the Group’s control and may have an adverse effect on the
Group’s business operation and financial performance
The Group is subject to a range of operating risks to which all food processors are exposed, including
industrial accidents, technical failures, labour disputes, supply issues and food contamination, all of
which may include factors that are beyond the Group’s control. In addition the Group may be subject
to shortages of power supply and has no back up generating capacity. Any prolonged disruption to
the power supply may have an adverse effect on the Group in particular, in relation to the cold storage
of all its raw materials and products. Although the Group carries insurance for certain of these risks,
the occurrence of incidents such as those referred to above may lead to interruptions to the Group’s
business and an adverse effect on its financial results.
Risks generally associated with emerging markets
The Group’s operations are currently only in the PRC. The PRC has a long history of a planned
economy and is subject to five-year plans formulated by the PRC Government. In recent years, the
PRC Government has introduced economic reforms aimed at transforming its economy from a
planned economy into a market economy with socialist characteristics. These economic reforms
allow greater use of market forces in the allocation of resources and greater autonomy for enterprises
in their operations. However, many rules and regulations implemented by the PRC Government are
still in the early stages of development, and further refinements and amendments are necessary to
enable the economic system to develop into a more sophisticated form. It is unclear how future
economic reforms and macroeconomic measures to be adopted by the PRC Government will affect
the economic development of the PRC. Further, there can be no assurance that such measures will
be applied consistently and effectively or that the Group will benefit from or will be able to capitalise
on such reforms. Indeed, the business of the Group may be adversely affected by any such reform.
PRC Ordinance 10
On 8 August 2006, six PRC regulatory agencies, including the CSRC and MOFCOM issued the Rules
on Merger and Acquisition of Domestic Enterprises by Foreign Investors (“Ordinance 10”) which
became effective on 8 September 2006 and was amended on 22 June 2009. Ordinance 10, amongst
other things, has a number or provisions that purport to require that an offshore special purpose
vehicle (“SPV”) formed for listing purposes and controlled directly or indirectly by PRC companies or
individuals shall obtain the approval of the CSRC prior to the listing and trading of such SPV’s
securities on an overseas stock exchange. In addition to the provisions relating to foreign indirect
listings, the M&A Provisions also stipulate that a domestic natural person or legal person must obtain
approval from MOFCOM before acquiring an affiliated domestic company (non-foreign-invested
company) via a foreign company established or controlled by such domestic natural or legal person.
The Company’s PRC lawyers have advised that it is not necessary for the Company to obtain CSRC’s
approval and MOFCOM’s approval under Ordinance 10 for its Admission on the basis that Ordinance
10 is not applicable to the Company, since Yantai Kanwa was incorporated as a WFOE on
15 November 1999 before the effective date of Ordinance 10, which became effective on
8 September 2006. Therefore the acquisition of 100 per cent. equity of Yantai Kanwa by HK Han He
and the acquisition of 100 per cent. equity of Zhenhaitang by Yantai Kanwa does not constitute an
“affiliated acquisition” under Ordinance 10, and in addition the acquirers both paid for the
consideration by way of cash, not by equity. Notwithstanding the above, the implementation of
Ordinance 10 is not well tested in practice and given the uncertainties regarding the interpretation
and application of the current or future PRC law, there is no assurance that the above understanding
of the regulation is consistent with those of the PRC central authorities. Furthermore, there is no
assurance that MOFCOM may not change, amend, or replace Ordinance 10 in the immediate future
or in the longer term with or without retroactive effect.
51
The Group may not be able to raise capital in the future to fund its expansion plans
The Group plans to expand its production capacity and increase sales. The Existing Directors and
Proposed Directors intend to finance these expansion plans in the short term from the net proceeds
of the Placing and Subscription. However, the Group may require additional capital in the future for
further expansion and/or business development, whether from equity or debt sources. There can be
no guarantee that the necessary funds will be available on a timely basis, on favourable terms, or at
all, or that such funds, if raised, would be sufficient. If additional funds are raised by issuing equity
securities, dilution to the then existing Shareholders may result. The level and timing of future
expenditure will depend on a number of factors, many of which are outside of the Group’s control.
If the Group is not able to obtain additional capital on acceptable terms, or at all, it may be forced
to curtail or abandon such planned expansion and/or business development.
Tax risks
Tax laws and regulations in the PRC, Hong Kong and Jersey are under constant development and
often subject to change as a result of changing government policy. Such changes may occur without
sufficient warning. Implementation of various taxes may affect consumption in certain product
sectors. There is a risk that changes in tax policy and regulations may adversely affect the demand for
certain products or services of the Group.
Any change in the Group’s tax status or the tax applicable to a holding of Ordinary Shares or in
taxation legislation or its interpretation, could affect the value of the investments held by the Group,
the Group’s ability to provide returns to Shareholders and/or alter the post-tax returns to Shareholders.
It should be noted that the information contained in paragraph 23 in Part V of this Admission
Document relating to the taxation of the Group and its investors is based upon current tax law and
practice which is subject to legislative change.
Economic, political, judicial, administrative, taxation or other regulatory issues
The PRC has been undergoing a series of political reforms since 1978. The Existing Directors and the
Proposed Directors expect that such reforms will continue. Such reforms have in the past resulted in
significant economic growth and social progress. However, there can be no assurance that any future
reform policy of the Chinese Government will be effective. The Group’s business may be affected by
such future reforms. Since 1979, many laws and regulations dealing with economic matters with
respect to general and foreign investments have been promulgated in the PRC. In 1982, The Chinese
National People’s Congress amended the constitution to attract foreign investments and to safeguard
the “lawful rights and interests” of foreign investors in the PRC. Since then, the trend of legislation
has been to enhance the protection afforded to foreign investors and to allow more active control by
foreign investors. However, despite significant improvements in its legal system, there still exist
difficulties in obtaining swift and equitable judgements and in obtaining enforcement of judgements
in the PRC by a court of another jurisdiction. Further, as a result of political changes, the
interpretation of statutes and regulations may be subject to government policies (including taxation
policy). Such uncertainties may affect the Group’s operations and accordingly, its profitability.
Judicial, administrative and regulatory issues
The PRC legal system is a civil law system based on written statutes. Unlike common law systems, it
is a system in which decided legal cases have little precedential value. The PRC legal system is
relatively new, and the Chinese Government is still in the process of developing a comprehensive
system of laws.
The overall effect of legislation over the past 25 years has significantly enhanced the protections
afforded to various forms of foreign investment in the PRC. However, foreign investors may be
adversely affected by new laws, frequent changes to existing laws (or interpretations thereof) and preemption of provincial or local regulations by national laws or regulations. Moreover, the
administrative and judicial interpretation, implementation and resolution of commercial disputes may
52
be subject to the exercise of considerable discretion by both administrative and judicial bodies and
may be influenced by external forces unrelated to the legal merits of a particular matter or dispute.
At present, the PRC does not have treaties providing for the reciprocal recognition and enforcement
of judgments with major economies such as the USA, the UK and Japan. Therefore, it would be
difficult for the Company to enforce in the PRC any judgments it obtained in a foreign court. These
uncertainties could limit the legal protections available to the Group and foreign investors in the PRC.
In addition, it is difficult to predict the effect of future developments in the PRC legal system,
including the promulgation of new laws, changes to existing laws or the interpretation or enforcement
thereof, or the pre-emption of local regulations by national laws. Even where adequate laws exist and
contractual terms are clearly stated, there can be no assurance of swift and equitable enforcement of
rights.
The PRC has adopted a broad range of laws, administrative rules and regulations that govern the
conduct and operations of companies in the PRC which receive capital from foreign investors (known
as foreign investment enterprises (“FIEs”)). These laws, rules and regulations provide some incentives
to encourage the flow of investment into the PRC but they also subject FIEs to a set of restrictions that
may not always apply to domestic companies in the PRC. For example, FIEs are prohibited from
participating in certain industries. While the PRC has committed to loosening the restrictions on
foreign investors in many industries after its entry into the World Trade Organisation, many investment
restrictions may still place the PRC subsidiaries of the Company at a disadvantage in relation to PRC
domestic companies and may adversely affect the Group’s competitive position.
Further, as a result of political changes, the interpretations of statutes and regulations may be subject
to government policies. Such uncertainties may affect the Group’s operations and, accordingly, its
profitability.
On 14 July 2014, the State Administration of Foreign Exchange (“SAFE”) released Circular
No.[2014]37 dated 4 July 2014 on Issues Relating to the Administration of Foreign Exchange in
Respect of Offshore Investments, Financings and Return Investments by Domestic Residents through
Special Purpose Vehicles (“Circular 37”). Pursuant to Circular 37, a PRC domestic resident is required
to register with the SAFE prior to making any capital contributions into a special purpose vehicle and
file subsequent amendments to the SAFE registration when applicable. Under Circular 37, failure to
comply with registration procedures may result in restrictions being imposed on the foreign exchange
activities of the relevant onshore company, including the payment of dividends and other
distributions to its offshore parent or affiliates and the capital inflow from the offshore entity. Failure
to comply with Circular 37 requirements by the Group’s PRC resident investors may adversely affect
the Group’s operations and results.
Foreign exchange risk
Under the current regulations on foreign exchange control in the PRC, foreign investment enterprises
are allowed to distribute their profits or dividends in foreign currencies to foreign investors through
designated foreign exchange banks without the prior approval of the State Administration for Foreign
Exchange of China. However, the exchange of the RMB into foreign currencies for capital items such
as direct investment, loans and security investment, is under strict controls and requires the approval
of the State Administration for Foreign Exchange of China. The distribution of the Group’s profits and
dividends may be adversely affected if the Chinese Government imposes greater control on the ability
of the RMB to be exchanged into foreign currencies. If there are any changes to the current
regulations, there can be no assurance that the Group will be able to obtain sufficient foreign
exchange to pay dividends or satisfy other foreign exchange requirements in the future.
In addition, currency fluctuations may affect the Group’s cash flow as its products are usually sold in
RMB. Some of the Group’s costs are likely to be denominated in other currencies such as GBP and
HKD. Fluctuations in exchange rates between currencies may cause fluctuations in the Company’s
53
results which are not necessarily related to the underlying operations of the Company. In addition,
the PRC still operates exchange control restrictions regarding inflows and outflows of currency.
Restriction on foreign investment and market access
Government policies and regulations continue to impose certain restrictions on foreign investment in
the PRC in terms of market access to certain industries and business sectors. Such restrictions may
take the form of additional or stricter governmental approval requirements for FIEs to enter certain
industries and business sectors or heightened enforcement of existing rules prohibiting or restricting
them from conducting business or undertaking projects in certain industries or business sectors that
are open to Chinese domestic enterprises. The existence and implementation of such restrictions may
have an adverse impact on the business operations and performance of the Group in the event any
member of the Group fails to gain market access to certain industries or business sectors due to such
restrictions.
Litigation risk
The Existing Directors and Proposed Directors cannot preclude litigation, with or without merit, from
being brought against the Group. Any litigation, especially litigation about food safety, brought
against the Group may have an adverse effect on the reputation, finances, operations, and
performance of the Group.
The Group has had an excellent track record with no legal proceedings about the core business of
the group. Historically, only Yantai Kanwa was involved in a civil suit in 2009 as a joint defendant for
a loan default case where Yantai Kanwa had acted as the guarantor for a loan taken out by another
company not part of the Group. The judgement has been executed in full and Yantai Kanwa did not
have to pay any part of the judgement. Except for the 2009 proceeding, the Group has not been
involved in any other legal proceedings.
Investment in AIM securities and liquidity of the Company’s Shares
Past performance is no indication of future performance. Prospective investors should be aware that
the value of Ordinary Shares in the Company may go down as well as up and that the market price
of the Ordinary Shares may not reflect the underlying value of the Company’s net assets or operations.
The share prices of public companies are often subject to significant fluctuations. In particular, an
investment in companies whose shares are traded on AIM is perceived to involve a higher degree of
risk and be less liquid than an investment in companies whose shares are listed on the Official List.
AIM is a market designed primarily for emerging or smaller companies. The rules of this market are
less demanding than the Official List. The future success of AIM and liquidity in the market for
Ordinary Shares cannot be guaranteed. In particular, the market for Ordinary Shares may become or
may be relatively illiquid and therefore, such Ordinary Shares may be or may become difficult to sell.
The market for the Ordinary Shares following Admission may be highly volatile and subject to wide
fluctuations in response to a variety of factors which could lead to losses for Shareholders. These
potential factors include amongst others: any shortfall in revenue or profitability from expected levels,
increases in capital expenditure compared to expectations, regulatory matters, changes in financial
estimates by securities analysts, market valuations of similar companies, any additions or departures
of key personnel, litigation and press and newspaper and/or other media reports. Investors may,
therefore, realise less than or lose all of their investment.
Conditions in the wider stock market and global or regional economy may affect the ultimate value
of the Company’s share price regardless of future operating performance.
Expirations of lock-ins
Following Admission the Locked in Parties have entered into a Lock-In and Orderly Market Agreement
which restricts the sale of their Ordinary Shares for certain periods following Admission.
54
Once the relevant restricted period has expired, those Locked in Parties can sell their Ordinary Shares
in accordance with the terms and conditions in the Orderly Market Agreement which may have a
material adverse effect in the market price of Ordinary Shares. Details of the Lock-in and Orderly
Market Agreement are described in paragraph 10.7 of Part V of this Admission Document.
Dividends
Whilst the Company has adopted a dividend policy, there can be no assurance as to the level and
frequency of future dividends. The declaration, payment and amount of any future dividends of the
Company is subject to the discretion of the Board and will depend, amongst other things, upon the
Company’s earnings, financial position, cash requirements and availability of profits as well as the
provisions of relevant laws.
Dilution of Shareholders’ interest as a result of additional equity fundraising
Other than the proposed Placing and Subscription, the Company has no current plans for an offering
of Ordinary Shares. It is possible, however that the Group may need to raise additional funds in the
future to finance, amongst other things, expansion of the business, new developments relating to its
existing operations or new acquisitions. If additional funds are raised through the issuance of new
equity or equity-linked securities of the Company other than on a pro rata basis to existing
Shareholders, the percentage ownership of the then existing Shareholders may be reduced,
Shareholders may experience subsequent dilution and/or such securities may have preferred rights,
options and pre-emption rights senior to the Ordinary Shares.
Forward-looking statements
Certain statements contained in this Admission Document are forward looking statements and are
based on current expectations, estimates and projections about the potential returns of the Group and
industry and markets in which the Group will operate, the Board’s beliefs and assumptions made by
the Board. Statements typically containing words such as “expects”, “anticipates”, “should”,
“intends”, “plans”, “believes”, “seeks”, “estimates”, “projects”, “pipeline” and variations of such
words and similar expressions are intended to identify such forward looking statements and
expectations. These statements are not guarantees of future performance or the ability to identify and
consummate investments and involve certain risks, uncertainties, outcomes of negotiations and due
diligence and assumptions that are difficult to predict, qualify or quantify. Therefore, actual outcomes
and results may differ materially from what is expressed in such forward looking statements or
expectations. Among the factors that could cause actual results to differ materially are: the general
economic climate, competition, interest rate levels, loss of key personnel, the result of legal and
commercial due diligence, the availability of financing on acceptable terms and changes in the legal
or regulatory environment.
Investment in the Ordinary Shares may not be suitable for all recipients of this Admission Document
and involves a high degree of risk. Prospective investors are strongly advised to consult an
independent financial adviser authorised under the Financial Services and Markets Act 2000. There
can be no guarantee that the value of an investment in the Company will increase and investors may
therefore realise less than, or lose all of, their investment. Prospective investors should consider
carefully whether investment in the Company is suitable for them in light of the risk factors, their
personal circumstances and the financial resources available to them.
55
PART III
FINANCIAL INFORMATION ON THE GROUP
A.
ACCOUNTANTS’ REPORT ON AQUATIC FOODS GROUP PLC
Crowe Clark Whitehill LLP
Chartered Accountants
Member of Crowe Horwath International
St Bride's House
10 Salisbury Square
London EC4Y 8EH, UK
+44 (0)20 7842 7100
+44 (0)20 7583 1720
DX: 0014 London Chancery Lane
www.croweclarkwhitehill.co.uk
28 January 2015
The Directors
Aquatic Foods Group Plc
13-14 Esplanade
St Helier
Jersey JE1 1BD
The Partners
S P Angel Corporate Finance LLP
Prince Frederick House
35-39 Maddox Street
London W1S 2PP
Dear Sirs
Introduction
This financial information has been prepared for inclusion in Part III(b) of the AIM Admission
Document dated 28 January 2015 of Aquatic Foods Group Plc (the “Company”) (the “Admission
Document”), on the basis of the accounting policies set out in Note 2 to the financial information.
This report is required by paragraph (a) of Schedule Two to the AIM Rules for Companies (the “AIM
Rules”) and is given for the purposes of complying with the AIM Rules and for no other purpose.
1.
Responsibilities
The Directors are responsible for preparing the financial information on the basis of preparation set
out in Note 3 below and in accordance with International Financial Reporting Standards as adopted
by the European Union (“IFRS”).
It is our responsibility to form an opinion on the financial information as to whether the financial
information gives a true and fair view, for the purposes of the Admission Document and to report our
opinion to you.
Save for any responsibility arising under Paragraph (a) of Schedule Two of the AIM Rules for
Companies to any person as and to the extent there provided, to the fullest extent permitted by law
we do not assume any responsibility and will not accept any liability to any person other than the
addressees of this letter for any loss suffered by any such person as a result of, arising out of, or in
connection with this report or our statement, required by and given solely for the purposes of
complying with Paragraph (a) of Schedule Two of the AIM Rules for Companies, consenting to its
inclusion in the Admission Document.
56
2.
Basis of Opinion
We conducted our work in accordance with Standards of Investment Reporting issued by the Auditing
Practices Board in the United Kingdom. Our work included an assessment of evidence relevant to the
amounts and disclosures in the financial information. It also included an assessment of significant
estimates and judgments made by those responsible for the preparation of the underlying financial
information and whether the accounting policies are appropriate to the entity’s circumstances,
consistently applied and adequately disclosed.
We planned and performed our work so as to obtain all the information and explanations which we
considered necessary in order to provide us with sufficient evidence to give reasonable assurance that
the financial information is free from material misstatement, whether caused by fraud or other
irregularity or error.
3.
Opinion
In our opinion, the financial information gives, for the purposes of the Admission Document, a true
and fair view of the state of affairs of the Company as at the date stated and of the results, cash flows
and changes in equity for the period then ended in accordance with the basis of preparation set out
in Note 2 to the financial information and has been prepared in accordance with IFRS and has been
prepared in a form that is consistent with the accounting policies adopted by the Company.
4.
Declaration
For the purposes of paragraph (a) of Schedule Two of the AIM Rules for Companies, we are
responsible for this report as part of the Admission Document and declare that we have taken all
reasonable care to ensure that the information contained in this report is, to the best of our
knowledge, in accordance with the facts and contains no omission likely to affect its import. This
declaration is included in the Admission Document in compliance with Paragraph (a) of Schedule
Two of the AIM Rules for Companies.
Yours faithfully
Crowe Clark Whitehill LLP
57
B.
HISTORICAL FINANCIAL INFORMATION OF AQUATIC FOODS GROUP PLC
STATEMENT OF FINANCIAL POSITION
The statement of financial position of the Company as at 31 August 2014 is stated below:
RMB
Assets
Current assets
Trade and other receivables
—
Total assets
—
Equity and liabilities
Capital and reserves
Share capital
—
Total equity attributable to equity holders
Total liabilities
—
—
Total equity and liabilities
—
58
STATEMENT OF COMPREHENSIVE INCOME
The statement of comprehensive income of the Company for the period from incorporation on
11 August 2014 to 31 August 2014 is stated below:
RMB
Total comprehensive income attributable to equity owner
59
—
STATEMENT OF CHANGES IN EQUITY
The statement of changes in equity of the Company for period from incorporation on 11 August 2014
to 31 August 2014 is set out below:
Share capital
RMB
On incorporation
Result for the period
—
—
As at 31 August 2014
—
The share capital comprises the ordinary issued share capital of the Company with no par value.
60
STATEMENT OF CASH FLOWS
The statement of cash flows of the Company for the period from incorporation on 11 August 2014 to
31 August 2014 is as follows:
RMB
Financing activities
Proceeds from issue of share capital
Net cash from financing activities
—
—
Net increase in cash and cash equivalents
Cash and cash equivalents at end of period
—
—
61
NOTES TO THE FINANCIAL INFORMATION
1.
General Information
The Company was incorporated in Jersey, on 11 August 2014 as a public limited company. The
registered office of the Company is Queensway House, Hilgrove Street, St Helier, Jersey, JE1 1ES. The
Company did not trade during the period under review. The Company’s nature of operations is to act
as the holding company of a group involved in trading, processing and distributing of processed
frozen aquatic products and pre-packaged food.
2.
Accounting Policies
Basis of preparation
This financial information of the Company has been prepared on a historical basis as varied by the
use of fair value in accordance with IFRS, International Accounting Standards (IASs) and International
Financial Reporting Interpretations Committee (IFRIC) interpretations as adopted by the European
Union.
The financial information of the Company is presented in Chinese Renminbi (“RMB”).
Standards and interpretations issued but not yet applied
At the date of authorisation of this financial information, the Directors have received the Standards in
issue by the International Accounting Standards Board (“IASB”) and IFRIC, which are effective for
annual accounting periods ending on or after the stated effective date. In their view, none of these
standards would have a material impact on the financial reporting of the company.
Comparative figures
No comparative figures have been presented as the financial information covers the period from
incoporation on 11 August 2014 to 31 August 2014.
Cash and cash equivalents
The Company considers any cash on short-term deposits and other short term investments to be cash
equivalents.
3.
Share capital
On 11 August 2014, the Company was authorised to issue an unlimited number of shares with no
par value of one class, designated as Ordinary Shares.
4.
Subsequent events
On 16 October 2014, by resolution of the Board, the Board approved:
(i)
the transfer of one subscriber share to Oceanic Expert from each of: (1) Computershare
Company Secretarial Services (Jersey) Limited and (2) Computershare Nominees (Channel
Islands) Limited; and
(ii)
the issue and allotment of 49,999,998 Ordinary Shares to certain other persons as specified in
a framework agreement referred to below.
Pursuant to a framework agreement dated 23 October 2014 between, inter alia, (1) the Company, (2)
Hong Kong Han He, (3) Li Xianzhi and (4) the Founder Investors, the Company:
(i)
agreed to subscribe for 100,000 shares of HKD 0.001 each in the issued share capital of Hong
Kong Han He; and
62
(ii)
agreed to acquire 10,000 shares of HKD 1 each in the share capital of Hong Kong Han He from
Li Xianzhi; and
(iii)
allotted and issued 50,000,000 Ordinary Shares (The “Consideration Shares”) to the Initial
Investors: 25,500,000 Ordinary Shares to Oceanic Expert, 2,000,000 Ordinary Shares to First
Honour Ventures Limited, 2,250,000 Ordinary Shares to Righton Investment Limited,
2,400,000 Ordinary Shares to One Capital Group Investment (Malta) Limited, 2,250,000
Ordinary Shares to Lim Koon Keong, 2,350,000 Ordinary Shares to Thomas Tan Hock Nieh,
2,750,000 Ordinary Shares to Midasi (Malta) Investment Limited, 3,250,000 Ordinary Shares
to Pioneer Sky Investments Limited, 2,100,000 Ordinary Shares to East Sincerity Capital China
Co., Ltd., 2,250,000 Ordinary Shares to Eternal View Investments Limited and 1,900,000
Ordinary Shares to United Talent Investments Limited.
On 28 January 2015, subject to and conditional upon Admission and the passing of a further related
resolution, the board of Directors were given power to:
(i)
allot 5,792,081 ordinary shares, being the placing shares (the “Placing Shares”);
(ii)
allot 7,434,000 ordinary shares, being the subscription shares (the “Subscription Shares”); and
(iii)
allot 11,322,608 ordinary shares (representing approximately 10 per cent. of the Company's
issued ordinary share capital) for cash at any time from Admission until the first annual general
meeting of the Company.
5.
Nature of financial Information
The financial information presented above does not constitute statutory accounts for the period under
review.
63
C.
ACCOUNTANTS’ REPORT ON THE PRO FORMA AGGREGATED FINANCIAL INFORMATION
ON THE OPERATING GROUP FOR THE PERIOD FROM 1 JANUARY 2011 TO 30 JUNE 2014
Crowe Clark Whitehill LLP
Chartered Accountants
Member of Crowe Horwath International
St Bride's House
10 Salisbury Square
London EC4Y 8EH, UK
+44 (0)20 7842 7100
+44 (0)20 7583 1720
DX: 0014 London Chancery Lane
www.croweclarkwhitehill.co.uk
28 January 2015
The Directors
Aquatic Foods Group Plc
13-14 Esplanade
St Helier
Jersey JE1 1BD
The Partners
S P Angel Corporate Finance LLP
Prince Frederick House
35-39 Maddox Street
London W1S 2PP
Dear Sirs
We report on the pro forma aggregated financial information set out below on Hong Kong Han He
Holding Company Limited (“Hong Kong Han He”) its subsidiary Yantai Kanwa Foods Co. Ltd (“Yantai
Kanwa”) and Yantai Zhenhaitang Food Co. Ltd (“Zhenhaitang”), together referred as the (“Operating
Group”). This financial information has been prepared for inclusion in Part III(D) of the AIM admission
Document (the “Document”) dated 28 January 2015 of Aquatic Foods Group Plc (the “Company”) on
the basis of the principal accounting policies set out in Note 3 to the financial information. This report
is required by Schedule Two of the AIM Rules for Companies and is given for the purpose of
complying with that schedule and for no other purpose.
Responsibilities
The Directors of the Company are responsible for preparing the financial information on the basis set
out below and in accordance with applicable International Financial Reporting Standards (“IFRS”) as
adopted by the European Commission.
It is our responsibility to form an opinion as to whether the financial information gives a true and fair
view, for the purposes of the Document, and to report our opinion to you.
Save for any responsibility arising under Paragraph (a) of Schedule Two of the AIM Rules for
Companies to any person as and to the extent there provided, to the fullest extent permitted by law
we do not assume any responsibility and will not accept any liability to any person other than the
addressees of this letter for any loss suffered by any such person as a result of, arising out of, or in
connection with this report or our statement, required by and given solely for the purposes of
complying with paragraph (a) of Schedule Two of the AIM Rules for Companies, consenting to its
inclusion in the Document.
Basis of opinion
We conducted our work in accordance with Standards for Investment Reporting issued by the
Auditing Practices Board in the United Kingdom. Our work included an assessment of evidence
64
relevant to the amounts and disclosures in the financial information. It also included an assessment
of significant estimates and judgements made by those responsible for the preparation of the financial
information underlying the financial statements and whether the accounting policies are appropriate
to the entity’s circumstances, consistently applied and adequately disclosed.
We planned and performed our work so as to obtain all the information and explanations which we
considered necessary in order to provide us with sufficient evidence to give reasonable assurance that
the Financial Information is free from material misstatement whether caused by fraud or other
irregularity or error.
Opinion
In our opinion the financial information gives, for the purposes of the Document, a true and fair view
of the state of affairs of the Operating Group as at the dates stated and of its profits and cash flows
for the periods then ended in accordance with the basis of preparation set out below and in
accordance with applicable IFRS and has been prepared in a form that is consistent with the
accounting policies adopted by the Company.
Declaration
For the purposes of paragraph (a) of Schedule Two of the AIM Rules for Companies we are responsible
for this report as part of the Document and declare that we have taken all reasonable care to ensure
that the information contained in this report is, to the best of or knowledge, in accordance with the
facts and contains no omission likely to affect its import. This declaration is included in the Document
in compliance with Schedule Two of the AIM Rules for Companies.
Yours faithfully
Crowe Clark Whitehill LLP
Chartered Accountants
65
D.
PRO FORMA AGGREGATED FINANCIAL INFORMATION ON THE OPERATING GROUP
FOR THE PERIOD FROM 1 JANUARY 2011 TO 30 JUNE 2014
Aggregated Statements of Financial Position
The pro forma aggregated statements of financial position of the Operating Group as at 31 December
2011, 2012, 2013, and at 30 June 2014 are set out below:
Note
Non-current assets
Property, plant and equipment
Land use rights
Current assets
Inventories
Trade receivables
Other receivables, deposit and prepayment
Cash and bank balances
5
6
7
8
9
10
Total Assets
Current liabilities
Trade payables
Other payables and accruals
Short term borrowings
Income tax payable
Equity
Share capital
Reserves
13
14
15
11
12
Total Equity and Liabilities
66
As at 31 December
2011
2012
2013
RMB’000
RMB’000
RMB’000
As at
30 June
2014
RMB’000
24,717
2,054
23,061
2,009
21,160
1,964
22,226
1,942
26,771
25,070
23,124
24,168
36,449
40,854
289
57,843
39,953
90,695
28
78,504
40,135
143,720
327
153,057
44,704
138,002
1,872
167,299
135,435
209,180
337,239
351,877
162,206
234,250
360,363
376,045
49,838
13,233
23,474
3,761
51,761
22,762
31,976
7,376
61,113
30,460
37,970
11,879
34,345
20,836
33,134
8,214
90,306
113,875
141,422
96,529
22,386
49,514
22,394
97,981
22,394
196,547
22,394
257,122
71,900
120,375
218,941
279,516
162,206
234,250
360,363
376,045
Aggregated Statements of Comprehensive Income
The pro forma aggregated statements of comprehensive income of the Operating Group for each of
the three years ended 31 December 2013 and the six months ended 30 June 2014, are set out below:
Note
Revenue
Cost of sales
16
Six months
ended
Years ended 31 December
30 June
2011
2012
2013
2014
RMB’000
RMB’000
RMB’000
RMB’000
276,422
(205,589)
494,670
(343,846)
667,276
(454,480)
353,130
(241,033)
70,833
150,824
212,796
112,097
4,141
(18,340)
(7,039)
(90)
6,918
(37,244)
(10,126)
(26)
8,891
(52,867)
(13,067)
(121)
3,669
(29,158)
(6,198)
(183)
Operating profit
49,505
110,346
155,632
80,227
Finance income
Finance costs
261
(1,293)
285
(1,889)
471
(2,535)
293
(1,394)
Gross profit
Other income
Selling and distribution expenses
Administrative expenses
Other operating expenses
17
Profit on ordinary activities
before taxation
18
48,473
108,742
153,568
79,126
Income tax expense
19
(10,315)
(24,275)
(35,531)
(18,551)
Profit after taxation
38,158
84,467
118,037
60,575
Profit after taxation brought forward
Other comprehensive income
38,158
—
84,467
—
118,037
—
60,575
—
Total comprehensive income attributable
to owners of the parent
38,158
84,467
118,037
60,575
0.38
0.84
1.18
0.61
Earnings per share:
Basic and diluted
20
67
Aggregated Statements of Changes in Equity
The pro forma aggregated statements of changes in equity of the Operating Group for each of the
three years ended 31 December 2013, and the six months ended 30 June 2014 are set out below:
Share
capital
RMB’000
Capital
reserve
RMB’000
Statutory
reserve
RMB’000
Distributable
retained
profits
RMB’000
Total
equity
RMB’000
22,386
31
4,254
30,071
56,742
—
—
—
—
—
—
—
—
3,856
38,158
(23,000)
(3,856)
38,158
(23,000)
—
22,386
8
31
—
8,110
—
41,373
—
71,900
8
—
—
—
—
—
—
—
—
3,083
84,467
(36,000)
(3,083)
84,467
(36,000)
—
22,394
31
11,193
86,757
120,375
—
—
—
—
—
—
118,037
(19,471)
118,037
(19,471)
Balance at 31 December 2013
and brought forward at
1 January 2014
Profit after taxation for the
six-month period
22,394
31
11,193
185,323
218,941
—
—
—
60,575
60,575
Balance at 30 June 2014
22,394
31
11,193
245,898
279,516
Balance at 1 January 2010
Profit after taxation for the
financial year
Dividends
Transfer to statutory reserve
Balance at 31 December 2011
and brought forward at
1 January 2012
Increase in share capital
Profit after taxation for the
financial year
Dividends
Transfer to statutory reserve
Balance at 31 December 2012
and brought forward at
1 January 2013
Profit after taxation for the
financial year
Dividends
68
Aggregated Statements of Cash Flows
The aggregated statements of cash flow statements of the Operating Group for each of the three years
ended 31 December 2013, and the six months ended 30 June 2014, are set out below:
Note
Cash flow from operating activities
Profit for the period before taxation
Adjustment for:
Amortisation of land use rights
Depreciation of property, plant and
equipment
Interest expense
Loss on disposal of plant and equipment
Interest income
Unrealised gain on foreign exchange
Six months
ended
Years ended 31 December
30 June
2011
2012
2013
2014
RMB’000
RMB’000
RMB’000
RMB’000
48,473
108,742
153,568
79,126
45
45
45
22
2,141
1,293
2
(261)
(190)
2,178
1,889
10
(285)
(1,277)
2,155
2,535
31
(471)
(798)
1,081
1,394
—
(293)
300
Operating cash flows before movements
in working capital
Increase in inventories
(Increase) decrease in trade and other
receivables
Increase/(decrease) in trade and other
payables
(Increase)/decrease in bank balance
restricted in use
51,503
(12,178)
111,302
(3,505)
157,065
(182)
81,630
(4,569)
(19,043)
(67,917)
(53,168)
4,220
15,120
31,038
17,279
(36,810)
(2,400)
(97)
556
194
Cash generated from operating activities
Interest paid
Income tax paid
33,002
(1,293)
(9,122)
70,821
(1,889)
(20,661)
121,550
(2,535)
(31,028)
44,665
(1,394)
(22,216)
Net cash generated from operating
activities
22,587
48,271
87,987
21,055
(1,121)
(536)
(316)
(2,155)
1
261
4
285
31
471
7
293
(859)
(247)
186
—
(23,000)
8
(36,000)
—
(19,471)
—
—
3,691
8,502
5,994
(4,836)
(19,309)
(27,490)
(13,477)
(4,836)
2,419
133
49,866
20,534
30
52,418
74,696
413
72,982
14,364
72
148,091
52,418
72,982
148,091
162,527
Cash flows (for)/from investing activities
Acquisition of property, plant and
equipment
Proceeds from disposal of property, plant
and equipment
Interest received
Net cash used in investing activities
Cash flows (for)/from financing activities
Issuance of share capital
Dividends declared and paid
Net drawdown/(reduction) of
interest-bearing bank borrowings
21
Net cash used in financing activities
Net increase in cash & cash equivalents
Effects of foreign exchange translation
Cash and equivalent at beginning of period
Cash and equivalent at end of period
10
69
(1,855)
NOTES TO THE FINANCIAL INFORMATION
1.
GENERAL INFORMATION
Hong Kong Han He is a private company limited by shares and was incorporated on 25 September
2012 under the Companies Ordinance, (Chapter 32 of the laws of Hong Kong), and is the holding
company for its subsidiaries.
Hong Kong Han He has a wholly owned subsidiary, namely Yantai Kanwa Food Co., Ltd. (“Yantai
Kanwa”). Yantai Kanwa is a company established as a wholly foreign owned enterprise (“WFOE”) in
the PRC, and was incorporated on 15 November 1999.
Zhenhaitang was incorporated in the PRC on 1 November 2007 and is wholly owned by Yantai
Kanwa.
The proforma aggregated financial information comprises the financial information of Hong Kong
Han He, Yantai Kanwa and Zhenhaitang, hereinafter referred to as the “Operating Group”.
The registered office and principal place of business of Hong Kong Han He are as follows:Registered office:
Unit 04, 7/F, Bright Way Tower, No. 33 Mong Kok Road, Kowloon,
Hong Kong.
Principal place of business:
No 6 Fuming Road, Shengquan Industrial Park, Laishan District,
Yantai City, Shandong Province, PRC.
The Directors present their non-statutory financial information of the Operating Group for the year
ended 31 December 2011, 2012 and 2013, and six months ended 30 June 2014.
2.
PRINCIPAL ACTIVITIES
The principal activities of the entities of the Operating Group are as follows:Name of Company
Country of
Incorporation
Principal Activities
i)
Hong Kong Han He
Hong Kong
Investment holding.
ii)
Yantai Kanwa
PRC
Processing and trading of aquatic products
agricultural and meat products.
iii)
Zhenhaitang
PRC
Trading and distributing of processed frozen
aquatic products and pre-packaged food.
There have been no significant changes in the nature of these activities during the relevant financial
years/periods.
Hong Kong Han He acquired a wholly owned subsidiary, Yantai Kanwa on 25 May 2013.
At 30 June 2014, the ultimate shareholder of the Operating Group is Mr Li Xianzhi.
70
3.
BASIS OF PREPARATION
The financial information have been prepared in accordance with IFRS as adopted by the EU issued
by the International Accounting Standards Board (“IASB”), including related Interpretations issued by
the International Financial Reporting Interpretations Committee (“IFRIC”).
IFRS does not provide specific guidance on accounting for common control transactions. Therefore,
the Directors have selected an accounting policy using the “hierarchy” described in paragraphs 10-12
of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. The hierarchy permits the
consideration of pronouncement of other standard-setting bodies. The Directors have adopted a
policy of accounting for business combinations between entities under common control in
accordance with guidance under US GAAP 805-10-15. This guidance produces a result that is similar
to pooling. For those entities under common control, the combined financial information has
therefore been prepared as if each of the entities within the Operating Group at 31 December 2013
had been held by Hong Kong Han He.
The Operating Group has not applied in advance the following accounting standards and
interpretations (including the consequential amendments, if any) that have been issued by the IASB
but are not yet effective for the current financial period:IFRSs and IC Interpretations (Including The Consequential Amendments)
Effective Date
IFRS 9 Financial Instruments
1 January 2018
IFRS 14 Regulatory Deferred Accounts
1 January 2016
IFRS 15 Revenue from Contracts with Customers
1 January 2017
Amendments to IFRS 11: Accounting for Acquisitions of Interests in Joint Operations 1 January 2016
IFRS 14 Regulatory Deferral Accounts
1 January 2016
Amendments to IAS 16 and IAS 38: Clarification of Acceptable Methods
of Depreciation and Amortisation
1 January 2016
Amendments to IAS 16 and IAS 41: Agriculture – Bearer Plants
1 January 2016
Amendments to IAS 19: Defined Benefit Plans – Employee Contributions
1 July 2014
The above accounting standards and interpretations (including the consequential amendments) are
not relevant to the Operating Group’s operations.
4.
SIGNIFICANT ACCOUNTING POLICIES
4.1
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
Estimates and judgements are continually evaluated by the Directors and management and are
based on historical experience and other factors, including expectations of future events that
are believed to be reasonable under the circumstances. The estimates and judgements that
affect the application of the Operating Group’s accounting policies and disclosures, and have
a significant risk of causing a material adjustment to the carrying amounts of assets, liabilities,
income and expenses are discussed below:(a)
Depreciation of Property, Plant and Equipment
The estimates for the residual values, useful lives and related depreciation charges for the
property, plant and equipment are based on commercial factors which could change
significantly as a result of technical innovations and competitors’ actions in response to
the market conditions. Changes in the expected level of usage and technological
development could impact the economic useful lives and the residual values of these
assets, therefore future depreciation charges could be revised.
71
(b)
Income Taxes
There are certain transactions and computations for which the ultimate tax determination
may be different from the initial estimate. The Operating Group recognises tax liabilities
based on its understanding of the prevailing tax laws and estimates of whether such taxes
will be due in the ordinary course of business. Where the final outcome of these matters
is different from the amounts that were initially recognised, such difference will impact
the income tax and deferred tax provisions in the year in which such determination is
made.
(c)
Impairment of Non-Financial Assets
When the recoverable amount of an asset is determined based on the estimate of the
value-in-use of the cash-generating unit to which the asset is allocated, the management
is required to make an estimate of the expected future cash flows from the cashgenerating unit and also to apply a suitable discount rate in order to determine the
present value of those cash flows.
(d)
Write-down of Inventories
Reviews are made periodically by management on damaged, obsolete and slow-moving
inventories. These reviews require judgement and estimates. Possible changes in these
estimates could result in revisions to the valuation of inventories.
(e)
Impairment of Trade and Other Receivables
An impairment loss is recognised when there is objective evidence that a financial asset
is impaired. Management specifically reviews its loans and receivables financial assets
and analyses historical bad debts, customer concentrations, customer creditworthiness,
current economic trends and changes in the customer payment terms when making a
judgement to evaluate the adequacy of the allowance for impairment losses. Where there
is objective evidence of impairment, the amount and timing of future cash flows are
estimated based on historical loss experience for assets with similar credit risk
characteristics. If the expectation is different from the estimation, such difference will
impact the carrying value of receivables.
4.2
BASIS OF AGGREGATION
The pro-forma aggregated financial information includes the financial information of the
Operating Group made up to the end of the reporting periods.
A subsidiary is defined as a company in which the parent company has the power, directly or
indirectly, to exercise control over its financial and operating policies so as to obtain benefits
from its activities.
Subsidiaries are aggregated from the date on which control is transferred to the Operating
Group up to the effective date on which control ceases, as appropriate.
Intragroup transactions, balances, income and expenses are eliminated on consolidation.
Where necessary, adjustments are made to the financial information of subsidiaries to ensure
consistency of accounting policies with those of the Operating Group.
Merger accounting for common control business combinations
The acquisitions resulted in a business combination involving common control entities, and
accordingly the accounting treatment is outside the scope of IFRS 3. The merger accounting is
used by the Operating Group to account for such common control business combinations.
72
A business combination involving entities under common control is a business combination in
which all the combining entities or subsidiaries are ultimately controlled by the same party and
parties both before and after the business combination, and that control is not transitory.
Subsidiaries acquired which have met the criteria for pooling of interest are accounted for using
merger accounting principles. Under the merger method of accounting, the results of the
subsidiaries are presented as if the merger had been effected throughout the financial years
ended 31 December 2011, 2012, 2013 and the six months ended 30 June 2014.
The assets and liabilities combined are accounted for based on the carrying amounts from the
perspective of the common control shareholder at the date of transfer. No amount is recognised
in respect of goodwill and excess of the acquirer’s interest in the net fair value of the acquiree’s
identifiable assets and liabilities and contingent liabilities over cost at the time of the common
control business combination to the extent of the continuation of the controlling party and
parties’ interests.
When the merger method is used, the cost of investment in the company’s books is recorded
at the nominal value of shares issued. The difference between the carrying value of the
investment and the nominal value of the shares of the subsidiaries is treated as a merger deficit
or merger reserve as applicable. The results of the subsidiaries being merged are included for
the full financial year.
4.3
FUNCTIONAL AND FOREIGN CURRENCIES
(a)
Functional and Presentation Currency
The financial information is presented in the currency of the primary economic
environment in which the entity operates, which is the functional currency.
The financial information is presented in Chinese Renminbi (“RMB”), which is the
Operating Group’s functional currency and the presentation currency.
(b)
Transactions and Balances
Transactions in foreign currencies are converted into the respective functional currencies
on initial recognition, using the exchange rates approximating those ruling at the
transaction dates. Monetary assets and liabilities at the end of the reporting period are
translated at the rates ruling as of that date. Non-monetary assets and liabilities are
translated using exchange rates that existed when the values were determined. All
exchange differences are recognised in profit or loss.
4.4
FINANCIAL INSTRUMENTS
Financial instruments are recognised in the statements of financial position when the Operating
Group has become a party to the contractual provisions of the instruments.
Financial instruments are classified as liabilities or equity in accordance with the substance of
the contractual arrangement. Interest, dividends, gains and losses relating to a financial
instrument classified as a liability, are reported as an expense or income. Distributions to
holders of financial instruments classified as equity are charged directly to equity.
Financial instruments are offset when the Operating Group has a legally enforceable right to
offset and intends to settle either on a net basis or to realise the asset and settle the liability
simultaneously.
73
A financial instrument is recognised initially at its fair value. Transaction costs that are directly
attributable to the acquisition or issue of the financial instrument (other than a financial
instrument at fair value through profit or loss) are added to/deducted from the fair value on
initial recognition, as appropriate. Transaction costs on the financial instrument at fair value
through profit or loss are recognised immediately in profit or loss.
Financial instruments recognised in the statements of financial position are disclosed in the
individual policy statement associated with each item.
(a)
Financial Assets
On initial recognition, financial assets are classified as either financial assets at fair value
through profit or loss, held-to-maturity investments, loans and receivables financial
assets, or available-for-sale financial assets, as appropriate.
(i)
Financial Assets at Fair Value through Profit or Loss
Financial assets are classified as financial assets at fair value through profit or loss
when the financial asset is either held for trading or is designated to eliminate or
significantly reduce a measurement or recognition inconsistency that would
otherwise arise. Derivatives are also classified as held for trading unless they are
designated as hedges.
Financial assets at fair value through profit or loss are stated at fair value, with any
gains or losses arising on remeasurement recognised in profit or loss. Dividend
income from this category of financial assets is recognised in profit or loss when
the Operating Group’s right to receive payment is established.
As at the end of the reporting period, there were no financial assets classified
under this category.
(ii)
Held-to-maturity Investments
Held-to-maturity investments are non-derivative financial assets with fixed or
determinable payments and fixed maturities that the management has the positive
intention and ability to hold to maturity. Held-to-maturity investments are
measured at amortised cost using the effective interest method less any
impairment loss, with interest income recognised in profit or loss on an effective
yield basis.
As at the end of the reporting period, there were no financial assets classified
under this category.
(iii)
Loans and Receivables Financial Assets
Trade receivables and other receivables that have fixed or determinable payments
that are not quoted in an active market are classified as loans and receivables
financial assets. Loans and receivables financial assets are measured at amortised
cost using the effective interest method, less any impairment loss. Interest income
is recognised by applying the effective interest rate, except for short-term
receivables when the recognition of interest would be immaterial.
(iv)
Available-for-sale Financial Assets
Available-for-sale financial assets are non-derivative financial assets that are
designated in this category or are not classified in any of the other categories.
74
After initial recognition, available-for-sale financial assets are remeasured to their
fair values at the end of each reporting period. Gains and losses arising from
changes in fair value are recognised in other comprehensive income and
accumulated in the fair value reserve, with the exception of impairment losses. On
derecognition, the cumulative gain or loss previously accumulated in the fair
value reserve is reclassified from equity into profit or loss.
Dividends on available-for-sale equity instruments are recognised in profit or loss
when the Operating Group’s right to receive payments is established.
Investments in equity instruments whose fair value cannot be reliably measured
are measured at cost less accumulated impairment losses, if any.
As at the end of the reporting period, there were no financial assets classified
under this category.
(b)
Financial Liabilities
All financial liabilities are initially measured at fair value plus directly attributable
transaction costs and subsequently measured at amortised cost using the effective
interest method other than those categorised as fair value through profit or loss.
Fair value through profit or loss category comprises financial liabilities that are either
held for trading or are designated to eliminate or significantly reduce a measurement or
recognition inconsistency that would otherwise arise. Derivatives are also classified as
held for trading unless they are designated as hedges.
(c)
Equity Instruments
Ordinary shares are classified as equity. Incremental costs directly attributable to the
issue of new ordinary shares or options are shown in equity as a deduction, net of tax,
from proceeds.
Dividends on ordinary shares are recognised as liabilities when approved for
appropriation.
(d)
Derecognition
A financial asset or part of it is derecognised when, and only when, the contractual rights
to the cash flows from the financial asset expire or the financial asset is transferred to
another party without retaining control or substantially all risks and rewards of the asset.
On derecognition of a financial asset, the difference between the carrying amount and
the sum of the consideration received (including any new asset obtained less any new
liability assumed) and any cumulative gain or loss that had been recognised in equity is
recognised in profit or loss.
A financial liability or a part of it is derecognised when, and only when, the obligation
specified in the contract is discharged or cancelled or expires. On derecognition of a
financial liability, the difference between the carrying amount of the financial liability
extinguished or transferred to another party and the consideration paid, including any
non-cash assets transferred or liabilities assumed, is recognised in profit or loss.
(e)
Statutory Reserve
The Operating Group is required to maintain certain statutory reserves for entities in PRC
by appropriating from profit after taxation in accordance with the relevant laws and
regulations in the PRC and articles of association of the subsidiary before declaration or
payment of dividends. The reserves form part of the equity of the Operating Group. The
statutory reserve fund can be used to increase the registered capital and eliminate future
75
losses of the Operating Group, but it cannot be distributed to shareholders except in the
event of a solvent liquidation of the subsidiary.
The appropriation to the statutory surplus reserve represents 10 per cent. of the profit
after taxation of the Operating Group in the PRC. In accordance with the laws and
regulations in the PRC, the appropriations to statutory reserve cease when the balances
of the reserve reach 50 per cent. of the registered capital of the subsidiary. The statutory
reserve is not distributable by way of dividends.
4.5
PROPERTY, PLANT AND EQUIPMENT
(a)
Owned Assets
Items of property, plant and equipment are stated at cost less accumulated depreciation
and any accumulated impairment losses, if any. The cost of an asset comprises its
purchase price and any directly attributable costs of bringing the asset to the location and
condition for its intended use.
(b)
Depreciation
Depreciation is charged to profit or loss (unless it is included in the carrying amount of
another asset) on the straight-line basis to write off the depreciable amount of the assets
net of the estimated residual values over their estimated useful lives. Depreciation of an
asset does not cease when the asset becomes idle or is retired from active use unless the
asset is fully depreciated. The principal annual rates used for this purpose are:-
Leasehold buildings
Office equipment
Research equipment
Plant and machinery
Motor vehicles
Estimated
Useful Lives
Estimated Residual Value
as a Percentage of Cost
20 years
5 -10 years
5 -10 years
5 -10 years
5 -10 years
10%
10%
10%
10%
10%
The depreciation method, useful lives and residual values are reviewed, and adjusted if
appropriate, at the end of each reporting period to ensure that the amounts, method and
periods of depreciation are consistent with previous estimates and the expected pattern
of consumption of the future economic benefits embodied in the items of the property,
plant and equipment.
(c)
Cost
Subsequent costs are included in the asset’s carrying amount or recognised as a separate
asset, as appropriate, only when the cost is incurred and it is probable that the future
economic benefits associated with the asset will flow to the Operating Group and the
cost of the asset can be measured reliably. The carrying amount of parts that are replaced
is derecognised. The costs of the day-to-day servicing of property, plant and equipment
are recognised in profit or loss as incurred. Cost also comprises the initial estimate of
dismantling and removing the asset and restoring the site on which it is located for which
the Operating Group is obligated to incur when the asset is acquired, if applicable.
An item of property, plant and equipment is derecognised upon disposal or when no
future economic benefits are expected from its use. Any gain or loss arising from
derecognition of the asset is recognised in profit or loss. The revaluation reserve included
in equity is transferred directly to retained profits on retirement or disposal of the asset.
76
4.6
LAND USE RIGHTS
All lands in China are owned by the State or collectives. Individuals and companies are
permitted to acquire land use rights for general or specific purposes. In the case when land is
used for industrial purposes, the land use rights are granted for a period of 50 years. The rights
may be renewed at the expiration of the initial and any subsequent terms according to the
relevant Chinese laws. Granted land use rights are transferable and may be used as security for
borrowings and other obligations.
The cost of acquisition of land use rights is capitalised and amortised on a straight-line basis
over the lease term of the land of 50 years. The amortisation expense is recognised in the profit
and loss.
4.7
IMPAIRMENT
(a)
Impairment of Financial Assets
All financial assets (other than those categorised at fair value through profit or loss), are
assessed at the end of each reporting period whether there is any objective evidence of
impairment as a result of one or more events having an impact on the estimated future
cash flows of the asset.
An impairment loss in respect of held-to-maturity investments and loans and receivables
financial assets is recognised in profit or loss and is measured as the difference between
the asset’s carrying amount and the present value of estimated future cash flows,
discounted at the financial asset’s original effective interest rate.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease
can be related objectively to an event occurring after the impairment was recognised, the
previously recognised impairment loss is reversed through profit or loss to the extent that
the carrying amount of the financial asset at the date the impairment is reversed does not
exceed what the amortised cost would have been had the impairment not been
recognised.
(b)
Impairment of Non-Financial Assets
The carrying values of assets, other than those to which IAS 36 – Impairment of Assets
does not apply, are reviewed at the end of each reporting period for impairment when
there is an indication that the assets might be impaired. Impairment is measured by
comparing the carrying values of the assets with their recoverable amounts. The
recoverable amount of the assets is the higher of the assets’ fair value less costs to sell
and their value-in-use, which is measured by reference to discounted future cash flow.
An impairment loss is recognised in profit or loss immediately.
When there is a change in the estimates used to determine the recoverable amount, a
subsequent increase in the recoverable amount of an asset is treated as a reversal of the
previous impairment loss and is recognised to the extent of the carrying amount of the
asset that would have been determined (net of amortisation and depreciation) had no
impairment loss been recognised. The reversal is recognised in profit or loss immediately.
4.8
INVENTORIES
Inventories are stated at the lower of cost and net realisable value. Cost is determined on the
weighted average basis and comprises the purchase price and incidentals incurred in bringing
the inventories to their present location and condition.
Cost of raw materials comprises the original cost of purchase plus costs of bringing the
inventories to their present location and condition.
77
The cost of finished goods and work in progress include the cost of raw materials, direct labour
and a proportion of manufacturing overheads based on normal operating capacity of the
manufacturing facilities.
Net realisable value represents the estimated selling price less the estimated costs necessary to
make the sale.
4.9
INCOME TAXES
Income tax for the year comprises current and deferred tax.
Current tax is the expected amount of income taxes payable in respect of the taxable profit for
the reporting period and is measured using the tax rates that have been enacted or substantively
enacted at the end of the reporting period, and any adjustment to tax payable in respect of
previous financial years.
Deferred tax is provided in full, using the liability method, on temporary differences arising
between the tax bases of assets and liabilities and their carrying amounts in the financial
statements.
Deferred tax liabilities are recognised for all taxable temporary differences other than those that
arise from the initial recognition of an asset or liability in a transaction which is not a business
combination and at the time of the transaction, affects neither accounting profit nor taxable
profit.
Deferred tax assets are recognised for all deductible temporary differences, unused tax losses
and unused tax credits to the extent that it is probable that future taxable profits will be
available against which the deductible temporary differences, unused tax losses and unused tax
credits can be utilised. The carrying amounts of deferred tax assets are reviewed at the end of
each reporting period and reduced to the extent that it is no longer probable that sufficient
future taxable profits will be available to allow all or part of the deferred tax assets to be
utilised.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the
period when the asset is realised or the liability is settled, based on the tax rates that have been
enacted or substantively enacted at the end of the reporting period.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off
current tax assets against current tax liabilities and when the deferred income taxes relate to
the same taxation authority.
Deferred tax relating to items recognised outside profit or loss is recognised outside profit or
loss. Deferred tax items are recognised in correlation to the underlying transactions either in
other comprehensive income or directly in equity.
4.10 VALUE ADDED TAX (“VAT”)
The Operating Group’s sales of goods in the PRC are subjected to VAT at the applicable tax rate
of 17 per cent. for PRC domestic sales. Input VAT on purchases can be deducted from output
VAT. The net amount of VAT recoverable from, or payable to, the taxation authority is included
as part of “other receivables” or “other payables” in the statements of financial position.
Revenues, expenses and assets are recognised net of the amount of VAT except where:(i)
VAT incurred on the purchase of assets or services is not recoverable from the taxation
authority, in which case VAT is recognised as part of the cost of acquisition of the asset
or as part of the expense item as applicable; and
(ii)
receivables and payables include VAT due.
78
4.11 CASH AND CASH EQUIVALENTS
Cash and cash equivalents comprise cash in hand, bank balances, demand deposits, bank
overdrafts and short-term, highly liquid investments that are readily convertible to known
amounts of cash and which are subject to an insignificant risk of changes in value with original
maturity periods of three months or less.
4.12 EMPLOYEE BENEFITS
Wages, salaries, paid annual leave and sick leave, bonuses and non-monetary benefits are
measured on an undiscounted basis and are recognised in profit or loss in the period in which
the associated services are rendered by employees of the Operating Group.
Pursuant to the relevant regulations of the PRC government, the Operating Group participates
in a local municipal government retirement benefits scheme (the “Scheme”), whereby the
Operating Group is required to contribute a certain percentage of the basic salaries of its
employees to the Scheme to fund their retirement benefits. The local municipal government
undertakes to assume the retirement benefits obligations of all existing and future retired
employees of the Operating Group. The only obligation of the Operating Group with respect
to the Scheme is to pay the ongoing required contributions under the Scheme mentioned
above. Contributions under the Scheme are expensed as incurred.
4.13 RELATED PARTIES
A party is related to an entity (referred to as the “reporting entity”) if:(a)
A person or a close member of that person’s family is related to a reporting entity if that
person:(i)
has control or joint control over the reporting entity;
(ii)
has significant influence over the reporting entity; or
(iii)
is a member of the key management personnel of the reporting entity or of a
parent of the reporting entity.
(b)
An entity is related to a reporting entity if any of the following conditions applies:-
(i)
The entity and the reporting entity are members of the same group (which means
that each parent, subsidiary and fellow subsidiary is related to the others).
(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)
Both entities 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 reporting entity or an entity related to the reporting entity. If the reporting entity
is itself such a plan, the sponsoring employers are also related to the reporting entity.
(vi)
The entity is controlled or jointly controlled by a person identified in (a) above.
(vii)
A person identified in (a)(i) above 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.
79
4.14 FAIR VALUE MEASUREMENT
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date, regardless of
whether that price is directly observable or estimated using a valuation technique. The
measurement assumes that the transaction takes place either in the principal market or in the
absence of a principal market, in the most advantageous market. For non-financial asset, the
fair value measurement takes into account a market’s participant’s ability to generate economic
benefits by using the asset in its highest and best use or by selling it to another market
participant that would use the asset in its highest and best use.
For financial reporting purposes, the fair value measurements are analysed into level 1 to level
3 as follows:Level 1:
Inputs are quoted prices (unadjusted) in active markets for identical assets or
liability that the entity can access at the measurement date;
Level 2:
Inputs are inputs, other than quoted prices included within level 1, that are
observable for the asset or liability, either directly or indirectly; and
Level 3:
Inputs are unobservable inputs for the asset or liability. The transfer of fair value
between levels is determined as of the date of the event or change in
circumstances that caused the transfer.
4.15 REVENUE AND OTHER INCOME
(a)
Sale of Goods
Revenue from the sale of goods is measured at fair value of consideration received or
receivables, net of returns and trade discounts where applicable. Revenue is recognised
upon delivery of goods when the significant risks and rewards of ownership have been
transferred to the buyer, recovery of the consideration is probable, the associated costs
and possible return of goods can be estimated reliably.
(b)
Interest Income
Interest income is recognised on an accrual basis using the effective interest method.
4.16 BORROWING COSTS
Borrowing costs, directly attributable to the acquisition, construction or production of a
qualifying asset, are capitalised as part of the cost of those assets, until such time as the assets
are ready for their intended use or sale. Capitalisation of borrowing costs is suspended during
extended periods in which active development is interrupted.
All other borrowing costs are recognised in profit or loss as expenses in the period in which
they are incurred.
4.17 OPERATING SEGMENTS
An operating segment is a component of the Operating Group that engages in business
activities from which it may earn revenues and incur expenses, including revenues and
expenses that relate to transactions with any of the Operating Group’s other components. An
operating segment’s operating results are reviewed regularly by the chief operating decision
maker to make decisions about resources to be allocated to the segment and assess its
performance, and for which discrete financial information is available.
80
5.
PROPERTY, PLANT AND EQUIPMENT
Net book value
Leasehold buildings
Office equipment
Research equipment
Plant and machinery
Motor vehicles
Net book value
Leasehold buildings
Office equipment
Research equipment
Plant and machinery
Motor vehicles
Net book value
Leasehold buildings
Office equipment
Research equipment
Plant and machinery
Motor vehicles
Net book value
Leasehold buildings
Office equipment
Research equipment
Plant and machinery
Motor vehicles
As at
1 January
2011
RMB’000
As at
31 December
Disposals Depreciation
2011
RMB’000
RMB’000
RMB’000
Additions
RMB’000
20,447
224
28
4,750
291
—
103
2
767
249
—
(3)
—
—
—
(1,168)
(78)
(6)
(810)
(79)
19,279
246
24
4,707
461
25,740
1,121
(3)
(2,141)
24,717
As at
1 January
2012
RMB’000
As at
31 December
Disposals Depreciation
2012
RMB’000
RMB’000
RMB’000
Additions
RMB’000
19,279
246
24
4,707
461
—
42
—
494
—
—
(5)
—
(9)
—
(1,168)
(70)
(6)
(823)
(111)
18,111
213
18
4,369
350
24,717
536
(14)
(2,178)
23,061
As at
1 January
2013
RMB’000
As at
31 December
Disposals Depreciation
2013
RMB’000
RMB’000
RMB’000
Additions
RMB’000
18,111
213
18
4,369
350
—
48
5
148
115
—
(1)
—
(52)
(9)
(1,168)
(61)
(6)
(813)
(107)
16,943
199
17
3,652
349
23,061
316
(62)
(2,155)
21,160
As at
1 January
2014
RMB’000
Additions
RMB’000
16,943
199
17
3,652
349
1
20
3
2,030
101
—
—
—
—
(7)
(584)
(26)
(3)
(416)
(52)
16,360
193
17
5,266
391
21,160
2,155
(7)
(1,081)
22,226
81
Disposals Depreciation
RMB’000
RMB’000
As at
30 June
2014
RMB’000
Accumulated
Cost depreciation
RMB’000
RMB’000
As at 31 December 2011
Leasehold buildings
Office equipment
Research equipment
Plant and machinery
Motor vehicles
As at 31 December 2012
Leasehold buildings
Office equipment
Research equipment
Plant and machinery
Motor vehicles
As at 31 December 2013
Leasehold buildings
Office equipment
Research equipment
Plant and machinery
Motor vehicles
As at 30 June 2014
Leasehold buildings
Office equipment
Research equipment
Plant and machinery
Motor vehicles
Net book
value
RMB’000
25,781
629
40
9,161
652
(6,502)
(383)
(16)
(4,454)
(191)
19,279
246
24
4,707
461
36,263
(11,546)
24,717
25,781
647
40
9,597
653
(7,670)
(434)
(22)
(5,228)
(303)
18,111
213
18
4,369
350
36,718
(13,657)
23,061
25,781
675
45
9,612
678
(8,839)
(475)
(28)
(5,960)
(329)
16,942
200
17
3,652
349
36,791
(15,631)
21,160
25,782
694
48
11,642
741
(9,423)
(501)
(31)
(6,376)
(350)
16,359
193
17
5,266
391
38,907
(16,681)
22,226
(a)
All property, plant and equipment held by the Operating Group are located in the PRC.
(b)
The following property, plant and equipment have been pledged to licensed banks as security
for banking facilities granted to the Operating Group as disclosed in Note 15 to the financial
information:–
As at 31 December
2011
2012
2013
RMB’000
RMB’000
RMB’000
At carrying amount:–
Leasehold buildings
17,561
82
16,515
15,469
As at
30 June
2014
RMB’000
14,946
6.
LAND USE RIGHTS
As at 31 December
2011
2012
2013
RMB’000
RMB’000
RMB’000
At cost:–
At 1 January/At 31 December
As at
30 June
2014
RMB’000
2,228
2,228
2,228
2,228
Accumulated amortisation:–
At 1 January
Amortisation charge
129
45
174
45
219
45
264
22
At 31 December
174
219
264
286
Carrying amounts:–
Amortisation due:
– not later than one year
– later than one year
45
2,009
45
1,964
45
1,919
45
1,897
At 31 December/30 June
2,054
2,009
1,964
1,942
m2
m2
m2
m2
20,416
20,416
20,416
20,416
Land areas
The carrying amounts of the land use rights that have been pledged to licensed banks as security for
banking facilities granted to the Operating Group as disclosed in Note 15 to the financial information
are as follows:
As at 31 December
2011
2012
2013
RMB’000
RMB’000
RMB’000
Land use rights
2,054
2,009
1,964
As at
30 June
2014
RMB’000
1,942
Amortisation is provided to write off the cost of the land use rights over the leasehold periods of 50
years.
83
7.
INVENTORIES
As at 31 December
2011
2012
2013
RMB’000
RMB’000
RMB’000
At cost:–
Raw materials
Finished goods
Recognised in profit or loss
Inventories recognised as cost of sales
8.
As at
30 June
2014
RMB’000
30,146
6,303
26,356
13,597
27,545
12,590
29,129
15,575
36,449
39,953
40,135
44,704
292,405
522,008
694,271
377,234
TRADE RECEIVABLES
The Operating Group’s normal trade credit terms range from 30 to 90 days. Other credit terms are
assessed and approved on a case-by-case basis.
9.
OTHER RECEIVABLES, DEPOSIT AND PREPAYMENT
As at 31 December
2011
2012
2013
RMB’000
RMB’000
RMB’000
Other receivables
Prepayment
Amount owing by a director
10.
As at
30 June
2014
RMB’000
20
269
—
28
—
—
113
203
11
176
1,685
11
289
28
327
1,872
As at 31 December
2011
2012
2013
RMB’000
RMB’000
RMB’000
As at
30 June
2014
RMB’000
CASH AND BANK BALANCES
Cash in hand
Cash at banks
89
57,754
160
78,344
123
152,934
137
167,162
Cash and bank balances
Less: Bank balances restricted in use
57,843
(5,425)
78,504
(5,522)
153,057
(4,966)
167,299
(4,772)
Cash and cash equivalents
52,418
72,982
148,091
162,527
0.45% 0.47%
0.42% 0.43%
0.39%
0.39%
Effective interest rate (per annum)
The Chinese Renminbi is not freely convertible into foreign currencies. Under the PRC Foreign
Exchange Regulations and Administration of Settlement, Sales and Payment of Foreign Exchange
Regulations, the Operating Group is permitted to exchange Chinese Renminbi for foreign currencies
through banks that are authorised to conduct foreign exchange business.
84
11.
SHARE CAPITAL
Hong Kong Han He issued 10,000 shares with a par value of HKD1.00 in 2012. The subsidiaries are
incorporated under the laws of the PRC and has a registered capital of USD1,000,000 each.
The movements in the registered capital of the Operating Group are as follows:As at 31 December
2011
2012
2013
RMB’000
RMB’000
RMB’000
As at
30 June
2014
RMB’000
Fully Paid-Up
At 1 January
Addition
22,386
—
22,386
8
22,394
—
22,394
—
31 December 2011, 2012, 2013/30 June 2014
22,386
22,394
22,394
22,394
The registered capital of the entities within the Operating Group comprised of the following:As at 31 December
2011
2012
2013
RMB’000
RMB’000
RMB’000
Fully Paid-Up
Hong Kong Han He
Yantai Kanwa
Zhenhaitang
12.
As at
30 June
2014
RMB’000
—
7,386
15,000
8
7,386
15,000
8
7,386
15,000
8
7,386
15,000
22,386
22,394
22,394
22,394
As at 31 December
2011
2012
2013
RMB’000
RMB’000
RMB’000
As at
30 June
2014
RMB’000
Reserves
Note
Capital reserve
Statutory reserve
Translation reserve
Retained profits
(a)
(b)
31
8,110
—
41,373
31
11,193
—
86,757
31
11,193
*
185,323
31
11,193
*
245,898
49,514
97,981
196,547
257,122
* Amount less than RMB1,000
(a)
Capital Reserve
Capital reserve is premium received on the issue of share capital.
(b)
Statutory Reserve
The statutory reserve represents amounts transferred from profit after taxation of the Operating
Group in accordance with the PRC laws and regulations as explained in Note 4.4(e) to the
financial information.
85
13.
TRADE PAYABLES
The normal trade credit terms granted to the Operating Group range from 60 to 90 days.
14.
OTHER PAYABLES AND ACCRUALS
As at 31 December
2011
2012
2013
RMB’000
RMB’000
RMB’000
Other payable
Accrued salary
Advances from customers
Accruals
Amount owing to a director
As at
30 June
2014
RMB’000
2,903
2,932
225
5,463
1,710
4,519
4,052
4,244
9,737
210
9,394
5,197
—
15,869
—
7,638
1,876
—
11,322
—
13,233
22,762
30,460
20,836
The amount owing to a director is unsecured, interest-free and repayable on demand.
15.
INTEREST-BEARING BANK BORROWINGS
The Operating Group’s interest-bearing bank borrowings were secured over the Operating Group’s
land use rights, property, guaranteed by a director of the Operating Group and a related party.
16.
REVENUE
Revenue represents the net invoiced value of goods sold, after allowances for returns and trade
discounts.
17.
OTHER INCOME
Six months
ended
Years ended 31 December
30 June
2011
2012
2013
2014
RMB’000
RMB’000
RMB’000
RMB’000
Sales of scraps
Sales of raw materials
Realised gain/(loss) on foreign exchange
Unrealised gain on foreign exchange
Other
* Amount less than RMB1,000
86
3,796
10
55
280
—
5,759
*
(130)
1,289
—
7,051
188
847
805
—
3,509
156
—
—
4
4,141
6,918
8,891
3,669
18.
PROFIT BEFORE TAXATION
Six months
ended
Year ended 31 December
30 June
2011
2012
2013
2014
RMB’000
RMB’000
RMB’000
RMB’000
Profit before taxation is arrived at after charging:–
Audit fee
Amortisation of land use rights
Depreciation of property, plant and Equipment
Directors’ remuneration
Interest expense
Loss on disposal of plant and equipment
Staff costs:
– defined contribution plans
– salaries and other benefits
(Gain)/Loss on foreign exchange:
– realised
– unrealised
Interest income
—
45
2,141
532
1,293
2
—
45
2,178
693
1,889
10
*
45
2,155
794
2,535
31
—
22
1,081
272
1,430
—
2,014
14,203
3,478
20,848
4,778
26,352
2,758
13,226
(58)
(190)
(261)
133
(1,277)
(285)
(854)
(798)
(471)
(116)
300
(293)
* Amount less than RMB1,000
19.
INCOME TAX EXPENSE
Six months
ended
Years ended 31 December
30 June
2011
2012
2013
2014
RMB’000
RMB’000
RMB’000
RMB’000
Current tax expense
10,315
24,275
35,531
18,551
A reconciliation of income tax expense applicable to the profit before taxation at the statutory tax rate
to income tax expense at the effective tax rate is as follows:Six months
ended
Years ended 31 December
30 June
2011
2012
2013
2014
RMB’000
RMB’000
RMB’000
RMB’000
Profit before taxation
48,473
108,742
158,568
79,126
Tax at the applicable tax rate of 25%
Tax effects of:–
Non-deductible expenses
Non-taxable income
Tax rate differential
12,118
27,186
39,642
19,782
140
(1,944)
—
179
(3,090)
—
65
(2,178)
(748)
496
(1,727)
—
10,315
24,275
35,531
18,551
The Operating Group’s activities in the PRC are subject to corporation tax of 25 per cent. during the
financial years/period on profit before taxation in accordance with the relevant laws and regulations
in the PRC.
No deferred tax has been provided, as the Operating Group did not have any significant temporary
differences which gave rise to a deferred tax asset or liability at the reporting dates.
87
20.
EARNING PER SHARE
Years ended 31 December
2011
2012
Profit after taxation (RMB)
Weighted average number of
ordinary shares
Basic earnings per share
2013
Six months
ended
30 June
2014
38,158,000
84,467,000
118,037,000
60,575,000
100,000,000
0.38
100,000,000
0.84
100,000,000
1.18
100,000,000
0.61
The diluted loss per share was not applicable as there were no dilutive potential ordinary shares
outstanding at the end of the reporting period. As set out in note 4.2, the financial information has
been prepared on a combined basis. It is of limited significance to calculate earnings per share on
the historical combined equity. Accordingly, a pro-forma earnings per share has been included based
on the relevant number of shares in Aquatic Foods Group plc following the group reorganization but
prior to the issues of shares to raise new funds.
21.
DIVIDENDS
As at 31 December
2011
2012
2013
RMB’000
RMB’000
RMB’000
Dividends declared and paid in respect of
the financial years ended:
– 31 December 2011
– 31 December 2012
– 31 December 2013
As at
30 June
2014
RMB’000
23,000
—
—
—
36,000
—
—
—
19,471
—
—
—
23,000
36,000
19,471
—
The dividend declared and paid was subjected to 10 per cent. witholding tax in accordance with the
relevant laws and regulations in the PRC.
22.
RELATED PARTY DISCLOSURE
(a)
Identities of related parties
The Operating Group has related party relationships with its directors, key management
personnel and entities of which the director and/or by management have significant financial
interests.
88
(b)
Other than those disclosed elsewhere in the financial information, the Operating Group also
carried out the following significant transactions with the related parties as disclosed below:-
Years ended 31 December
2011
2012
2013
RMB’000
RMB’000
RMB’000
Director’s remuneration:
– short-term employee benefits
– defined contribution plans
Other key management personnel:
– short-term employee benefits
– defined contribution plans
23.
For the
six months
ended
30 June
2014
RMB’000
522
10
680
13
779
15
264
8
532
693
794
272
383
8
596
17
1,042
26
318
14
391
613
1,068
332
OPERATING SEGMENTS
Operating segments are prepared in a manner consistent with the internal reporting provided to the
management as its chief operating decision maker in order to allocate resources to segments and to
assess their performance.
Information on business segments is not presented as the Operating Group operates mainly in
processing and trading of aquatic products agricultural and meat products and all its assets, capital
expenditure and operations are in the PRC.
Geographical Segments
The analysis of the Operating Group’s revenue by geographical segments based on customers’
locations is as follows:Six months
ended
Years ended 31 December
30 June
2011
2012
2013
2014
RMB’000
RMB’000
RMB’000
RMB’000
PRC
Outside PRC
24.
179,891
96,531
404,021
90,649
599,814
67,462
326,084
27,046
276,422
494,670
667,276
353,130
FINANCIAL INSTRUMENTS
The Operating Group’s activities are exposed to a variety of market risk (including foreign currency
risk, interest rate risk and equity price risk), credit risk and liquidity risk. The Operating Group’s
overall financial risk management policy focuses on the unpredictability of financial markets and
seeks to minimise potential adverse effects on the Operating Group’s financial performance.
89
24.1 FINANCIAL RISK MANAGEMENT POLICIES
The Operating Group’s policies in respect of the major areas of treasury activity are as follows:(a)
Market Risk
(i)
Foreign Currency Risk
The Operating Group is exposed to foreign currency risk on transactions and balances that are
denominated in currencies other than Chinese Renminbi. The currencies giving rise to this risk are
primarily United States Dollar, Japanese Yen and Hong Kong Dollar. Foreign currency risk is
monitored closely on an ongoing basis to ensure that the net exposure is at an acceptable level.
United
States
Dollar
RMB’000
Japanese
Yen
JPY’000
Chinese
Renminbi
RMB’000
Total
RMB’000
2,325
—
896
—
—
—
38,529
20
56,947
40,854
20
57,843
3,221
—
95,496
98,717
17,638
295
14,474
7,121
—
—
25,079
12,938
9,000
49,838
13,233
23,474
32,407
7,121
47,017
86,545
Net financial (liabilities)/ assets
Less: Net financial liabilities denominated
in the respective entities’ functional currencies
(29,186)
(7,121)
48,479
12,172
—
—
(48,479)
(48,479)
Currency exposure
(29,186)
(7,121)
—
(36,307)
As at 31 December 2011
Financial assets
Trade receivables
Other receivables and deposit
Cash and bank balances
Financial liabilities
Trade payables
Other payables and accruals
Interest-bearing bank borrowings
90
United
States
Dollar
RMB’000
Japanese
Yen
JPY’000
Hong
Kong
Dollar
HKD’000
Chinese
Renminbi
RMB’000
Total
RMB’000
3,560
—
14
—
—
1
—
—
7
87,135
28
78,482
90,695
28
78,504
3,574
1
7
165,645
169,227
9,357
1,840
667
12,667
2,433
3,309
—
—
—
29,737
18,489
28,000
51,761
22,762
31,976
11,864
18,409
—
76,226
106,499
(8,290)
(18,408)
7
89,419
62,728
—
—
(7)
(89,419)
(89,426)
Currency exposure
(8,290)
(18,408)
—
—
(26,698)
As at 31 December 2013
Financial assets
Trade receivables
Other receivables and deposit
Cash and bank balances
1,128
—
11
3,484
—
—
—
11
3
139,108
113
153,043
143,720
124
153,057
1,139
3,484
14
292,264
296,901
3,521
111
3,511
3,132
—
6,458
—
6
—
54,460
30,343
28,001
61,113
30,460
37,970
7,143
9,590
6
112,804
129,543
(6,004)
(6,106)
8
179,460
167,358
—
—
(8)
(179,460)
(179,468)
(6,004)
(6,106)
—
—
(12,110)
The Operating Group
As at 31 December 2012
Financial assets
Trade receivables
Other receivables and deposit
Cash and bank balances
Financial liabilities
Trade payables
Other payables and accruals
Interest-bearing bank borrowings
As at 31 December 2012
Net financial (liabilities)/assets
Less: Net financial liabilities
denominated in the respective
entities’ functional currencies
Financial liabilities
Trade payables
Other payables and accruals
Interest-bearing bank borrowings
As at 31 December 2013
Net financial (liabilities)/assets
Less: Net financial assets/(liabilities)
denominated in the respective
entities’ functional currencies
Currency exposure
91
The Operating Group
As at 30 June 2014
Financial assets
Trade receivables
Other receivables and deposit
Cash and bank balances
Financial liabilities
Trade payables
Other payables and accruals
Interest-bearing bank borrowings
As at 31 December 2014
Net financial (liabilities)/assets
Less: Net financial assets/(liabilities)
denominated in the respective entities
financial currencies
Currency exposure
United
States
Dollar
RMB’000
Japanese
Yen
JPY’000
Hong
Kong
Dollar
HKD’000
Chinese
Renminbi
RMB’000
Total
RMB’000
3,880
—
707
3,868
—
—
—
11
2
130,254
176
166,590
138,002
187
167,299
4,587
3,868
13
297,020
305,488
7,450
91
5,134
9,299
—
—
—
5
—
17,596
20,740
28,000
34,345
20,836
33,134
12,675
9,299
5
66,336
88,315
(8,088)
(5,431)
8
230,684
217,173
—
—
(8)
(230,684)
(230,692)
(8,088)
(5,431)
—
—
(13,519)
Foreign currency risk sensitivity analysis
The following table details the sensitivity analysis to a reasonably possible change in the foreign
currencies at the end of the reporting periods, with all other variables held constant:As at 31 December
2011
2012
2013
As at
30 June
2014
Increase/
Increase/
Increase/
Increase/
(Decrease) (Decrease) (Decrease) (Decrease)
RMB’000
RMB’000
RMB’000
RMB’000
Effects on profit after taxation and on Equity
United States Dollar:
– strengthened by 5%
– weakened by 5%
Japanese Yen JPY:
– strengthened by 5%
– weakened by 5%
(1,094)
1,094
(311)
311
(225)
225
(303)
303
(267)
67
(690)
690
(229)
229
(204)
204
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will
fluctuate because of changes in market interest rates. The Operating Group’s exposure to interest rate
risk arises mainly from interest-bearing financial liabilities. The Operating Group’s policy is to obtain
the most favourable interest rates available.
Information relating to the Operating Group’s exposure to the interest rate risk of the financial
liabilities is disclosed below.
92
Interest rate risk sensitivity analysis
The following table details the sensitivity analysis to a reasonably possible change in the interest rates
at the end of the reporting periods, with all other variables held constant:As at 31 December
2011
2012
2013
Increase/
Increase/
Increase/
(Decrease)
(Decrease)
(Decrease)
RMB’000
RMB’000
RMB’000
Effects on profit after tax and equity
Increase of 100 basis points (bp)
Decrease of 100bp
(iii)
(176)
176
(240)
240
(285)
285
As at
30 June
2014
Increase/
(Decrease)
RMB’000
(249)
249
Equity Price Risk
The Operating Group does not have any quoted investments and hence is not exposed to equity price
risk.
(b)
Credit Risk
The Operating Group’s exposure to credit risk, or the risk of counterparties defaulting, arises mainly
from trade and other receivables. The Operating Group manages its exposure to credit risk by the
application of credit approvals, credit limits and monitoring procedures on an ongoing basis. For
other financial assets (including cash and bank balances), the Operating Group minimises credit risk
by dealing exclusively with high credit rating counterparties.
The Operating Group establishes an allowance for impairment that represents its estimate of incurred
losses in respect of the trade and other receivables as appropriate. The main components of this
allowance are a specific loss component that relates to individually significant exposures, and a
collective loss component established for Operating Group’s of similar assets in respect of losses that
have been incurred but not yet identified. Impairment is estimated by management based on prior
experience and the current economic environment.
Credit risk concentration profile
The Operating Group does not have any major concentration of credit risk related to any individual
customer or counterparty.
Exposure to credit risk
As the Operating Group does not hold any collateral, the maximum exposure to credit risk is
represented by the carrying amount of the financial assets at the end of the reporting periods.
The exposure of credit risk for trade receivables by geographical region is as follows:As at 31 December
2011
2012
2013
RMB’000
RMB’000
RMB’000
PRC
Overseas
93
As at
30 June
2014
RMB’000
38,529
2,325
87,135
3,560
139,108
4,612
130,254
7,748
40,854
90,695
143,720
138,002
Ageing analysis
The ageing analysis of the Operating Group’s trade receivables at the end of the reporting periods is
as follows:
As at 31 December
2011
2012
2013
RMB’000
RMB’000
RMB’000
Not past due and not impaired
Past due but not impaired:
- 3 to 6 months
- over 6 months
As at
30 June
2014
RMB’000
40,820
90,616
143,720
115,940
—
34
12
67
—
—
22,062
—
40,854
90,695
143,720
138,002
Trade receivables that are past due but not impaired
The Operating Group believes that no impairment allowance is necessary in respect of these trade
receivables. They are substantially companies with good collection track record and no recent history
of default.
Trade receivables that are neither past due nor impaired
A significant portion of trade receivables that are neither past due nor impaired are regular customers
that have been transacting with the Operating Group. The Group uses ageing analysis to monitor the
credit quality of the trade receivables. Any receivables having significant balances past due or more
than 180 days, which are deemed to have higher credit risk, are monitored individually.
(c)
Liquidity Risk
Liquidity risk arises mainly from general funding and business activities. The Operating Group
practises prudent risk management by maintaining sufficient cash balances and the availability of
funding through certain committed credit facilities.
The following table sets out the maturity profile of the financial liabilities as at the end of the reporting
periods based on contractual undiscounted cash flows (including interest payments computed using
contractual rates or, if floating, based on the rates at the end of the reporting periods):Weighted
average
effective
rate
%
As at 31 December 2011
Trade payables
Other payables and accruals
Interest-bearing bank borrowings
—
—
6.27
Contractual
Carrying undiscounted
amount
cash flows
RMB’000
RMB’000
Within
1 Year
RMB’000
1–5
Years
RMB’000
Over 5
Years
RMB’000
49,838
13,233
23,474
49,838
13,233
23,752
49,838
13,233
23,752
—
—
—
—
—
—
86,545
86,823
86,823
—
—
94
Weighted
average
effective
rate
%
As at 31 December 2012
Trade payables
Other payables and accruals
Interest-bearing bank
borrowings
1–5
Years
RMB’000
Over 5
Years
RMB’000
51,761
22,762
51,761
22,762
51,761
22,762
—
—
—
—
6.98 – 7.80
31,976
33,491
33,491
—
—
106,499
108,014
108,014
—
—
Contractual
Carrying undiscounted
amount
cash flows
RMB’000
RMB’000
Within
1 Year
RMB’000
1–5
Years
RMB’000
Over 5
Years
RMB’000
—
—
61,113
30,460
61,113
30,460
61,113
30,460
—
—
—
—
6.24 – 6.98
37,970
39,664
39,664
—
—
129,543
131,237
131,237
—
—
Contractual
Carrying undiscounted
amount
cash flows
RMB’000
RMB’000
Within
1 Year
RMB’000
1–5
Years
RMB’000
Over 5
Years
RMB’000
Weighted
average
effective
rate
%
As at 30 June 2014
Trade payables
Other payables and accruals
Interest-bearing bank
borrowings
Within
1 Year
RMB’000
—
—
Weighted
average
effective
rate
%
As at 31 December 2013
Trade payables
Other payables and accruals
Interest-bearing bank
borrowings
Contractual
Carrying undiscounted
amount
cash flows
RMB’000
RMB’000
—
—
34,345
20,836
34,345
20,836
34,345
20,836
—
—
—
—
6.23-8.11
33,134
33,666
33,666
—
—
88,315
88,847
88,847
—
—
24.2 CAPITAL RISK MANAGEMENT
The Operating Group manages its capital to ensure that entities within the Operating Group will be
able to maintain an optimal capital structure so as to support their businesses and maximise
shareholders’ value. To achieve this objective, the Operating Group may make adjustments to the
capital structure in view of changes in economic conditions, such as adjusting the amount of
dividend payment, returning of capital to shareholders or issuing new shares.
The Operating Group manages its capital based on debt-to-equity ratio that complies with debt
covenants and regulatory, if any. The debt-to-equity ratio is calculated as total borrowings from
financial institutions divided by total equity.
There was no change in the Operating Group’s approach to capital management during the financial
period under review.
The debt-to-equity ratio of the Operating Group at the end of the financial year is not presented as its
cash and cash equivalents exceeded the total debts.
95
24.3 CLASSIFICATION OF FINANCIAL INSTRUMENTS
As at 31 December
2011
2012
2013
RMB’000
RMB’000
RMB’000
Financial Asset
Loan and receivables financial assets
Trade receivables
Other receivables and deposit
Cash and bank balances
Financial Liability
Other financial liabilities
Trade payables
Other payables and accruals
Interest-bearing bank borrowings
As at
30 June
2014
RMB’000
40,854
20
57,843
90,695
28
78,504
143,720
124
153,057
138,002
187
167,299
98,717
169,227
296,901
305,488
49,838
13,233
23,474
51,761
22,762
31,976
61,113
30,460
37,970
34,345
20,836
33,134
86,545
106,499
129,543
88,315
24.4 FAIR VALUES MEASUREMENTS
At 31 December 2011, 2012, 2013 and 30 June 2014, there were no financial instruments carried at
fair values.
The fair values of the financial assets and financial liabilities approximated their carrying amounts
due to the relatively short-term maturity of the financial instruments (maturity within the next 12
months). The fair values are determined by discounting the relevant cash flows at rates equal to the
current market interest rate plus appropriate credit rating, where necessary. The fair values are
included in level 2 of the fair value hierarchy.
25.
SUBSEQUENT EVENTS
Pursuant to a framework agreement dated 23 October 2014 between, inter alia, (1) the Company, (2)
Hong Kong Han He, (3) Li Xianzhi and (4) the Founder Investors, the Company:
(i)
agreed to subscribe for 100,000 shares of HKD 0.001 each in the issued share capital of Hong
Kong Han He; and
(ii)
agreed to acquire 10,000 shares of HKD 1 each in the share capital of Hong Kong Han He from
Li Xianzhi; and
(iii)
allotted and issued 49,999,998 Ordinary Shares (The “Consideration Shares”) to the Initial
Investors: 25,499,998 Ordinary Shares to Oceanic Expert, 2,000,000 Ordinary Shares to First
Honour Ventures Limited, 2,250,000 Ordinary Shares to Righton Investment Limited,
2,400,000 Ordinary Shares to One Capital Group Investment (Malta) Limited, 2,250,000
Ordinary Shares to Lim Koon Keong, 2,350,000 Ordinary Shares to Thomas Tan Hock Nieh,
2,750,000 Ordinary Shares to Midasi (Malta) Investment Limited, 3,250,000 Ordinary shares
to Pioneer Sky Investments Limited, 2,100,000 Ordinary Shares to East Sincerity Capital China
Co., Ltd., 2,250,000 Ordinary Shares to Eternal View Investments Limited and 1,900,000
Ordinary Shares to United Talent Investments Limited.
Pursuant to an agreement dated 9 September 2014 between (1) Yantai Kanwa, (2) Zhenhaitang, (3)
Ms Du Qingping, (4) Mr Li Xianzhi and (5) Mr Lei Feng, Yantai Kanwa agreed to acquire the entire
96
issued equity interest of Zhenhaitang from each of Ms Du Qingping, Mr Li Xianzhi and Mr Lei Feng
in consideration of RMB 15,000,000.
26.
ULTIMATE PARENT COMPANY
At the date of this report the ultimate controlling party of the Operating Group is considered to be
the Company, which is incorporated in Jersey.
27.
NATURE OF FINANCIAL INFORMATION
The financial information presented above does not constitute statutory financial statements for the
period under review.
97
E.
INTERIM FINANCIAL INFORMATION OF THE OPERATING GROUP FOR THE SIX MONTHS
ENDED 30 JUNE 2014
Set out below are the audited results of the Operating Group for the six months ended 30 June 2014,
together with the unaudited results for the comparative six month period ended 30 June 2013.
Statements of Consolidated Comprehensive Income
The statements of consolidated comprehensive income of the Operating Group for the six months
ended 30 June 2014 and the six months ended 30 June 2013 are set out below:
Six months Six months
ended
ended
30 June
30 June
2014
2013
Note
RMB’000
RMB’000
(Audited) (Unaudited)
Revenue
Cost of sales
353,130
(241,033)
272,316
(184,063)
Gross profit
Other income
Selling and distribution expenses
Administrative expenses
Other expenses
112,097
3,669
(29,158)
(6,198)
(183)
88,253
4,865
(21,701)
(5,366)
(29)
Operating profit
Finance income
Finance costs
80,227
293
(1,394)
66,022
205
(1,298)
Profit on ordinary activities before taxation
Income tax expense
79,126
(18,551)
64,929
(14,642)
Profit for the period after taxation
Other comprehensive income/(losses)
60,575
—
50,287
—
Total comprehensive income attributable to owners of the parent
60,575
50,287
60,575
—
0.61
50,287
Earnings per share:
Basic and diluted
98
0.50
Statements of Consolidated Financial Position
The statements of consolidated financial position of the Operating Group as at 30 June 2014 and at
31 December 2013 are set out below:
Note
Non-current assets
Property, plant and equipment
Land use rights
5
6
Current assets
Inventories
Trade receivables
Other receivables, deposit and prepayment
Cash and cash equivalents
7
8
9
10
Total Assets
Current liabilities
Trade payables
Other payables, deposits and pre-payments
Interest bearing bank borrowings
Income tax payable
13
14
15
Equity
Share capital
Share premium
Statutory reserve
Accumulated profits
11
12
Total Equity and Liabilities
99
As at
As at
30 June 31 December
2014
2013
RMB’000
RMB’000
(Audited)
(Audited)
22,226
1,942
21,160
1,964
24,168
23,124
44,704
138,002
1,872
167,299
40,135
143,720
327
153,057
351,877
337,239
376,045
360,363
34,345
20,836
33,134
8,214
61,113
30,460
37,970
11,879
96,529
141,422
22,394
31
11,193
245,898
22,394
31
11,193
185,323
279,516
218,941
376,045
360,363
Statements of Consolidated Changes in Equity
Attributable to the owners of the parents
Share
capital
RMB’000
Balance at
31 December 2013
Other comprehensive
income
Profit for the
six months ended
30 June 2014
Balance at 30 June 2014
22,394
Share Accumulated
premium
profits
RMB’000
RMB’000
31
185,323
Statutory
reserve
RMB’000
Foreign
currency
translation
reserve
RMB’000
Total
RMB’000
11,193
—
218,941
—
60,575
22,394
31
100
245,898
60,575
11,193
—
279,516
Statements of Consolidated Cash Flows
The statements of consolidated cash flows for the Operating Group for the six months ended 30 June
2014 and 30 June 2013 are set out below:
Six months Six months
ended
ended
30 June
30 June
2014
2013
(Audited) (Unaudited)
RMB’000
RMB’000
Cash flow from operating activities
Profit for the period before taxation
Adjustment for:
Amortisation of land use rights
Depreciation of property, plant and equipment
Interest expense
Loss on disposal of plant and equipment
Interest income
Unrealised gain on foreign exchange
79,126
64,929
22
1,081
1,394
—
(293)
300
22
1,088
1,298
—
(205)
—
Operating cash flows before movements in working capital
(Increase)/decrease in inventories
(Increase)/decrease in trade and other receivables
Decrease in trade and other payables
Decrease in bank balance restricted in use
81,630
(4,569)
4,220
(36,810)
194
67,132
8,238
(6,246)
(21,614)
—
Cash generated from operating activities
Interest paid
Income tax paid
44,665
(1,394)
(22,216)
47,510
(1,298)
(13,949)
Net cash generated from operating activities
21,055
32,263
Cash flows (for)/from investing activities
Acquisition of property, plant and equipment
Proceeds from disposal of property, plant and equipment
Interest received
(2,155)
7
293
(77)
52
205
Net cash used in investing activities
(1,855)
180
Cash flows (for)/from financing activities
Issuance of share capital
Dividends declared and paid
Net drawdown/(reduction) of interest-bearing bank borrowings
—
—
(4,836)
(20,000)
—
1,410
Net cash used in financing activities
(4,836)
(18,590)
Net increase in cash & cash equivalents
Effects of foreign exchange translation
Cash and equivalent at beginning of period
14,364
72
148,091
13,853
—
72,982
Cash and equivalent at end of period
162,527
86,835
101
Notes to the Interim Financial Information
1.
Presentation currency
The Financial Information has been presented in Renminbi (“RMB”) and rounded to the nearest
thousand.
2.
Summary of significant accounting policies
Basis of preparation
The Financial Information has been prepared in accordance with International Financial Reporting
Standards (“IFRS”) and on the historical cost convention, unless otherwise indicated in this summary
of significant accounting policies.
3.
Income Tax expense
The tax charge on profits assessable has been calculated at the rates of tax prevailing in the countries
in which the Operating Group operates, based on existing legislation, interpretation and practices in
respect thereof.
4.
Share capital
Authorised, issued and fully paid:
1 ordinary share of no par value each
5.
As at
30 June
2014
RMB’000
As at
31 December
2013
RMB’000
—
—
Subsequent events
Pursuant to a framework agreement dated 23 October 2014 between, inter alia, (1) the Company, (2)
Hong Kong Han He, (3) Li Xianzhi and (4) the Founder Investors, the Company:
(i)
agreed to subscribe for 100,000 shares of HKD 0.001 each in the issued share capital of Hong
Kong Han He; and
(ii)
agreed to acquire 10,000 shares of HKD 1 each in the share capital of Hong Kong Han He from
Li Xianzhi; and
(iii)
allotted and issued 49,999,998 Ordinary Shares (The “Consideration Shares”) to the Initial
Investors: 25,500,000 Ordinary Shares to Oceanic Expert, 2,000,000 Ordinary Shares to First
Honour Ventures Limited, 2,250,000 Ordinary Shares to Righton Investment Limited,
2,400,000 Ordinary Shares to One Capital Group Investment (Malta) Limited, 2,250,000
Ordinary Shares to Lim Koon Keong, 2,350,000 Ordinary Shares to Thomas Tan Hock Nieh,
2,750,000 Ordinary Shares to Midasi (Malta) Investment Limited, 3,250,000 Ordinary shares
to Pioneer Sky Investments Limited, 2,100,000 Ordinary Shares to East Sincerity Capital Chinal
Co., Ltd., 2,250,000 Ordinary Shares to Eternal View Investments Limited and 1,900,000
Ordinary Shares to United Talent Investments Limited.
Pursuant to an agreement dated 9 September 2014 between (1) Yantai Kanwa, (2) Zhenhaitang, (3)
Ms Du Qingping, (4) Mr Li Xianzhi and (5) Mr Lei Feng, Yantai Kanwa agreed to acquire the entire
issued equity interest of Zhenhaitang from each of Ms Du Qingping, Mr Li Xianzhi and Mr Lei Feng
in consideration of RMB 15,000,000.
102
6.
Nature of financial information
The financial information does not constitute Statutory Accounts for the period under review.
7.
Related Party Disclosure
The Operating Group has related party relationships with its directors, key management personnel
and entities of which the director and/or by management have significant financial interests.
Further information on related party transactions is contained in paragraph 11 of Part V of this
Admission Document.
103
F.
ACCOUNTANTS’ REPORT ON THE UNAUDITED PRO FORMA STATEMENT OF
AGGREGATED NET ASSETS OF THE GROUP
Crowe Clark Whitehill LLP
Chartered Accountants
Member of Crowe Horwath International
St Bride's House
10 Salisbury Square
London EC4Y 8EH, UK
+44 (0)20 7842 7100
+44 (0)20 7583 1720
DX: 0014 London Chancery Lane
www.croweclarkwhitehill.co.uk
28 January 2015
The Directors
Aquatic Foods Group Plc
13-14 Esplanade
St Helier
Jersey JE1 1BD
The Partners
S P Angel Corporate Finance LLP
Prince Frederick House
35-39 Maddox Street
London W1S 2PP
Dear Sirs
Introduction
We report on the unaudited pro forma financial information of Aquatic Foods Group Plc (the
“Company”) and its subsidiaries (together, the “Group”) set out in Part III(G) of the AIM Admission
Document (the “Document”) dated 28 January 2015, which has been prepared on the basis
described, for illustrative purposes only, to provide information about how the Placing, Subscription
and Admission might have affected the net assets presented on the basis of the accounting policies
adopted by the Company in preparing the audited financial information for the period ended 30 June
2014 for the Operating Group and 31 August 3014 for the Company. This report is required by
Schedule Two of the AIM Rules for Companies and is given for the purpose of complying with that
schedule and for no other purpose.
Responsibilities
It is the responsibility of the Directors of the Company to prepare the unaudited pro forma financial
information in accordance with Schedule Two of the AIM Rules for Companies.
It is our responsibility to form an opinion, in accordance with Schedule Two of the AIM Rules, as to
the proper compilation of the Pro Forma Financial Information and to report that opinion to you.
In providing this opinion we are not updating or refreshing any reports or opinions previously made
by us on any financial information used in the compilation of the Pro Forma Financial Information,
nor do we accept responsibility for such reports or opinions beyond that owed to those to whom
those reports or opinions were addressed by us at the dates of their issue.
Basis of opinion
We conducted our work in accordance with Standards of Investment Reporting issued by the Auditing
Practices Board in the United Kingdom. The work that we performed for the purpose of making this
104
report, which involved no independent examination of any of the underlying financial information,
consisted primarily of comparing the unadjusted financial information with the source documents,
considering the evidence supporting the adjustments and discussing the Pro Forma Financial
Information with the Directors.
We planned and performed our work so as to obtain all the information and explanations which we
considered necessary in order to provide us with reasonable assurance that the Pro Forma Financial
Information has been properly compiled on the basis stated and that such basis is consistent with the
accounting policies of the Company.
Our work has not been carried out in accordance with auditing or other standards and practices
generally accepted in jurisdictions outside the United Kingdom and accordingly should not be relied
upon as if it had been carried out in accordance with those standards and practices.
Opinion
In our opinion:
(a)
the Pro Forma Financial Information has been properly complied on the basis stated; and
(b)
such basis is consistent with the accounting policies of the Company.
Declaration
For the purpose of Paragraph (a) of Schedule Two of the AIM Rules for Companies, we are responsible
for this report as part of the Document and declare that we have taken all reasonable care to ensure
that the information contained in this report is, to the best of our knowledge, in accordance with the
facts and contains no omission likely to affect its import. This declaration is included in the Document
in compliance with Schedule Two of the AIM Rules for Companies.
Yours faithfully
Crowe Clark Whitehill LLP
105
G.
UNAUDITED PRO-FORMA STATEMENT OF AGGREGATED NET ASSETS OF THE
GROUP
Set out below is an unaudited pro forma statement of aggregated net assets of the Group, which has
been prepared on the basis of the Company’s financial information for the period ended 31 August
2014 and the pro forma aggregated financial information of the Operating Group for the six months
ended 30 June 2014, as adjusted for the Placing and Subscription proceeds, as set out in the notes
below. The unaudited pro forma statement has been prepared for illustrative purposes only and,
because of its nature, will not represent the actual consolidated financial position of the Company at
the date of Admission.
Unaudited pro forma statement of aggregated net assets
Placing
and
The
Company
RMB’000
31 August
2014
Audited
Non-current asset
Property, plant and equipment
Land use rights
Operating Subscription
Group adjustments
RMB’000
RMB’000
30 June
2014
Audited Unaudited
Unaudited
Pro forma
net assets
of the
Group
RMB’000
Unaudited
—
—
22,226
1,942
22,226
1,942
—
24,168
24,168
—
—
—
—
44,704
138,002
1,872
167,299
82,583
44,704
138,002
1,872
249,882
—
351,877
82,583
434,460
Total assets
—
376,045
82,583
458,628
Current liabilities
Trade payables
Other payables and accruals
Interest bearing bank borrowings
Income tax payable
—
—
—
—
34,345
20,836
33,134
8,214
—
96,529
—
96,529
—
279,516
82,583
362,099
Current assets
Inventories
Trade and receivables
Other receivables, deposits and prepayments
Cash and bank balance
Net assets
34,345
20,836
33,134
8,214
Notes:
1.
The statement of financial position of the Company as at 31 August 2014 has been extracted and converted from its reporting
currency of British Pound Sterling to Chinese Renminbi (approximately GBP £1: RMB 10), being the presentation currency
of the Operating Group, without further adjustments from the Company’s financial information set out in Part III (B) of the
Admission Document. No account has been taken of the activities of the Company subsequent to 31 August 2014.
2.
The statement of financial position of the Operating Group as at 30 June 2014 has been extracted without adjustment from
the Operating Group’s financial information set out in Part III (C) of the Admission Document. No account has been taken
of the activities of the Operating Group subsequent to 30 June 2014.
3.
The Company raised £9.3 million (approximately RMB 93 million) (gross) from the Placing and Subscription. Associated
costs of the Placing and Subscription were approximately £1.0 million (approximately RMB 10 million).
4.
The Directors consider that the substance of the acquisition of the Operating Group by the Company is that of a reverse
acquisition and that, in order to give a true and fair view, the reverse acquisition accounting method, as permitted by IFRS
3 “Business combinations”, will be adopted as the basis of consolidation in the first published accounts of the Company
following completion of the acquisition. Any goodwill arising under reverse acquisition accounting will be accounted for
within the Income Statement on consolidation.
106
PART IV
MARKET RESEARCH REPORT
Packaged Seafood Production Industry in China
A custom report compiled by Euromonitor International for
Hong Kong Han He Holding Company Limited
Last updated 28 January 2015
(The research was primarily performed during June to August of 2014)
+86 21 6032 1088
www.euromonitor.com
107
The information that appears in this Industry Overview has been prepared by Euromonitor
International Limited and reflects estimates of market conditions based publicly available sources
and trade opinion surveys, and is prepared primarily as a market research tool. References to
Euromonitor International Limited should not be considered as the opinion of Euromonitor
International Limited as to the value of any security or the advisability of investing in the Company.
The Directors believe that the sources of information contained in this Industry Overview are
appropriate sources for such information and have taken reasonable care in reproducing such
information. The Directors have no reason to believe that such information is false or misleading
or that any material fact has been omitted that would render such information false or misleading.
The information prepared by Euromonitor International Limited and set out in this Industry
Overview has not been independently verified by the Group, the Nominated Adviser or any other
party involved in the Admission and neither they nor Euromonitor International Limited give any
representations as to its accuracy and the information should not be relied upon in making, or
refraining from making, any investment decision.
108
Table of Contents
1.
RESEARCH BACKGROUND
1.1
Research Objective
1.2
Research Definition and Coverage
1.3
1.2.1
Geographic Coverage
1.2.2
Product Definitions
Research Methodology
Table 1
2.
3.
MACRO ECONOMY IN CHINA
Chart 1
Value of GDP, per Capita Annual Disposable/Net Income
of Residents, 2008-2013
Chart 2
Real Growth of GDP, per Capita Annual Disposable/
Net Income, 2008-2013
Table 2
China Population, 2008-2013 (‘0000 people)
Chart 3
Population of High-income People, 2009-2013 (‘000)
PRODUCTION OF SEAFOOD IN CHINA
3.1
3.2
3.3
4.
Number of Key Trade Interview Participants
Overview
Table 3
Seafood Production Volume in China (‘0000 tons), 2012
Table 4
Seafood Production Volume in China (‘0000 tons), 2009-2012
Market Drivers and Constraints
3.3.1
Market Drivers
3.3.2
Constraints
Challenges
PACKAGED SEAFOOD PRODUCTS
4.1
Table 5
Wages and Wages Related Expenses of Several Seafood
Enterprises, 2011-2013 (RMB)
Table 6
Employees Number in Registration by End of the Year,
2011-2013
Table 7
Per Employee Wage in Average by Annum, 2011-2013, RMB
Table 8
The Unit Value of Raw Sea Fish Imported by China,
2007-2013 (US$/kg)
Packaged Frozen Sea Fish Production in China
4.1.1
Overview
Table 9
Raw Sea Fish Supply in China (tons), 2009-2012
Table 10 Leading Frozen Fish Exporters’ Distribution by Export Volume
in China, 2013
Chart 4
Export Quantity of Package Sea Fish By China, 2005-2013, Tons
Chart 3
Production Volume (tons) and Growth Rate for Packaged
Frozen Sea Fish in China, 2009-2018
109
Table 11 The Exported Unit Value of Some Major Sea Fish Species,
2008-2013
4.1.2
Outlook
4.1.3
Competitive Landscape
Table 12 Top 5 Packaged Frozen Sea Fish Manufacturers (in terms
of production volume), 2013
4.2
Packaged Frozen Cephalopods Production in China
4.2.1
Overview
Table 13 Raw Cephalopods Supply in China (tons), 2009-2012
Chart 4
Production Volume (tons) and Growth for Packaged
Frozen Cephalopods in China, 2009-2018
Table 14 Exported Unit Value of Packaged Cephalopods
of China, 2008-2013
4.2.2
Outlook
4.2.3
Competitive Landscape
Table 15 Top 5 Packaged Frozen Cephalopods Manufacturers
(in terms of production volume), 2013
4.3
Packaged Sea Cucumbers Production in China
4.3.1
Overview
Table 16 Sea Cucumber Production in China (tons), 2009-2013
Chart 5
Production Volume (tons) and Growth Rate for Packaged
Sea Cucumbers in China, 2009-2018
Table 17 Raw Sea Cucumbers Wholesale Price of Shandong Homey
Aquatic Devept. Co., 2008-2013
4.3.2
Outlook
4.3.3
Competitive Landscape
Table 18 Top 5 Packaged Sea Cucumber Manufacturers (in terms of
production volume), 2013
110
1.
RESEARCH BACKGROUND
1.1
RESEARCH OBJECTIVE
Aquatic Foods Group plc
This is an independent assessment of the seafood market in Mainland China (focusing on packaged
frozen sea fish products, packaged sea cucumbers & packaged frozen cephalopods which have
undergone basic processing) in the form of an Industry Overview report that has been prepared on
behalf of Aquatic Foods Group plc in connection with its proposed Admission to the AIM market of
the London Stock Exchange.
Key objectives of this research are:
•
Market definitions and methodology: the disclaimer, the market definitions and a summary of
the methodology, including key sources and the trade opinion survey.
•
Macro-economic environment: data and analysis of the macro-economic environment and its
impact on the seafood market in Mainland China (historic and forecast).
•
Market trends and performance review: market size data with supporting analysis to explain
trends in the data (historic and forecast).
•
Market drivers, constraints and entry barriers: analysis of market drivers and possible
constraints and their impact on the market’s outlook and potential.
•
Competitive landscape: market shares/ranking and analysis of the competitive landscape
(historic).
1.2
RESEARCH DEFINITION AND COVERAGE
Euromonitor, founded in 1972, is a private and independent provider of business intelligence on
industries, countries and consumers. Euromonitor conducts its research in accordance with the
guidelines and practices set by the European Society for Opinion and Marketing Research (ESOMAR),
an international and independent market research association.
The Euromonitor Report was conducted independently and professionally and primarily undertook
top-down central research with bottom-up intelligence to present a more comprehensive and
accurate picture of the seafood market in China.
1.2.1 Geographic Coverage
•
Mainland China
1.2.2 Product Definitions
Seafood
Seafood, defined to include all types of live sea creatures (meant for consumption as food) which are
either caught from the sea or reared in sea water, e.g. crustaceans, fishes, mollusks, etc.
Packaged frozen sea fish products
Packaged frozen sea fish products which are uncooked and have undergone basic processing (e.g.
cutting, cleaning, flavouring, freezing, etc.). Fresh-water fish variants, fresh fishes, chilled fish
products, and the fish products which have undergone deep processing (i.e. retort canned fishes, fish
balls, etc.) are excluded from this study.
111
Packaged sea cucumbers
Packaged sea cucumbers which are uncooked and have undergone basic processing (e.g. drying,
high-pressure processing, freezing, etc.).
Packaged frozen cephalopods
Packaged frozen cephalopods which are uncooked and have undergone basic processing (e.g.
cutting, cleaning, flavouring, freezing, etc.).
1.3
RESEARCH METHODOLOGY
Euromonitor’s research methodology offers a combination of primary and secondary research. Our
approach builds a market consensus view of size, shape and trends across each category.
•
Secondary Research
Our analysts are experienced in gathering information from multiple, relevant published data
sources. However, published data is a starting point, and though useful for first estimates and insights,
needs to be refined and confirmed.
(1)
Authority statistics, reports and/or databases (e.g. China National Statistics Yearbook, The
Yearbook of China Fishery Statistics), etc.
(2)
Trade associations and other semi-official sources, such as Zhejiang Aquatic Product
Processing and Marketing Association.
(3)
Independent analyst and research group reports.
(4)
Euromonitor Passport data.
•
Company Research
Where relevant, some brief corporate intelligence drawn from sources such as the annual report and
financial statements published by the brand owners, distributors and retailers within the industry.
In addition, company websites have been reviewed to explore the product/brand portfolio, new
product launches and technology development, sales coverage, significant investment and future
plans of the reviewed industry players.
•
Primary Research
Euromonitor conducted qualitative based trade interviews, not identified by the number of survey
samples, but by the assessment of the quality of the answers received, and the intelligent and
transparent analysis of that data.
To generate an industry consensus and provide perspective on the market size and growth,
Euromonitor conducted trade interviews with multiple organizations, such as: trade associations (e.g.
China Society of Fisheries), manufacturers, and distributors to augment the estimate of the market
size, growth trend and competitive landscape.
Table 1
Number of Key Trade Interview Participants
No. of
Interviews
Target Organization
Industry Observers
Seafood Processing Companies
Raw Seafood Suppliers
Distributors and others
2
16
7
2
Total
27
112
•
Projection
Specifically for ensuring forecasting accuracy, Euromonitor adopted its standard practice of
forecasting in terms of market size, growth trends, etc., on the basis of a comprehensive and in-depth
review of the historical market development, as well as a cross-check with established
government/industry figures and trade interviews. The Euromonitor Report is based on the following
principal assumptions:
•
Stable demand from the overseas market, no big changes in export and import tariff policies in
China and other countries; with a favourable economic environment and accelerating
urbanization rate, more people would consume packaged seafood products.
•
The trends for packaged seafood manufacturers and end users will not change significantly
during the forecast period.
•
More policies are expected to be enacted by the government to standardize the operations of
the packaged seafood manufacturer industry, which will drive the consolidation rate increase.
•
Data Validation and Integrity Assessment
Both secondary and primary sources will be leveraged to validate any collected data or information
with no reliance on any single source. A test of each respondent’s viewpoints against those of others
is applied to eliminate possible bias from various sources. The rankings depicted in the Euromonitor
Report are based on primary and secondary research, as well as data validation.
2.
MACRO ECONOMY IN CHINA
Favourable Macro Economy in China
China’s GDP saw double digit growth from 2001 – 2008, and accelerated its growth prior to 2008
even as the world financial crisis began to escalate. China suffered less from the recession and shifted
earlier than the rest of the world, with double-digit GDP growth of 10.4% in 2010, surpassing Japan
as the world’s second largest economy. In 2011 and 2012, China still had a 9.3% and 7.7% real
growth rate.
Preliminary statistical data from the National Bureau of Statistics of China indicates that China’s GDP
was RMB56.9 trillion in 2013, achieving a real growth of 7.7% from 2012. This is primarily
attributable to the government’s active launch of a quantitative easing policy to encourage
investment, as well as its sustained policy initiatives to drive domestic demand.
Increasing Disposable Income
Along with China’s rapid economic growth, disposable income has grown significantly. According to
the National Bureau of Statistics, the per capita annual disposable income of urban residents in China
increased from RMB 15,781 in 2007 to RMB 26,995 in 2013, representing a CAGR of 11.3%. During
the same period, the per capita annual net income of rural residents in China increased from RMB
4,761 to RMB 8,896, representing a CAGR of 13.3%.
113
Chart 1
Value of GDP, per Capita Annual Disposable/Net Income of Residents, 2008-2013
Source: National Bureau of Statistics of China
Chart 2
Real Growth of GDP, per Capita Annual Disposable/Net Income, 2008-2013
Source: National Bureau of Statistics of China
China has devoted itself to a shift in economic structure that promotes more growth from domestic
consumption and investment rather than relying significantly on export growth. The national Twelfth
Five-Year Plan (2010-2015) indicated that the government would address the evolving mode of
economic growth and place a high premium on stimulating domestic demand by continued
urbanization and a notable rise of personal disposable income. This is expected to drive more
demand for nutritional packaged seafood products.
Growing population and urbanization rate
The pace of urbanization in China has accelerated. In 2013, the urbanization rate in China reached
53.7%, with a total urban population of approximately 731 million, an increase of 86 million from
2008.
114
Table 2
China Population, 2008-2013 (‘0000 people)
Population (million)
Urban (million)
Rural (million)
Urbanization rate
2009
2010
2011
2012
2013
1,334.5
645.1
689.4
48.3%
1,340.9
669.8
671.1
49.9%
1,347.4
690.8
656.6
51.3%
1,354.0
711.8
642.2
52.6%
1,360.7
731.1
629.6
53.7%
Source: National Bureau of Statistics of China
More People Start to Consume Processed Natural Seafood
Natural seafood is becoming increasingly acknowledged for its nutritional and health benefits. With
the development of seafood processing technologies, more convenient packaged seafood is expected
to be introduced nationwide. These factors are expected to drive growth in consumption.
According to trade sources – “Driven by rising incomes and the growing availability of imported and
packaged foods, there are more food choices available than ever for Chinese people. Consumers are
therefore paying greater attention to ingredients and what exactly they are eating in a bid to make
healthier lifestyle choices.”
Rising high-income population in China
High-income people are the major consumption group of high-end natural seafood products, as they
pursue a high-quality life. Adjustment of the industrial structure in China has resulted in the rising
market demand for professionals, represented by high-tech specialists, financial specialists and
lawyers, etc. Meanwhile, the number of educated people in China has been rising over time. Various
professionals in China, such as successful businessmen and senior white collar workers, form the
major part of the high-income population. These people pursue a healthy life style, and tend to be
more likely to purchase high-quality natural seafood products.
The population of high-income people has witnessed robust growth in the past several years. The
annual growth rate of the high-income population enjoyed an increase of over 20%, 31% and 28%
respectively in 2010, 2011 and 2012. In 2013, the population of high-income people amounted to
35.2 million, up from 13.8 million in 2009.
Chart 3
Population of High-income People, 2009-2013 (‘000)
Source: Euromonitor Passport Data – Countries and Consumers 2013
* Note that high-income people in this report refers to those with an annual gross income of over US$20,001 (includes
US$20,001).
115
With the increase in disposable income, more consumers are in pursuit of healthy and fresh food.
Taking banquet or family/friend dinners as examples, dishes of seafood represent the host’s wealth
and social status as seafood is perceived as more expensive than other traditional dishes.
Explosive Growth of China’s Emerging Middle Class
McKinsey Quarterly – “Mapping China’s Middle Class” – The explosive growth of China’s emerging
middle class has brought sweeping economic change and social transformation—and it’s not over yet.
By 2022, our research suggests, more than 75 percent of China’s urban consumers will earn 60,000
to 229,000 renminbi ($9,000 to $34,000) a year.
Chart 4
Mapping of China’s Middle-Class, 2012-2022
Source: “Mapping China’s middle class” June 2013 McKinsey & Co
3.
PRODUCTION OF SEAFOOD IN CHINA
3.1
Overview
Seafood production volume in China reached 30.3 million tons in 2012, an increase from 26.8
million tons in 2009, and achieved a CAGR of 4.2% during 2009-2013.
Due to the depletion of resources in China’s onshore areas, most natural seafood relies on offshore
fishing. With more fishing companies strengthening their capability in offshore fishing, the production
volume of seafood in general increased stably over the years. Since the supply of seafood relies
heavily on the ocean’s environment, growth rates may vary dynamically across the years. For
example, in 2011, the production of sea fish increased 18.6%, which was much higher than that of
2010 and 2012.
Shandong, Fujian, Guangdong, Zhejiang, Liaoning Produced 82% of China’s Total Seafood in 2012
According to the National Bureau of Statistics of China, China had an approximate 4.2% CAGR over
2009-2012 for seafood production, with 30.3 million tons in 2012, and with Shandong Province
116
ranking first (6.86 million tons), Fujian Province second (5.46 million tons), and Guangdong Province
and Zhejiang Province almost the same in third and fourth (4.32 and 4.31 million tons respectively).
The top five provinces supplied approximately 82% of the total seafood in China in 2012.
Table 3
Seafood Production Volume in China (‘0000 tons), 2012
China
Shandong
Fujian
Guangdong
Zhejiang
Liaoning
Natural
Seafood
Reared
Seafood
Total
Seafood
Production
Province
Production/
Total
1,389.5
249.8
214.0
156.6
345.1
125.8
1,643.8
436.2
332.7
275.7
86.1
263.6
3,033.3
686.1
546.6
432.4
431.3
389.3
22.6%
18.0%
14.3%
14.2%
12.8%
Source: National Bureau of Statistics of China
In 2012, China as a whole had 54.2% of its seafood reared in the sea water and 45.8% seafood
caught from the sea. Shandong Province has more seafood reared in sea water, compared to the
volume caught from the sea, which is 4.36 million tons (36.4%) versus 2.49 million tons (63.6%). The
situation is quite similar to Fujian and Guangdong Provinces, with natural seafood accounting for less
than 40% of the total seafood production volume. Zhejiang Province has the opposite situation, with
natural seafood accounting for approximately 80% of total seafood production.
Sea Fish Accounted for 36% of the Total Seafood Production Volume in 2012
The production volume for sea fish witnessed faster growth than the total for sea food during 20092013. In 2012, China produced about 11.0 million tons of sea fish, accounting for 36% of the total
sea food production, an increase from 33% in 2009.
Table 4
Seafood Production Volume in China (‘0000 tons), 2009-2012
2009
2010
2011
2012
Production volume for seafood
2,681.6
2,797.5
2,908.0
3,033.3
Production volume for
Production volume for
Production volume for
Production volume for
Others (collectively)
880.8
303.6
1,120.0
148.4
131.0
906.3
310.4
1,170.4
156.6
142.1
1,075.2
321.9
1,212.8
162.9
135.3
1,101.0
345.7
1,264.8
179.0
142.8
sea fish
crabs & shrimps
shells
algae
Source: National Bureau of Statistics of China
Fragmented Seafood Production Industry in China
The seafood industry is very fragmented in China. As the largest seafood producer, China National
Fisheries Corporation supplied 202,900 tons of seafood in 2012, accounting for only 0.7% of the total
seafood production volume.
Most manufacturers have a simple and clear business coverage – they either focus on fishing or on
primary processing or deep processing – but now there is a trend where big manufacturers are
integrating the supply chain, and they are performing along the full value chain, from fishing/rearing,
and processing to distribution, for example, as seen with Pacific Andes International Holdings
Limited, China National Fisheries Corporation, and Liaoning Province Dalian Ocean Fishery Group
of Corporations, amongst the other operators.
117
Consumption Formats for Seafood in China
Fresh seafood is mainly consumed in the coastal regions of China. Packaged frozen processed
seafood is one of the major formats as it has longer shelf-life and is suitable for long-distance
distribution. The common processing technology for seafood is freezing, salting, drying, etc. In the
meantime, deep-processing of seafood has developed rapidly since 2000, with casual seafood
snacks, frozen flavored seafood products and seafood gift packs becoming more and more popular.
3.2
MARKET DRIVERS AND CONSTRAINTS
3.3.1 Market Drivers
Stable Demand from the Overseas Market
The export market to America, Asia and Europe for seafood witnessed fast growth during 2009 and
2013. According to the General Administration of Customs of the PRC, in 2013 the total for frozen
whole fish (HS code 0303) and fish fillets and pieces products (HS code 0304) was 1.98 million tons,
an increase from 1.42 million tons in 2009, achieving a CAGR of 8.8% during 2009-2013. The total
for processed cuttle fish (HS code 03074900) & squid, and octopus (HS code 03075900) was 316.5
million tons, an increase from 186.2 million tons in 2009, achieving a CAGR of 14.2% during 2009
and 2013.
Seafood Rearing Technology Development
With the development of seafood rearing technology, the production volume for reared seafood
witnessed faster growth than the natural products. In 2012, total production volume for reared
seafood reached 16.4 million tons, achieving a CAGR of 5.4% during 2009 to 2012, while that for
the natural seafood was 2.9% during the same period.
Development of the Processing Technology Has Brought Seafood to More Regions of China
With the development of processing technology, more packaged seafood is expected to be
introduced and distributed into the inner land regions of China.
State Policies Support the Development and Transformation of Marine Fisheries
The state encourages fishing fleets and fishermen to conduct offshore fishing operations and gives
them support through various policies.
In the “Twelfth Five-Year Plan” for National Marine Economy, the following development goals for
marine fisheries are proposed:
1.
Reasonably adjust and expand the breeding space and accelerate promoting standardized
healthy breeding.
2.
Strictly control onshore fishing intensity, vigorously develop offshore fishery and foster a batch
of offshore fishery enterprises and fleets with international competitiveness. Support the
development of offshore fisheries and continue to perfect relevant support policies.
3.
Actively develop aquatic products’ deep and intensive processing industry and further improve
the marketing system. Foster and strengthen a batch of leading aquatic products’ deep and
intensive processing enterprises, improve the comprehensive development and utilization level
of aquatic products and foster a batch of famous brands with high market share. Standardize
the trading market for aquatic products, actively develop the large aquatic product trading
platform, build multi-channels and convenient distribution systems and promote
transformation from the single traditional marketing mode to a diversified modern marketing
mode.
118
Subsidies from the Government
1.
Subsidies to Diesel-oil Ships – According to the Interim Measures of Fishery Product Oil Price
Subsidy Funds Management, qualified applicants should be those who use registered fishing
vessels for fishing (offshore and onshore fishing) for an accumulated period of over three
months in one year.
The applicants should have fishing licenses, AIS (Automatic Identification System) certificate,
Ship certificate, Ship ownership certificate, employer insurances, ship-owner ID.
The measure will be initiated when the diesel oil price is higher than RMB3,870 per ton, or oil
is higher than RMB4,400 per ton.
The subsidy amount = total engine power (kilowatt) x oil subsidy rate (decided by the
government) x fishing duration (according to the registered data).
2.
Subsidies for Renewing Fishing Vessels – According to Fishing Vessels Upgrade Regulation from
Fisheries Law of the People’s Republic of China, RMB4.2 billion was approved to be used to
renew the fishing boats as of September 2012. Each approved vessel will get up to 30% of total
cost at most.
These regulations will help promote fishing and the upgrade of equipment to ensure bigger fishing
and production volumes.
3.3.2 Constraints
Regulations Constrain Fishing Volume
Though the government has regulations to stimulate the development of fishing, it also has regulations
that constrain fishing volume, aiming to protect the sea environment from overfishing. Take Shandong
Province as an example; according to the data from Weihai Ocean and Fishery Bureau, fishing vessels
remaining in port reached 80-90% in Q2, 2012, which indicated that the seafood is less than ever
before.
According to the Fisheries Law of the People’s Republic of China, Chinese total fishing volume should
surpass the fishery growth amount. Each fishing vessel needs a license before fishing, which stipulates
the fishing site, duration, tools and fishing volume. No fishing vessels are permitted to fish during the
closed fishing seasons, which are periods when fishing is prohibited. These permissions vary
regionally and annually, the permissions are usually determined by the local ocean and fishery
bureau.
Rising Cost for Acquiring Rearing Regions
At present, the Ocean and Fishery Bureaus in various cities have entered the phase in which the
market allocates sea resources. The approach to acquiring the right to fish certain sea areas has
changed from an administrative examination and approval process into market-oriented approaches
such as bidding, auction and open granting. The auction of the right to use breeding sea areas allows
culturists/enterprises in coastal areas to take part in the auctions and obtain the right to use
corresponding sea areas. When culturists win such auctions, they enjoy a series of legal rights to use
the sea areas and to be engaged in the breeding industry for a certain period of time (for example,
five years).
Barriers to Operating in Marine Fishery
Modern marine fishery is a capital- and technology-intensive industry as well as a natural resourcedependent industry. In this industry natural resources are the prerequisite; capital is the basis;
technologies are the key. Particularly excellent sea areas suitable for choice rare seafood breeding are
essential to high quality, rare seafood breeding and processing. Since choice rare seafood breeding
119
and processing is characterized by large one-off investment and long capital recovery cycle, culturists
must have sufficient funds. In addition, marine fishery involves the application of development of
technologies in several fields such as construction engineering, marine physics, marine chemistry,
marine biology, genetic engineering, cell engineering, acousto-optic electronics and electrical
automation. Without certain technical support, it is very difficult for culturists to take part in the
fiercely competitive market.
3.3
CHALLENGES
Marine Fishery Product Breeding Conditions Have Deteriorated
With the increase in population and industrial pollution, the pollution in China’s onshore areas has
increased in recent years. The sea areas that are suitable for marine fishery product breeding have
decreased. Polluted waters have obviously increased and water conditions for fishery product
breeding have clearly deteriorated.
Environmental Pollution and Overfishing Have Depleted the Onshore Ecosystem in China
At present, the migration channels and ovulating sites of a lot of marine organisms are seriously
damaged. Additionally, mono-specific offshore species are not conducive to the self-repair of sea
resources. According to the 2011 National Environment Announcement, the ecological system in
China’s coastal areas is in the sub-healthy state. Only 16% of the ecological system is relatively
healthy. Most areas with rich fishing resources overlap with economically developed areas. Therefore,
the industrial pollution in these areas is very serious.
Overfishing Has Resulted in Seafood Depletion in Most Sea Areas of China
According to the FAO (Food and Agriculture Organization) scientists’ published report in 2005, 52%
of fish stocks were fully exploited, 20% were moderately exploited, 17% were overexploited, 7%
were depleted, and 1% were recovering from depletion. Globally, about 90% of the stocks of large
predatory fish are already destroyed.
4.
PACKAGED SEAFOOD PRODUCTS
Challenge of Packaged Seafood Production Enterprises in China – The wage of workers in the
seafood processing industry has continued to rise
At present, in most aquatic product enterprises and even processing enterprises, the proportion of
younger employees has increased year by year. As a new generation of migrant workers, they have a
strong sense of self-development and high requirements for working conditions and treatment. This is
a new problem for enterprises. From the end of 2008 (when the financial crisis started) to 2011, the
wage of the frontline workers rose about RMB 5,000 annually, on average.
Due to the global financial crisis in 2008, before 2010 most aquatic product processing and export
enterprises were in a state of unfulfilled production. Then, in 2011 due to the recovery of external
demand and emerging potential in the domestic market, domestic and international orders began to
increase before the February Spring Festival, and labor shortages became the primary problem. In
2011 the annual wage of the frontline workers in the aquatic product processing enterprises in Dalian
and Shandong was about RMB 25,000. Under these circumstances, the competition for frontline
workers amongst all enterprises has also increasingly escalated. Another key problem is that the
working conditions in the aquatic product industry are relatively poor and workers have to work
outdoors a lot. As a result, many workers in the aquatic product industry flow into other industries.
The wages and wages related expenses of several seafood manufacturers witnessed increases in the
past several years. Wages per annum also witnessed fast growth, especially in 2012, that of Shandong
Oriental Sci-Tech, Shandong Homey Aquatic Development and Hong Kong Hanhe was RMB4,61,
RMB4,092 and RMB2,896 respectively in 2013, increased from RMB3,290, RMB 1,049 and
RMB2,517 in 2011.
120
Table 5
Wages and Wages Related Expenses of Several Seafood Enterprises, 2011-2013 (RMB)
GR%
GR%
2011
2012
2013 2011-2012 2012-2013
Shandong Oriental Sci-Tech Co., Ltd.
5,679,049 7,448,524 8,037,485
31.2%
7.9%
Shandong Homey Aquatic
Development Co., Ltd.
1,917,839 5,259,568 7,659,885
174.2%
45.6%
Hong Kong Han He Holdings Limited 13,049,263 19,405,097 24,254,177
48.7%
25.0%
Source: Annual Report of Shandong Oriental, Shandong Homey Aquatic Development Co., Ltd.; Hong Kong Hanhe Holdings
Limited.
Table 6
Employees Number in Registration by End of the Year, 2011-2013
2011
2012
2013
GR%
2011-2012
GR%
2012-2013
Shandong Oriental Sci-Tech Co., Ltd.
1,726
1,730
1,728
0.2%
–0.1%
Shandong Homey Aquatic
Development Co., Ltd.
1,828
1,929
1,872
5.5%
–3.0%
432
602
698
39.4%
15.9%
Hong Kong Han He Holdings Limited
Source: Annual Report of Shandong Oriental, Shandong Homey Aquatic Development Co., Ltd.; Hong Kong Hanhe Holdings
Limited.
Table 7
Per Employee Wage in Average by Annum, 2011-2013, RMB
2011
2012
2013
GR%
2011-2012
GR%
2012-2013
Shandong Oriental Sci-Tech Co., Ltd.
3,290
4,306
4,651
30.9%
8.0%
Shandong Homey Aquatic
Development Co., Ltd.
1,049
2,727
4,092
159.9%
50.1%
Hong Kong Han He Holdings Limited
2,517
2,686
2,896
6.7%
7.8%
Source: Annual Report of Shandong Oriental, Shandong Homey Aquatic Development Co., Ltd.; Hong Kong Hanhe Holdings
Limited.
In the international labor division system, the processing trade is at the bottom of the industry chain
and has low profit rate. Frontline workers in the processing trade are mainly migrant workers and their
wages have been relatively low for a long time. However, since a labor shortage in the Pearl River
Delta in 2004, the wage of migrant workers has maintained a rapid growth in southern and eastern
coastal regions in China. In the 2010 Government Work Report it is suggested that there shall be
reform in the income distribution system and an increase in the proportion of the labor remuneration
in primary distribution. The government calls for constantly increasing the labor remuneration of
laborers, especially the frontline laborers. At the beginning of 2010 many provinces and cities in
China raised the minimum wage. In a few provinces and cities the wage adjustment range exceeded
20%, for example, Guangdong province and Shandong province. By 2011 the average monthly wage
of migrant workers had increased to RMB 2,049, more than two times as much as that (RMB 875) of
2005.
Raw Sea Fish Price Increased during 2008-2013, Further Raw Sea Fish Price Increase during 20142017 are Expected
In China, the majority of raw frozen cod is sourced from the overseas market. Russia and the USA are
two major exporters of raw frozen cod. During 2008-2013, the unit value of raw frozen cod imported
by China witnessed slight growth year-on-year. Major reasons include: increasing manpower cost,
fishing cost and increasing demand from the processing enterprises while there was a limited supply
due to the fishing volume management by the international organizations such as ICES and EU.
121
Table 8
The Unit Value of Raw Sea Fish Imported by China, 2007-2013 (US$/kg)
2007
2008
2009
2010
2011
2012
2013
GR
07/08
CAGR
08/13
Frozen mackerel
$1.10
$1.23
$1.34
$1.35
$1.75
$1.66
$1.62 11.8%
5.7%
Frozen cod (Gadus morhua/
ogac/macrocephalus)
$1.81
$2.07
$2.13
$2.42
$3.03
$2.85
$2.41 14.4%
3.1%
Source: Euromonitor International from United Nations Commodity Trade Statistics Database, The International Trade Center
In the near future, we expect further raw sea fish price increases. Besides increasing manpower cost
and fishing cost, growing domestic demand and shortage supply of certain major offshore sea fish
species are also major reasons. For example,
•
Mackerel – According to the industry insiders, the size of mackerel witnessed a decrease in the
past couple of years. Before 2010, the major size of mackerel was around 400-600g, 600-800g.
At present, the major size of mackerel imported is around 300-500g, those over 400g account
for less than 30%. In the meantime, the EU started to allocate quotas to the member countries
to avoid overfishing. For the processing enterprises, they prefer bigger mackerel, which will
result in a price hike in high-quality, bigger mackerel.
•
Hexagrammidae – According to the industry insiders, in China, Hexagrammidae is mainly
consumed by the Japanese and South Korean. In recent years, more and more Chinese people
have started to consume Hexagrammidae. However, raw Hexagrammidae relies on imports,
and unit imported value witnessed stable growth during 2008-2013.
ICES and EU Started to Allocate Fishing Quotas to the Member Countries to Avoid Overfishing
In order to avoid overfishing and ensure the healthy and diversified marine ecological environment,
International Council for the Exploration of the Sea (ICES) has implemented the fishing quota system
in terms of the commercial deep sea fishing covering the Atlantic Ocean, the Baltic Sea, the
Mediterranean Sea and the southern hemisphere.
ICES member countries regularly attend the working meetings held by ICES at which the working
team composed of fishery biologists from relevant countries analyze, study and gather all collected
data and evaluate the fish resources for main commercial fishing species in the above-mentioned sea
areas based on the data. Then the Advisory Committee on fisheries management (ACFM) composed
of experts from all member countries will make suggestions for TAC on a certain area for the next
year. Although ICES does not require that all countries should strictly obey the quota it allocates, as
the world’s largest sea and marine biological resource research network, it still has certain influence
in the world and all member and non-member countries will refer to the quota established by ICES
when they announce their own quota.
EU refers to ICES’s suggestions when establishing the deep sea fish fishing quota for its member
countries. Take mackerel as an example, where from 2011 to 2013 it was overfished.
Fish Stocking and Availability for the Company’s Principal Fish Species
The company’s major fish species are deep-sea fish, including gadus, mackerel, hexagrammidae,
seriolaquinqueradiata, cololnbissnira etc.
In the raw fish supply market, the supply of all kinds of deep sea fish is seasonal. Usually when the
fish first appear in the market, the fish supply is very big and the price is relatively low. A lot of traders
will purchase and hoard a large amount of fish and sell at a high price when the fish supply is less
than market demand to make more profit. With good storage conditions, raw fish can generally be
stored for 18 to 24 months. As a result, in the market most commercial varieties of deep sea fish are
in stock.
122
In purchasing raw fish, processing enterprises will make corresponding raw fish purchase plans
according to the production plan and adjust it in time based on the market demand. For raw fish with
a large conventional demand, they will complete a one-off annual purchase for some varieties, they
will purchase them in different batches according to market conditions. As a result, the purchase of
raw fish relies on large sea fish traders to a large extent.
The Demand for Sea Fish in China is Increasing.
•
With the increase in Chinese citizens disposable income, they are willing to consume products
of higher quality, of which seafood is an example.
•
More consumers have started to be influenced by the Japanese dietary custom of consuming
more healthy sea fish then other traditional meats.
•
Chinese consumers have improved their health awareness of food and have begun to accept
chilled products.
4.1
PACKAGED FROZEN SEA FISH PRODUCTION IN CHINA
4.1.1 Overview
The packaged frozen sea fish production industry is very fragmented. Most manufacturers only have
small plants. Major production hubs are located in Shandong, Liaoning, Fujian, Zhejiang and
Guangdong Provinces. Frozen packaged sea fish used to be export-oriented, while, with the export
demand shrinking, many packaged frozen sea fish manufacturers are shifting their business to the
domestic market.
Raw Sea Fish Supply
Raw sea fish supply relies on domestic offshore fishing, rearing and offshore fishing in the oceans. In
2012, the total production volume for sea fish was about 11.0 million tons. Besides the sea fish
supplied by local companies, imported raw sea fish is also a source for the packaged frozen sea fish
processing enterprises in China.
Table 9
Raw Sea Fish Supply in China (tons), 2009-2012
2009
2010
2011
2012
2012
Province
Production/
Total
Production volume of sea fish
8,808,200
9,063,200 10,751,900 11,010,300
Zhejiang
Shandong
Fujian
Guangdong
Other provinces
1,876,200
1,642,100
1,571,200
1,266,800
2,451,900
1,986,800
1,664,300
1,619,200
1,325,200
2,467,700
2,375,000
1,910,000
1,821,700
1,477,800
3,167,400
2,435,700
1,897,100
1,866,200
1,568,000
3,243,300
22.1%
17.2%
16.9%
14.2%
29.5%
Source: National Bureau of Statistics of China
Proportion of Processed Products is small compared with the Total Aquatic Product Output
The aquatic product processing rate in China is quite low on the whole. Processing is mainly
preliminary processing of frozen aquatic products, while exported aquatic products are mainly raw
materials and semi-manufactured products. In terms of variety, exported aquatic products are mainly
shrimp and shellfish, while in the domestic market consumption focuses on fish, supplemented with
shrimp, crab and shellfish.
123
Packaged Frozen Sea Fish Used to be Export-oriented, While at Present, Some Enterprises Have
Achieved Fast Development in Domestic Sales
Before the economic crisis in 2008, most of the packaged sea fish produced in China was distributed
abroad either as frozen sea fish fillets, whole or pieces. As PRC consumers are getting used to
consuming frozen fish rather than the fresh ones, most sea fishes are distributed as frozen raw fishes
to the distributors, who will distribute them to the retailers. In domestic retail channels, these fishes
are mainly presented as chilled fresh fish, only a small portion of raw sea fishes are processed and
distributed as frozen packaged sea fish in the market. To the domestic manufacturers, the overseas
orders were usually bigger, easier to process with unified standards, and more profitable than
domestic orders. Therefore, they would like to engage in producing packaged sea fish for the overseas
market.
Under these conditions, packaged frozen sea fish is mainly consumed in the overseas market, and
most of the leading players are export-oriented sea fish manufacturers located in Shandong, Liaoning,
Fujian, Zhejiang Province, etc.
But after 2008, with the decrease in overseas demands, most of the manufacturers switched their
focus to the domestic market. Though there was a recovery of export volume during 2009 to 2011,
overseas demand dropped again in 2012 due to the European debt crisis. The demand of packaged
sea fish began to increase in China in 2010. Some sea fish processing enterprises achieved fast
development in the domestic market, for exmple, Hong Kong Hanhe Holdings Limited, which is
mainly engaged in packaged deep-sea fishes processing and distribution, and has achieved fast
development in the domestic market. In 2013, the domestic sales accounted for approximately 70%
of its total revenue. The company aims to supplying high-end deep-sea fish products to high-income
consumers by developing specialist stores. However, most sea fish processing companies still have
bigger sales value in the overseas market than in domestic market.
In general, the domestic packaging and processing industry is quite fragmented, and according to
export data, there are 16 sea fish processing enterprises who have export businesses of over 10
thousand tons of fish fillets and pieces (mainly frozen). These 16 players account for 26% of the
national overall export volume, while the top 50 players account for 48% of the national overall
export volume.
Table 10
Leading Frozen Fish Exporters’ Distribution by Export Volume in China, 2013
0303 Fish, frozen, whole
Total Export Volume 2013 (tons)
Export Volume
>=19,549
>=10,579
>=4,511
0304 Fish fillets and pieces, fresh, chilled or frozen
935,232
Number of
Suppliers
Market
Share
5
16
50
12%
24%
46%
Total Export Volume 2013 tons
Export
Volume
>20,000
>10,000
>5,200
1,048,415
Number of
Suppliers
Market
Share
5
16
50
13%
26%
48%
Source: Euromonitor International from The General Administration of Customs of the P.R.China
Export Demand for Package Sea Fish was shrinking in 2012 and 2013
After recovering in 2009, the export quantity of packaged sea fish has witnessed another round of
decline since 2012. In 2013, the export quantity of HS Codes ‘0303 Fish, Frozen, Whole and HS
Codes ‘0304 Fish Fillets and Pieces, Fresh, Chilled or Frozen was about 935,129 tons and 1,048,976
tons respectively, while the quantity of these two products exported by China in 2011 was 964,188
tons and 1,083,662 tons, respectively.
124
Chart 5
Export Quantity of Package Sea Fish By China, 2005-2013, Tons
1,200,000
1,000,000
800,000
600,000
400,000
200,000
0
2005
2006
2007
0303 Fish, Frozen, whole
2008
2009
2010
2011
2012
2013
0304 Fish Fillets and pieces, fresh, chilled or Frozen
Source: Euromonitor International from The International Trade Center
Production Volume of Packaged Frozen Sea Fish
The production volume for packaged frozen sea fish in China was approximately 2.26 million tons in
2013, with a CAGR of 12.5% during 2009-2013.
Chart 6
Production Volume (tons) and Growth Rate for Packaged Frozen Sea Fish in China,
2009-2018
CAGR
2014-2018
8.5%
CAGR
2009-2013
12.5%
Source: Euromonitor estimates from trade interviews and desk research
In general, sea fish processing enterprises in China have a lower level of technical equipment
compared to the advanced world level. Processing technologies focus on basic processing such as
cutting, flavoring and freezing. In the international market, China’s sea fish products are typically
exported as raw materials and semi-manufactured products. The future strategic focus from the
government would be to develop more added-value products, namely deep-processed products,
using more advanced techniques.
Pricing Trend – In General, has Stably Increased over the Years, With Some Species’ Prices Dropping
in 2013
In general, the unit export value of packaged frozen sea fish fillets increased fast during 2008-2013.
Take three major species as example, the unit export value of Pacific salmon, Alaska pollock and
tunas recorded a CAGR of 64.4%, 28.0% and 38.5% respectively between 2008 and 2013. In 2013,
the unit export value witnessed slight drop.
In the domestic market, the price of packaged frozen sea fish fillets in general is stable and had a slight
increase during 2008 to 2013. On one hand, the retail channel has seen upgrading over the years, with
more products being introduced to the modern retail channels, where the operational cost is higher and
125
the overall selling price is higher than the traditional wholesale and open markets. On the other hand,
manufacturers’ operational costs witnessed an apparent increase during 2008 to 2013 due to the
increased cost of manpower and price increases in electricity and other raw materials.
The price of exported packaged frozen sea fish is expected to further increase considering the increasing
manpower cost in China, with increasing raw fish price caused by increasing demand from the
domestic market and the supply shortage of certain fish species such as mackerel and hexagrammidae.
Table 11
The Exported Unit Value of Some Major Sea Fish Species, 2008-2013
Category
2013
GR%
07/08
CAGR
08/13
2007
2008
2009
2010
2011
2012
Pacific salmon,
Atlantic & danube
$2.43
$0.50
$3.33
$1.55
$2.25
$6.82
$6.01 -79.4% 64.4%
Alaskan pollock
$0.97
$0.77
$0.84
$1.34
$1.64
$2.68
$2.64 -20.7% 28.0%
Tunas, skipjack or
stripe-bellied bonito
$2.45
$2.17
$2.85
$6.57
$9.00 $14.29 $11.06 -11.3% 38.5%
Source: Euromonitor International from United Nations Commodity Trade Statistics Database, The International Trade Center
4.1.2 Outlook
–
Market Drivers
More Demands for Packaged Frozen Sea Fish from Domestic Market
Prior to 2010, packaged frozen sea fish was an export-oriented industry, as China has a relatively
lower manpower cost and lower per capita consumption of packaged frozen sea fish. There are many
manufacturers engaged solely in imported-sea fish processing and export to the overseas market.
After 2010, the foreign market started to reach a ceiling and many manufacturers shifted their
business focus from overseas to the domestic market.
–
From the consumers’ side, with the improvement of people’s living standards and the
adjustment of their dietary structure, consumers have paid more and more attention to the
nutritional value of food in their daily consumption. Seafood has high nutritional value and
balanced content of various nutrient elements needed by the human body, especially DHA and
EPA which, rich in sea fish, can improve brain function and reduce blood cholesterol levels.
The proportion of domestic residents’ consumption of livestock and poultry meat will gradually
decrease while the demand for seafood will grow rapidly.
–
The vigorous development of the catering industry further increases the demand of packaged
frozen sea fish products.
–
Due to the progress of fishery product breeding technologies, large-scale breeding and the
sustained and stable supply of a large number of sea fish can be achieved at a lower price,
which stimulates the consumption demand.
–
Entry Barriers
Existence of Hidden Troubles in Seafood Quality and Safety
Food safety issues have been the focus of people’s attention in recent years. They pay attention to the
safety of meat products and also question the quality and safety of seafood products. The prominent
quality problems of seafood products are mainly manifested in residual antibiotics, hormones,
medicine and heavy metals and objects such as microbial and formaldehyde exceeding the standard.
The problem of quality in seafood products has become the largest barrier to seafood products
distributing in domestic and overseas market as consumers look for respected brand names with
perceived better quality offerings.
126
–
Challenges
The Change in the Price of International Sea Fish Products Will Affect the Performance of Frozen
Fish Processing Enterprises in China
Since China’s frozen packaged sea fish is mainly sold to overseas markets, its price is affected by the
supply and demand for aquatic products in the international market. If the supply exceeds the
demand in the international market, then aquatic product processing will be reduced, which will
greatly affect China’s aquatic product processing enterprises. In fact, in recent years the price of raw
materials and manpower cost in China has increased. As a result, most enterprises have to face
pressure from increasing costs. Only when the price of processed sea fish product grows stably in the
international market will sea fish processing enterprises be able to accept the above-mentioned cost
pressures and improve their performance.
–
Opportunities
High-end Packaged Sea Fish Represents an Opportunity
Due to the influence of the European debt crisis, in 2012 the world economy experienced a downturn
and fluctuations. With weak overseas demand and reduced orders, the exports of frozen fish and fish
meat products dropped by 3.3% and did not return to 2011 levels, even in 2013.
Domestic sea fish enterprises began to seek opportunities in the Chinese market. In addition to
traditional channels such as supermarkets and wholesale markets, a lot of enterprises also began to
develop the retail business. They seek to achieve brand awareness by establishing entity specialty
stores and online malls of their own brands and identifying the positioning of their high-end products,
as an example, Yantai Kanwa established Zhenhaitang Sea Food Specialist Store. Liaoning Dalian
Ocean Fishery Group set up Liaoyu Offshore Sea Food Specialist Store; other seafood specialist store
examples – 8 kilometers ocean fish specialist store, Klausen etc. In operational format, some of them
are franchised by the distributors, some are directly owned by the company. Liaoning Dalian Ocean
Fishery Group is a sea fish manufacturer, and its retail store has the same brand – Liaoyu Offshore
Sea Food Specialist Store.
The input of these enterprises will increase consumers’ awareness of the nutritious nature of packaged
frozen fish products and stimulate the growth of consumption demand.
4.1.3 Competitive Landscape
Fragmented Packaged Frozen Sea Fish Suppliers Market in China
The packaged frozen sea fish production industry is very fragmented. In 2013, the top five suppliers
only accounted for less than 7% of the total market. With the industry consolidating, we expect
leading companies to gain more ground by acquiring small plants.
Table 12
Top 5 Packaged Frozen Sea Fish Manufacturers (in terms of production volume), 2013
Packaged
Frozen
Sea Fish
Production
Market
Ranking National Brand Owner
Volume
Share (%)
1
2
3
4
5
X
Pacific Andes Food Co., Ltd.
Liaoning Wanrong Trading Co., Ltd.
Liaoning Province Dalian Ocean Fishery Group of Corporations
China Starfish Co., Ltd.
China National Agricultural Development Group Co., Ltd.
Hong Kong Hanhe Holdings Limited
Top 5
41,259.41
40,464.36
23,072.00
22,570.54
21,447.70
12,114.35
1.8%
1.8%
1.0%
1.0%
1.0%
0.5%
6.6%
Source: Euromonitor estimates from trade interviews and desk research
127
The market share data reported above has been determined via a fieldwork program consisting of
desk research and trade interviews. While audited data was available for some of the companies, they
typically do not break the production volume into the relevant categories which were covered in this
study. For these companies as well as those companies that are included in the market shares but are
not publicly listed, we have estimated the markets shares based on estimates provided by various
trade sources (i.e. not just the companies themselves) while seeking a consensus on these estimates
as much as possible.
4.2
PACKAGED FROZEN CEPHALOPODS PRODUCTION IN CHINA
4.2.1 Overview
Raw Cephalopods Supply
In 2012, China produced 698,909 tons of raw cephalopods. Shandong, Zhejiang, Fujian and
Guangdong produced 71% of the total production volume.
Table 13
Raw Cephalopods Supply in China (tons), 2009-2012
2009
2010
2011
Production volume
of cephalopods
643,255
Shandong
Zhejiang
Fujian
Guangdong
Other provinces
2012
2012
658,309
695,251
698,909
Province
Production/
Total
154,429
134,792
99,252
77,315
192,521
158,099
146,921
103,494
79,491
207,246
164,059
144,575
112,402
75,533
202,340
23.5%
20.7%
16.1%
10.8%
29.0%
Source: The Yearbook of China Fishery Statistics
Fragmented Cephalopods Processing Industry
There are many cephalopod manufacturers in China, which have formed a very fragmented market.
The major producers are located in Shandong, Zhejiang and Fujian province. Take Zhoushan city
(located in Zhejiang province) as an example, where there are more than 100 cephalopod
manufacturers located there, with 47 companies targeting the overseas market, 15 of which export
cephalopods of over 1,000 tons per annum, according to Zhoushan Aquatic Products Exporting
Industry Association.
In the China mainland market, the consumption of packaged frozen cephalopods is still in the initial
stage. The major distribution channel is the foodservice channel, with a small portion distributed to
traditional retail channels.
In 2013, the production volume for packaged frozen cephalopods was about 465,408 tons, achieving
a CAGR of 12.9% during 2008-2013. As the consumption of cephalopods is in the initial stage, there
is no dominant company that has emerged yet. We expect a modest growth of packaged frozen
cephalopods during 2014 to 2018. In 2018, the production volume is expected to reach 640,248
tons.
128
Chart 7
Production Volume (tons) and Growth for Packaged Frozen Cephalopods in China,
2009-2018
CAGR
2014-2018
6.5%
CAGR
2009-2013
12.9%
Source: Euromonitor estimates from trade interviews and desk research
Pricing Trend – Sharp increase in the unit export value during 2008 to 2013 mainly due to raw
cephalopod price hike
In general, the unit export value of packaged cephalopods witnessed an apparent increase during
2008-2013. In 2013, the unit value of cuttle fish & squid and octopus reached US$5,400/Ton and
US$6,810/Ton, indicating a CAGR of 17.6% and 15.3%, respectively, during 2008-2013.
Table 14
Exported Unit Value of Packaged Cephalopods of China, 2008-2013
Packaged Cephalopods
Exported Unit Value, US Dollar/Tons
Code
Product Label
2008
2009
2010
2011
2012
2013
CAGR
‘03074900
Cuttle fish & squid, frozen,
dried, salted or in brine
2,400
3,390
4,230
5,110
5,420
5,400
17.6%
‘03075900
Octopus,frozen, dried,
salted or in brine
3,390
3,900
4,450
6,010
6,810
6,900
15.3%
Source: Euromonitor International from The International Trade Center
By 2017, a stable increase in packaged cephalopods is expected mainly due to the increasing
offshore fishing costs, which would drive the price hike in raw cephalopods. Raw cephalopod supply
relies strongly on offshore fishing, while the fishing costs are increasing with the years due to fuel
price hikes, more challenges in getting authorization for fishing in public fishing areas, more difficult
working conditions for staff, and requirements for more advanced equipment to ensure efficient
fishing of an offshore ship.
4.2.2 Outlook
–
Market Drivers
Recovering Demand from the Overseas Market in 2013
In 2013, the export volume for packaged cephalopods (HS code 03074900 + 03075900, i.e. cuttle
fish & squid, frozen, dried, salted or in brine + octopus, frozen, dried, salted or in brine) witnessed a
growth rate of 21.2%, reaching 316,477 tons, while in 2010 and 2011, the year-on-year growth rates
were 3.5% and 1.6%.
129
–
Opportunities
Growing Demand from the Domestic Foodservice Channels
Restaurants and other food outlets are one of the most important channels for packaged frozen
cephalopods, which is one of the most popular ingredients for hotpots and barbecues. To save on the
processing cost, companies can purchase mainly packaged semi-processed frozen cephalopods, for
example, cephalopod slices.
Driven by economic growth, eating out has become popular with the young generation of China. This
trend also starts to impact the older generations. As a result, the foodservice industry developed very
fast during 2009-2013. We expect favourable growth in the future considering the increasing
urbanization rate and people’s income growth in China. Subsequently, this will drive the growing
demand for packaged frozen cephalopods.
4.2.3 Competitive Landscape
Fragmented Packaged Frozen Cephalopods Production Market in China
The top five packaged frozen cephalopods manufacturers in China accounted for 14.0% of the total
production in 2013. In the top five companies list, three enterprises are located in Shandong
province, one located in Fuijan and one located in Zhejiang province. Most of these companies
distribute products to the overseas as well as the domestic market.
Yantai Water-star Foodstuff Co., Ltd. ranked first, with a market share of 5.4%, followed by Rongcheng
Jinyuan Aquatic Food Co., Ltd., Jinjiang Minnan Aquatic Development Co., Ltd., Rongcheng Jewel
Fishery Co.,d Ltd., and Zhejiang Xingye Seafood Group, which accounted for 2.5%, 2.4%, 1.9% and
1.8% respectively of the total production volume.
Table 15
Ranking
Top 5 Packaged Frozen Cephalopods Manufacturers (in terms of production volume),
2013
Packaged
Frozen
Cephalopods
Production
Market
National Brand Owner
Volume
Share (%)
1
2
3
4
5
X
Yantai Water-star Foodstuff Co., Ltd.
Rongcheng Jinyuan Aquatic Food Co., Ltd.
Minnan Aquatic Development Co., Ltd.
Rongcheng Jewel Fishery Co., Ltd.
Zhejiang Xingye Seafood Group
Hong Kong Hanhe Holdings Limited
Top 5
25,114.84
11,462.01
11,299.07
8,716.81
8,500.00
619.74
5.4%
2.5%
2.4%
1.9%
1.8%
0.1%
14.0%
Source: Euromonitor estimates from trade interviews and desk research
The market share data reported above has been determined via a fieldwork program consisting of
desk research and trade interviews. While audited data was available for some of the companies, they
typically do not break the production volume into the relevant categories which were covered in this
study. For these companies as well as those companies that are included in the market shares but are
not publicly listed, we have estimated the markets shares based on estimates provided by various
trade sources (i.e. not just the companies themselves) while seeking a consensus on these estimates
as much as possible.
130
4.3
PACKAGED SEA CUCUMBERS PRODUCTION IN CHINA
4.3.1 Overview
Sea cucumber supplies rely heavily on rearing. In China, over 90% of the raw sea cucumbers are
reared. In 2012, China produced 170,830 tons of raw sea cucumbers. Shandong, Liaoning and Fujian
supplied over 95% of the total sea cucumbers production volume in China.
Table 16
Sea Cucumber Production in China (tons), 2009-2013
2009
2010
2011
Production volume
of sea cucumbers
102,159
Shandong
Liaoning
Fujian
Other provinces
2012
2012
130,303
137,754
170,830
Province
Production/
Total
66,300
59,764
1,649
2,590
71,011
54,954
7,082
4,707
82,905
64,512
15,459
7,954
48.5%
37.8%
9.0%
4.7%
Source: The Yearbook of China Fishery Statistics
Raw Sea Cucumber Supplies in China
Due to the restrictions on the growth conditions, some sea areas in China’s Shandong and Liaoning
provinces are well-known for breading sea cucumber. With the increase of sea cucumber deep
processing and consumption demand, the consumption areas for sea cucumber have expanded from
the traditional areas in Shandong and Liaoning to the whole country. In 2005 Fujian province began
to try sea cucumber breeding and in 2011 its yield increased sharply, and its sea cucumber breeding
technology became increasingly mature.
Although Liaoning province (centered in Dalian city) ranked second in terms of raw sea cucumber
production volume, with regard to the quality of sea cucumbers and the maturity of the market, it is
ranked first in China. It is acknowledged as a developed market for supplying sea cucumbers. In the
top five packaged sea cucumber suppliers’ list, four companies are located in Dalian; these
companies are Dalian XiaoQin Food Co., Ltd., Dalian Zhangzi Island Group Co., Ltd., Bangchui
Island Seafood Co., Ltd., and Dalian Keybridge Marine Seeds Co., Ltd. Most of these leading
companies engage in rearing, producing and distributing packaged sea cucumbers. Xiaoqin is an
exception, which is famous for its scaled distribution volume of packaged sea cucumbers. In general,
the sea cucumber market in Liaoning province is more mature than the other provinces in China, the
competition is fierce and most players target the high-end market.
Shandong province ranked first in terms of production volume of raw sea cucumbers, however, the
market is less mature than Liaoning province. There are many small-to-medium-sized companies that
provide homogenous products and compete through pricing. Shandong is a province that lacks
dominant sea cucumber suppliers. Sea cucumbers can also be reared in southern China due to the
development of rearing technology. Fujian province ranked third in terms of production volume of
raw sea cucumbers, while witnessing fast development during the past couple years. Compared to
Liaoning and Shandong provinces, Fujian and its neighbor Zhejiang province have warmer sea water
temperatures, which effectively shorten the feeding cycle for sea cucumbers. Yet, the quality and
nutritious value of these sea cucumbers are not competitive with those reared in northern China. It is
common for sea cucumbers reared in Fujian to be firstly sold to companies located in Liaoning, then
processed into packaged products and distributed to the nationwide channels.
Rapid Growth of Packaged Sea Cucumbers during 2009-2013
In the consumption formats, approximately 50% of the raw sea cucumbers are processed into
packaged products, such as dried sea cucumbers, frozen sea cucumbers, etc. Packaged sea
cucumbers have longer shelf-life and are capable of being distributed long-distance. Dried sea
131
cucumber is the most popular format as it lasts over 6-7 years given proper storage conditions. Frozen
packaged sea cucumbers usually last for one year.
Due to the fast development of leading suppliers, the packaged sea cucumber market witnessed rapid
growth during 2009 to 2013. In 2013, the production volume for packaged sea cucumbers reached
6,667 tons, achieving a CAGR of 15.5% during 2009 to 2013.
However, the consumer group is limited in China as the market is not well educated. Although there
are several leading companies that are listed, the sales revenue in general is smaller compared to
leading players in other industry sectors. The leading players’ overall sales revenue was less than
RMB500 million, which limited their capability of educating the market and spending on marketing
and advertisement. Hence, we expect only modest growth in the demand for packaged sea
cucumbers during 2014 to 2018. In 2018, the production volume for packaged sea cucumbers could
reach 9,850 tons.
Chart 8
Production Volume (tons) and Growth Rate for Packaged Sea Cucumbers in China,
2009-2018
CAGR
2014-2018
8.2%
CAGR
2009-2013
15.5%
Source: Euromonitor estimates from trade interviews and desk research
Growth of Disposable Income Enables More People to Consume Sea Cucumbers
According to the National Bureau of Statistics of China, Chinese urban residents had a disposable
income per capita at RMB26,955 in 2013, an increase from RMB17,175 in 2009. Increasing income
allows more consumers to pursue a better life. Nutritious natural foods include sea cucumbers, which
are becoming popular with Chinese consumers.
Huge Demand for Sea Cucumbers as Nutritional Products and Gift Packaging are Popular
At present, sea cucumbers in the market are mainly consumed as nutritional supplements and the gift
market has strong demand for them. Sea cucumber has a long growth cycle and high nutritional
value. Therefore, its market positioning is as a nutritious food. The peak sales season for sea
cucumbers is from September to the Spring Festival. During this period, a lot of sea cucumber
enterprises will drive sales growth through various promotional activities.
Pricing Trend – Oversupply resulted in sharp price decrease in raw sea cucumbers, while the price
of branded packaged sea cucumber has been stable over the years
In general, the price of packaged sea cucumbers varied across a broad range due to the quality of raw
sea cucumbers, size and processing approaches. As an example, the processing technologies for
dried sea cucumbers include fresh-dried, salted-dried and sugared-dried. Therefore, it is not feasible
to give an average price for all ‘dried sea cucumbers’.
132
According to industry insiders, on average, the current wholesale price of fresh-dried sea cucumbers
is about RMB7,200/kg, while that of the frozen-dried sea cucumbers is about RMB1,000/kg.
However, in each category, the price varies greatly within a broad range due to the quality of the sea
cucumber – the price of high-quality sea cucumbers can be 2 – 20 times that of general ones. Sea
cucumbers reared in Dalian are usually priced higher than those reared in Shandong and Fujian.
Branded sea cucumbers are priced much higher than non-branded sea cucumbers.
The huge price difference between frozen instant sea cucumber and dried sea cucumber results from
the difference in the degree of complexity degree of the process and production rate. To be specific,
the processing technique for frozen instant sea cucumber is simpler than that for dried sea cucumber.
Meanwhile its production rate is almost twice as high as that of dried sea cucumber. On average the
weight ratio of fresh sea cucumber to frozen sea cucumber is about 15:1 while the weight ratio of
fresh sea cucumber to pure-dried sea cucumber is about 30:1. As a result, the unit price of processed
dried sea cucumber is several times higher than that of frozen instant sea cucumber.
In general, the wholesale price of raw sea cucumbers decreased during 2008 to 2013. As most sea
cucumbers are reared, the supply fluctuates with the market price. In 2008 and 2009, the price of
raw sea cucumbers decreased consistently due to the oversupply. In 2010, many culturists stopped
rearing sea cucumbers and the production witnessed a sharp decrease in that year, which resulted in
a sharp price hike with an increase of over 50% from 2009. With the development of rearing
technology, sea cucumbers can be reared in Fujian. More and more individuals entered the business,
and market supply surpassed demand, which resulted in consistent price decreases in 2012 and
2013.
Table 17
Raw Sea Cucumbers Wholesale Price of Shandong Homey Aquatic Devept. Co.,
2008-2013
Fresh Sea Cucumbers
Wholesale Price (RMB/kg)
Year-on-Year Growth Rate (%)
2008
2009
2010
2011
2012
2013
155
-8.8%
124
-20.0%
191
53.8%
186
-2.6%
167
-10.2%
136
-18.2%
Source: Annual Report of Shandong Homey Aquatic Development Co., Ltd.2008-2013.
By 2017, a stable raw cucumber price is expected. On the one hand, the sharp decreases in 2012
and 2013 have forced some culturists to leave the market. On another hand, the demand is expected
to be cultivated and eventually achieve stable growth. From the leading suppliers’ side, more
marketing expenses would drive more demand and gradually meet a balance of supply and demand.
From the consumers’ side, increasing income would be a trigger to driving more people to pursue
nutritious sea food, driving demand for cucumbers.
4.3.2 Outlook
–
Market Drivers
Emerging Demand from the Southern China Market
Sea cucumbers are traditionally born in the coastal regions of Liaoning and Shandong provinces.
People living nearby are more accustomed to accepting and consuming sea cucumbers. With the
development of rearing technology, more sea cucumbers are reared in southern China; for example,
Fujian is famous for its production of sea cucumbers besides Liaoning and Shandong provinces.
Leading cucumber retailers, e.g. Dalian Zhangzi Island group Co., Ltd., and Bangchui Island Seafood
Co., Ltd., are developing nationwide networks by setting up franchised retail outlets. With the
marketing activities and developing retail channels from the leading players, more consumers located
in southern China are expected to learn of the nutrition of sea cucumbers and become accustomed
to them.
133
Large untapped market in the sub-tier cities of China
With disposable income increasing, more people are in pursuit of high-quality life. They are more
open to consuming natural and nutritious food. This trend is witnessed from the first-tier cities to the
sub-tier cities.
According to the leading cucumber retailers, sub-tier cities are their next target market. The
competition in the first-tier cities is very fierce and famous brands already hold sizeable ground. In
contrast, sub-tier cities have larger potential with the disposable income of local residents increasing.
Considering the income disparity in these regions, both 1st-tier brands and 2nd-tier brands have
opportunity in the market.
Developing Retail Channels for Sea Cucumbers in China
Due to the shrinking demand for high-end gift packages, many sea cucumber companies are shifting
to the mass-tier market. As the mass-tier consumers are price sensitive, the gross margin is lower
compared to that of gift packages. To build up the brand image and capture the favorable margin in
the retail chain, many sea cucumber companies have started to develop specialty stores. For example,
Bangchui Island Seafood Co., Ltd. has around 65 specialty stores covering 18 provinces at present.
–
Entry Barriers
Stable High-quality Raw Sea Cucumber Supply Represents an Entry Barrier to the Packaged Sea
Cucumber Processing Enterprises
At present, a number of sea cucumber brand enterprises do not have a stable supply of raw sea
cucumbers due to the increasing cost of acquiring the rights to use sea areas, as well as the risks from
weather, disease, etc. in the breeding industry. Generally they rely on hundreds or thousands of
culturists for the raw sea cucumber supply. This will result in weak control of the raw material price
and quality.
In contrast, some leading cucumber brand owners have already engaged in upstream sea cucumber
breeding. They are more competitive than those only engaged in sea cucumber processing and
distribution, in financial performance.
However, the cost of using sea areas has increased year by year. At present, the Ocean and Fishery
Bureaus in various cities have entered the phase in which the market allocates sea resources. The
approach to acquiring the right to use sea areas has changed from administrative examination and
approval in the past to the present market-oriented approaches such as bidding, auction and open
granting. The auction of the right to use breeding sea areas is to let culturists/enterprises in coastal
areas take part in the auction and obtain the right to use corresponding sea areas in a fair and
reasonable way. After the culturists win the auction, they will enjoy a series of legal rights to use the
sea areas and be engaged in the breeding industry for a certain period of time (for example, five
years).
–
Challenges
The Government Policies of Hitting Corruption Resulted in Dropping Demand of Sea Cucumbers
Since late 2011, the government strengthened its policies of attacking corruption and controlling the
public funds being used for private purpose. The foodservice channel is one of the most important
consumption channels for sea cucumbers. The high-end foodservice channel is mainly a target for
banquets and business entertainments. Due to the above policies, the high-end foodservice channels
are impacted, which resulted in decreasing demand of sea cucumbers. Meanwhile, the demand of
high-end packaged sea cucumbers, which are usually purchased for gifts, witnessed sharp decrease.
As a result, many sea cucumbers enterprises have witnessed sales drops since late 2011.
134
–
Opportunities
Lower Concentration Rate Indicates More Opportunities for the Market Players
At present, the concentration rate in the packaged sea cucumber market is very low. Most
manufacturers remain in the low-level competition phase. The market is in the lower level of an
equilibrium state. Manufacturers do not have the ability (or intention) to build strong brands. Instead,
they are content in their present positions. As a result, the market concentration rate in the whole
industry becomes quite low. In this industry it is easier to explore market opportunities. Since there
is no dominant manufacturer in this industry, larger enterprises have a lot of opportunities.
4.3.3 Competitive Landscape
Fragmented Packaged Sea Cucumber Suppliers’ Market
In 2013, the top five manufacturers supplied 14.8% of the total packaged sea cucumber production
volume in China. All four leading companies are located in Liaoning province. Dalian Xiaoqin Food
Co., Ltd., which is the first-tier manufacturer, was ranked first and enjoyed a share of 7.5%. The other
three companies are the second-tier manufacturers and took a share of 1.5-3.0%.
Shandong Homey Aquatic Development Co., Ltd. is the biggest sea cucumber supplier in the
province. It distributed a large scale volume of sea cucumbers, while most of them are fresh sea
cucumbers, with only about 30% being processed into packaged products.
Table 18
Top 5 Packaged Sea Cucumber Manufacturers (in terms of production volume), 2013
Packaged Sea
Cucumbers
Production
Volume
Ranking
National Brand Owner
1
2
3
4
5
X
Dalian XiaoQin Food Co., Ltd.
Dalian Bangchui Island Seafood Corp.
Dalian Keybridge Marine Seeds Co., Ltd.
Zhangzidao Group Co., Ltd.
Shandong Homey Aquatic Development Co., Ltd.
Hong Kong Hanhe Holdings Limited
Top 5
500.00
200.00
125.00
100.00
58.93
50.64
Market
Share (%)
7.5%
3.0%
1.9%
1.5%
0.9%
0.8%
14.8%
Source: Euromonitor estimates from trade interviews and desk research
The market share data reported above has been determined via a fieldwork program consisting of
desk research and trade interviews. While audited data was available for some of the companies, they
typically do not break the production volume into the relevant categories which were covered in this
study. For these companies as well as those companies that are included in the market shares but are
not publicly listed, we have estimated the markets shares based on estimates provided by various
trade sources (i.e. not just the companies themselves) while seeking a consensus on these estimates
as much as possible.
A Trend of Merger and Acquisition is Witnessed in the Sea Cucumber Industry in China, which will
drive the Concentration Rate Increase
Dalian Zhangzi Island Group Co., Ltd. acquired Dalian Xinzhong Aquatic Co., Ltd. for RMB280
million in January 2014. “By acquiring Xinzhong Aquatic, Zhangzi Island will have a wider product
portfolio, which allows us to better integrate the supply chain and win more ground from the
competitors.” said the Chairman of Zhangi Island Group Co., Ltd.
135
PART V
ADDITIONAL INFORMATION
1.
RESPONSIBILITY
The Existing Directors and the Proposed Directors, whose names are set out on page 8 of this
Admission Document and the Company, accept responsibility both individually and collectively, for
all the information contained in this Admission Document, and compliance with the AIM Rules. To
the best of the knowledge and belief of the Existing Directors and the Proposed Directors (each of
whom has taken all reasonable care to ensure that such is the case), the information contained in the
Admission Document is in accordance with the facts underlying that information and does not omit
anything likely to affect the import of such information.
2.
THE COMPANY AND ITS SUBSIDIARIES
2.1
The Company was incorporated and registered as a public limited company with shares of no
par value in Jersey on 11 August 2014. The Company’s registered number is 116402. The
Company is governed by its Memorandum and Articles and by the Companies Law.
2.2
The liability of the members of the Company is limited. The Company has an unlimited life
unless it is dissolved, wound up or enters into any reconstruction, amalgamation or merged
into, or transferred into, another entity in accordance with the Companies Law.
2.3
The registered office of the Company is at Queensway House, Hilgrove Street, St Helier, Jersey,
JE1 1ES. The Company is domiciled in Jersey.
2.4
The principal place of business of the Group is at Laishan Shengquan Economic Development
Zone, Yantai City, Shandong Province, PRC. The telephone number of the Company at its
principal place of business is +86 (0) 535 6726138 / +86 (0) 535 6726236. The register of
members of the Company is kept at its registered office. The Group’s websites are:
www.kanwa.cn and www.aquaticfoods-ir.com.
2.5
The Company is a holding company and its principal activity is the holding of investments in
its Subsidiaries. As a newly incorporated company, there have been no important events in the
development of the business thus far, save for the acquisition of the entire issued share capital
of Hong Kong Han He pursuant to the Framework Agreement.
2.6
The ISIN (International Security Identification Number) of the Ordinary Shares is
JE00BQQG1J93 and the Ordinary Shares are in registered form and are capable of being held
in either certificated or uncertificated form.
136
2.7
As at Admission, the Company has the following subsidiary undertakings (within the meaning
of section 1159 of the Act), all of which are directly or indirectly wholly owned:
Name of
subsidiary
Company Number
Date and
country of
incorporation
Ownership,
interest and
Voting Power
Registered address
Principal Activities
Hong Kong
Han He
Holding
Company Ltd
1804818
25 September
2012 in
Hong Kong
100% by
Room A, 15th
Aquatic Foods Floor, Fortis
Group plc
Tower, 77-79
Gloucester Road,
Wanchai,
Hong Kong
Investment Holding
Company
Yantai Kanwa
Food Co., Ltd
370600400007228
15 November
1999 in
the PRC
100% by
Hong Kong
Han He
Holding
Company Ltd
Processing and
import and export
of marine,
agricultural and
meat products
Yantai
Zhenhaitang
Food Co., Ltd
370613228031086
1 November
2007 in
the PRC
100% by
7 Zhifu Island
Yantai Kanwa Road West, Zhifu
Food Co., Ltd1 District, PRC
Laishan
Shengquan
Economic
Development Zone,
Yantai City,
Shandong Province
PRC
Supply of processed
frozen marine foods
and pre-packed food
2.8
The Company’s accounting reference date is 31 December.
2.9
Non Statutory Auditors of the Operating Group for each of the three financial years ended
31 December 2013 and for the six months ended 30 June 2014 is Crowe Howarth AF 1018.
Non Statutory Auditors of the Company for the period ended 31 August 2014 is Crowe Clark
Whitehill LLP. Crowe Clark Whitehill LLP is registered to carry on audit work in the UK by the
Institute of Chartered Accountants in England and Wales and is authorised by the Financial
Conduct Authority.
2.10 Statutory auditors of the Subsidiaries for the financial year ended 31 December 2013 were as
follows:
2.10.1
Hong Kong Han He: World Smart, Certified Public Accountants from Room K, 16/F.,
King Palace Plaza, 55 King Yip Street, Kwun Tong, Hong Kong, which is registered to
conduct company audit work and is regulated by the Hong Kong Institute of Certified
Public Accountants.
2.10.2
Yantai Kanwa: Yantai Yihe Taxation Accountancy Chartered Accountants from 7th
Floor A, No. 1, Shengli Road, Zhifu District, Yantai City, Shandong Province, which is
registered to conduct company audit work and is regulated by the Registered Tax
Officers Management Centre, Shandong Province.
2.10.3
Zhenhaitang: Yantai Yihe Taxation Accountancy Chartered Accountants from 7th Floor
A, No. 1, Shengli Road, Zhifu District, Yantai City, Shandong Province. which is
registered to conduct company audit work and is regulated by the Registered Tax
Officers Management Centre, Shandong Province.
2.11 On 28 January 2015 pursuant to resolutions passed by the Shareholders, the members of the
Company approved the adoption of new Articles, the terms of which are summarised in
paragraph 8 of this Part V of this Admission Document.
137
3.
SHARE CAPITAL OF THE COMPANY
3.1
On incorporation, the Company had an unlimited authorised share capital of no par value, of
which two shares were issued, fully paid to the subscribers to the Memorandum, being
Computershare Company Secretarial Services (Jersey) Limited and Computershare Nominees
(Channel Islands) Limited.
3.2
Changes in the share capital of the Company prior to the date of this Admission Document are
as follows:
3.2.1
On 16 October 2014, by resolution of the Board, the Board approved:
3.2.1.1 the transfer of one subscriber share to Oceanic Expert from each of: (i)
Computershare Company Secretarial Services (Jersey) Limited and (ii)
Computershare Nominees (Channel Islands) Limited; and
3.2.1.2 the issue and allotment of 49,999,998 Ordinary Shares to certain other
persons as specified in the Framework Agreement (in such proportions as
specified in the Framework Agreement) for consideration other than cash.
Further information on the Framework Agreement is set out in paragraph
10.9 below.
3.2.2
3.3
3.4
On 28 January 2015 the members of the Company resolved by unanimous special
written resolution that each of the existing issued ordinary shares of no par value in
the capital of the Company be subdivided into two ordinary shares of no par value.
On 28 January 2015, by or pursuant to, unanimous special written resolutions, the members
of the Company;
3.3.1
authorised the Directors to allot the Placing Shares and Subscription Shares
conditional on Admission;
3.3.2
authorised the Directors, conditional on Admission, to allot up to a number equal to
10 per cent, of the Enlarged Share Capital at any time from Admission until the first
annual general meeting of the Company; and
3.3.3
disapplied pre-emption rights in relation to any such allotment of Ordinary Shares
referred to in paragraphs 3.3.1 and 3.3.2.
The authorised and issued Ordinary Share capital of the Company (i) at the date of this
Admission Document and (ii) as it is expected to be immediately following Admission is as
follows:
Date
Date of this Admission Document
Immediately following Admission
Number of Authorised
Ordinary Shares
Number of issued
Ordinary Shares
unlimited
unlimited
100,000,000
113,226,081
3.5
Jersey statutes and common law do not grant shareholders the benefit of pre-emption rights in
relation to the allotment of new shares in a company unless otherwise specifically included in
that company’s articles of association. The Company has therefore voluntarily adopted preemption provisions in its Articles which are intended to replicate the pre-emption rights set out
in the Act, details of which are set out in the summary of the Articles in paragraph 8.2 below.
3.6
On Admission, 5,792,081 Placing Shares will be issued pursuant to the Placing and 7,434,000
Subscription Shares will be issued pursuant to the Subscription.
3.7
The Placing Shares and Subscription Shares will be allotted fully paid in registered form and
may be held in either certificated or in uncertificated form and will rank pari passu in all
138
respects with the Existing Ordinary Shares for all dividends or other distributions hereafter
declared, paid or made on the Existing Ordinary Shares.
3.8
The Placing Shares and Subscription Shares were created and issued pursuant to Companies
Law and the Memorandum and Articles.
3.9
As at the date of this Admission Document, more than ten (10) per cent. of the Existing
Ordinary Shares were allotted for consideration other than cash.
3.10 There is no class of shares in issue other than Ordinary Shares and no Ordinary Shares have
been issued other than as fully paid.
3.11 The Ordinary Shares are freely transferable provided that they are fully paid.
3.12 Save as disclosed in this Admission Document, the Company does not have in issue any
securities not representing share capital and there are no securities in the Company held by or
on behalf of the Company or by any member of the Group.
3.13 Save as set out in this Admission Document:
3.13.1
the Company has not issued or granted any options, warrants, exchangeable
securities, securities with warrants or any convertible securities of the Company;
3.13.2
no share or loan capital of the Company has been issued or is proposed to be issued,
whether fully or partly paid, either for cash or for consideration other than cash;
3.13.3
there are no shares in the capital of the Company currently in issue with a fixed date
on which entitlement to a dividend arises and there are no arrangements in force
whereby future dividends are waived or agreed to be waived;
3.13.4
no person has any preferential subscription rights for any share capital of the
Company;
3.13.5
no commissions, discounts, brokerages or other special terms have been granted by
the Company since its incorporation in connection with the issue or sale of any share
or loan capital of the Company; and
3.13.6
there is no other undertaking to increase capital.
3.14 The Company has unrestricted corporate capacity and can borrow, guarantee and give security.
3.15 The Ordinary Shares have not been admitted to dealing on any recognised investment
exchange or other trading facility nor has any application for such admission been made and
it is not intended to make such arrangements for dealings in the Ordinary Shares on any such
exchange other than the application to be made in connection with the Admission.
4.
SIGNIFICANT SHAREHOLDERS
4.1
Except for the interests of the Existing Directors and the Proposed Directors, which are set out
in paragraph 5.1 below, and save the interests disclosed in paragraph 4.2 below, the Company
is not aware of any holdings of Ordinary Shares as at the date of this Admission Document and
immediately following Admission directly or indirectly (within the meaning of Part V of FSMA
and the Disclosure Rules and Transparency Rules) in or representing three per cent. (3 per cent.)
or more of the Enlarged Share Capital.
139
4.2
In addition to the holdings which are set out in paragraph 5.1 below, the Company is aware of
the following holdings of Ordinary Shares which on the date of this Admission Document
represent, and at Admission will represent, three per cent. (3 per cent.) or more of the Enlarged
Share Capital (the “Significant Shareholders”):
As at the date of
this Admission Document***
Name of Shareholder
Number of
Ordinary
Shares
Oceanic Expert Holdings Limited* 51,000,000
Pioneer Sky Investments Limited
6,500,000
Righton Investments Limited
6,500,000
Midasi (Malta) Investment Limited
5,500,000
One Capital Group Investment
(Malta) Limited **
4,800,000
Thomas Tan Hock Nieh
4,700,000
Lim Koon Keong
4,500,000
Eternal View Investments Limited
4,500,000
East Sincerity Capital
China Co., Ltd
4,200,000
First Honour Ventures Limited
4,000,000
United Talent Investments Limited
3,800,000
On Admission
% of total
number
of issued
Ordinary
Shares
Number of
Ordinary
Shares
% of total
number
of issued
Ordinary
Shares
51.0%
6.5%
6.5%
5.5%
51,000,000
6,500,000
6,500,000
5,500,000
45.0%
5.7%
5.7%
4.9%
4.8%
4.7%
4.5%
4.5%
4,800,000
4,700,000
4,500,000
4,500,000
4.2%
4.2%
4.0%
4.0%
4.2%
4.0%
3.8%
4,200,000
4,000,000
3,800,000
3.7%
3.5%
3.4%
* Oceanic Export Holdings Limited is a BVI company of which 100 per cent. of the issued share capital is directly owned
by Li Xianzhi
** One Capital Group Investment (Malta) Limited is a Maltese company of which 100 per cent. of the issued share capital
is directly owned by Dato Yap Son On, who is Mircle Yap Ching Chai’s father.
***Following the special written resolution set out in paragraph 3.2.2 being passed unanimously by Shareholders.
4.3
The persons referred to in paragraphs 4.2 and 5.1 of Part V of this Admission Document do not
have voting rights in respect of the share capital of the Company (issued or to be issued) which
differ from any Shareholder.
4.4
Save as disclosed in this Admission Document, none of the Existing Directors or Proposed
Directors nor the Company is aware of (having made due and proper enquiries) any
arrangements, the operation of which may at a subsequent date result in a change of control of
the Company.
4.5
Save as disclosed in this Admission Document, none of the Existing Directors or Proposed
Directors nor the Company is aware of (having made due and proper enquiries) any person or
corporation that has an interest in the share capital of the Company or voting rights which is
subject to notice under either Jersey, Hong Kong or PRC laws.
4.6
Save as disclosed at paragraph 4.2 above, the Company and the Existing Directors and
Proposed Directors are not aware of any person or persons or corporations who directly or
indirectly, jointly or severally, exercise or could exercise control of the Company or any
arrangements the operation of which may, at a subsequent date, result in a change in the
control of the Company.
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5.
DIRECTORS’ INTERESTS AND OTHER INTERESTS
5.1
The interests of the Existing Directors and the Proposed Directors, their immediate families
(within the meaning set out in AIM Rules for Companies) and, as far as they are aware (having
made due and careful enquiries), the interests of persons connected with them (within the
meaning of sections 252 to 254 of the Act), in the share capital of the Company as at the date
of this Admission Document and immediately following Admission are set out below (all of
which are beneficial unless otherwise stated):
As at the date
of this Admission Document
Director or Proposed Director
Li Xianzhi
On Admission
Number of
Ordinary
Shares
% of total
number
of issued
Ordinary
Shares
Number of
Ordinary
Shares
% of total
number
of issued
Ordinary
Shares
51,000,000
51.0%
51,000,000
45.0%
5.2
Except as disclosed in paragraph 5.1 above, none of the Existing Directors or Proposed
Directors, nor any member of their respective immediate families (within the meaning set out
in the AIM Rules for Companies), nor any person connected with them (within the meaning of
sections 252 to 254 of the Act), holds or will on Admission be, interested, whether beneficially
or non-beneficially, directly or indirectly, in the share or loan capital of the Company, any
option to subscribe, for Ordinary Shares, any voting rights in respect of Ordinary Shares or any
securities convertible into shares of the Company or the Subsidiaries.
5.3
Save as set out in this Admission Document, no Director is or has been interested in any
transactions with or on behalf of the Company which are or were unusual in their nature or
conditions, which are or were significant to the business of the Company (taken as a whole)
which was effected by the Company since its incorporation and which remain, in any respect,
outstanding or unperformed.
5.4
There are no outstanding loans or guarantees provided by the Group to or for the benefit of any
Existing Directors or Proposed Directors.
5.5
None of the Existing Directors or Proposed Directors has any potential conflicts of interest
between their duties to the Company and their private interests and/or other duties they may
also have.
5.6
None of the Existing Directors or Proposed Directors nor any member of his respective families
(within the meaning set out in AIM Rules for Companies) or persons connected with them
within the meaning of sections 252 to 254 of the Act has a related financial product (as defined
in the AIM Rules for Companies) referenced to the Ordinary Shares.
5.7
The Existing Directors or Proposed Directors are not required to hold any Ordinary Shares
under the Articles.
5.8
Other than the protections afforded to Shareholders in the Articles or as described in paragraph
10.6 below, there are no controls in place to ensure that any Shareholder having a controlling
interest in the Company does not abuse that interest.
5.9
None of the Existing Directors or Proposed Directors has any interest, direct or indirect, in any
assets which have been or are proposed to be acquired or disposed of by, or leased to, the
Group and, save as disclosed in paragraph 10 or 11 of this Part V of this Admission Document,
no contract or arrangement exists in which any Existing Director or Proposed Directors is
materially interested and which is significant in relation to the business of the Group.
141
5.10 There is no arrangement under which any Existing Director or Proposed Directors has agreed
to waive future emoluments nor has there been any waiver of emoluments during the financial
year preceding the date of this Admission Document.
6.
DIRECTORS’ SERVICE AGREEMENTS AND LETTERS OF APPOINTMENT
The following are particulars of the service agreements entered into between the Directors and the
Company:
6.1
Service Agreements
6.1.1
Li Xianzhi entered into a service agreement with the Company dated 28 January 2015
to serve as Chief Executive Officer of the Company conditional on and with effect
from Admission. Li Xianzhi’s remuneration is RMB65,000 per month with an
additional remuneration of RMB65,000 in December of each year. The service
agreement can be terminated at any time by either party giving to the other not fewer
than 6 months’ prior notice in writing. Li Xianzhi will report to the Board or such
person as the Board may from time to time determine and at all times keep the Board
(or such other person) fully informed of his activities and will promptly provide such
information and explanations as may be requested from time to time by the Board (or
such other person). Li Xianzhi shall devote his whole time and attention and abilities
to carrying out his duties under the service agreement. During his employment, Li
Xianzhi may, at the discretion of the Board, be eligible to receive from time to time a
performance-related bonus based on individual and Group performance conditions
to be determined from time to time by the Board. Subject to the rules and eligibility
requirements from time to time in force, Li Xianzhi will be entitled to be a member
of a private medical care scheme and to participate in any permanent health
insurance scheme from time to time operated by the Company.
6.1.2
Kim Huat (Sean) Lim entered into a service agreement with the Company dated
28 January 2015 to serve as Chief Financial Officer of the Company conditional on
and with effect from Admission. Sean Lim‘s remuneration is SG$13,000 per month
with an additional remuneration of SG$13,000 in December of each year. The service
agreement can be terminated at any time by either party giving to the other not fewer
than 6 months’ prior notice in writing. Kim Huat (Sean) Lim will report to the Board or
such person as the Board may from time to time determine and at all times keep the
Board (or such other person) fully informed of his activities and will promptly provide
such information and explanations as may be requested from time to time by the Board
(or such other person). Kim Huat (Sean) Lim shall devote his whole time and attention
and abilities to carrying out his duties under the service agreement. During his
employment, Kim Huat (Sean) Lim may, at the discretion of the Board, be eligible to
receive from time to time a performance-related bonus based on individual and Group
performance conditions to be determined from time to time by the Board. Kim Huat
(Sean) Lim will be entitled to a bonus of SG$150,000 on Admission. Subject to rules
and eligibility requirements from time to time in force, Kim Huat (Sean) Lim will be
entitled to be a member of a private medical care scheme and to participate in any
permanent health insurance scheme from time to time operated by the Company.
The following letters of appointment have been entered into in respect of the provision of the
services of the non-executive Proposed Directors to the Company:
6.2
Letter of Appointments
6.2.1
Pursuant to a letter of appointment dated 28 January 2015, the Company appointed
Dr. Wang Shaodong as independent non-executive chairman of the Company
conditional on and with effect from the date of Admission. The appointment will
142
begin on the date of Admission and will be for an initial term of three years unless
terminated by either party giving to the other at least three months’ notice, such
notice not to be given before the date which is three months after the publication of
the audited accounts of the Company for the financial year ending 2015.
Continuation of the appointment is at all times conditional upon satisfactory
performance. Dr Wang Shaodong is expected to prepare for and attend Board
meetings to be held in Hong Kong, the PRC or Jersey and will attend meetings of and
serve on each of the Company’s, AIM Compliance, Remuneration and Nomination
committees (and such other committees as the Board may require from time to time).
It is anticipated that Dr Wang Shaodong’s duties will involve an annual commitment
to the Company of approximately two days per month. The Company will pay a fee
of £35,000 per annum, inclusive of any entitlement to holiday pay, payable in 12
monthly equal instalments. The Board may review the fee paid from time to time.
Dr. Wang Shaodong will not be eligible for any other benefits. The Company will
reimburse all reasonable expenses properly incurred in connection with Dr. Wang
Shaodong’s appointment, including travel and accommodation costs to attend
meetings in Hong Kong, the PRC and/or Jersey, and long haul flights of more than five
hours shall be by way of business class flights. The Company has not granted any
benefits on termination of employment.
6.2.2
Pursuant to a letter of appointment dated 28 January 2015, the Company appointed
Mircle Yap Ching Chai as an independent non-executive director of the Company
conditional on and with effect from the date of Admission. The appointment will
begin on the date of Admission and will be for an initial term of three years unless
terminated by either party giving to the other at least three months’ notice, such
notice not to be given before the date which is three months after the publication of
the audited accounts of the Company for the financial year ending 2015.
Continuation of the appointment is at all times conditional upon satisfactory
performance. Mircle Yap Ching Chai is expected to prepare for and attend Board
meetings to be held in Hong Kong, the PRC or Jersey and serve on each of the
Company’s Audit, Remuneration and Nomination committees (and such other
committees as the Board may require from time to time). It is anticipated that Mircle
Yap Ching Chai’s duties will involve an annual commitment to the Company of
approximately two days per month. The Company will pay Mircle Yap Ching Chai a
fee of £30,000 per annum, inclusive of any entitlement to holiday pay, payable in 12
monthly equal instalments. The Board may review the fee paid to Mircle Yap Ching
Chai from time to time. Mircle Yap Ching Chai will not be eligible for any other
benefits. The Company will reimburse all reasonable expenses properly incurred in
connection with Mircle Yap Ching Chai’s appointment, including travel and
accommodation costs to attend meetings in Hong Kong, the PRC or Jersey, and long
haul flights of more than five hours shall be by way of business class flights. The
Company has not granted any benefits on termination of employment.
6.2.3
Pursuant to a letter of appointment dated 28 January 2015, the Company appointed
John McLean as independent non-executive deputy chairman of the Company
conditional on and with effect from the date of Admission. The appointment will
begin on the date of Admission and will be for an initial term of three years unless
terminated by either party giving to the other at least three months’ notice, such
notice not to be given before the date which is three months after the publication of
the audited accounts of the Company for the financial year ending 2015.
Continuation of the appointment is at all times conditional upon satisfactory
performance. John McLean is expected to prepare for and attend Board meetings to
be held in Hong Kong, the PRC or Jersey and will attend meetings of and serve on
each of the Company’s Audit, AIM Compliance, Remuneration and Nomination
143
committees (and such other committees as the Board may require from time to time).
It is anticipated that John McLean’s duties will involve an annual commitment to the
Company of approximately two days per month. The Company will pay John McLean
a fee of £35,000 per annum, inclusive of any entitlement to holiday pay, payable in
12 monthly equal instalments. The Board may review the fee paid to John McLean
from time to time. John McLean will not be eligible for any other benefits. The
Company will reimburse all reasonable expenses properly incurred in connection
with John McLean’s appointment, including travel and accommodation costs to
attend meetings in Hong Kong, the PRC or Jersey, and long haul flights of more than
five hours shall be by way of business class flights. The Company has not granted any
benefits on termination of employment.
6.2.4
6.3
6.4
Pursuant to a letter of appointment dated 28 January 2015, the Company appointed
Richard Sweet as an independent non-executive director of the Company conditional
on and with effect from the date of Admission. The appointment will begin on the
date of Admission and will be for an initial term of three years unless terminated by
either party giving to the other at least three months’ notice, such notice not to be
given before the date which is three months after the publication of the audited
accounts of the Company for the financial year ending 2015. Continuation of the
appointment is at all times conditional upon satisfactory performance. Richard Sweet
is expected to prepare for and attend Board meetings to be held in Hong Kong, the
PRC or Jersey and will attend meetings of and serve on each of the Company’s Audit,
Remuneration and Nomination committees (and such other committees as the Board
may require from time to time). It is anticipated that Richard Sweet’s duties will
involve an annual commitment to the Company of approximately two days per
month. The Company will pay Richard Sweet a fee of £30,000 per annum, inclusive
of any entitlement to holiday pay, payable in 12 monthly equal instalments. The Board
may review the fee paid to Richard Sweet from time to time. Richard Sweet will not
be eligible for any other benefits. The Company will reimburse all reasonable
expenses properly incurred in connection with Richard Sweet’s appointment,
including travel and accommodation costs to attend meetings in Hong Kong, the PRC
or Jersey, and long haul flights of more than five hours shall be by way of business
class flights. The Company has not granted any benefits on termination of
employment.
Save as set out in this Admission Document:
6.3.1
there are no existing or proposed service agreements between any director of the
Company and the Company or any other member of the Group;
6.3.2
there are no existing or proposed service contracts between any director of the
Company and the Company or any other member of the Group which provide for
benefits or additional payment upon termination of employment; and
6.3.3
there are no existing or proposed arrangements under which any director of the
company has agreed to waive future emoluments nor has there been any waiver of
emoluments since the incorporation of the Company.
Save as set out above and as set out in the Placing Agreement, Relationship Agreement, Lockin and Orderly Marketing Agreement (each of which is summarised in paragraph 10 below of
this Part V of this Admission Document), there are no agreements, arrangements or
understandings (including compensation agreements) between any of the Existing Directors,
recent directors, Proposed Directors, Shareholders or recent shareholders connected with or
dependent upon Admission or the Placing or the Subscription.
144
7.
FURTHER INFORMATION ABOUT THE DIRECTORS
7.1
The Existing Directors and Proposed Directors currently hold, or have during the five years
preceding the date of this Admission Document held, the following directorships and/or
interests in companies and/or partnerships in addition to their directorships within the Group:
Director
Li Xianzhi
—
Kim Huat (Sean) Lim
China Sports International Limited SSB Management Services
John McLean
ASSL (Realisations) Limited
China – Britain Business Council
China Capital Partners Limited
China Food Company plc
Duart Partners LLP
Sorbic International plc
英国海外志愿服务社 北京代表处
Beijing VSO Consulting Co., Ltd.
Director
Yantai Moon Bay Marine Food
Co., Ltd.
Current Directorships
or Partnerships as at the date of
this Admission Document
John McLean
(continued)
Albany Capital Advisers Limited
Albany Capital Group Limited
Albany Capital plc
Albany China Limited
Fairfax Acquisitions Limited
Fairfax Classical Properties
Limited
Fairfax Project Management
Limited
Flymenow Limited
Past Directorships
or Partnerships during the 5 years
preceding the date of this
Admission Document
Jamraf Limited
Pedstowe Limited (formerly
Humberts plc)
Pedstowe (Kensington) Limited
Shotz Drinks Limited
Westminster Growth Capital
Limited
Richard Sweet
Camkids Group plc
Museum of London
(Trading) Limited
RS Retail Consulting Limited
Shelter Trading Limited
Dr Wang Shaodong
Synertone Communication
Corporation
—
Mircle Yap Ching Chai Camkids Group plc
Feike AG
Fenghua Soletech AG
JQW plc
7.2
Past Directorships
or Partnerships during the 5 years
preceding the date of this
Admission Document
Current Directorships
or Partnerships as at the date of
this Admission Document
Progressive Asia Group
REIT Asia Pacific
Telegraph Settlement
An administrative receiver of ASSL (Realisations) Limited (formerly Arthur Sanderson & Sons
Limited) was appointed on 7 August 2003 and the company was placed into creditors’
voluntary liquidation on 20 November 2003. John McLean was a director of that company on
the date of both such events, having been appointed on 26 June 1998 by Gamma Holdings NV
to implement a strategic review of the business. Although the company did return to
profitability while John McLean was a director, it required additional funding both to grow and
to complete the restructuring. However, it was not possible to obtain the additional funding for
145
the company and so an administrative receiver and then a liquidator were appointed. The
deficiency to creditors was £41.078 million.
An administrative receiver of Sanderson & Sons Holdings Limited was appointed on 7 August
2003 and the company was placed into creditors’ voluntary liquidation on 20 November 2003.
Mr McLean was a director of that company on the date of both such events, having been
appointed on 24 January 2001 by Gamma Holdings NV. Sanderson & Sons Holdings Limited,
the parent company of ASSL (Realisations) Limited. After paying creditors, the surplus proceeds
were £143,863.
7.3
Other than disclosed in this Admission Document, none of the Existing Directors and Proposed
Directors have:
7.2.1
any unspent criminal convictions in relation to indictable offences (other than an
offence under road traffic legislation in respect of which a custodial sentence was not
imposed);
7.2.2
had a bankruptcy order made against him or entered into any form of individual
voluntary arrangements;
7.2.3
been a director of a company which has been placed in receivership, compulsory
liquidation, creditors’ voluntary liquidation, administrations, company voluntary
arrangement or any composition or arrangement with its creditors generally or any
class of its creditors of any company where he was a director at that time of or within
the 12 months preceding such events;
7.2.4
been a partner in a firm which has been placed in insolvent liquidation or
administration or which has entered into a partnership voluntary arrangement whilst
he or she was at the firm at that time or within the 12 months preceding such events;
7.2.5
had any asset of belonging to him or her placed in receivership, or been a partner in
a partnership whose assets have been placed in receivership whilst he was a partner
of that firm, or within the 12 months preceding, such events; or
7.2.6
been the subject of any public criticisms by any statutory or regulatory authorities
(including recognised professional bodies) nor disqualified by a court from acting as
a director of a company or from acting in the management or conduct of the affairs
of any company.
7.3
No Existing Director or Proposed Director has been interested in any transaction with the
Company that was unusual in its nature or conditions or was significant to the business of the
Company taken as a whole and which was effected by the Company since its incorporation
and which at the date of this Admission Document remains outstanding or unperformed.
7.4
No loan has been granted to, nor any guarantee provided for, the Company.
8.
MEMORANDUM AND ARTICLES
8.1
Memorandum of Association
The Memorandum of the Company does not restrict the activities of the Company and thus the
Company will have unlimited legal capacity. Paragraph 2 of the Memorandum provides that
the objects of the Company are unrestricted.
8.2
Articles of Association
For the purpose of this paragraph 8.2, the following definitions shall apply:
146
“DTR” means the United Kingdom Disclosure Rules and Transparency Rules as amended from
time to time relating to the disclosure of information in respect of financial instruments which
have been admitted to trading on a regulated market or for which a request for admission to
trading on such a market has been made, as published by the FCA;
“Exempt Transfer” in relation to any share is a transfer pursuant to:
(a)
a sale of the share on AIM or a regulated market in the United Kingdom on which shares
of that class are listed or normally traded; and/or
(b)
a sale of the whole beneficial interest in the share to a person whom the Board is satisfied
is unconnected with the existing holder or with any other person appearing to be
interested in the share; or
(c)
acceptance of a takeover offer;
“Operator” has the same meaning as “authorised operator” as provided for in the CREST
Regulations;
“participating class” a class of shares title to which is permitted by an Operator to be
transferred by a relevant system;
“relevant securities” means:
(a)
(b)
shares in the Company other than shares allotted pursuant to:
(i)
an employee share scheme;
(ii)
a right to subscribe for shares in the Company where the grant of the right itself
constituted a relevant security; or
(iii)
a right to convert securities into shares in the Company where the grant of the right
itself constituted a relevant security; and
any right to subscribe for, or to convert any security into, shares in the Company other
than rights to subscribe for or convert any security into shares allotted pursuant to an
employee share scheme, and a reference to the allotment of relevant securities includes
the grant of such a right; and
“special resolution” means a resolution of the Company passed as a special resolution in
accordance with Companies Law by a majority of three-fourths of the votes cast on that
resolution.
The Articles were adopted by the Company by a written special resolution passed on
28 January 2015 and include, inter alia, provisions to the following effect. Persons seeking a
detailed explanation of any provisions of Jersey law or the difference between it and the laws
of England and Wales, or any other jurisdiction with which they may be more familiar, should
seek specific legal advice.
8.3
Stated capital account
The Company shall maintain a stated capital account in accordance with Companies Law for
each class of issued shares. A stated capital account may be expressed in any currency.
8.4
Alteration of share capital
The Company may by special resolution alter its share capital in any manner permitted by
Article 38 of Companies Law. In accordance with (and subject to) the provisions of Article 61
147
of Companies Law, the Company may by special resolution reduce its stated capital account
and capital redemption reserve in any way.
8.5
Purchase of own shares
Subject to and in accordance with Companies Law and without prejudice to any special rights
attached to any class of shares, the Company may purchase any of its own shares of any class
(including, without limitation, redeemable shares) in any way and at any price and may hold
such shares as treasury shares.
8.6
Share rights
Subject to Companies Law and without prejudice to any rights attached to any existing shares,
any share in the Company may be issued with or have attached to it such rights and restrictions
as the Company may by ordinary resolution decide or, if no such resolution has been passed
or so far as the resolution does not make specific provision, as the Board may decide. No share
issued by the Company shall have a nominal value. Subject to Companies Law and to any
rights attached to any existing shares, the Company may issue shares which are to be
redeemed, or at the option of the Company or the holder are liable to be redeemed.
8.7
Allotment of securities and pre-emption rights
Subject to the provisions of Companies Law, the Articles and any resolution of the Company
passed by the Company conferring authority on the Directors to allot shares, as referred to
below and without prejudice to any rights attached to existing shares, all unissued shares are
at the disposal of the Board which may reclassify, allot, grant options over or otherwise dispose
of them to persons at such times and on such terms and conditions as the Board may decide.
The Board has the power to allot relevant securities subject to authority granted by the
Company by ordinary resolution which shall provide for: (i) the number of relevant securities
which may be issued by the Board generally and unconditionally and (ii) may specify the issue
price of such relevant securities.
Although Companies Law does not provide any statutory pre-emption rights, the Articles
provide that equity securities allotted by the Company must first be offered to existing
Shareholders in proportion to their respective holdings of Ordinary Shares except that such preemption rights shall not apply where they are dis-applied by way of special resolution of the
holders of shares of the class who (being entitled to do so) vote in person or by proxy at a
separate general meeting of such holders in relation to: (i) bonus shares; (ii) equity securities
wholly or partly paid up otherwise than in cash; or (iii) equity securities issued in connection
with an employee share scheme.
8.8
Share certificates
Every member on becoming the holder of any certificated share (except a recognised person
in respect of whom the Company is not by law required to issue a certificate) whose name is
entered on the Company’s register of members as a holder of any certificated shares is entitled,
without payment, to one certificate in respect of all shares of any class held by him. In the case
of joint holders, delivery of a certificate to one of the joint holders shall be sufficient delivery
to all.
The Company’s board may permit title to some or all of the shares of any class to be evidenced
otherwise than by a certificate and title to such shares to be transferred in accordance with the
rules of a relevant system pursuant to which title to units of a security can be evidenced and
transferred in accordance with the CREST Regulations, without a written instrument. The
Articles are consistent with CREST membership.
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8.9
Call, forfeiture and lien
The Board may from time to time make calls upon the members in respect of any moneys
unpaid on their shares. Each member shall (subject to being given at least 14 clear days’ notice
specifying where and when payment is to be made) pay to the Company the specified amount
called on his shares. If any call or instalment of a call remains unpaid on or after the due date
for payment, the person from whom it is due and payable shall pay interest on the amount
unpaid from the day it became due and payable until it is paid. Interest shall be paid at a fixed
rate, fixed by the terms of the allotment of the share or in the notice of call or if no rate is fixed,
the rate determined by the Board not exceeding five per cent. per annum, or, if higher, the
appropriate rate (as determined by the UK Secretary of State and defined in the Act). The Board
may also (on giving not less than 14 clear days’ notice requiring payment of the amount unpaid
together with interest and costs incurred) forfeit the shares by resolution of the Board. The
forfeiture shall include all dividends or monies payable in respect of the forfeited share. The
forfeited shares may be sold, re-allotted or otherwise disposed of by the Board in such manner
as it determines.
The Company shall have a first and paramount lien on every share (not being a fully paid share)
for all monies payable to the Company (whether presently or not) in respect of that share. The
Board may at any time (generally or in a particular case) waive any lien or declare any share
to be wholly or in part exempt from the relevant provisions of the Articles. The Company’s lien
on a share shall extend to any amount (including without limitation dividends) payable in
respect of it.
8.10 Variation of rights
Subject to the provisions of Companies Law and to any rights attached to existing shares (and
except in the case where there is only one holder of the issued shares in which case all rights
attached to an existing class of shares may be varied only with the consent in writing of that
holder), all or any of the rights attached to any class of shares may be varied either with the
written consent of the holders of not less than three-fourths in number of the issued shares of
the class or the sanction of a special resolution passed at a separate general meeting of the
holders of shares of the class duly convened and held.
8.11 Transfer of shares
Without prejudice to any power of the Company to register as a shareholder a person to whom
the right to any share has been transmitted by operation of law, the instrument of transfer of a
certificated share may be in the usual form or in any other form approved by the Board and
shall be signed by or on behalf of the transferor and, unless the share is fully paid, by or on
behalf of the transferee.
Any member may transfer all or any of his shares which are in uncertificated form, subject to
the CREST Regulations, by means of a relevant system provided that legal title to such shares
shall not pass until the transfer is entered in the register.
The Board may refuse to register the transfer of a share in certificated form unless the instrument
of transfer:
–
is lodged, duly stamped (if stampable), at the office or at another place appointed by the
Board accompanied by the certificate for the share to which it relates and such other
evidence as the Board may reasonably require to show the right of the transferor to make
the transfer;
–
is in respect of only one class of shares; and
–
is in favour of not more than four transferees.
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If the Board refuses to register a transfer of a share in certificated form it shall send the
transferee notice of its refusal within two months after the date on which the instrument of
transfer was lodged with the Company.
No fee shall be charged for the registration of any instrument of transfer or other document
relating to or affecting the title to a share, or for making any other entry in the register.
Any member may transfer all or any of his shares which are in uncertificated form, subject to
the rules and regulations of the relevant system, provided that legal title to such shares shall not
pass until the transfer is entered in the Company’s register of members. Subject to Companies
Law, the AIM Rules for Companies and any applicable laws, rules and regulations relating to a
relevant system, no provision of the Articles shall apply or have effect to the extent that it is
inconsistent in any respect with:
(a)
the holding of shares of that class in uncertificated form;
–
the transfer of title to shares of that class by means of a relevant system;
–
the exercise of any powers or functions by the Company or the effecting by the
Company of any actions by means of a relevant system; and
–
any provision of the CREST Regulations.
The Directors may lay down regulations not included in the Articles which (in addition to, or
in substitution for, any provisions in the Articles):
(a)
apply to the issue, holding or transfer of shares in uncertificated form;
–
set out (where appropriate) the procedures for conversion and/or redemption of
shares in uncertificated form; and/or
–
the Directors consider necessary or appropriate to ensure that these Articles are
consistent with the CREST Regulations and/or the Operator’s rules and practices.
The Articles provide that the Board may suspend the registration of transfers of shares or of
transfers of any class of shares at such times and for such periods (not exceeding 30 days in any
year) as the Board may determine, except that the Board may not suspend the registration of
transfers of any participating class without the consent of the Operator of the relevant system.
8.12 Disclosure of interests in shares
The provisions of DTR 5 shall be deemed to apply to the Company, so that members are
required under the Articles to notify the Company of the percentage of their voting rights if the
percentage of voting rights which they hold as a shareholder or through their direct or indirect
holding of financial instruments falling within paragraph 5.1.3R of DTR 5 (or a combination of
such holdings) reaches, exceeds or falls below three per cent., four per cent., five per cent., six
per cent., seven per cent., eight per cent., nine per cent., 10 per cent., and each one per cent.
threshold thereafter up to 100 per cent., or reaches or exceeds or falls below any of these
thresholds as a result of events changing the breakdown of voting rights and on the basis of
information disclosed by the Company in accordance with paragraph 5.6.1R of DTR 5.
Paragraph 5.8 of DTR 5 notes that a shareholder must make the notification required under
paragraph 5.1 of DTR 5 as soon as possible and in any event not later than two trading days
after the date on which the person: (i) learns of the acquisition or disposal or of the possibility
of exercising voting rights or having regard to the circumstances should have learned of it
regardless of the date on which the acquisition, disposal or possibility of exercising voting
rights takes effect; or (ii) is informed on the basis of information disclosed by the Company of
events changing the breakdown of voting rights which results in the person reaching, exceeding
or falling below a relevant threshold.
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If any member fails to comply with these requirements, the Directors may, by notice to the
holder of the shares, suspend their rights as to voting, dividends and transfer (except pursuant
to an Exempt Transfer). Such suspension shall have effect from the date on which the default
notice is delivered to the shareholder until a date that is not more than seven days after the
Board has determined that the holder of the shares has cured the non-compliance. During the
period of such suspension any dividend or other amount payable in respect of the shares shall
be retained by the Company without any obligation to pay interest thereon.
The Directors have the power, by giving notice, to require any member to disclose to the
Company the identity of any person other than the member who is interested in the shares held
by the member or who has been at any time during the preceding three years been so
interested, in both cases together with details of the nature of such interest. If any member has
been duly served with such a notice and is in default of the prescribed period in supplying the
information required, certain restrictions shall apply. A disclosure notice may direct that the
member shall not be entitled to vote at a general meeting or meeting of the holders of any class
of shares of the Company or exercise any other right conferred by membership in relation to
the meetings of the Company or holders of any class of shares. Where the default shares
represent at least 0.25 per cent. of the issued shares of that class, any dividend or other money
which would otherwise be payable may also be retained by the Company and transfers of
default shares will be restricted until the restrictions cease to apply.
8.13 General meetings
The Board shall convene and the Company shall hold general meetings as annual general
meetings in accordance with Companies Law. The Board may convene general meetings
whenever it thinks fit. At least 14 clear days’ notice shall be given of every annual general
meeting and of all other general meetings, including without limitation, every general meeting
called for the passing of a special resolution. The Company may determine that the members
entitled to receive a notice of a general meeting of the Company are the members on the
register at the close of business on a day determined by the Company, which day may not be
more than 21 days before the day that notices of the meeting are sent.
The notice shall specify the place, day and time of the meeting and the general nature of the
business to be transacted at the meeting. In the case of an annual general meeting, the notice
shall specify the meeting as such. In the case of a meeting to pass a special resolution the notice
shall specify the intention to propose the resolution as a special resolution.
For the purpose of determining whether a person is entitled as a member to attend or vote at a
meeting and how many votes such person may cast, the Company may specify in the notice of
the meeting a time not more than 48 hours before the time fixed for the meeting, by which a
person who holds shares in registered form must be entered on the register in order to have the
right to attend or vote at the meeting or to appoint a proxy to do so.
The Board may resolve to enable persons entitled to attend a general meeting to do so by
simultaneous attendance and participation at a satellite meeting place anywhere in the world
and any members in attendance in person or by proxy at any such meeting place shall be
counted in the quorum and entitled to vote at the general meeting.
Members representing at least five per cent. of the total voting rights of all members who are
entitled to vote on the resolution at the annual general meeting to which the request relates
(excluding any voting rights attached to any shares in the Company held as treasury shares), or
not less than 100 members who have a relevant right to vote on such resolution and who hold
shares in the Company on which there has been paid up an average sum, per member, of at
least £100, may require the Company to circulate notice of a resolution which may be, and is
intended to be, moved at that annual general meeting to members and if so required, the
Company shall, unless the resolution would if passed be ineffective, is defamatory of any
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person or is frivolous or vexatious, give such notice in the same manner as notice of the
meeting and at the same time as, or as soon as reasonably practicable after it gives notice of
the meeting.
Members representing at least five per cent. of the total voting rights of all members who, in
relation to a proposed resolution, are entitled to vote on that resolution at the meeting to which
the request relates, or in relation to any other matter, are entitled to vote at the meeting to
which the request relates (a “relevant right to vote”) (excluding any voting rights attached to
any shares in the Company held as treasury shares) or, not less than 100 members who have a
relevant right to vote and on which there has been paid up an average sum, per member, of at
least £100, may require the Company to circulate to members an explanatory statement of not
more than 1,000 words with respect to a matter referred to in the proposed resolution to be
dealt with at the meeting to which the request relates, or to any other business to be dealt with
at that meeting. However, the Company has the right to apply to the Royal Court of Jersey to
seek a ruling that it is not required to circulate a members’ statement on the basis that the rights
in the Articles are being abused.
Members representing at least five per cent. of the total voting rights of all members who are
entitled to vote on the matter to which a poll relates (excluding any voting rights attributed to
any shares in the Company held as treasury shares) or not less than 100 members who have a
relevant right to vote and on which there has been paid up an average sum per member of at
least £100 may require the Directors to obtain an independent report on any poll taken or to
be taken at a general meeting of the Company.
A member of the Company may nominate a person, on whose behalf he holds shares, to enjoy
rights to receive a copy of all communications that the Company sends to its members.
All resolutions put to the vote of a general meeting shall be decided upon by a show of hands
unless a poll is validly demanded. Subject to any rights and restrictions attached to any shares,
members and their duly appointed proxies shall have the right to attend and speak at general
meetings and to vote, and to demand, or join in demanding, a poll.
On a show of hands every member who is present in person shall have one vote and every
proxy present who has been duly appointed by a member entitled to vote on the resolution has
one vote. On a poll every member present or by proxy shall have one vote for every share of
which he is the holder.
No member shall be entitled to vote at a general meeting or at a separate meeting of the holders
of any class of shares unless all monies presently payable by him or in respect of his shares
have been paid.
A Director shall, notwithstanding that he is not a member, be entitled to attend and speak at
any general meeting and at any separate meeting of the holders of any class of shares in the
capital of the Company.
The chairman may with the consent of a meeting at which a quorum is present, adjourn the
meeting.
8.14 Power to require website publication of audit concerns
Where so requested by members representing at least five per cent. of the total voting rights of
all the members who have a right to vote at the general meeting at which the accounts of the
Company are laid, or by at least 100 members who have such right to vote and hold shares in
the Company on which there has been paid up an average sum, per member, of at least £100,
the Company shall publish on its website a statement setting out any matter relating to the audit
of the Company’s accounts or any circumstances connected with an auditor of the Company
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ceasing to hold office except where the Board believes in good faith that the rights so conferred
are being abused.
8.15 Voting rights
Subject to any special terms as to voting attached to any shares and to the Articles, on a show
of hands every member who is present in person or by proxy shall have one vote and on a poll
every member who is present in person or by proxy shall have one vote for every share of
which he is the holder. On a poll, a member entitled to more than one vote need not use all
his votes or cast all the votes he uses in the same way. A member may appoint more than one
proxy.
No member shall be entitled to vote at any general meeting unless all monies presently payable
by him in respect of shares in the Company have been paid.
In the case of joint shareholders only, the vote of the senior joint holder shall be accepted. In
the case of an equality of votes, the chairman of the meeting shall be entitled to a casting vote
in addition to any other vote he may have.
8.16 Directors
8.16.1
Appointment of Directors
Unless otherwise determined by ordinary resolution, the number of Directors shall be
not less than two or more than 10. Directors may be appointed by ordinary resolution
or by the Board. At every annual general meeting one-third of the Directors or, if their
number is not three or a multiple of three, the number nearest to and exceeding onethird shall retire from office; but if any Director has at the start of the annual general
meeting been in office for three years or more since his last appointment or reappointment, he shall retire at that annual general meeting.
Any Director may appoint any other Director or other person approved by resolution
of the Board and willing to act, to be an alternate Director.
Subject to the provisions of Companies Law, the Board may appoint one or more of
its body to be the holder of any executive office (except that of auditor) in the
Company and may enter into an agreement or arrangement with any Director for his
employment by the Company or for the provision by him of any services outside the
scope of the ordinary duties of a Director. Any such appointment, agreement or
arrangement may be made on such terms, including without limitation terms as to
remuneration, as the Board determines. The Board may revoke or vary any such
appointment but without prejudice to any rights or claims which the person whose
appointment is revoked or varied may have against the Company because of the
revocation or variation.
8.16.2
No share qualification
A Director shall not be required to hold any shares in the capital of the Company by
way of qualification.
8.16.3
Retirement of Directors by rotation
The Directors to retire by rotation shall be first, those who wish to retire and not be
re-appointed to office, and second, those who have been in office longest since their
last appointment or reappointment. As between persons who became or were last reappointed Directors on the same day those to retire shall (unless they otherwise agree
among themselves) be determined by lot. No Director shall be required to retire or be
relieved from retiring or to be retired by reason of any change in the number or
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identity of the Directors after the date of the notice but before the close of the
meeting.
8.16.4
Remuneration of Directors
The emoluments of any executive Director shall be determined by the Board. The
ordinary remuneration of the Directors who do not hold executive office for their
services (excluding amounts payable under any other provision of the Articles) shall
not exceed in aggregate such amount as the Company may from time to time by
ordinary resolution determine. Subject thereto, each such Director shall be paid a fee
for his services (which shall be deemed to accrue from day to day) at such rate as may
from time to time be determined by the Board.
Any Director who does not hold executive office and who performs special services
which, in the opinion of the Board, go beyond the ordinary duties of a Director, may
be paid such extra remuneration as the Board may determine. The Directors may be
paid all travelling, hotel, and other expenses properly incurred by them in connection
with their attendance at meetings of the Board or committees of the Board, general
meetings or separate meetings of the holders of any class of shares or of debentures
of the Company or otherwise in connection with the discharge of their duties.
The Board may (by establishment of, or maintenance of, schemes or otherwise)
provide benefits, whether by the payment of gratuities or pensions or by insurance or
otherwise, for any past or present Director or employee of the Company or any of its
subsidiary undertakings or any body corporate associated with, or any business
acquired by, any of them, and for any member of his family (including a spouse, a
civil partner, a former spouse and a former civil partner) or any person who is or was
dependent on him, and may (as well before as after he ceases to hold such office or
employment) contribute to any fund and pay premiums for the purchase or provision
of any such benefit.
8.16.5
Compensation for loss of office
The provisions contained in sections 215 to 221 of the Act in relation to payments
made to Directors (or a person connected to such Directors) for loss of office and the
circumstances in which such payments would require the approval of members apply
to the Company such that the Company may not make payment for loss of office to a
director unless approved by a resolution of the members of the Company. Such
resolution must not be passed unless a memorandum setting out the particulars of the
proposed payment (including its amount) is made available to the members of the
Company.
8.16.6
Permitted interests of Directors
Subject to the provisions of Companies Law and provided that where a Director, to
his knowledge, is in any way directly or indirectly interested in a contract, transaction
or arrangement with the Company and such interest conflicts or may conflict to a
material extent with the interests of the Company, has disclosed to the Board (at the
meeting of the Board at which the question of entering into the contract, arrangement,
transaction or proposal is first considered, if he knows his interest then exists or, in
any other case as soon as practical after that meeting, by notice in writing delivered
to the secretary, at the first meeting of the Board after he knows that he is or has
become so interested) the nature and extent of his interest, a Director,
notwithstanding his office:
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8.16.7
(a)
may enter into or otherwise be interested in any contract, arrangement,
transaction or proposal with the Company (including in relation to any
insurance proposal which the Company proposes to maintain or purchase for
the benefit of the Directors) or in which the Company is otherwise interested;
(b)
may hold any other office or place of profit under the Company (except that of
auditor or of auditor of a subsidiary of the Company) in conjunction with the
office of Director and may act by himself or through his firm in a professional
capacity for the Company, and in any such case on such terms as the Board
may arrange, either in addition to or in lieu of any remuneration provided for
by any other provision of the Articles;
(c)
may be a Director or other officer of, or employed by, or a party to any
transaction or arrangement with, or otherwise interested in, any body corporate
promoted by the Company or in which the Company is otherwise interested or
as regards which the Company has any powers of appointment; and
(d)
shall not be liable to account to the Company for any profit, remuneration or
other benefit realised by any such office, employment, contract, arrangement,
transaction or proposal, and no such contract, arrangement, transaction or
proposal shall be avoided on the grounds of any such interest or benefit.
Powers of Directors
Subject to the provisions of Companies Law and the Articles and any direction given
by special resolution, the business of the Company shall be managed by the Board
which may exercise all powers of the Company. The Board may delegate any of its
powers to any committee consisting of one or more Directors. The Board may also
delegate any of its powers to any Director holding any executive office.
8.16.8
Proceedings of Directors
A Director may, and the secretary at the request of a Director shall, call a meeting of
the Board by giving notice of the meeting to each Director.
Questions arising at a meeting shall be decided by a majority of votes. In the case of
an equality of votes, the Senior Non-Executive Director shall have a second or casting
vote, provided that the Senior Non-Executive Director may not exercise any such
second or casting vote at any meeting at which only two of the Directors who are
present are entitled to vote. Any Director may waive notice of a meeting and any such
waiver may be retrospective.
The quorum for the transaction of the business of the Board may be fixed by the Board
and unless so fixed at any other number shall be two. A person who holds office only
as an alternate Director may, if his appointor is not present, be counted in the
quorum.
A resolution in writing agreed by all the Directors entitled to receive notice of and
vote at a meeting of the Board or of a committee of the Board (not being less than the
number of Directors required to form a quorum of the Board) shall be as valid and
effectual as if it had been passed at a meeting of the Board or (as the case may be) a
committee of the Board duly convened and held.
A person entitled to be present at a meeting of the Board or of a committee of the
Board shall be deemed to be present for all purposes if he is able (directly or by
electronic communication) to speak to and be heard by all those present or deemed
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to be present simultaneously. A Director so deemed to be present shall be entitled to
vote and be counted in a quorum accordingly.
8.16.9
Restrictions on voting
Except as otherwise provided in the Articles, a Director shall not vote on (but shall
still be counted in the quorum in relation to) any resolution of the Board or a
committee of the Board concerning a contract, transaction or arrangement in which
he has an interest which (taken together with any interests of any person connected
with him) is, to his knowledge, a material interest, otherwise than by virtue of his
interests in shares or debentures or other securities of or otherwise in or through the
Company, unless the resolution concerns any of the following matters:
(a)
the giving of any guarantee, security or indemnity in respect of money lent or
obligations incurred by him or any other person at the request of or for the
benefit of the Company or any of its subsidiary undertakings;
(b)
the giving of any guarantee, security or indemnity in respect of a debt or
obligation of the Company or any of its subsidiary undertakings for which he
himself has assumed responsibility in whole or in part under a guarantee or
indemnity or by the giving of security;
(c)
any proposal concerning an offer of shares or debentures or other securities of
or by the Company or any of its subsidiary undertakings in which offer he is or
may be entitled to participate as a holder of securities or in the underwriting or
sub-underwriting of which he is to participate;
(d)
any proposal concerning any other body corporate in which he (together with
persons connected with him within the meaning of sections 252, 253 and 254
of the Act) does not to his knowledge have an interest in 1 per cent. or more of
the issued equity share capital of any class of such body corporate or of the
voting rights available to members of such body corporate;
(e)
any proposal relating to an arrangement for the benefit of the employees of the
Company or any of its subsidiary undertakings which does not award him any
privilege or benefit not generally awarded to the employees to whom such
arrangement relates; or
(f)
any proposal concerning insurance which the Company proposes to maintain
or purchase for the benefit of Directors or for the benefit of persons who
include Directors.
Subject to Companies Law, the Company may by ordinary resolution suspend or relax
the above provisions to any extent or ratify any transaction not duly authorised by
reason of a contravention of such provisions.
A Director shall not vote (but shall be counted in the quorum) on any resolution of
the Board or committee of the Board concerning his own appointment (including
fixing or varying the terms of his appointment or its termination) as the holder of any
office or place of profit with the Company or any body corporate in which the
Company is interested. Where proposals are under consideration concerning the
appointment of two or more Directors to offices or places of profit with the Company
or any body corporate in which the Company is interested, such proposals may be
divided and a separate resolution considered in relation to each Director. In such
case, each of the Directors concerned (if not otherwise debarred from voting under
these Articles) shall be entitled to vote in respect of each resolution except that
156
concerning his own appointment and for the avoidance of doubt shall be still be
counted in the quorum for any resolution concerning his own appointment.
An interest of a person who is for the purposes of the Act connected with a Director
shall be treated as an interest of the Director, provided that the Director is aware of
such interest.
8.17 Indemnity of officers
The Companies Law restricts indemnities or exemptions from liability given by Jersey
companies to their directors and officers. In general, directors and officers of a Jersey company
cannot be exempted from or receive an indemnity in respect of any liability which would
otherwise attach to that director or officer under law by reason of the fact that they are or were
a director or officer of the company. There are exemptions to this restriction, in particular in
respect of proceedings where the director or officer is not held liable or the matter is
discontinued, where the director or officer acted in good faith in the best interests of the
company and in respect of any liability for which the company normally maintains insurance.
The Articles provide that a Director, alternate Director, secretary or other officer may be
indemnified out of the assets of the Company to the extent this is legally permissible under
Companies Law and subject to the rules made by London Stock Exchange in connection with
AIM (or by the competent authority of any other regulated market or other stock exchange on
which the shares of the Company may be listed).
8.18 Dividends and other distributions
Subject to the provisions of the Companies Law, the Company may by ordinary resolution
declare dividends but no such dividend shall exceed the amount recommended by the Board.
Subject to the provisions of the Companies Law, the Board may pay interim dividends if it
appears to the Board to be justified by the cash flow position of the Company. A general
meeting declaring a dividend may, on the recommendation of the Board, by ordinary resolution
direct that it shall be satisfied wholly or partly by the distribution of assets, including without
limitation paid up shares or debentures of another body corporate. The Board may make any
arrangements it thinks fit to settle any difficulty arising in connection with the distribution,
including without limitation: (i) the fixing of the value for distribution of any assets; (ii) the
payment of cash to any member on the basis of that value in order to adjust the rights of
members; and (iii) the vesting of any asset in a trustee.
The Board may, if authorised by an ordinary resolution of the Company, offer any holder of
shares the right to elect to receive shares, credited as fully paid, instead of cash in respect of
the whole (or some part, to be determined by the Board) of all or any dividend specified by
such ordinary resolution.
Except as otherwise provided by the rights attaching to or terms of issue of any shares, all
dividends shall be apportioned and paid pro rata according to the amounts paid on the shares
during any portion or portions of the period in respect of which the dividend is paid.
No dividend or other monies payable in respect of a share shall bear interest against the
Company, unless otherwise provided by the rights attached to the share.
The Board may deduct from any dividend or other monies payable to any member in respect
of a share any monies presently payable by him to the Company in respect of that share. Where
a person is entitled by transmission to a share, the Board may retain any dividend payable in
respect of that share until that person (or that person’s transferee) becomes the holder of that
share.
Any dividend or other monies payable in respect of a share may be paid by, any direct debit,
bank or other funds transfer system to the holder or person entitled to payment or, if
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practicable, to a person designated by notice to the Company by the holder or person entitled
to payment; or by any other method approved by the Board and agreed by the holder or person
entitled to payment including without limitation in respect of an uncertificated share by means
of the relevant system (subject to the facilities and requirements of the relevant system).
Subject to applicable laws, any dividend or other monies unclaimed after a period of 12 years
from the date on which it became payable shall, if the Board so resolves, be forfeited and cease
to remain owing by the Company.
8.19 Capitalisation of profits and reserves
The Board may with the authority of an ordinary resolution of the Company (or a special
resolution if required under Companies Law ) resolve to capitalise any undistributed profits of
the Company not required for paying any preferential dividend or any sum standing to the
credit of any reserve or other fund of the Company.
8.20 Winding-up
Under Companies Law, except as provided by the rights and restrictions attached to any class
of shares, the holders of Ordinary Shares will be entitled to participate in any surplus assets in
a winding-up in proportion to their shareholdings. Pursuant to the Articles, the Company may,
with the sanction of a special resolution and any other sanction required by Companies Law,
divide among the members in kind the whole or any part of the assets of the Company and
may, for that purpose, value any assets and determine how the division shall be carried out as
between the members or different classes of members.
8.21 Disclosure of beneficial ownership
Although Companies Law does not contain equivalent provisions to section 793 of the Act, the
Articles provide that, if at any time any holder of shares, or any other person (as appropriate)
has been served with a disclosure notice from the Company and has not complied with such
notice or supplied the information required to the Company within the relevant period, then
certain restrictions will apply as follows:
(a)
if the default shares in which any one person is interested or appears to the Company to
be interested represent less than 0.25 per cent. of the issued shares of the class, the
holders of the default shares shall not be entitled, in respect of those shares, to attend or
to vote, either personally or by proxy, at any general meeting or at any separate general
meeting of the holders of any class of shares in the Company, or to exercise any other
right conferred by membership in relation to meetings of the Company; or
if the default shares in which any one person is interested or appears to the Company to be
interested represent at least 0.25 per cent. of the issued shares of the class, the holders of the
default shares shall not be entitled unless otherwise determined by the board from time to time,
in respect of those shares:
(b)
to attend or to vote, either personally or by proxy, at any general meeting or at any
separate general meeting of the holders of any class of shares in the Company, or to
exercise any other right conferred by membership in relation to meetings of the
Company; or
(c)
to receive any payment by way of dividend and no share shall be allotted in lieu of
payment of a dividend; or
(d)
to transfer or agree to transfer any of those shares or any rights in them.
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8.22 Distribution of assets in a liquidation
Pursuant to Companies Law, subject to any enactment as to the order of payment of debts, the
Company’s property on a winding up will be applied in satisfaction of the Company’s liabilities
pari passu and any remaining property of the Company will be distributed among the members
according to their rights and interests in the Company.
If the Company is wound up, the Directors or the liquidator (as the case may be) may, with the
sanction of a special resolution of the Company and any other sanction required by Companies
Law, divide among the members in specie the whole or any part of the assets of the Company
and may, for that purpose, value any assets and determine how the division shall be carried out
as between the members or different classes of members. Any such division may be otherwise
than in accordance with the existing rights of the members, but if any division is resolved
otherwise than in accordance with such rights, the members shall have the right to dissent in
writing within seven days of the passing of the resolution, requiring the liquidator either to
abstain from carrying the resolution into effect or to purchase his interest at a price to be
determined by agreement or arbitration.
The Directors or the liquidator may, with the like sanction, vest the whole or any part of the
assets in trustees on such trusts for the benefit of the members as they/he with the like sanction
shall determine, but no member shall be compelled to accept any assets on which there is a
liability.
8.23 Borrowing powers
The Directors shall restrict the borrowings of the Company and exercise all voting and other
rights or powers of control exercisable by the Company in relation to its subsidiaries so as to
secure (as regards subsidiaries so far as by such exercise they can secure) that the aggregate
amount for the time being remaining undischarged of all monies borrowed by the Group and
for the time being owing to persons outside the Group shall not, without the previous sanction
of an ordinary resolution of the Company, exceed an amount equal to two times the adjusted
capital and reserves. Subject to the foregoing restriction, the Directors may exercise all the
powers of the Company to borrow or raise money, to mortgage or charge all or any of its
undertaking, property, assets and uncalled capital, to issue debentures and other securities, and
to give security whether outright or as collateral security for any debt, liability or obligation of
the Company, any subsidiary of the Company or of any third party.
9.
COMPARISON OF JERSEY LAW AND ENGLISH LAW
9.1
There are a number of differences between company law in England and company law in
Jersey, which may impact upon the holders of Ordinary Shanes. However, where permitted by
Companies Law and considered to be appropriate, rights and protections similar to those
provided to shareholders under English law have been conferred on holders of Ordinary Shares
by the Articles, including as described in the summary of certain provisions of the Articles set
out in paragraph 8.2 of this Part V of this Admission Document.
9.2
Key differences between company law in England and company law in Jersey include (without
limitation) the following:
(a)
Companies Law does not confer statutory pre-emption rights on shareholders relating to
new share issues; however, pre-emption rights broadly based on the provisions of the Act
have been enshrined in the Articles;
(b)
under Companies Law, the directors of a company do not need the sanction of the
shareholders to issue and allot shares; however, the requirement to obtain such sanction
has been enshrined in the Articles;
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(c)
Jersey law allows for partly paid shares to be allotted even if they are not paid up to at
least one quarter of its nominal value;
(d)
under Companies Law, any change to the authorised share capital of the Company
requires a special resolution (three-fourths majority) rather than an ordinary resolution (a
simple majority);
(e)
under Companies Law a special resolution is required to be passed by two-thirds of
shareholders present (in person or by proxy) at the relevant meeting unless a higher
threshold is specified in the company’s articles of association, compared with a threequarters majority required under English law. Thus, for example, a buy-back of shares
requiring the sanction of a special resolution will only require a two-thirds majority
instead of a three-quarters majority; however, the requirement based on the provisons of
the Act have been enshrined in the Articles which require a special resolution of the
Company to be passed by a three-quarters majority;
(f)
the circumstances in which Companies Law permits a Jersey company to indemnify its
directors in respect of liabilities incurred by its directors in carrying out their duties are
limited, and differ slightly to the analogous rules under English law. However, there is no
general prohibition on the granting of loans by a company to its directors (but directors
remain subject to fiduciary duties when considering the grant of any such loans) and any
costs incurred in defending any proceedings which relate to anything done or omitted to
be done by that director in carrying out his duties may be funded by way of loans;
(g)
Jersey law does not require that shareholders approve compensation payments made to
directors for loss of office, whereas under English law a payment by a company for loss
of office to a director of a company or its holding company must be approved by a
resolution of shareholders;
(h)
unless the articles of association of a public company provide otherwise, proxies are not
entitled to speak or vote on a show of hands under Jersey law. Jersey law does not permit
the appointment of more than one corporate representative by a member in respect of
the same shareholding;
(i)
any general meeting of a Jersey company may be convened on 14 days’ notice (rather
than 21 days’ notice required under English law in certain circumstances);
(j)
Companies Law does not require the directors of a Jersey company to disclose to the
company their beneficial ownership of any shares in the company (although they must
disclose to the company the nature and extent of any direct or indirect interest which
conflicts, or may conflict to a material extent with, a transaction into which the company
or any of its subsidiaries is proposing to enter);
(k)
Companies Law does not grant the directors of a Jersey company a statutory power to
request information concerning the beneficial ownership of shares, but powers based on
section 793 of the Act have been incorporated into the Articles entitling the Directors to
request information to establish details of interests in shares in the Company;
(I)
under Companies Law, shareholders holding not less than one-tenth of the total voting
rights of the shareholders of the Company may requisition a meeting of shareholders
(whereas under the Act, this right may be exercised by shareholders representing at least
10 per cent, of the paid up voting capital of a company);
(m)
Companies Law does not confer on members the right to an independent scrutiny of a
poll taken, or to be taken, at a general meeting, nor does it confer rights on members to
require a company to circulate resolutions proposed to be moved by members at the next
annual general meeting, or to circulate explanatory statements relating to any matter
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relating to a proposed resolution at a general meeting, or rights for a nominee holder of
shares to have information rights granted to the underlying beneficial owner of the share;
(n)
there is no restriction on donations by a company to political organisations under Jersey
law;
(o)
under Companies Law, at a meeting of shareholders a poll may be demanded in respect
of any question by:
(i)
no fewer than five shareholders having the right to vote on the question; or
(ii)
a shareholder or shareholders representing not less than one tenth of the total
voting rights of all shareholders having the right to vote on the question (whereas,
under the Act, a shareholder or shareholders representing 5 per cent, of the total
sum paid up on all shares giving the right to vote may also demand a poll);
(p)
Jersey companies are permitted to make distributions to shareholders without reference
to distributable reserves. Instead, distributions may be made out of a company’s assets
(other than its nominal capital account or any capital redemption reserve), provided the
directors approving the distribution give the appropriate solvency statement required by
Companies Law (to the effect that the company will be able to continue its business and
meet its liabilities as they fall due for the next 12 months);
(q)
a Jersey company’s redeemable shares may be redeemed out of any capital source
which, in particular, allows shares to be redeemed in whole or in part out of share capital
accounts without the need for capital redemption reserves, provided such shares are fully
paid;
(r)
a Jersey company may, by special resolution, apply a capital redemption reserve in
issuing shares to be allotted as fully paid bonus shares;
(s)
under Jersey law, It is harder for shareholders to bring a derivative claim against a
company than is the case under the Act. However, Jersey law includes an equivalent
provision relating to protection of shareholders against unfair prejudice and Jersey has
(subject to certain exceptions) a broadly similar position under customary law to the
common law position under English law; and
(t)
under Jersey law, the two procedures for dissolving an insolvent Jersey company are
winding up and desastre. Concepts such as receivership, administration and voluntary
arrangements do not exist under Jersey law. The concept of a winding up is broadly
similar to that under English law, except that under Jersey law, a winding up may only
be commenced by the Jersey company and not by one of its creditors. If the company is
solvent the winding up will be a summary winding up. If the company is insolvent, the
winding up will be a creditors’ winding up. A creditor wishing to dissolve a Jersey
company would seek to have the company’s property declared en desastre (literally
meaning “in disaster”). If the company’s property is declared en desastre, all of the
powers and property of the company (whether present or future or situated in Jersey or
elsewhere) are vested in the Viscount (an officer of the court). The role of the Viscount is
similar to that of a liquidator. The Viscount’s principal duty is to act for the benefit of the
company’s creditors. He is not under an obligation to call any creditors’ meetings,
although he may do so.
This list is intended to be illustrative only and does not purport to be exhaustive or to constitute
legal advice. Any Shareholder wishing to obtain further information regarding his rights as a
holder of Ordinary Shares should consult his Jersey legal advisers.
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Following and subject to Admission, the Company will be required to comply with the AIM
Rules for Companies (including rules relating to related party transactions, and significant
transactions) and the Disclosure Rules and Transparency Rules. In certain of the instances
where the AIM Rules for Companies and the Disclosure Rules and Transparency Rules apply
differently to an overseas company, provision has been made in the Articles to apply the rules
as if the Company was a company incorporated in the UK.
The Company has adopted those elements of the Model Code which the Directors consider
appropriate to a Company of its size whose shares are traded on AIM.
It should be noted that insider dealing legislation set out in the UK Criminal Justice Act 1993,
as well as provisions relating to market abuse, will apply to the Company and dealings with
Ordinary Shares, alongside the relevant provisions of Jersey law.
10.
MATERIAL CONTRACTS
Other than as set out below and in paragraph 11 of this Part V of this Admission Document, and other
than contracts in the ordinary course of business, no Group company has entered into any contracts
in the two years immediately prior to the date of this document which are or may be material, or
which contain any provision under which any Group company has any obligation or entitlement
which is material to the Group as at that date of this Admission Document:
10.1 Placing Agreement
A placing agreement dated 28 January 2015 and made between (1) the Company (2) the
Existing Directors and Proposed Directors and (3) SP Angel pursuant to which SP Angel has
agreed, subject to certain conditions, to act as Placing Agent for the Company and to use its
reasonable endeavours to procure placees to subscribe for the Placing Shares at the Placing
Price. The Placing of the Placing Shares is not being underwritten.
The Placing Agreement is conditional upon, inter alia Admission occurring on or before
8.00 a.m. on 3 February 2015 (or such later date as the Company and SP Angel may agree,
being not later than 8.00 a.m. on 20 February 2015). The Placing Agreement contains
warranties from the Company and the Existing Directors and the Proposed Directors in favour
of SP Angel in relation to, inter alia, the accuracy of the information in the Placing Agreement
and other matters relating to the Group and its business. The Company and the Existing
Directors and the Proposed Directors have each given warranties in favour of SP Angel
including a warranty confirming that other than in respect of One Capital Group Investment
(Malta) Limited, which is owned by Mircle Yap’s father, no placee, subscriber or covenantor is
connected to any of the Directors. The liability of the Existing Directors and the Proposed
Directors is limited in terms of the amount of liability save in certain circumstances. SP Angel
has the right to terminate the Placing Agreement in certain circumstances prior to Admission,
in particular, in the event of a material breach of the warranties or a force majeure event.
Under the Placing Agreement, the Company has agreed to pay SP Angel a corporate finance
fee of GBP 50,000 together with any applicable VAT, in addition to a broking commission of
an amount equal to 5 per cent. of the total aggregate value of the Placing Shares at the Placing
Price issued by the Company to Placees introduced by SP Angel to it, 0.8 per cent. of the total
aggregate value of the Placing Shares issued by the Company to Placees introduced by the
Company, 0 per cent. on any amounts raised pursuant to the Subscription and an additional
advisory fee of GBP 20,000 together with any applicable VAT. Additionally, the Company has
agreed to pay all of the costs and expenses incurred by SP Angel (including any applicable VAT)
of the Placing.
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10.2 Subscription Letters
A subscription letter dated 28 January 2015 and made between (1) the Company and (2) each
of the Subscribers pursuant to which the Subscribers have applied to the Company for the
Subscription of a total of 7,434,000 Subscription Shares at the Subscription Price conditional
upon Admission. Subject to the terms and conditions of these letters and Admission, the
Company will issue to each of the Subscribers their relevant allocation of the Subscription
Shares on Admission. The Subscription of the Subscription Shares is not being underwritten.
10.3 SP Angel Engagement Letter
A nominated adviser and broker agreement dated 5 June 2014 and made between (1) Hong
Kong Han He and (2) SP Angel pursuant to which the Company has appointed SP Angel to act
as nominated adviser to the Company for the purposes of the AIM Rules, and as its broker. The
Company has agreed to pay SP Angel immediately upon the publication of the pathfinder
admission document a total fee of GBP 130,000.00 (to be reduced by any initial amount paid)
together with any applicable VAT, (ii) immediately upon Admission a commission of 5 per cent.
of gross funds raised by SP Angel in relation to the Placing, (iii) issue SP Angel with warrants
amounting to 1 per cent. of gross funds raised by SP Angel, struck at the Placing Price, (iv) a
corporate finance fee of GBP 50,000.00 and (v) a nominated adviser and broker ongoing fee
of GBP 50,000.00 per annum together with any applicable VAT, which shall accrue on daily
basis commencing on Admission until termination of the agreement (such fee to be subject to
an increase of 2.5 per cent, on each anniversary of Admission). In the event that SP Angel is
required to assist the Company in dealing with enquiries from a regulatory body in relation to
a potential breach of the AIM Rules by the Company, SP Angel shall be entitled to charge the
Company a fee of not less than GBP 10,000, together with any applicable VAT, per month.
The agreement contains certain undertakings and indemnities given by Hong Kong Han He to
SP Angel. The agreement is for an initial period of 6 months for the initial role and is terminable
upon not less than 10 business days prior written notice by either Hong Kong Han He or SP
Angel. Thereafter, either party may only terminate the appointment by giving not less than 3
months written notice, such notice not to be given before a date 12 months following the date
of Admission. On 28 January 2015, Hong Kong Han He, SP Angel and the Company entered
into a deed of novation pursuant to which the rights and obligations of Hong Kong Han He
under the agreement are novated to the Company.
10.4 Kim Huat (Sean) Lim Engagement Letter with Hong Kong Han He
Pursuant to the terms of an engagement letter dated 1 July 2014 (“Engagement Letter”) and a
supplemental agreement dated 8 December 2014 (“Supplemental Agreement”), Kim Huat
(Sean) Lim agreed to become CFO of the Group with effect from 1 July 2014. In the event of
Admission, Kim Huat (Sean) Lim is due to receive SG$150,000, payable within one month of
Admission. Pursuant to the Supplemental Agreement, Kim Huat (Sean) Lim’s engagement with
Hong Kong Han He shall continue until completion of the Admission, or earlier if terminated
in accordance with the provisions set out in the Engagement Letter as amended and
supplemented by the Supplemental Agreement.
10.5 Euromonitor Research Engagement Letter
A letter of engagement dated 20 June 2014 between Euromonitor and Hong Kong Han He
pursuant to which Euromonitor is engaged to produce a research report for marketing purposes.
10.6 Relationship Agreement
On Admission, the Controlling Shareholders will hold approximately 45.0 per cent. of the
Enlarged Share Capital and will control the Company. On 28 January 2015, (1) the Company,
(2) Oceanic Expert, (3) SP Angel and (4) Li Xianzhi entered into a relationship deed to regulate
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aspects of the continuing relationship between the Company and the Controlling Shareholders
to ensure that the Company is capable at all times of carrying on its business independently of
the Controlling Shareholders and that future transactions between the Company and the
Controlling Shareholders are on arm’s length terms and on a normal commercial basis.
The Relationship Agreement provides, inter alia, that:
(a)
the controlling shareholders shall use their reasonable efforts to procure that their
Associates (as defined therein) exercise their voting rights so as to procure, in so far as
they are able that the independence of the Board is maintained in that at least half of the
directors on the Board and on all committees of the Board are “Independent Directors”
(being any Existing Director and Proposed Director who is deemed not to be connected
with the Controlling Shareholders); and
(b)
the Controlling Shareholders shall procure that a general meeting of the Company is not
convened for the purpose of considering any resolution to cancel the admission of the
Ordinary Shares to trading on AIM without the unanimous approval by all the
Independent Directors; or
(c)
the Controlling Shareholders and their Associates (as defined therein) will not enter into
any contract or arrangement with any company in the Group without the approval of a
majority of Independent Directors.
The Relationship Agreement will terminate, amongst other things, in the event that the voting
rights attaching to the Controlling Shareholders’ shareholding represent in aggregate less than
25 per cent. or less, of the issued share capital or when the Ordinary Shares cease to be
admitted to trading on AIM provided that, in the event that any time thereafter the voting rights
attaching to the shareholding of the Controlling Shareholders again represent in aggregate 25
per cent. or more of the issued share capital and the Shares trade on AIM, the Relationship
Agreement will reapply.
10.7 Lock-in and Orderly Market Agreement
A conditional lock-in and orderly market agreement dated 28 January 2015 made between (1)
SP Angel, (2) the Company, (3) the Locked in Parties and (4) the OM Parties, pursuant to which
each of the Locked in Parties has undertaken with the Company and SP Angel, subject to
certain limited exceptions, not to sell, transfer, grant any option or charge over or otherwise
dispose or agree to dispose of the legal or beneficial interests in any Ordinary Shares held or
acquired by them for a period of 18 months from the date of Admission save where SP Angel
consent to such disposal. The Locked in Parties and OM Parties further agree that from the date
of Admission and until the date of termination of SP Angel’s appointment as nominated adviser,
they will only dispose of their Ordinary Shares under the terms of an orderly market
arrangement whereby SP Angel must consent to such disposal and the disposal must be
effected through the Company’s brokers, unless after five business days of being formally
instructed in connection with the disposal, the Company’s broker has not arranged it at a price
acceptable to such Locked in Party or OM Party then a third party broker can effect the sale
provided it is on terms no less favourable than those offered by the Company’s brokers.
The Locked in Parties and OM Parties each warrant, inter alia, that they are not connected
persons of each other.
In addition, each of the Locked in Parties and OM Parties accepts that Computershare shall
retain in their possession their share certificate until the earlier to occur of termination of the
Lock-in and Orderly Market Agreement or the disposal of all the Ordinary Shares in
accordance with the terms and conditions in the Lock-in and Orderly Market Agreement.
Furthermore, each of the Locked in Parties and OM Parties undertakes to deliver to
Computershare a signed letter of acknowledgement and agreement to Computershare holding
their share certificates.
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10.8 Warrant Instrument
By a deed poll dated 28 January 2015, the Company created the SP Angel Warrants. The SP
Angel Warrants are exercisable as to 50,000 Ordinary Shares at the Placing Price and shall be
valid for a period of five years from the date of Admission.
10.9 Framework Agreement
Pursuant to a framework agreement dated 23 October 2014 between, inter alia, (1) the
Company, (2) Hong Kong Han He, (3) Li Xianzhi and (4) the Founder Investors, the Company:
(i)
agreed to subscribe for 100,000 shares of HKD 0.001 each in the issued share capital
of Hong Kong Han He;
(ii)
agreed to acquire 10,000 shares of HKD 1 each in the share capital of Hong Kong
Han He from Li Xianzhi; and
(iii)
allotted and issued 49,999,998 Ordinary Shares (The “Consideration Shares”) to the
Initial Investors: 25,499,998 Ordinary Shares to Oceanic Expert, 2,000,000 Ordinary
Shares to First Honour Ventures Limited, 3,250,000 Ordinary Shares to Righton
Investment Limited, 2,400,000 Ordinary Shares to One Capital Group Investment
(Malta) Limited, 2,250,000 Ordinary Shares to Lim Koon Keong, 2,350,000 Ordinary
Shares to Thomas Tan Hock Nieh, 2,750,000 Ordinary Shares to Midasi (Malta)
Investment Limited, 3,250,000 Ordinary shares to Pioneer Sky Investments Limited,
2,100,000 Ordinary Shares to East Sincerity Capital China Co., Ltd., 2,250,000
Ordinary Shares to Eternal View Investments Limited and 1,900,000 Ordinary Shares
to United Talent Investments Limited.
The Framework Agreement is governed by the laws of Hong Kong.
10.10 Letter of Undertaking
Pursuant to the letter of Undertaking given by (1) Li Xianzhi dated 7 November 2014, by (2)
Mr Ke Wendong dated 6 November 2014, by (3) Mr Ye Yuzhu dated 7 November 2014, and by
(4) Mr Yue Jianfeng dated 7 November 2014, each of them undertake to complete SAFE
registration as required by Circular 37 and to indemnify the Group against any losses and
liabilities arising from their failure to complete SAFE registration in accordance with the
Circular.
10.11 Share Acquisition Agreement
Pursuant to an acquisition agreement dated 9 September 2014 between (1) Yantai Kanwa, (2)
Zhenhaitang, (3) Ms Du Qingping , (4) Mr Li Xianzhi and (5) Mr Lei Feng, Yantai Kanwa agreed
to acquire the entire issued equity interest of Zhenhaitang from each of Ms Du Qingping, Mr
Li Xianzhi and Mr Lei Feng in consideration of RMB 15,000,000. The acquisition was duly
registered with the Yantai AIC on 16 September 2014.
10.12 Registrar Agreement
A registrar agreement dated 31 October 2014 made between the (1) Company and (2) Registrar
pursuant to which the Company has appointed the Registrar to act as its share registrar. Under
this agreement, the Company has agreed to pay an annual fee for which the Registrar will
perform the services of the Company’s share registrar in relation to the trading of the Ordinary
Shares on AIM. Unless terminated in accordance with the early termination provisions, the
agreement shall continue for a fixed term of three years until terminated by either party giving
to the other party not less than six months’ notice.
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10.13 Company Secretarial Services Agreement
An administration agreement dated 12 August 2014 made between the (1) Company and (2)
Computershare Company Secretarial Services (Jersey) Limited pursuant to which the Company
has appointed Computershare to provide certain company secretarial services, including a
registered office address and maintaining certain statutory registers in Jersey. The Company has
agreed to pay £2,000 per annum for the registered office service and £5,000 per annum for the
provision of company secretarial services. The agreement contains certain undertakings and
indemnities given by the Company in respect of, inter alia, compliance with applicable laws
and regulations and the administration of the Company.
10.14 Investment Agreements
Pursuant to separate investment agreements executed on 2 March 2008 between Li Xianzhi
and each of the following ten investors, it was agreed that:
(i)
in consideration for the sum of 6.5m RMB invested by O Weng Chan, Li Xianzhi
agrees to allot 6.5 per cent. of the issued share capital in the Company to Pioneer Sky
Investments Limited, being a company nominated by O Weng Chan to be the
registered and beneficial holder of such shares;
(ii)
in consideration for the sum of 6.5m RMB invested by Lim Geok Tin, Li Xianzhi
agrees to allot 6.5 per cent. of the issued share capital in the Company to Righton
Investments Limited, being a company nominated by Lim Geok Tin to be the
registered and beneficial holder of such shares;
(iii)
in consideration for the sum of 5.5m RMB invested by Ye Yuzhu, Li Xianzhi agrees to
allot 5.5 per cent. of the issued share capital in the Company to Midasi (Malta)
Investment Limited, being a company nominated by Ye Yuzhu to be the registered and
beneficial holder of such shares;
(iv)
in consideration for the sum of 4.8m RMB invested by Yap Son On, Li Xianzhi agrees
to allot 4.8 per cent. of the issued share capital in the Company to One Capital Group
Investment (Malta) Limited, being a company nominated by Yap Son On to be the
registered and beneficial holder of such shares;
(v)
in consideration for the sum of 4.7m RMB invested by Thomas Tan Hock Nieh,
Li Xianzhi agrees to allot 4.7 per cent. of the issued share capital in the Company to
Thomas Tan Hock Nieh;
(vi)
in consideration for the sum of 4.5m RMB invested by Lim Koon Keong, Li Xianzhi
agrees to allot 4.5 per cent. of the issued share capital in the Company to Lim Koon
Keong;
(vii)
in consideration for the sum of 4.5m RMB invested by O Chun King, Li Xianzhi agrees
to allot 4.5 per cent. of the issued share capital in the Company to Eternal View
Investments Limited, being a company nominated by O Chun King to be the
registered and beneficial holder of such shares;
(viii)
in consideration for the sum of 4.2m RMB invested by Tang Liu, Li Xianzhi agrees to
allot 4.2 per cent. of the issued share capital in the Company to East Sincerity Capital
China Co., Ltd., being a company nominated by Tang Liu to be the registered and
beneficial holder of such shares;
(ix)
in consideration for the sum of 4m RMB invested by Yue Jian Feng, Li Xianzhi agrees
to allot 4 per cent. of the issued share capital in the Company to First Honour Ventures
Limited, being a company nominated by Yue Jian Feng to be the registered and
beneficial holder of such shares; and
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(x)
in consideration for the sum of 3.8m RMB invested by Chen Ling in the Company,
Li Xianzhi agrees to allot 3.8 per cent. of the issued share capital in the Company to
United Talent Investments Limited, being a company nominated by Chen Ling to be
the registered and beneficial holder of such shares.
10.15 One Capital Novation Agreement
A novation agreement (“One Capital Novation Agreement”) dated 28 January 2015 between
(1) Li Xianzhi, (2) Yap Son On, (3) the Company, and (4) One Capital Group Investment Limited
(“One Capital”), a company incorporated in the BVI (with registration number 1458459) and
solely owned by Mr. Yap Son On. Pursuant to the One Capital Novation Agreement, the rights
and obligations of Li Xianzhi and Yap Son On arising from an agreement dated 8th March 2008
(the “Supplementary Agreement”) are novated with One Capital becoming legally responsible
for the payment of fees to any advisory or intermediary party outside of the PRC in connection
with Admission in place of Yap Son On and with the Company becoming legally responsible
for reimbursing One Capital for the aforesaid payment of fees in place of Li Xianzhi.
10.16 Beautfort Engagement Letter
A letter of engagement dated 1 December 2014 between (1) Beaufort Asset Clearing Services
and (2) the Company pursuant to which Beaufort Asset Clearing Services has been appointed
to provide assistance to certain Placees and Subscribers introduced by the Company to
participate in the Placing and Subscription by, inter alia, opening accounts in their name,
offering Placees and Subscribers the ability to trade their shares post Admission and collecting
subscription and placing monies to be held in escrow by Beaufort Asset Clearing Services. The
fee payable by the Company to Beaufort Asset Clearing Services in consideration of providing
such services shall be 1 per cent. of the relevant monies received where Beaufort Asset Clearing
Services has provided assistance pursuant to the Placing and Subscription, of which 0.7 per
cent. is payable by the Company and 0.3 per cent. is payable by the relevant Placees and
Subscribers.
10.17 Share Certificate Custody Agreement
On 28 January 2015 (1) the Company, (2) SP Angel and (3) Computershare Company
Secretarial Services (Jersey) Limited entered into a share certificate custody letter pursuant to
which Computershare Company Secretarial Services (Jersey) Limited agree to hold the share
certificates relating to the Ordinary Shares held by each of the Locked in Parties and OM Parties
to the Lock-in and Orderly Market Agreement (as detailed in paragraph 10.7 of this Part V of
this Admission Document). Pursuant to the terms of the custody letter, Computershare
Company Secretarial Services (Jersey) Limited agrees to hold those share certificates and to deal
with them only in accordance with the joint written instructions of the Company and SP Angel
and to not accept any direct instructions from any Locked in Party or OM Party in respect of
the share certificates. Each Locked in Party and OM Party agrees pursuant to the Lock-in and
Orderly Market Agreement to permit Computershare Company Secretarial Services (Jersey)
limited to hold their share certificates pursuant to the share certificate custody letter. The
arrangements will remain in place at all times for each Locked in Party and OM Party until the
date on which the provisions of the Lock-in and Orderly Market Agreement cease to apply to
them.
11.
RELATED PARTY TRANSACTIONS
Save as disclosed below or elsewhere in this Admission Document, the Group has not entered into
any related party transaction in the financial period covered by the report in Part III of this Admission
Document or from the end of that period to the date of this Admission Document:
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11.1 In relation to Yantai Kanwa
11.1.1
Li Xianzhi entered into a Guarantee Contract, numbered (烟农商解支保字
2014年第043909171号) dated 17 September 2014 with Yantai Laishan Rural Credit
Union (烟台市莱山区农村信用合作联社). The guarantee contract guarantees the
Working Capital Loan Contract entered into by and between Yantai Kanwa and Yantai
Laishan Rural Credit Union. The guarantee amount is RMB 28,000,000 and is valid
for two years starting from the commencement date of the loan contract, which is
17 September 2014.
11.2 In relation to Zhenhaitang
12.
11.2.1
Zhenhaitang entered into a Maximum Amount Guarantee Contract, numbered
(YT01(高保)20140065) valid from 15 April 2014 to 15 April 2015 with Yantai Branch
of Hua Xia Bank (华夏银行股份有限公司烟台分行). The guarantee contract
guarantees the Maximum Amount Financing Contract, Export Trade Financing Credit
Contract, Import Trade Financing Credit Contract, and Import Letter of Credit Contract
entered into by Yantai Kanwa. The maximum guarantee amount is RMB 20,000,000.
11.2.2
Zhenhaitang entered into a Maximum Amount Guarantee Contract, numbered
(2014烟银最保字第4050122) valid from 2 September 2014 to 2 September 2015,
with Yantai Branch of China Citic Bank (中信银行股份有限公司烟台分行行). The
guarantee contract guarantees the Comprehensive Credit Contract, General Contract
of Import Documentation Bills, and General Contract of Export Documentation Bills
entered into by Yantai Kanwa. The maximum guarantee amount is RMB 20,000,000.
11.2.3
Zhenhaitang entered into a Maximum Amount Guarantee Contract, numbered
(2014年西大(保)字0067) valid from 28 May 2014 to 27 May 2015, with Yantai West
Blvd. Brand of Industrial and Commercial Bank of China (“ICBC”)
(中国工商银行烟台西大街支行). The guarantee contract guarantees the Irrevocable
Letter of Credit Contract and the General Contract of Import Documentation Bills
entered into by Yantai Kanwa. The maximum guarantee amount is RMB 20,000,000.
11.2.4
Zhenhaitang has one lease. The lessor is Yantai Kanwa and is for the second floor
office of the Kanwa plant building located at Shengquan Industrial Park, Laishan
District, Yantai. The lease agreement is dated 20 December 2014 and the lease is valid
from 1 January 2015 to 31 December 2015, and it is proposed that it will be renewed
on materially the same terms. The floor area leased is 400 square meters and the rent
is RMB 65,000 per year.
REGULATIONS
12.1 Following and subject to Admission, the Company will be required to comply with the AIM
Rules for Companies (including rules relating to related party transactions, and significant
transactions) and certain of the Disclosure Rules and Transparency Rules. In certain of the
instances where the AIM Rules for Companies and the Disclosure Rules and Transparency
Rules apply differently to an overseas company, provision has been made in the Articles to
apply certain of the rules as if the Company was a company incorporated in the UK.
12.2 The Company has adopted share dealing code for Existing Directors and Proposed Directors
and certain employees under the same terms as the Model Code on Directors Dealings in
Securities published from time to time by the UK Listing Authority.
12.3 The Existing Directors and the Proposed Directors will comply with Rule 21 of the AIM Rules
for Companies relating to directors’ dealings and will take all reasonable steps to ensure
compliance with such rule by the Company’s “applicable employees” as defined in the AIM
Rules for Companies.
168
12.4 It should be noted that insider dealing legislation set out in the UK Criminal Justice Act 1993,
as well as provisions relating to market abuse, will apply to the Company and dealings with
Ordinary Shares, alongside the relevant provisions of Jersey law.
13.
WORKING CAPITAL
The Existing Directors and Proposed Directors are of the opinion, having made due and careful
enquiry, that the working capital available to the Company and the Group will be sufficient for its
requirements that is for at least twelve months from the date of Admission.
14.
LITIGATION
Neither the Company nor any other member of the Group is or has during the 12 months preceding
the date of this document engaged in any governmental, legal or arbitration proceedings nor, as far
as the Existing Directors and Proposed Directors are aware, are there any governmental, legal or
arbitration proceedings pending or threatened against the Company or any other Group company,
which may have or have had during the 12 months preceding the date of this document, a significant
effect on the Group’s financial position or profitability.
15.
EMPLOYEES
15.1 As at 30 June 2014, the Group had 725 employees, details of which are set out in paragraph
13 of Part I of this Admission Document.
15.2 As at 31 December 2014, being the last practicable date before publication of this Admission
Document, the Group has a total of 834 employees.
16.
SUMMARY OF PREMISES AND PRINCIPAL ESTABLISHMENT
Yantai Kanwa currently owns one land use right numbered No. Yan Guo Yong (2009) 2300
(烟国用(2009)第2300号). The land use right pertains to be the land parcel located within the
Economic Development Zone, Laishan District, Yantai (烟台市莱山山区经济开发区内), covering
19,464 square meters. The buildings, with a total floor area of 12,792 square meters, and details are
listed below:
Use of the premises
Floor Area (Sqm)
Office Building
Cooling Facility
Peripheral Room
Factory
1,494
3,499
484
7,315
Yantai Zhenhaitang does not own any premises or plants but one site of leased premise, details are
listed below:
Location
Parties to the Lease
Term of Lease
Office Building at second floor
office of Kanwa plant building,
Shenquai Industrial Park,
Laishan District, Yantai
Lessor: Yantai Kanwa
Food Co., Ltd
Leesee: Zhenhaitang
From 1 January 2015
to 31 December 2015
17.
Floor Area
(Sqm)
400
Yearly Rent
65,000
INTELLECTUAL PROPERTY
The Group has no intellectual property rights, know-how, licences or other intellectual property
and/or know-how related contracts that are of a fundamental importance to the Group’s business.
Currently Yantai Kanwa holds one registered trademark with the State Intellectual Property Office of
the People’s Republic of China (“SIPO”). Zhenhaitang holds one registered trademark and additional
five pending trademarks with SIPO.
169
Registered /
Application
Number
Registered
Proprietor /
Applicant
4324592
Yantai Kanwa
China
14 March
2007
29 Registered
7168182
Zhenhaitang
China 21 September
2010
29 Registered
13438933
Zhenhaitang
China 19 November
2013
30
Applied
13439113
Zhenhaitang
China 19 November
2013
32
Applied
13439078
Zhenhaitang
China 19 November
2013
35
Applied
13439137
Zhenhaitang
China 19 November
2013
43
Applied
13438857
Zhenhaitang
China 19 November
29
Applied
Name or
Representation
Territory
Date of
Registration/
Application
Class
Status
The trademark classification numbers are according to the 10th edition of Classification of Goods and
Services and details are as follow:
Class
Category
29
Meat, fish, poultry and game; meat extracts; preserved, frozen, dried and cooked fruits and
vegetables; jellies, jams, compotes; eggs; milk and milk products; edible oils and fats
30
Coffee, tea, cocoa and artificial coffee; rice; tapioca and sago; flour and preparations made
from cereals; bread, pastry and confectionery; ices; sugar, honey, treacle; yeast, bakingpowder; salt; mustard; vinegar, sauces (condiments); spices; ice
32
Beers; mineral and aerated waters and other non-alcoholic beverages; fruit beverages and
fruit juices; syrups and other preparations for making beverages
35
Advertising; business management; business administration; office functions
43
Services for providing food and drink; temporary accommodation
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18.
THE BRIBERY ACT
The government of the United Kingdom has issued guidelines setting out appropriate procedures for
companies to follow to ensure that they are compliant with the UK Bribery Act 2010. The Company
has drafted and implemented an anti-bribery policy that has been adopted by the Board. The
Company is also implementing appropriate procedures to prevent bribery, including arranging
training for the Existing Directors and the Proposed Directors and employees in order to comply with
the legislation.
19.
TAKEOVER CODE, SQUEEZE-OUT AND SELL OUT PROVISIONS
The Jersey Takeover Law provides a statutory framework for the application of the Takeover Code to
takeover offers for Jersey incorporated companies and other matters to which the Takeover Code
applies, and appoints the Panel on Takeovers and Mergers as the body to oversee takeover offers for
Jersey incorporated companies.
19.1 Takeover Code
The Company is incorporated in Jersey, the Channel Islands, and application will be made for
the Enlarged Share Capital to be admitted to trading on AIM. The Takeover Code applies to all
companies who have their registered office in the UK, Channel Islands or Isle of Man and
whose securities are traded on a regulated market in the UK or a stock exchange in the Channel
Islands or Isle of Man or a multilateral trading facility. Accordingly, the Takeover Code applies
to the Company.
Under Rule 9 of the Takeover Code, if an acquisition (whether by a series of transactions over
a period of time or not) of Ordinary Shares were to increase the aggregate holding of the
acquirer and its concert parties to Ordinary Shares carrying 30 per cent., or more of the voting
rights in the Company, the acquirer (and depending on the circumstances, its concert parties,
if any) would be required, except with the consent of the Panel on Takeovers and Mergers, to
make a general offer for the Ordinary Shares in the Company not already owned by the
acquirer and its concert parties.
Similarly, this requirement would also be triggered by an acquisition of shares by a person
holding (together with its concert parties, if any) Ordinary Shares carrying between 30 and 50
per cent., of the voting rights in the Company if the effect of such acquisition were to increase
the percentage of the aggregate voting rights held by that person and its concert parties.
An offer under Rule 9 must be in cash or be accompanied by a cash alternative and at the
highest price paid by the person required to make the offer, or any person acting in concert
with him, for any interest in shares of the Company during the 12 months prior to the
announcement of the offer.
Under the Takeover Code, a concert party arises where persons who, pursuant to an agreement
or understanding (whether informal or formal), co-operate to obtain or consolidate control (as
defined below) of a company or to frustrate the successful outcome of an offer for a company.
Control means holding, or aggregating holdings, of shares carrying 30 per cent. or more of the
voting rights of the Company, irrespective of whether the holding or holdings give de facto
control.
19.2 Squeeze-out
Companies Law provides that, where a person (the “Offeror”) makes a takeover offer to acquire
all of the shares (or all of the shares in any class) in a Jersey company (other than any shares
already held by the Offeror at the date of the offer), if the Offeror has, by virtue of acceptance
of the offer, acquired or contracted to acquire not less than 90 per cent., in nominal value of
the shares (or class of shares) to which the offer relates, the Offeror may (subject to the
171
requirements of Companies Law), by notice to the holders of the shares (or class of shares) to
which the offer relates which the Offeror has not already acquired or contracted to acquire,
compulsorily acquire those shares. A holder of any shares who receives a notice of compulsory
acquisition may (within six weeks from the date on which such notice was given apply to the
Jersey court for an order that the Offeror not be entitled and bound to purchase the holder’s
shares or that the Offeror purchase the holder’s shares on terms different to those of the offer.
19.3 Sell-Out
Where, before the end of the period within which the takeover offer can be accepted, the
Offeror has by virtue of acceptance of the offer acquired or contracted to acquire not less than
90 per cent., in nominal value of all of the shares (or all of the shares of a particular class) of
the Jersey company, the holder of any shares (or class of shares) to which the offer relates who
has not accepted the offer may, by written notice to the Offeror, require the Offeror to acquire
the holder’s shares. The Offeror shall (subject to the requirements of Companies Law) be
entitled and bound to acquire the holder’s shares on the terms of the offer or on such other
terms as may be agreed. Where a holder gives the Offeror a notice of compulsory acquisition,
each of the Offeror and the holder of the shares is entitled to apply to the Jersey court for an
order that the terms on which the Offeror is entitled and bound to acquire the holder’s shares
shall be such as the court thinks fit.
20.
DISCLOSURE RULES AND TRANSPARENCY RULES
Following Admission, the Company will be required to comply with Rule 17 of the AIM Rules for
Companies. Companies Law does not require directors of a Jersey company to disclose to the
company their beneficial ownership of any shares in the company (although they must disclose to the
company the nature and extent of any direct or indirect interest which conflicts with, or may conflict
with, a transaction into which the company or any of its subsidiaries has entered or is proposing to
enter). Similarly, Companies Law does not grant the directors of a Jersey company a statutory power
to request information concerning the beneficial ownership of shares. However, provisions have been
incorporated into the Articles, so as to enable the Directors to request information in order to comply
with their obligations under the AIM Rules for Companies, which require directors and other persons
discharging managerial responsibilities to disclose certain transactions involving shares, as well as
requiring significant Shareholders to disclose to the Company their beneficial ownership of shares in
the Company.
Further details of these notification and disclosure requirements are summarised in paragraph 8.12 of
Part V of this Admission Document. Shareholders should consider their notification and disclosure
obligations carefully as failure to make a disclosure to the Company may result in
disenfranchisement.
21.
INVESTMENTS
Save as set out in this Admission Document:
21.1 no company within the Group has made any investments, or its proposing to make, or has
agreed to make any investments which are significant; or
21.2 there are no future investments upon which the Company or its management bodies have
already made firm commitments which are significant to the Company.
22.
ENVIRONMENTAL ISSUES
Neither the Company nor the Directors are aware of any environmental issues or risks affecting the
utilisation of the property, plant or machinery of the Group.
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23.
TAXATION
The following paragraphs include advice received by the Existing Directors and Proposed Directors
regarding taxation in the UK and Jersey.
Any person who is in any doubt as to his tax position, whether in the United Kingdom, Jersey or in
any other jurisdiction in which he may be liable to tax, and any person subject to tax in any other
jurisdiction should consult, and rely upon, the advice of his own professional adviser in respect of
the tax consequences of an investment in the Ordinary Shares.
23.1 United Kingdom Tax Laws
23.1.1
The following information is based on the tax law currently in force in the UK and
HM Revenue & Customs practice as at the date of this Admission Document. This
information is not exhaustive and potential investors should consult their professional
advisers as to the implications of subscribing for, acquiring, holding, redeeming or
disposing of Ordinary Shares under the laws of the jurisdictions in which they may be
liable to taxation.
23.1.2
The statements below are intended as a general summary of the position and do not
constitute advice to any Shareholder. Persons who are in any doubt as to their tax
position should consult their own professional adviser. Investors should note that tax
law and interpretation can change and that, in particular, the levels and bases of, and
reliefs from, taxation may change and that changes may alter the benefits of
investment in the Company.
23.1.3
The information only applies to persons who are resident in (and only in) the UK and
only applies to persons who hold their Ordinary Shares as investments and are the
absolute beneficial owners of them.
23.2 Tax treatment of the Company
23.2.1
Provided that the Company is not resident in the UK for taxation purposes and does
not carry on any trade in the UK (whether or not through a permanent establishment
situated there), the Company should not be liable for UK taxation on its income and
gains, other than in respect of interest and other income received by the Company
from a UK source (to the extent that it is subject to the withholding of basic rate
income tax in the UK).
23.2.2
It is the intention of the Directors to conduct the affairs of the Company so that the
central management and control of the Company continues to be exercised outside
the UK in order that the Company does not become resident in the UK for taxation
purposes. The Directors further intend, insofar as this is within their control, that the
affairs of the Company are conducted so that the Company is not treated as carrying
on a trade in the UK through a permanent establishment.
23.3 Tax treatment of UK investors
23.3.1
Taxation of dividends received from the Company – withholding tax
The Company is not obliged to make any withholding on account of UK tax on the
payment of any dividends.
23.3.2
Dividends-individuals
UK resident individual Shareholders who are domiciled in the UK, and who hold
their Ordinary Shares as investments, will be subject to UK income tax on the gross
amount of dividends received from the Company. UK resident individuals who are
173
not domiciled in the UK may be eligible to make a claim to be taxed on the
“remittance basis”, the effect of which is that they will generally be subject to UK
income tax only if the dividend is remitted, or deemed to be remitted, to the UK,
provided that the shares are not UK assets. If the Ordinary Shares are regarded as UK
assets the position is as for those domiciled in the UK.
To the extent that such a dividend is brought within the charge to UK tax, the
shareholder may be entitled to a UK tax credit which may be offset against the
income tax liability arising on the dividend. If available, the tax credit will be equal
to 10 per cent. of the gross dividend (i.e. the tax credit will be one ninth of the amount
of the net cash dividend). A shareholder who is not subject to income tax on the
dividend will not be entitled to reclaim any of the tax credit.
For the UK tax year of assessment 2014-2015, Shareholders who are liable to income
tax at the basic rate will be liable to income tax at the rate of 10 per cent. of the gross
dividend so that the tax credit will satisfy in full that shareholder’s liability to income
tax. Shareholders who are liable to income tax at the higher rate will be liable to
income tax at the rate of 32.5 per cent. of the gross dividend but will be able to offset
the tax credit against this liability so that the shareholder will have to account for
additional income tax equal to 25 per cent., of the net cash dividend received.
Shareholders who are liable to income tax at the additional rate tax band of £150,000
will be subject to income tax at 37.5 per cent. The tax credit will have the effect that
such shareholders will have to account for additional UK tax equal to 30.6 per cent.,
of the net cash dividend received.
23.3.3
Dividends – companies
Companies that are resident in the UK for tax purposes will generally be exempt from
corporation tax on dividends received. There are various exceptions to this
exemption, depending on the size of the shareholder, and whether certain antiavoidance provisions apply. Corporate shareholders should confirm their tax position
with a specialist tax adviser.
23.3.4
Chargeable gains-individuals
In the case of those Shareholders who are individuals or otherwise not within the
charge to corporation tax and who hold their Ordinary Shares as investments, capital
gains tax may be payable on a disposal of Ordinary Shares. The rate of capital gains
tax is 18 per cent. for basic rate taxpayers and 28 per cent. for higher and additional
rate taxpayers.
23.3.5
Chargeable gains – companies
Shareholders within the charge to UK corporation tax may be subject to corporation
tax on chargeable gains in respect of any gain arising on a disposal of Ordinary
Shares. Indexation allowance may apply to reduce any chargeable gain arising on a
disposal of Ordinary Shares. Certain reliefs are available to corporate shareholders
that could exempt gains where they have substantial shareholdings and other
conditions are met. Such Shareholders should seek further advice to determine their
eligibility.
23.3.7
Stamp duty and stamp duty reserve tax
No liability to stamp duty or stamp duty reserve tax (“SDRT”) will arise on the issue
of Ordinary Shares by the Company.
An instrument effecting or evidencing the transfer of Ordinary Shares which is
executed in the UK (or, where executed outside the UK, which relates to any matter
174
or thing done, or to be done, in the UK) may not, except in criminal proceedings, be
given in evidence or be available for any purpose in the UK unless it is duly stamped.
Whether an instrument is duly stamped, however, will not affect the registration of the
transfer in the Company’s register of Ordinary Shares so long as that register is kept
outside of the UK.
As from 28 April 2014, transfers of shares in AIM quoted companies are no longer
subject to stamp duty or SDRT. For this to apply to transfers of Ordinary Shares, AIM
must be recognised by HMRC as a recognised growth market and the Ordinary Shares
must not be listed on any other market.
23.4 Other UK tax considerations
23.4.1
Section 13 of the Taxation of Chargeable Gains Act 1992
Shareholders who are resident and, in the case of individuals, domiciled in the UK,
and who have more than a one-quarter interest (when aggregated with persons
connected with them) in the chargeable gains of the Company may, in the event that
the Company would be treated as “close” if it were resident in the UK, be liable to
UK tax on a proportion of any chargeable gains realised by the Company. Such
Shareholders will be liable to UK capital gains tax on the proportion of the gains of
the Company that is equal to their interest in the Company.
23.4.2
Transfer of assets abroad
The attention of individuals resident in the UK is drawn to the provisions of sections
714 to 751 of the Income Taxes Act 2007, under which income accruing to the
Company may be attributed to such a Shareholder and may (in certain circumstances)
be liable to UK income tax in the hands of the Shareholder. However, the provisions
should not apply if such a Shareholder can satisfy HM Revenue & Customs that,
either:
23.4.3
(i)
it would not be reasonable to draw the conclusion, from all the relevant
circumstances, that the purpose of avoiding liability to taxation was the
purpose or one of the purposes for which the relevant transactions or any of
them were effected; or
(ii)
all the relevant transactions were genuine commercial transactions and that
it would not be reasonable to draw the conclusion, from all the relevant
circumstances, that any one or more of those transactions was more than
incidentally designed for the purpose of avoiding liability to taxation.
Controlled foreign companies
If the Company is at any time controlled by a person or persons who are resident in
the UK then legislation applying to so called “controlled foreign companies” may
apply. Under that legislation, income profits accruing to the Company may be
apportioned to any UK resident corporate Shareholder(s) who, together with that
connected and associated persons, control the Company, in which case such
Shareholders may be liable to corporation tax on amounts apportioned to them.
23.5 Non-UK investors
Shareholders who are neither resident nor temporarily non-resident in the UK and who do not
carry on a trade, profession or vocation through a branch, agency or permanent establishment
in the UK with which the Ordinary Shares are connected should not normally be liable to UK
taxation on dividends paid by the Company or on capital gains arising on the sale or other
175
disposal of Ordinary Shares. Such Shareholders should consult their own tax advisers
concerning their tax liabilities generally.
23.6 Jersey Tax Laws
The following summary of the anticipated tax treatment in Jersey of the Company and holders
of the Ordinary Shares is based on Jersey taxation law and practice as they are understood to
apply at the date of this document. It does not constitute, nor should it be considered to be,
legal or tax advice and does not address all aspects of Jersey tax taw and practice (including
without limitation such tax law and practice as they apply to any land or building situated in
Jersey, or as they apply to certain types of person, such as persons holding or acquiring shares
in the course of trade, collective investment schemes or insurance companies). Shareholders
should consult their professional advisers on the implications of acquiring, buying, holding,
selling or otherwise disposing of Shares in the Company under the laws of any jurisdictions in
which they may be liable to taxation. Shareholders should be aware that tax rules and practice
and their interpretation may change.
23.6.1
Taxation of the Company
The Company is regarded as resident for tax purposes in Jersey and on the basis that
the Company is neither a financial services company nor a utility company for the
purposes of the Income Tax (Jersey) Law 1961, as amended, the Company is subject
to income tax in Jersey at a rate of zero per cent, (or potentially 10 per cent., or
20 per cent., depending upon certain circumstances). Dividends on shares may be
paid by the Company without withholding or deduction for or on account of Jersey
income tax and holders of shares (other than residents of Jersey) will not be subject
to any tax in Jersey in respect of the holding, sale or other disposition of such shares.
23.6.2
Goods and Services Tax
Jersey charges a tax on goods and services supplied in the Island (“GST”). On the
basis that the Company has obtained international services entity status, GST is not
chargeable on supplies of goods and/car services made by the Company. The
Directors intend to conduct the business of the Company such that no GST will be
incurred by the Company.
23.6.3
Taxation of Jersey resident shareholders
Persons holding Ordinary Shares in the Company who are not resident for income tax
purposes in Jersey are not subject to taxation in Jersey in respect of any income or
gains arising in respect of Ordinary Shares held by them. Shareholders who are
resident for income tax purposes in Jersey will be subject to income tax in Jersey at
the standard rate of 20 per cent., on any dividends paid on Ordinary Shares held by
them or on their behalf and income tax will be deducted by the Company on payment
of any such dividends
23.6.4
Stamp duty
In Jersey, no stamp duty is levied on the issue or transfer of the Ordinary Shares except
that stamp duty is payable on Jersey grants of probate and letters of administration,
which will generally be required to transfer Ordinary Shares on the death of a holder
of such Ordinary Shares. In the case of a grant of probate or letters of administration,
stamp duty is levied according to the size of the estate (wherever situate in respect of
a holder of Shares domiciled in Jersey, or situate in Jersey In respect of a holder of
Ordinary Shares domiciled outside Jersey) and is payable on a sliding scale at a rate
of up to 0.75 per cent., of such estate.
176
23.6.5
Under current Jersey law, Jersey does not otherwise levy taxes upon capital,
inheritances, capital gains or gifts nor are there other estate duties
The Company has no present plans to apply for any certifications or registrations, or
to take any other actions under the laws of any jurisdictions which would afford relief
to local investors therein from the normal tax regime otherwise applicable to an
investment in Ordinary Shares. It is the responsibility of all persons interested in
purchasing Ordinary Shares to inform themselves as to any income or other tax
consequences arising in the jurisdictions in which they are resident or domiciled for
tax purposes, as well as any foreign exchange or other fiscal or legal restrictions,
which are relevant to their particular circumstances in connection with the
acquisition, holding or disposition of Ordinary Shares.
Any person who is in any doubt as to their tax position is strongly advised to consult
an appropriate professional adviser.
23.6.6
European Union Savings Tax Directive
Jersey is not subject to the European Union, or EU, Council Directive (2003/48) on
the Taxation of Savings Income, or the EU Savings Tax Directive. However, in keeping
with Jersey’s policy of constructive international engagement and in line with steps
taken by other relevant third countries, the States of Jersey introduced with effect from
1 July 2005 a retention tax system in respect of payments of interest, or other similar
income, made to an individual beneficial owner resident in an EU Member State by
a paying agent established in Jersey (the terms “beneficial owner” and “paying agent”
are defined in the EU Savings Tax Directive). The retention tax system will apply for a
transitional period prior to the implementation of a system of automatic
communication to EU Member States of information regarding such payments. The
transitional period will end only after all EU Member States and other relevant third
countries and territories apply automatic exchange of information and the EU
Member States unanimously agree that the United States of America has committed
to exchange of information upon request as defined in the 2002 OECD Model
Agreement on Exchange of Information on Tax Matters.
During this transitional period, such an individual beneficial owner resident in an EU
Member State is entitled to request a paying agent not to retain tax from such
payments but instead to apply a system by which the details of such payments are
communicated to the tax authorities of the EU Member State in which the beneficial
owner is resident.
The retention tax system and the disclosure arrangements are implemented in Jersey
by means of bilateral agreements with each of the EU Member States, the Taxation
(Agreements with European Union Member States) (Jersey) Regulations 2005 and
Guidance Notes issued by the Policy & Resources Committee of the States of Jersey.
The effect of the Jersey provisions is that where a person is not willing to agree to an
information exchange between the Jersey tax authorities and the tax authorities of the
EU Member State in which he resides in respect of an interest payment, the Jersey
based paying agent will be required to retain, out of any interest payment to that
individual, tax at a rate, at the date of this Admission Document, of 20 per cent., and
which will increase in later years to a maximum of 35 per cent. The individual will
therefore be able to choose between information exchange or the retention tax,
though the paying agent can choose not to offer the exchange of information option.
Based on these provisions and the current practice of the Jersey tax authorities,
distributions to shareholders in respect of Ordinary Shares in the Company and
income realised by shareholders upon the sale, or redemption of Ordinary Shares in
177
the Company do not constitute interest payments for the purposes of the retention tax
system and therefore neither the Company nor any paying agent appointed by it in
Jersey is obliged to levy retention tax in Jersey under these provisions in respect of
such payments.
However, the retention tax system could apply in the event that an individual resident
in an EU Member State, otherwise receives an interest payment in respect of a debt
claim (if any) owed by the Company to that individual. Accordingly, in so far as is
reasonably possible, the Company will act in such a way as not to incur debt claims
from such individuals that would require the making of interest payments to them.
24.
GENERAL
24.1 The total costs and expenses payable by the Company in connection with or incidental to the
Admission, including London Stock Exchange fees, printing and advertising, distribution costs
and legal, accounting and corporate finance fees are estimated to amount to approximately
£1 million (excluding any applicable VAT payable thereon).
24.2 In the event of the Placing or Subscription not being completed or any Ordinary Shares applied
for not being allotted (either generally or in relation to a given application), received monies
will be returned to each concerned applicant (without interest) by telegraphic transfer or by
cheque.
24.3 Save as disclosed in this Admission Document, no person (excluding professional advisers
otherwise disclosed in this Admission Document and suppliers and counterparties of contracts
being in the ordinary course of business) has:
24.3.1
received directly or indirectly from the Company within twelve (12) months
preceding the Company’s application for Admission; or
24.3.2
entered into contractual arrangements (not otherwise disclosed in this Admission
Document) to receive, directly or indirectly, from the Company on or after Admission
any of the following:
24.3.2.1 fees totalling £10,000 or more; or
24.3.2.2 securities in the Company with a value of £10,000 or more; or
24.3.2.3 any other benefit with a value of £10,000 or more at the date of Admission.
24.4 Save for the information set out in Part III of this Admission Document, no other audited
information is included in the Admission Document and no financial information contained in
this Admission Document is intended to represent or constitute a forecast of profits by the
Company nor to constitute publication of accounts by it. The financial information relating to
the Group set out in the accountants report in Part III of this Admission Document does not
comprise statutory accounts within the meaning of Article 105 of Companies Law.
24.5 Crowe Clark Whitehill LLP, the reporting accountants of the Company, has given and not
withdrawn its written consent to the inclusion herein of its accountants’ reports on the Group’s
and the Company’s financial information as set out in Part III of this Admission Document and
references therein to its name in the form and context in which they appear. Crowe Clark
Whitehill LLP’s responsibility for its accountants’ reports appearing in Part III of this Admission
Document is as set out in that accountants’ reports.
24.6 SP Angel, the nominated adviser and broker of the Company, has given and not withdrawn its
written consent to the inclusion in this Admission Document of references to its name in the
form and context in which it appears.
178
24.7 Euromonitor, the market research company appointed by the Company to prepare an
independent market research report in the PRC has given, and not withdrawn its written
consent to the inclusion in this Admission Document of references to its name in the form and
context in which it appears.
24.8 No public takeover bids have been made by third parties in respect of the Company’s issued
share capital since its incorporation until the date of this Admission Document.
24.9 Save as disclosed in this Admission Document, the Existing Directors and Proposed Directors
are unaware of any trends, uncertainties, demands, commitments or events that are reasonably
likely to have a material effect on the Group’s prospects for the current financial year.
24.10 Save as disclosed in this Admission Document, there are no principal investments in progress,
nor, save as disclosed in this Admission Document, have there been any principal investments
to date or any future plans for principal investments.
25.
NO SIGNIFICANT CHANGE
Save as disclosed in this Admission Document, there has been no significant change in the trading or
financial position of the Group since 30 June 2014. No exceptional factors have influenced the
Company’s activities.
26.
THIRD PARTY INFORMATION
26.1 Various data used in this Admission Document has been obtained from independent sources.
The Company has not verified the data from these sources and cannot give any guarantee of
the accuracy or completeness of the data. Forecasts and other forward looking information
contained from these sources are subject to the same qualifications, risks and uncertainties
described above.
26.2 Where information has been sourced from a third party, the information has been accurately
reproduced and, as far as the Company and the Existing Directors and Proposed Directors are
aware and are able to ascertain from information published by that third party, no facts have
been omitted which would render the reproduced information inaccurate or misleading.
Reference materials include various historical and recent publications. A comprehensive list of
reports and information used in the preparation of this Admission Document is available if
required.
27.
DOCUMENTS AVAILABLE FOR INSPECTION
Copies of the following documents will be available to the public free of charge from the date of this
document until the date which is one month after Admission, from the offices of Olswang LLP,
90 High Holborn, London WC1V 6XX, during normal business hours (except for Saturdays and
Sundays), as well as from the Company’s website: www.aquaticfoods-ir.com
(i)
the Memorandum and Articles;
(ii)
the accountants’ reports from Crowe Clark Whitehill LLP as set out in Part III of this Admission
Document;
(iii)
the market research report prepared by Euromonitor as set out in Part IV of this Admission
Document;
(iv)
Directors’ Service Contracts; and
(v)
this Admission Document.
28 January 2015
179
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24239-01
Aquatic Foods Group Plc
Trading Address
Yantai Kanwa Food Co., Ltd.
Laishan Shengquan Economic Development Zone
Yantai City
Shandong Province
People’s Republic of China
www.aquaticfoods-ir.com
Registered Office
Queensway House
Hilgrove Street
St Helier
Jersey
JE1 1ES
Channel Islands