GLOBAL OFFERING

Transcription

GLOBAL OFFERING

CHINA GREENFRESH GROUP CO., LTD.
中國綠寶集團有限公司*
(Incorporated in the Cayman Islands with limited liability)
Stock code: 6183
GLOBAL
OFFERING
Sole Sponsor
Sole Global Coordinator
Joint Bookrunners and Joint Lead Managers
* For identification purposes only
IMPORTANT
IMPORTANT: If you are in any doubt about any of the contents in this prospectus, you should obtain independent professional advice.
CHINA GREENFRESH GROUP CO., LTD.
中國綠寶集團有限公司 *
(Incorporated in the Cayman Islands with limited liability)
GLOBAL OFFERING
Number of Offer Shares
:
Number of International Placing Shares
:
Number of Hong Kong Public Offer Shares
Offer Price
:
:
Nominal Value
Stock Code
:
:
150,000,000 Shares (subject to
the Over-allotment Option)
135,000,000 Shares comprising
110,000,000 New Shares and
25,000,000 Sale Shares
(subject to reallocation and
the Over-allotment Option)
15,000,000 New Shares (subject to reallocation)
Not more than HK$5.18 per Offer Share,
plus brokerage fee of 1.0%,
SFC transaction levy of 0.0027% and
Stock Exchange trading fee of 0.005%
(payable in full on application
in Hong Kong dollars and subject to refund)
US$0.01 per Share
6183
Sole Sponsor
Essence Corporate Finance (Hong Kong) Limited
Essence International Securities (Hong Kong) Limited
Haitong International Securities Company Limited
Hong Kong Exchanges and Clearing Limited, The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) and Hong Kong Securities Clearing Company Limited take no responsibility for the contents
in this prospectus, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the
contents in this prospectus.
A copy in this prospectus, having attached thereto the documents specified in the paragraph headed “Documents Delivered to the Registrar of Companies and Available for Inspection” in Appendix VI to this
prospectus, has been registered by the Registrar of Companies in Hong Kong as required by Section 342C of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Chapter 32 of the Laws of
Hong Kong). The Securities and Futures Commission of Hong Kong and the Registrar of Companies in Hong Kong take no responsibility for the contents in this prospectus or any of the other documents referred
to above.
The Offer Shares have not been and will not be registered under the U.S. Securities Act or any state securities laws of the United States and may not be offered, sold, pledged, or transferred within the United
States, except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the U.S. Securities Act and in accordance with any applicable U.S. securities law.
The Offer Price is expected to be fixed by an agreement between our Company (for ourselves and on behalf of the Selling Shareholders) and the Sole Global Coordinator (for itself and on behalf of the other
Underwriters) on the Price Determination Date. The Price Determination Date is expected to be on or about Thursday, 11 June 2015 or such other date or time as may be agreed between our Company (for
ourselves and on behalf of the Selling Shareholders) and the Sole Global Coordinator (for itself and on behalf of the other Underwriters) but in any event, not later than Saturday, 13 June 2015. The Offer Price
will be not more than HK$5.18 per Offer Share and is expected to be not less than HK$4.58 per Offer Share, unless otherwise announced. Applicants for the Offer Shares are required to pay, on application, the
maximum Offer Price of HK$5.18 for each Offer Share together with brokerage of 1.0%, SFC transaction levy of 0.0027% and Stock Exchange trading fee of 0.005%, subject to refund if the Offer Price should
be lower than HK$5.18 (the maximum Offer Price).
The Sole Global Coordinator (for itself and on behalf of the other Underwriters), with the consent of our Company (for ourselves and on behalf of the Selling Shareholders), may reduce the indicative Offer Price
range below that as stated in this prospectus (which is HK$4.58 to HK$5.18) at any time prior to the morning of the last day for lodging applications under the Hong Kong Public Offering. In such event, our
Company will, as soon as practicable following the decision to make such reduction, and in any event not later than the morning of the last day for lodging applications under the Hong Kong Public Offering, cause
to be published in South China Morning Post (in English) and Hong Kong Economic Journal (in Chinese) an announcement and to be posted on the website of the Stock Exchange (www.hkexnews.hk) and on
the website of our Company (www.china-greenfresh.com) of such change. Further details are set out in the section headed “Structure of the Global Offering” in this prospectus. If, for whatsoever reason, the
Company (for ourselves and on behalf of the Selling Shareholders) and the Sole Global Coordinator (for itself and on behalf of the other Underwriters) are unable to reach an agreement at or prior to Saturday,
13 June 2015 or such other date or time as may be agreed between our Company (for ourselves and on behalf of the Selling Shareholders) and the Sole Global Coordinator (for itself and on behalf of the other
Underwriters), the Global Offering will not become unconditional and will lapse immediately. In such event, our Company will issue an announcement to be published in South China Morning Post (in English)
and Hong Kong Economic Journal (in Chinese).
Prospective investors of the Global Offering should note that the Global Offering will not proceed if the Sole Global Coordinator (for itself and on behalf of the other Hong Kong Underwriters) terminates the
obligations of the Hong Kong Underwriters under the Hong Kong Underwriting Agreement after any of the events set out in the section headed “Underwriting – Underwriting Arrangements and Expenses – Hong
Kong Underwriting Agreement – Grounds for termination” in this prospectus occurs prior to 8:00 a.m. on the Listing Date. It is important that you refer to the section headed “Underwriting” in this prospectus
for further details.
Prior to making an investment decision, prospective investors should carefully consider all of the information set out in this prospectus, including, without limitation, the risk factors set out in the section headed
“Risk Factors” in this prospectus.
*
For identification purposes only
8 June 2015
EXPECTED TIMETABLE (Note 1)
If there is any change in the following expected timetable of the Global Offering, we will issue an
announcement in Hong Kong to be published in English in South China Morning Post and in Chinese in
Hong Kong Economic Journal and to be posted on the website of our Company at
www.china-greenfresh.com and the website of the Stock Exchange at www.hkexnews.hk.
Latest time to complete electronic applications under
the HK eIPO White Form service through the designated
website www.hkeipo.hk (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11:30 a.m. on
Thursday, 11 June 2015
Application lists of the Hong Kong Public Offering open (Note 3) . . . . . . . . . . . . . . . . . 11:45 a.m. on
Latest time for lodging WHITE and YELLOW Application Forms
and to give electronic application instructions to HKSCC (Note 4)
. . . . . . . . . . . . 12:00 noon on
Latest time to complete payments For HK eIPO White Form applications
by effecting internet banking transfer(s) or PPS payment transfer(s) . . . . . . . . . . . . . 12:00 noon on
Application lists of the Hong Kong Public Offering close (Note 3)
. . . . . . . . . . . . . . . 12:00 noon on
Expected Price Determination Date (Note 5) . . . . . . . . . . . . . . . . . . . . . . . . . Thursday, 11 June 2015
Announcement of
•
the Offer Price;
•
the indication of the level of interest in the International Placing;
•
the level of applications in the Hong Kong Public Offering;
•
the basis of allotment of Hong Kong Public Offer Shares under the Hong Kong Public Offering;
•
the number of Offer Shares reallocated, if any, between the Hong Kong Public Offering and the
International Placing
to be published in English in South China Morning Post and
in Chinese in Hong Kong Economic Journal
and on the website of our Company at www.china-greenfresh.com
and the website of the Stock Exchange at
www.hkexnews.hk on or before . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Wednesday, 17 June 2015
Results of allocation in the Hong Kong Public Offering
will be available at www.tricor.com.hk/ipo/result
with “search by ID” function from . . . . . . . . . . . . . . . . . . . . . . . . . . . . Wednesday, 17 June 2015
–i–
Announcement of results of allotment of the Hong Kong Public Offering
(with successful applicants’ identification document numbers,
where applicable) available through a variety of channels
as described in the section headed “How to Apply for the
Hong Kong Public Offer Shares – Publication of results”
in this prospectus from . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Wednesday, 17 June 2015
Despatch/collection of share certificates and/or
e-Auto Refund payment instructions/refunds
cheques on or before (Notes 6, 7, 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Wednesday, 17 June 2015
Dealings in the Shares on the Main Board of
the Stock Exchange expected to commence on . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9:00 a.m. on
Notes:
1.
All dates and times refer to Hong Kong local dates and times, except as otherwise stated. Details of the structure of the Global
Offering, including its conditions, are set out in the section headed “Structure of the Global Offering” in this prospectus.
2.
You will not be permitted to submit your application to the HK eIPO White Form Service Provider through the designated
website at www.hkeipo.hk after 11:30 a.m. on the last day for submitting applications. If you have already submitted your
application and obtained an application reference number from the designated website prior to 11:30 a.m., you will be
permitted to continue the application process (by completing payment of the application monies) until 12:00 noon on the last
day for submitting applications, when the application lists close.
3.
If there is a “black” rainstorm warning or a tropical cyclone warning signal number 8 or above in force in Hong Kong at any
time between 9:00 a.m. and 12:00 noon on Thursday, 11 June 2015, the application lists will not open or close on that day.
Further information is set out in the section headed “How to Apply for the Hong Kong Public Offer Shares – Effect of bad
weather conditions on the opening of the application lists” in this prospectus.
4.
Applicants who apply for the Hong Kong Public Offer Shares by giving electronic application instructions to HKSCC
should refer to the section headed “How to Apply for the Hong Kong Public Offer Shares – Applying by giving electronic
application instructions to HKSCC via CCASS” in this prospectus.
5.
Please note that the Price Determination Date, being the date on which the Offer Price is to be determined, is expected to be
on or about Thursday, 11 June 2015 and, in any event, not later than Saturday, 13 June 2015. If, for any reason, the Offer Price
is not agreed between our Company (for ourselves and on behalf of the Selling Shareholders) and the Sole Global
Coordinator (for itself and on behalf of the other Underwriters), the Global Offering will not proceed and will lapse.
Notwithstanding that the Offer Price may be less than the maximum offer price of HK$5.18 per Share, applicants must pay
the maximum offer price of HK$5.18 per Share at the time of application, plus brokerage of 1.0%, SFC transaction levy of
0.0027% and Stock Exchange trading fee of 0.005%, but will be refunded the surplus application monies, without interest, as
provided in the section headed “How to Apply for the Hong Kong Public Offer Shares” in this prospectus.
6.
Share certificates for the Offer Shares are expected to be issued on Wednesday, 17 June 2015 but will only become valid
certificates of title at 8:00 a.m. on the Listing Date provided that (i) the Global Offering has become unconditional in all
respects and (ii) neither of the Underwriting Agreements has been terminated. If the Hong Kong Public Offering does not
become unconditional or either of the Underwriting Agreements is terminated, we will make an announcement as soon as
possible.
7.
e-Auto Refund payment instructions/refund cheques will be issued in respect of wholly or partially unsuccessful applications
pursuant to the Hong Kong Public Offering and also in respect of wholly or partially successful applications in the event that
the final Offer Price is less than the price payable on application. Part of the applicant’s Hong Kong identity card number or
passport number, or, if the applicant is made by joint applicants, part of the Hong Kong identity card number or passport
number of the first named applicant, provided by the applicant(s) may be printed on the refund cheque, if any. Such data
would also be transferred to a third party for refund purposes. Your banker may require verification of an applicant’s Hong
– ii –
Kong identity card number or passport number before encashment of the refund cheque. Inaccurate completion of an
applicant’s Hong Kong identity card number or passport number may lead to delay in encashment of or may invalidate the
refund cheque.
8.
Uncollected share certificates and refund cheques will be despatched by ordinary post at the applicants’ own risk to the
addresses specified in the relevant Application Forms. Further information is set out in the section headed “How to Apply for
the Hong Kong Public Offer Shares – Despatch/Collection of share certificates and refund monies” in this prospectus.
For details of the structure of the Global Offering, including its conditions, please see the sections
headed “Underwriting”, “Structure of the Global Offering” and “How to Apply for Hong Kong Public
Offer Shares” in this prospectus.
It is important that prospective investors should note that the Sole Global Coordinator (for itself and
on behalf of the other Underwriters) is entitled to terminate the Underwriting Agreements by notice in
writing to us upon the occurrence of any of the events set out in the section headed “Underwriting –
Underwriting Arrangements and Expenses – Hong Kong Underwriting Agreement – Grounds for
termination” in this prospectus at any time up to 8:00 a.m. on the Listing Date. Such events include,
without limitation, any act of God, war, riot, public disorder, civil commotion, fire, flood, explosion,
epidemic, terrorism, strike or lockout. It is important that prospective investors should refer to the section
headed “Underwriting” in this prospectus for further details.
You should rely only on the information contained in this prospectus and the related Application
Forms to make your investment decision. Our Company has not authorised anyone to provide you with
information that is different from what is contained in this prospectus and the related Application Forms.
Any information or representation not made in this prospectus and the related Application Forms must
not be relied upon by you as having been authorised by our Company, the Sole Sponsor, the Sole Global
Coordinator, the Joint Bookrunners, the Underwriters, their respective directors or affiliates of any of
them or any other person or parties involved in the Global Offering.
– iii –
CONTENTS
IMPORTANT NOTICE TO INVESTORS
This prospectus is issued by us solely in connection with the Global Offering and does not
constitute an offer to sell or a solicitation of an offer to buy any security other than the Offer Shares
offered by this prospectus pursuant to the Global Offering. This prospectus may not be used for the
purpose of, and does not constitute, an offer or invitation in any other jurisdiction or in any other
circumstances. No action has been taken to permit a public offering of the Offer Shares or the
distribution in this prospectus in any jurisdiction other than Hong Kong.
You should rely only on the information contained in this prospectus and the related Application
Forms to make your investment decision.
We have not authorised anyone to provide you with information that is different from what is
contained in this prospectus and the related Application Forms. Any information or representation
not contained or made in this prospectus and the related Application Forms must not be relied on by
you as having been authorised by us, the Sole Sponsor, the Sole Global Coordinator, the Joint
Bookrunners, the Underwriters, any of their respective directors or any other person or party
involved in the Global Offering.
Page
Expected Timetable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
i
...............................................................
iv
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15
................................................
28
Forward-looking Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31
............................................................
33
...........................
60
........................
63
Directors and Parties involved in the Global Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
67
....................................................
71
.......................................................
73
Laws and Regulations of the Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
89
Contents
Glossary of Technical Terms
Risk Factors
Waivers from Strict Compliance with the Listing Rules
Information about this Prospectus and the Global Offering
Corporate Information
Industry Overview
– iv –
CONTENTS
Page
............................................
103
...............................................................
125
...........................................
229
Relationship with our Controlling Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
237
...................................................
242
Substantial Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
245
...........................................................
247
Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
250
Future Plans and Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
325
Cornerstone Investor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
327
Underwriting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
329
Structure of the Global Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
338
How to Apply for the Hong Kong Public Offer Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
348
............................
I-1
....................
II-1
History and Corporate Structure
Business
Directors and Senior Management
Connected Transactions
Share Capital
Appendix I
–
Accountants’ Report of the Group
Appendix II
–
Unaudited Pro Forma Financial Information
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-1
Appendix III –
Property Valuation
Appendix IV –
Summary of the Constitution of
the Company and Cayman Islands Companies Law . . . . . . . . . . . . . . IV-1
Appendix V
Statutory and General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . .
–
Appendix VI –
V-1
Documents delivered to the Registrar of
Companies and available for inspection . . . . . . . . . . . . . . . . . . . . . . . VI-1
–v–
SUMMARY
This summary aims to give you an overview of the information contained in this prospectus. As
it is a summary, it does not contain all the information that may be important to you. You should read
this prospectus in its entirety before you decide to invest in the Offer Shares.
There are risks associated with any investment. Some of the particular risks in investing in the
Offer Shares are set out in the section headed “Risk Factors” in this prospectus. You should read that
section carefully before you decide to invest in the Offer Shares.
OVERVIEW
We are a leading integrated supplier of edible fungi products in the PRC. We are also a manufacturer
of processed food products such as canned food and other processed food products in the PRC. According
to Euromonitor, our independent market consultant, we were the largest producer of king trumpet
mushroom and the seventh largest supplier of button mushroom in the PRC in terms of production volume
in 2013 with a market share of 2.5% and 0.6% in 2013, respectively. Our edible fungi business operations
are vertically integrated, covering the cultivation and sales of fresh edible fungi produce as well as the
manufacturing and sales of various processed edible fungi products. Such integrated business model
distinguishes us from other fresh and processed edible fungi suppliers in the PRC, most of which are
mainly engaged in part or parts of the value chain of cultivation, processing and sales of edible fungi. In
addition, we are currently engaged in canned food trading business through Greenfresh HK. During the
Track Record Period, we were engaged in trading operations in the PRC through Minhui Trading. We
discontinued such trading operations as we disposed of Minhui Trading in 2012.
As at the Latest Practicable Date, our products were primarily marketed under our core brands
and
. We commenced our operations since 1995, when Fujian Greenfresh Foods first started
manufacturing canned food in Zhangzhou, Fujian province. The long history of our operations and strong
recognition of our brands are key factors in our success, for which we have received various awards and
certifications.
COMPETITIVE STRENGTHS
We believe that the following competitive strengths, which are described in the section headed
“Business – Our Competitive Strengths” from page 127 in this prospectus, have allowed us to achieve
sustainable growth and profitability and maintain our leading position in the fresh edible fungi produce
market and enable us to compete effectively in the processed food products market in the PRC:
•
vertically integrated business model with cost effective operations
•
leading position in the fresh edible fungi produce market in the PRC with strong brand
recognition and high product quality
•
nationwide and extensive distribution and sales network across the PRC
•
strong research and development capabilities with the ability to develop new products
•
experienced management team with a proven track record to lead our development
–1–
SUMMARY
STRATEGIES
We intend to achieve sustainable growth in sales and profit and further strengthen our leading
position in the fresh edible fungi produce industry by implementing the following strategies, which are
described in the section headed “Business – Our Strategies” from page 131 in this prospectus:
•
further strengthen our leading market position through expansion of our cultivation and
production capacity and improvement of operational efficiency
•
further expand the breadth and depth of our distribution and sales network across the PRC
•
increase recognition and awareness of our brands by increasing marketing and promotional
activities
•
diversify our product offerings and develop new products
•
pursue appropriate strategic acquisition opportunities
OUR PRODUCTS
We are principally engaged in the cultivation and sales of fresh edible fungi produce and
manufacturing and sales of processed food products. As at the Latest Practicable Date, our products were
mainly categorised into two series, namely (i) fresh edible fungi produce consisting of king trumpet
mushroom, button mushroom and straw mushroom; and (ii) processed food products consisting of canned
food such as canned edible fungi, canned vegetables and canned fruit, and other processed food products
such as brined mushroom, preserved vegetables and dried mushroom. We offer our products to the market
primarily under our core brands
and
. For details of our principle products offered in the
market, please refer to the section headed “Business – Our Products” from page 137 in this prospectus.
CUSTOMERS, DISTRIBUTION AND SALES NETWORK
Consistent with market practice, we sell our fresh edible fungi produce primarily to distributors in
the PRC, which then on-sell our fresh edible fungi produce to sub-distributors and retailers. To a lesser
extent, we also sell some of our fresh edible fungi produce directly to processed mushroom manufacturers
in the PRC which manufacture canned edible fungi. We sell our canned food to trading companies in the
PRC, which then on-sell our products to overseas distributors in more than 50 countries and regions in
Europe, North America, South America, Asia and Africa. A majority of our canned food are produced
under OEM arrangements and labeled with brands and logos of overseas distributors or retailers while the
remaining is produced and marketed under our own brand. We sell our other processed food products to
distributors in the PRC, which then on-sell our products to sub-distributors and processed mushroom
manufacturers. We sell other processed food products under our own brand. For the three years ended 31
December 2012, 2013 and 2014, sales to our largest customer accounted for 9.5%, 7.8% and 8.0%,
respectively, of our total revenue. For the same periods, our five largest customers combined accounted
for 28.5%, 23.0% and 29.2%, respectively, of our total revenue. We have an extensive nationwide
distribution and sales network in the PRC consisting primarily of distribution channels operated by our
distributors, processed mushroom manufacturers and trading companies. As at 31 December 2014, our
products were sold in over 19 provinces, autonomous region and municipalities across the PRC.
–2–
SUMMARY
OUR CULTIVATION AND PRODUCTION
We employ two kinds of cultivation methods, namely industrial cultivation and traditional
cultivation for our fresh edible fungi produce. We strategically locate our cultivation facilities of our
fresh edible fungi produce in different regions in the PRC which are in the proximity of local major
agricultural product markets. As at the Latest Practicable Date, we had established eight cultivation
facilities for our fresh edible fungi produce, including (i) three king trumpet mushroom facilities and one
button mushroom and straw mushroom facility in Zhangzhou, Fujian province; (ii) one king trumpet
mushroom facility in Dandong, Liaoning province; (iii) one king trumpet mushroom facility in
Changzhou, Jiangsu province; and (iv) two button mushroom facilities in Chengdu, Sichuan province.
The aggregate land area covers approximately an area of 1.1 million sq.m.
We entered into various lease agreements with the relevant Villagers’ Committees to lease the
farmland and other properties at our button mushroom cultivation facilities in Chengdu, Sichuan province
and button mushroom and straw mushroom cultivation facilities in Zhangzhou, Fujian province. Please
see the section headed “Business – Cultivation Facilities” from page 165 in this prospectus for further
details.
Our own employees are responsible for the cultivation of king trumpet mushroom at our cultivation
facilities. We outsource the cultivation service of our button mushroom and straw mushroom to local
farmers at our button mushroom cultivation facilities in Chengdu, Sichuan province and button
mushroom and straw mushroom cultivation facilities in Zhangzhou, Fujian province. Please see the
section headed “Business – Cultivation Facilities” from page 165 in this prospectus for further details.
As at the Latest Practicable Date, we had established two production facilities for our processed
food products in Zhangzhou, Fujian province. The aggregate production facilities cover approximately an
aggregate land area of 23,000 sq.m., with an annual designed production volume of 26,220 tonnes. Our
production and sales of some of our products are subject to seasonality fluctuations due to our customers’
purchase patterns and weather conditions for traditional cultivation. Please see the section headed
“Business – Seasonality” from page 156 in this prospectus for further details.
RAW MATERIALS AND SUPPLIERS
Our raw materials primarily include (i) cultivation materials such as strains, sawdust, bran, dregs of
beans, corncob, straw and cow dung for fresh edible fungi produce; (ii) fresh produce of edible fungi,
vegetables and fruit for processed food products; and (iii) packaging materials. For the sensitivity
analysis on the impact of raw materials fluctuation, please refer to the section headed “Financial
Information – Description of Selected Statements of Profit or Loss Items – Cost of Sales” from page 266
in this prospectus.
All of our raw materials are procured in the PRC, with a majority being procured at the location of
the cultivation facilities. For the three years ended 31 December 2012, 2013 and 2014, purchases from
our largest supplier accounted for 10.4%, 3.4% and 4.7%, respectively, of our total purchases of raw
materials. For the same periods, our five largest suppliers combined accounted for 26.1%, 16.4% and
22.5%, respectively, of our total purchases of raw materials.
–3–
SUMMARY
PRE-IPO INVESTMENTS
Pursuant to three investment agreements dated 8 October 2010, 15 October 2010 and 18 October
2010 respectively, Riemann Investment, Ms. GUO XUEYAN and Mr. Chan Kin Wa respectively agreed
with Mr. Zheng Songhui to invest in 1,500 shares, 3,000 shares and 3,000 shares of par value of US$1.00
each, representing 3%, 6% and 6% of the then issued share capital of our Company at the time of its
incorporation at a consideration of RMB9 million, RMB18 million and RMB18 million, respectively.
Each of Riemann Investment, Ms. GUO XUEYAN and Mr. Chan Kin Wa is a private investor and an
Independent Third Party.
Pursuant to a share subscription agreement dated 5 November 2012, COFCO Fund subscribed for
4,054 shares of nominal value of US$1.00 each in the capital of the Company at an aggregate issue price
in U.S. dollars equivalent to RMB60 million. COFCO Fund is an Independent Third Party. The Shares
held by COFCO Fund will be counted towards the public float after the Listing for purpose of Rule 8.08
of the Listing Rules. For more details on the Pre-IPO Investors and their respective Pre-IPO Investments,
please refer to the section headed “History and Corporate Structure – Pre-IPO Investments” in this
prospectus.
CONTROLLING SHAREHOLDERS INFORMATION
Immediately after completion of the Capitalisation Issue and the Global Offering, Song Rising,
Grand Ample and Absolute Bright will be legally and beneficially interested in an aggregate of
approximately 56.66% of the Shares in issue (assuming the Over-allotment Option is not exercised and
without taking into account any options granted under the Pre-IPO Share Option Scheme and may be
granted under the Share Option Scheme). Song Rising and Grand Ample are directly and wholly owned
by Mr. Zheng Songhui while Absolute Bright is directly and wholly owned by Ms. Zheng Yangyu, the
daughter of Mr. Zheng Songhui. Accordingly, Mr. Zheng Songhui, Song Rising, Grand Ample, Ms. Zheng
Yangyu and Absolute Bright will together be considered as our Controlling Shareholders upon Listing.
Grand Ample is an investment holding company, and the only asset of which is the shares of the Company.
Save as disclosed in this prospectus and except for their respective interests in our Company, each of the
Controlling Shareholders confirms that he/she/it does not hold or conduct any business which competes,
or is likely to compete, either directly or indirectly, with our Group’s business upon Listing.
The Directors believe that our Group is capable of carrying on its business independently from the
Controlling Shareholders and/or their respective close associates after the Listing. Please refer to the
section headed “Relationship with our Controlling Shareholders” in this prospectus for more details.
PRE-IPO SHARE OPTION SCHEME
We have conditionally adopted the Pre-IPO Share Option Scheme. Assuming all of the options
outstanding under the Pre-IPO Share Option Scheme as at the Latest Practicable Date are exercised in
full, but not taking into account any Shares which may be allotted and issued upon the exercise of (i) the
Over-allotment Option or (ii) any option which may be granted under the Share Option Scheme, this will
have a dilutive effect on (i) the shareholdings of the Shareholders of approximately 4.76%; and (ii)
earnings per Share of approximately 4.76%. The principal terms of the Pre-IPO Share Option Scheme are
summarised in “Statutory and General Information – D. Pre-IPO Share Option Scheme” in Appendix V to
this prospectus.
–4–
SUMMARY
RISK FACTORS
Our operations involve certain risks, many of which are beyond our control. The list below sets out
the major risk factors in relation to our operations:
•
Changes in consumer tastes, preferences and perceptions may have a material and adverse
effect on our business, results of operations and financial condition.
•
Our results of operations are subject to biological asset fair value adjustments, which can be
highly volatile and are subject to a number of assumptions.
•
We rely on independent third-party distributors and independent third-party trading companies
to sell our products. Any changes in our relationships with our distributors or trading
companies may have a material and adverse effect on our sales, results of operations and
financial condition.
•
We have limited control over the practice and manner of the sales by our distributors and
trading companies, and the sub-distributors, retailers or overseas distributors of our
distributors and trading companies. If any of our distributors or trading companies fails to
distribute our products in a timely manner or in accordance with the terms of our distribution
or sales agreements or the applicable PRC laws and regulations, or at all, our reputation,
brands’ image, financial condition and results of operations may be materially and adversely
affected.
•
We may be affected by the changes in or cessation of preferential tax treatment which may have
an adverse effect on our financial condition and results of operations.
•
We do not enter into long-term agreements with our raw material suppliers and therefore our
cultivation or production costs and schedules, financial condition and results of operation may
be adversely affected if we are unable to secure supply.
A detailed discussion of the aforesaid and other risk factors is set out in the section headed “Risk
Factors” from page 33 in this prospectus. You should carefully consider the information contained therein
before making any investment decision in relation to our Shares.
–5–
SUMMARY
MATERIAL NON-COMPLIANCE
During the Track Record Period, we had certain historical material non-compliance incidents: (i) we
were not in strict compliance with the applicable PRC social insurance contribution and housing fund
provident regulations; (ii) we acquired certain collectively-owned land use rights without the approval of
relevant authorities or without going through land expropriation process of the local government; (iii) we
occupied and continued to use the collectively-owned land use rights for certain land for non-agricultural
purposes, which is prohibited by the applicable laws and regulations; and (iv) we failed to obtain the
construction works planning permit and the construction works commencement permit before our certain
construction. For further details, please refer to the sections headed “Business – Properties”, “Business –
Non-compliance”, “Risk Factors – Non-compliance with PRC employee social welfare contribution
regulations could lead to the imposition of fines or penalties”, “Risk Factors – We are subject to potential
adverse consequences due to our lack of valid land use right and building ownership in respect of certain
properties we occupied in the PRC” and “Risk Factors – Defects related to certain properties leased by us
may materially and adversely affect our ability to use such properties” from pages 198, 224, 45, 46 and
48, respectively in this prospectus.
SUMMARY OF KEY OPERATING INDICATORS
The following table sets forth our sales volume, average selling price and revenue by product
category of our continuing operations for the periods indicated:
Year ended 31 December
2012
Fresh edible fungi produce
King trumpet mushroom . . .
Button mushroom and
straw mushroom. . . . . .
Processed food products
Canned food . . . . . . . .
Other processed food products
Sales
volume
Average
selling
price
kilogram
RMB
2013
Revenue
Sales
volume
RMB’000 kilogram
Average
selling
price
RMB
2014
Revenue
Sales
volume
RMB’000 kilogram
Average
selling
price
Revenue
RMB
RMB’000
. . . 14,489,404
9.4
135,640 23,578,925
8.3
196,306 26,627,647
7.5
199,272
. . .
9,487,268
6.1
57,644 12,963,630
7.4
96,117 22,545,685
7.8
175,860
. . . 20,414,666
. . . 4,801,521
8.2
13.7
166,483 17,235,682
65,661 3,241,680
7.5
15.3
129,208 16,406,498
49,859 4,094,680
7.6
11.2
124,690
45,843
Total/Overall . . . . . . . . . . . 49,192,859
8.6
425,428 57,019,917
8.3
471,490 69,674,510
7.8
545,665
SUMMARY OF HISTORICAL FINANCIAL INFORMATION
The following tables present a summary of our financial information during the Track Record Period
and should be read in conjunction with our financial information included in the Accountants’ Report set
out in Appendix I to this prospectus, including the notes thereto.
–6–
SUMMARY
Summary consolidated statements of profit or loss information
2012
RMB’000
CONTINUING OPERATIONS
Revenue . . . . . . . . . . . . . . . . .
Changes in fair value of biological assets
less cost to sell . . . . . . . . . . . . .
Cost of goods sold . . . . . . . . . . . .
Business tax and
auxiliary charges . . . . . . . . . . . .
2013
% of
revenue
from
continuing
operations
2014
% of
revenue
from
continuing
operations
RMB’000
% of
revenue
from
continuing
operations
RMB’000
. .
425,428
100.0%
471,490
100.0%
545,665
100.0%
. .
. .
97,883
(399,685)
22.9%
(93.9%)
146,667
(442,022)
31.1%
(93.7%)
211,122
(550,393)
38.8%
(100.9%)
. .
(1,807)
(0.4%)
(920)
(0.2%)
(924)
(0.2%)
Gross profit . . . . . . . . . . . . . . . . .
121,819
28.6%
175,215
37.2%
205,470
37.7%
Other income . . . . . . . . . . . . . . . . .
Selling expenses . . . . . . . . . . . . . . .
Administrative expenses . . . . . . . . . . .
5,808
(5,897)
(18,235)
1.4%
(1.4%)
(4.3%)
6,849
(6,914)
(17,582)
1.4%
(1.5%)
(3.7%)
9,947
(6,083)
(30,800)
1.8%
(1.1%)
(5.7%)
Profit from operations . . . . . . . . . . . .
103,495
24.3%
157,568
33.4%
178,534
32.7%
Finance costs . . . . . . . . . . . . . . . . .
(1,678)
(0.4%)
(3,735)
(0.8%)
(1,194)
(0.2%)
Profit before tax . . . . . . . . . . . . . . .
101,817
23.9%
153,833
32.6%
177,340
32.5%
Income tax expense . . . . . . . . . . . . . .
(10,610)
(2.5%)
(6,047)
(1.3%)
(2,252)
(0.4%)
Profit for the year
from continuing operations . . . . . . . .
91,207
21.4%
147,786
31.3%
175,088
32.1%
DISCONTINUED OPERATION
Profit for the year from
discontinued operation . . . . . . . . . . .
9,850
2.3%
–
–
–
–
Profit for the year . . . . . . . . . . . . . . .
101,057
23.7%
147,786
31.3%
175,088
32.1%
–7–
SUMMARY
Summary consolidated statements of financial position information
As at 31 December
2012
2013
2014
RMB’000
RMB’000
RMB’000
Non-current assets . . . . . . . . . . . . . . . . . . . . .
154,590
176,670
187,434
Current assets . . . . . . . . . . . . . . . . . . . . . . . . .
253,143
385,881
625,878
Current liabilities . . . . . . . . . . . . . . . . . . . . . .
101,357
48,566
54,536
Net current assets . . . . . . . . . . . . . . . . . . . . . .
151,786
337,315
571,432
Net Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
306,376
513,985
758,776
Summary consolidated cash flow information
Net cash generated from operating activities . . .
Net cash used in investing activities. . . . . . . . . .
Net cash (used in)/generated from
financing activities . . . . . . . . . . . . . . . . . . . .
Net increase in cash and
cash equivalents . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at
beginning of the year. . . . . . . . . . . . . . . . . . .
the end of the year . . . . . . . . . . . . . . . . . . . .
–8–
2012
2013
2014
RMB’000
RMB’000
RMB’000
93,239
(42,067)
84,898
(51,362)
171,223
(57,582)
(23,115)
14,023
68,031
28,057
47,559
181,672
79,231
107,288
154,847
107,288
154,847
336,519
SUMMARY
Key financial ratios
As at or for the year ended 31 December
2012
2013
2014
Liquidity ratios
Current ratio . . . . . . . . . . . . . . . . . . . . . . . . .
Quick ratio . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.5
2.3
7.9
7.4
11.5
11.0
Capital adequacy ratios
Gearing ratio . . . . . . . . . . . . . . . . . . . . . . . . .
Net debt to equity ratio . . . . . . . . . . . . . . . . . .
21.5%
Net cash
3.9%
Net cash
2.4%
Net cash
Profitability ratios
Return on equity . . . . . . . . . . . . . . . . . . . . . . .
Return on assets . . . . . . . . . . . . . . . . . . . . . . .
29.8%
22.4%
28.8%
26.3%
23.1%
21.5%
Note:
Please refer to the section headed “Financial Information – Key Financial Ratios” in this prospectus for information
on calculation of these ratios.
Gross profit and gross profit margin
The following table sets forth the gross profit and gross profit margin by product category of our
continuing operations after and before fair value adjustment of biological assets for the years indicated:
2012
after fair value
adjustment
King trumpet mushroom .
Button mushroom and
straw mushroom . . .
Canned food . . . . . .
Other processed food
products . . . . . . .
2013
before fair value
adjustment
after fair value
adjustment
2014
before fair value
adjustment
after fair value
adjustment
before fair value
adjustment
Gross
profit
Gross
profit
margin
Gross
profit
Gross
profit
margin
Gross
profit
Gross
profit
margin
Gross
profit
Gross
profit
margin
Gross
profit
Gross
profit
margin
Gross
profit
Gross
profit
margin
RMB’000
%
RMB’000
%
RMB’000
%
RMB’000
%
RMB’000
%
RMB’000
%
.
52,783
38.9%
51,477
38.0%
82,936
42.2%
83,860
42.7%
84,003
42.2%
79,784
40.0%
.
.
19,520
29,924
33.9%
18.0%
18,849
29,924
32.7%
18.0%
50,062
26,548
52.1%
20.5%
46,980
26,548
48.9%
20.5%
95,642
22,222
54.4%
17.8%
91,346
22,222
51.9%
17.8%
.
21,399
32.6%
21,399
32.6%
16,589
33.3%
16,589
33.3%
4,527
9.9%
4,527
9.9%
37.8% 197,879
36.3%
123,626
Business tax and
auxiliary charges . . . .
(1,807)
Total/Overall . . . . . . 121,819
29.1% 121,649
N/A
(1,807)
28.6% 119,842
28.6% 176,135
N/A
(920)
28.2% 175,215
–9–
37.4% 173,977
N/A
(920)
37.2% 173,057
36.9% 206,394
N/A
(924)
36.7% 205,470
N/A
(924)
N/A
37.7% 196,955
36.1%
SUMMARY
Our gross profit increased from RMB121.8 million for the year ended 31 December 2012 to
RMB175.2 million for the year ended 31 December 2013 and further to RMB205.5 million for the year
ended 31 December 2014, representing a CAGR of 29.9% over the period. Such increases were primarily
the result of an increase in the revenue generated from the sales of our king trumpet mushroom, button
mushroom and straw mushroom during the Track Record Period. For the three years ended 31 December
2012, 2013 and 2014, our gross profit margin were 28.6%, 37.2% and 37.7%, respectively.
We recorded our gross profit after fair value adjustment of our biological assets, i.e. king trumpet
mushroom, button mushroom and straw mushroom. The gross profit of the biological assets after fair
value adjustment included the realised gain of the biological assets sold during the respective financial
year plus the unrealised gain/(loss) of the biological assets as at the end of the respective financial year
while the gross profit of the biological assets before fair value adjustment represented the realised gain of
the biological assets sold during the respective financial year, which led to the differences of gross profit
and gross profit margin after and before the fair value adjustment of biological assets.
Biological assets
Our biological assets consist of edible fungi, which were independently valued by JLL, a firm of
independent qualified professional valuers not connected with us, which has appropriate qualifications
and experiences in valuation of biological assets. JLL conducted the physical inspection for the health
condition, quality and quantity of our biological assets as at 31 December 2014. The valuation of our
biological assets as at 31 December 2011, 31 December 2012 and 31 December 2013 by JLL was
performed retrospectively by relying on the accuracy and reliability of historical data of biological assets
provided by us. The valuation conducted by JLL is subject to the caveat that JLL relied substantially on
the accuracy, completeness and reasonableness of the various assumptions and other data provided by us
in preparation of the valuation report. Please refer to the sections headed “Risk Factors – Our results of
operations are subject to biological asset fair value adjustments, which can be highly volatile and are
subject to a number of assumptions” and “Financial Information – Valuation of Biological Assets – Key
Assumptions and Inputs” on pages of 34 and 316, respectively in this prospectus. Our biological assets
were stated at fair value less costs to sell as at the valuation dates. The following table sets forth the value
of our biological assets as at the dates indicated:
As at 31 December
At the beginning of the year . . . . . .
Increases due to plantation . . . . . . .
Gain from changes in fair value less
costs to sell. . . . . . . . . . . . . . . . .
Decreases due to harvest . . . . . . . . .
2012
2013
2014
RMB’000
RMB’000
RMB’000
.........
.........
48,240
135,518
47,691
211,283
91,949
225,134
.........
.........
97,883
(233,950)
146,667
(313,692)
211,122
(434,498)
47,691
91,949
93,707
At the end of the year . . . . . . . . . . . . . . . . . . .
– 10 –
SUMMARY
The following table sets forth the realised and unrealised fair value gains on our biological assets
and net profits from continuing operations excluding unrealised fair value gains during years indicated:
2012
2013
2014
RMB’000
RMB’000
RMB’000
Fair value change of biological assets
– realised . . . . . . . . . . . . . . . . . . . . . . . . . . .
– unrealised . . . . . . . . . . . . . . . . . . . . . . . . .
82,419
15,464
125,463
21,204
181,706
29,416
Net profits from continuing operations
excluding unrealised fair value gains . . . . . . .
75,743
126,582
145,672
Taxation
According to the Notice Issued by Ministry of Finance and State Administration of Taxation of the
PRC in Relation to the Scope of Corporate Income Tax Preferential Treatment Policy Applicable to
Agricultural Products Which Have Undergone Primary Processing (Trial)《財政部國家稅務總局關於發
佈享受企業所得稅優惠政策的農產品初加工範圍（試行）的通知》, incomes of enterprises arising from
the primary processing of agricultural produce are exempt from the PRC EIT. The cultivation and trading
of mushroom by certain of our PRC subsidiaries, namely Greenfresh Ecological Agriculture, Greenfresh
Biological Technology, Shengtai Agricultural Development and Jingxiang Foods were recognised as
primary processing of agricultural produce and obtained the exemption from the PRC EIT during the
Track Record Period. In particular, Greenfresh Ecological Agriculture and Greenfresh Biological
Technology were exempted from the PRC EIT for the years ended 31 December 2012, 2013 and 2014,
Shengtai Agricultural Development was exempted from the PRC EIT for the years ended 31 December
2013 and 2014, and Jingxiang Foods was exempted from the PRC EIT for the year ended 31 December
2014. Therefore, our effective tax rate from continuing operations for the three years ended 31 December
2012, 2013 and 2014 was 10.4%, 3.9% and 1.3% respectively. The decrease in our effective tax rate from
continuing operations was mainly due to the increase in the proportion of our revenue contributed by our
PRC subsidiaries that enjoyed the preferential tax treatment. We are required to file the applications for
the exemption of the PRC EIT to the relevant regulatory authority every year so as to obtain approvals for
such exemption. If we fail to satisfy the requisite requirements for entitlement to the waiver of the PRC
EIT in the future or if there is any change in the existing PRC policy relating to preferential tax treatments
applicable to us, we may no longer be entitled to the preferential tax treatments currently enjoyed by us.
Our revenue generated from production and sales of canned food is subject to the PRC EIT at a rate of
25.0%.
– 11 –
SUMMARY
RECENT DEVELOPMENTS
Subsequent to the Track Record Period and up to the Latest Practicable Date, there had not been
material changes to our principal business, which remained to include the cultivation and sales of fresh
edible fungi produce and the manufacturing and sales of processed food products. As far as we are aware,
there had not been material changes in the overall economic and market conditions in the edible fungi and
processed food product industries in the PRC that would otherwise have materially and adversely affected
our business operations or financial condition. Subsequent to the Track Record Period and up to the
Latest Practicable Date, the competition in the edible fungi market continued to be intense. The rankings
in terms of production volume of China’s king trumpet mushroom and button mushroom were not
available at the Latest Practicable Date.
Our business continued to grow for the four months ended 30 April 2015. The sales volume of our
king trumpet mushroom, button mushroom and straw mushroom, canned food and other processed food
products for the four months ended 30 April 2015 was 9,561 tonnes, 16,027 tonnes, 4,409 tonnes and 625
tonnes, respectively. The average selling price of our king trumpet mushroom, button mushroom and
straw mushroom, canned food and other processed food products for the four months ended 30 April 2015
was RMB6.5 per kilogram, RMB7.0 per kilogram, RMB7.3 per kilogram and RMB10.6 per kilogram,
respectively. In February 2015, we entered into lease agreement with the lessor to lease certain facilities
in Zhangzhou, Fujian province. We use such facilities as Zhangpu (No. 4) facility for the cultivation of
king trumpet mushroom with a designed annual cultivation capacity of 1,332 tonnes. Subsequent to the
Track Record Period and up to the Latest Practicable Date, we had not experienced any significant change
of our pricing policy and there had been no material change in costs of raw materials compared to the
same period in 2014.
The consolidated net profit of our Group for the year ending 31 December 2015 will be affected by
a forecasted increase in administrative expenses as a result of (i) the recognition of the expenses related
to the issuance of share options under the Pre-IPO Share Option Scheme for 2015; and (ii) the recognition
of a portion of listing expenses to be charged to our profit or loss for 2015 as further discussed in the
paragraph “Listing Expenses” below. Our Directors expect a decrease in the forecasted gross profit
margin of our Group for the year ending 31 December 2015 primarily due to the forecasted decrease in
the gross profit margin of our processed food products as a result of the forecasted increase in the cost of
raw materials to produce our processed food products for 2015. The gross profit margin of our fresh
edible fungi produce is forecasted to be stable for the year ending 31 December 2015 compared to that of
the year ended 31 December 2014.
DIVIDEND POLICY
During the Track Record Period, our Company did not declare any dividends to our then
shareholders. Holders of the Shares will be entitled to receive any dividends we declare pro rata
according to the amounts paid up or credited as paid up on the Shares. The payment and the amount of any
dividends will be at the discretion of our Directors. Our Directors currently intend to recommend
dividends of around 30.0% of our net profit available for distribution to the Shareholders in the
foreseeable future subject to, among others, the factors described in detail in the section headed
“Financial Information – Dividend Policy” from page 312 in this prospectus.
– 12 –
SUMMARY
OFFER STATISTICS
We expect to issue 125,000,000 new Shares under the Global Offering.
Based on the Offer Price
of HK$4.58 per Share
Based on the Offer Price
of HK$5.18 per Share
Market capitalisation of our Shares (1) . . . . . . . . . . .
HK$2,290 million
HK$2,590 million
Unaudited pro forma adjusted
net tangible assets per Share (2) . . . . . . . . . . . . .
HK$3.00
HK$3.14
Notes:
1.
The calculation of the market capitalisation of our Shares is based on 500,000,000 Shares in issue immediately after
completion of the Capitalisation Issue and the Global Offering but does not take into account of any Shares which may
be allotted and issued upon the exercise of the over-allotment Option or any options which are granted under the
Pre-IPO Share Option Scheme and may be granted under the Share Option Scheme or any Shares which may be
allotted and issued or repurchased by our Company pursuant to the general mandate to issue shares and the repurchase
mandate.
2.
The unaudited pro forma adjusted net tangible assets per Share has been prepared with reference to certain estimation
and adjustment. The adjustment does not take into account the surplus arising from the revaluation of our property
interests amounting to RMB23.6 million. The revaluation surplus was not incorporated in our financial statements for
the year ended 31 December 2014. If the valuation surplus was recorded in our financial statements, an additional
annual depreciation expense and amortisation charges of prepaid land lease payments would be charged by
approximately RMB511,000. Please refer to Appendix II to this prospectus for further details.
USE OF PROCEEDS
Net proceeds of the Global Offering will be approximately HK$566.9 million, assuming an Offer
Price of HK$4.88 (being the mid-point of the Offer Price range) and assuming that the Over-allotment
Option is not exercised. We currently intend to apply these net proceeds for the following purposes:
•
Approximately 31.1%, or HK$176.3 million will be used for developing the Guangxi
Biological Technology Food Industry Park;
•
Approximately 37.7%, or HK$213.7 million will be used for developing the Zhangzhou
Biological Technology Food Industry Park;
•
Approximately 25.7%, or HK$145.7 million will be used for acquiring two king trumpet
mushroom cultivation facilities in China;
•
Approximately 1.1%, or HK$6.3 million will be used for acquiring laboratory and testing
equipment for the purpose of expansion of our king trumpet mushroom research and
development laboratory in Zhangzhou, Fujian province;
•
Approximately 1.1%, or HK$6.3 million will be used for the construction of mushroom garden
as the science education base affiliated to our China Edible Fungi Scientific Museum at our
king trumpet mushroom cultivation facility in Zhangzhou, Fujian province; and
•
Approximately 3.3% or HK$18.6 million will be used for working capital and other general
corporate purpose.
Please refer to the section headed “Future Plans and Use of Proceeds” in this prospectus for more
details.
– 13 –
SUMMARY
SELLING SHAREHOLDERS
The Global Offering initially consists of 150,000,000 Shares, of which 25,000,000 Shares are being
sold by the Selling Shareholders under the International Placing. We estimate that the net proceeds to the
Selling Shareholders from the Sale Shares (after deduction of proportional underwriting fees and
estimated expenses payable by our Selling Shareholders in relation to the Global Offering, and assuming
an offer price of HK$4.88 per Offer Share, being the mid-point of the indicative Offer Price range) will be
approximately HK$112.4 million. Our Company will not receive any of the proceeds from the sale of the
Sale Shares.
LISTING EXPENSES
We incurred listing expenses of RMB11.0 million for the year ended 31 December 2014 which was
recognised as administrative expenses. We expect to incur further listing expenses of approximately
RMB27.0 million including the underwriting commission and other fees in relation to the New Share
(assuming an Offer Price of HK$4.88 per Offer Share, being the mid-point of the Offer Price range), out
of which RMB7.6 million will be recognised as administrative expenses and RMB19.4 million will be
charged against equity upon successful listing under the relevant accounting standards. We do not believe
the remaining expenses will have a material impact on our results of operations.
NO MATERIAL ADVERSE CHANGES
Our Directors have confirmed that, up to the date in this prospectus, save as disclosed in the
paragraph headed “Listing Expenses” above, there has been no material adverse change in our financial
or trading position since 31 December 2014, the end of period reported in the Accountants’ Report set out
in Appendix I to this prospectus, and there has been no event since 31 December 2014 which would
materially affect the information shown in the Accountants’ Report set out in Appendix I to this
prospectus.
– 14 –
DEFINITIONS
In this prospectus, the following expressions shall have the meanings set out below unless the
context requires otherwise. Certain other terms are explained in the section “Glossary of technical
terms”.
“Absolute Bright”
Absolute Bright Limited (全亮有限公司), a limited
liability company incorporated under the Laws of the
Republic of Seychelles and is wholly-owned by Ms. Zheng
Yangyu, daughter of Mr. Zheng Songhui
“affiliate(s)”
any other person, directly or indirectly, controlling or
controlled by or under direct or indirect common control
with such specified person
“Application Forms”
WHITE Application Form(s), YELLOW Application
Form(s) and GREEN Application Form(s) or, where the
context so requires, any of them
“Articles of Association” or “Articles”
the Articles of Association of our Company, conditionally
adopted by us on 27 May 2015, which shall become
effective on the Listing Date and as amended,
supplemented and otherwise modified from time to time, a
summary of which is set out in Appendix IV to this
prospectus
“associate(s)”
has the meaning ascribed thereto under the Listing Rules
“Board of Directors” or “Board”
the board of Directors of our Company
“Business Day”
a day (other than a Saturday, a Sunday or public holiday)
on which banks in Hong Kong are normally open for
banking business to the public
“BVI”
the British Virgin Islands
“CAGR”
compounded annual growth rate
“Capitalisation Issue”
the issue of Shares to be made upon capitalisation of
certain sums standing to the credit of the share premium
account of our Company as referred to in the section
headed “Statutory and General Information – A. Further
Information about our Company – 3. Written Resolutions
of the Shareholders ” in Appendix V to this prospectus
“Cayman”
the Cayman Islands
– 15 –
DEFINITIONS
“CCASS”
the Central Clearing and Settlement System established
and operated by HKSCC
“CCASS Clearing Participant”
a person admitted to participate in CCASS as a direct
clearing participant or a general clearing participant
“CCASS Custodian Participant”
a person admitted to participate in CCASS as a custodian
participant
“CCASS Investor Participant”
a person admitted to participate in CCASS as an investor
participant who may be an individual or joint individuals or
a corporation
“CCASS Operational Procedures”
the Operational Procedures of HKSCC in relation to
CCASS, containing the practices, procedures and
administrative requirements relating to operations and
functions of CCASS, as from time to time in force
“CCASS Participant”
a CCASS Clearing Participant, a CCASS Custodian
Participant or a CCASS Investor Participant
“China” or “PRC”
the People’s Republic of China, excluding, except the
context otherwise requires and for purposes in this
prospectus, Hong Kong, the Macau Special Administrative
Region of the PRC and Taiwan
“Circular No. 37”
the Notice of the SAFE on Relevant Issues concerning
Foreign Exchange Administration Relating to Domestic
Residents’ Offshore Investment and Financing and
Round-Trip Investment through Special Purpose Vehicles
(including its appendices) (國家外匯管理局關於境內居民
通過特殊目的公司境外投融資及返程投資外匯管理有關
問題的通知), which became effective on 4 July 2014 and
replaced Circular No. 75
“Circular No. 75”
the Notice of the SAFE on Relevant Issues concerning
Foreign Exchange Administration for Domestic Residents
to Engage in Financing and in Return Investment via
Overseas Special Purpose Companies (國家外匯管理局關
於境內居民通過境外特殊目的公司融資及返程投資外匯
管理有關問題的通知), which was replaced by Circular
No. 37 on 4 July 2014
“COFCO Fund”
中糧（北京）農業產業股權投資基金（有限合夥）(COFCO
(Beijing) Agricultural Industrial Equity Investment Fund
(A Limited Partnership)*), a limited partnership
established under the law of the PRC
– 16 –
DEFINITIONS
“COFCO Shareholders’ Agreement”
the shareholders’ agreement dated 6 February 2013
between COFCO Fund, our Company, Song Rising, Sunny
Foods, Ms. GUO XUEYAN, Mr. Chan Kin Wa, Riemann
Investment and Mr. Zheng Songhui, details of which are set
out in the section headed “History and Corporate Structure
– Pre-IPO Investments – Investment of COFCO Fund” in
this prospectus
“COFCO Subscription Agreement”
the share subscription agreement dated 6 November 2012
between COFCO Fund, our Company, Song Rising and Mr.
Zheng Songhui in relation to the investment in our
Company by COFCO Fund, details of which are set out in
the section headed “History and Corporate Structure –
Pre-IPO Investments – Investment of COFCO Fund” in this
prospectus
“Companies Law”
the Companies Law (as revised) of the Cayman Islands, as
amended, supplemented or otherwise modified from time
to time
“Companies Ordinance”
the Companies Ordinance (Chapter 622 of the Laws of
Hong Kong) which came into effect on 3 March 2014 as
to time
“Companies Ordinance
(Miscellaneous Provisions)”
Companies (Winding Up and Miscellaneous Provisions)
Ordinance (Chapter 32 of the Laws of Hong Kong) which
came into effect on 3 March 2014 as amended,
supplemented or otherwise modified from time to time
“Company”, “the Company” or
“our Company”
CHINA GREENFRESH GROUP CO., LTD. (中國綠寶集
團有限公司*), an exempt company incorporated in the
Cayman Islands with limited liability on 28 March 2011
“connected person(s)”
“connected transaction(s)”
the transactions specified in Rule 14A.13 of the Listing
Rules
“Controlling Shareholder(s)”
has the meaning ascribed thereto under the Listing Rules,
and in the context of the Company, means Mr. Zheng
Songhui, Song Rising, Grand Ample, Ms. Zheng Yangyu
and Absolute Bright
“Corporate Governance Code”
the Corporate Governance Code as set out in Appendix 14
to the Listing Rules
– 17 –
DEFINITIONS
“CSRC”
China Securities Regulatory Commission of the PRC (中華
人民共和國證券監督管理委員會)
“Deed of Indemnity”
the deed of indemnity dated 27 May 2015 and executed by
our Controlling Shareholders in favour of our Company
(for itself and as trustee for its subsidiaries) with
particulars set out in the section headed “Statutory and
General Information – F. Other Information – 1. Estate
Duty, Tax and Other Indemnity” in Appendix V to this
prospectus
“Deed of Non-Competition”
the deed of non-competition dated 27 May 2015 and
entered into by our Controlling Shareholders in favour of
our Company with particulars set out in the section headed
“Relationship with Our Controlling Shareholders – Deed
of Non-competition” in this prospectus
“Director(s)” or “Board of Directors”
director(s) or the board of directors of our Company,
respectively
“EIT”
enterprise income tax
“EIT Law”
the Enterprise Income Tax Law of the PRC (中華人民共和
國企業所得稅法) which came into effect on 1 January
2008
“Empire Foods”
Empire Foods Ltd, a limited liability company
incorporated in the BVI on 23 June 2011 and a direct
wholly owned subsidiary of our Company
“Euromonitor”
Euromonitor International Limited
“Fujian Greenfresh Foods”
福建綠寶食品集團有限公司 (Fujian Greenfresh Foods
Group Company Limited*), formerly named as 漳州市龍海
綠寶食品有限公司, a limited liability company established
in the PRC on 3 November 1995 and is 100% held by
Jingxiang Foods, and an indirect wholly owned subsidiary
of our Company
“Global Offering”
the Hong Kong Public Offering and the International
Placing
“Grand Ample”
Grand Ample Limited, a limited liability company
incorporated in the BVI on 2 January 2014 and is wholly
owned by Mr. Zheng Songhui, an executive Director and
our Controlling Shareholder
– 18 –
DEFINITIONS
“Grand Ample Shareholders’ Agreement”
the shareholders’ agreement dated 9 June 2014 between
Grand Ample, COFCO Fund, our Company, Song Rising,
Sunny Foods, Ms. GUO XUEYAN, Mr. Chan Kin Wa,
Riemann Investment and Mr. Zheng Songhui, details of
which are set out in the section headed “History and
Corporate Structure – Reorganisation – (h) Investment
made by Grand Ample” in this prospectus
“Grand Ample Subscription Agreement”
the share subscription agreement dated 9 June 2014
between Grand Ample, our Company, Song Rising and Mr.
Zheng Songhui in relation to the investment in our
Company by Grand Ample, details of which are set out in
the section headed “History and Corporate Structure –
Reorganisation – (h) Investment made by Grand Ample” in
this prospectus
“GREEN Application Form(s)”
the application form(s) to be completed by the HK eIPO
White Form Service Provider
“Greenfresh Biological Technology”
遼寧綠寶生物技術有限公司 (Liaoning Greenfresh
Biological Technology Company Limited*), a limited
liability company established in the PRC on 9 April 2012
and is 100% held by Greenfresh Ecological Agriculture,
and an indirect wholly owned subsidiary of our Company
“Greenfresh Ecological Agriculture”
綠寶生態農業（漳州）有限公司 (Greenfresh Ecological
Agriculture (Zhangzhou) Company Limited*), a limited
liability company established in the PRC on 24 November
2009 and is 100% held by Fujian Greenfresh Foods, and an
indirect wholly owned subsidiary of our Company
“Greenfresh HK”
China Green Group Co., Limited (中國綠寶集團有限公
司), formerly named as China Greenfresh Group Co.,
Limited (中國綠寶集團有限公司), a limited liability
company incorporated in Hong Kong on 25 February 2011
and is 100% held by Empire Foods, and an indirect wholly
owned subsidiary of our Company
“Group”, “our Group”, “our”,
“us” or “we”
our Company and our Subsidiaries, or where the context so
requires, in respect of the period before our Company
became the holding company of its present subsidiaries,
such subsidiaries as if they were subsidiaries of our
Company at the relevant time
– 19 –
DEFINITIONS
“HK eIPO White Form”
the application for Hong Kong Public Offer Shares to be
issued in the applicant’s own name by submitting
applications online through the designated website of HK
eIPO White Form at www.hkeipo.hk
“HK eIPO White Form Service Provider”
the HK eIPO White Form service provider designated by
us, as specified on the designated website of HK eIPO
White Form at www.hkeipo.hk
“HKSCC”
Hong Kong Securities Clearing Company Limited
“HKSCC Nominees”
HKSCC Nominees Limited, a wholly-owned subsidiary of
HKSCC
“HK$” or “HK dollars” or
“Hong Kong dollars” and “cents”
Hong Kong dollars and cents respectively, the lawful
currency of Hong Kong
“Hong Kong” or “HK”
The Hong Kong Special Administrative Region of the PRC
“Hong Kong Share Registrar”
Tricor Investor Services Limited
“Hong Kong Public Offer Shares”
the 15,000,000 Shares being initially offered for subscription
at the Offer Price pursuant to the Hong Kong Public
Offering (subject to adjustment as described in the section
headed “Structure of the Global Offering” in this
prospectus)
“Hong Kong Public Offering”
the offering by the Company of the Hong Kong Public
Offer Shares for subscription by members of the public in
Hong Kong at the Offer Price and on the terms and
conditions described in this prospectus and the Application
Forms
“Hong Kong Stock Exchange” or
“Stock Exchange”
The Stock Exchange of Hong Kong Limited
“Hong Kong Underwriter(s)”
the underwriter(s) of the Hong Kong Public Offering as
listed in the section headed “Underwriting – Hong Kong
Underwriters” in this prospectus
“Hong Kong Underwriting Agreement”
the conditional Hong Kong underwriting agreement dated
5 June 2015 relating to the Hong Kong Public Offering and
entered into between our Company, the Controlling
Shareholders, the executive Directors, the Sole Sponsor,
the Sole Global Coordinator and the Hong Kong
Underwriters
– 20 –
DEFINITIONS
“Independent Third Party(ies)”
a person or company which is not connected with (within
the meaning of the Listing Rules) any directors, chief
executives or substantial shareholders of the Company, any
of its subsidiaries or any of their respective associates
according to the meaning ascribed to them by the Listing
Rules
“International Placing”
the conditional placing of the International Placing Shares
for and on behalf of our Company, to professional,
institutional and other investors at the Offer Price, as
further described in the section headed “Structure of the
Global Offering” in this prospectus
“International Placing Shares”
the 135,000,000 Shares comprising 110,000,000 New
Shares and 25,000,000 Sale Shares offered for subscription
pursuant to the International Placing (subject to adjustment
and the Over-allotment Option as described in the section
headed “Structure of the Global Offering” in this
prospectus)
“International Underwriter(s)”
the underwriter(s) of the International Placing, who are
expected to enter into the International Underwriting
Agreement to underwrite the International Placing
“International Underwriting Agreement”
the conditional underwriting agreement expected to be
entered into on or about the Price Determination Date,
between our Company, the Selling Shareholders, the
Controlling Shareholders, the executive Directors, the Sole
Sponsor, the Sole Global Coordinator and the International
Underwriters in respect of the International Placing
“Jingxiang Foods”
漳州景翔食品有限公司 (Zhangzhou Jingxiang Foods
Company Limited*), a wholly foreign owned enterprise
established in the PRC on 24 December 2001 and is 100%
held by Greenfresh HK, and an indirect wholly owned
subsidiary of our Company
“JLL”
Jones Lang LaSalle Corporate Appraisal and Advisory
Limited, the property valuer and biological assets valuer
“Joint Bookrunners”
Essence International Securities (Hong Kong) Limited and
“Joint Lead Managers”
Essence International Securities (Hong Kong) Limited and
– 21 –
DEFINITIONS
“Latest Practicable Date”
1 June 2015, being the latest practicable date for
ascertaining certain information in this prospectus prior to
its publication
“Listing”
listing of the Shares on the Main Board of the Stock
Exchange
“Listing Committee”
the listing committee of the Stock Exchange
“Listing Date”
the date on which dealings in the Shares commence on the
Main Board of the Stock Exchange
“Listing Rules”
the Rules Governing the Listing of Securities on The Stock
Exchange of Hong Kong Limited, as amended or
supplemented from time to time
“Main Board”
the main board of the Stock Exchange
“Memorandum of Association” or
“Memorandum”
the memorandum of association of our Company
conditionally adopted on 27 May 2015, as amended from
time to time, a summary of which is contained in Appendix
IV to this prospectus
“Minhui Hong Kong”
Minghui Trading (Hong Kong) Co. Limited (閩輝工貿
（香港）有限公司), a limited liability company incorporated
in Hong Kong on 22 March 2010 and immediately after the
Reorganisation, it will not form part of our Group
“Minhui Trading”
漳州市龍海閩輝工貿有限公司 (Zhangzhou Longhai
Minhui Trading Company Limited*), a limited liability
company established in the PRC on 21 November 1994 and
immediately after the Reorganisation, it will not form part
of our Group
“Minority Shareholders”
Riemann Investment, Ms. GUO XUEYAN and Mr. Chan
Kin Wa
“Minority Shareholders’
Investment Agreements”
collectively, the agreement dated 8 October 2010 between
Riemann Investment and Mr. Zheng Songhui; the
agreement dated 15 October 2010 between Ms. GUO
XUEYAN and Mr. Zheng Songhui; and the agreement
dated 18 October 2010 between Mr. Chan Kin Wa and Mr.
Zheng Songhui in relation to the investments in our
Company by the Minority Shareholders, details of which
are set out in the section headed “History and Corporate
Structure – Pre-IPO Investments – Investments of the
Minority Shareholders” in this prospectus
– 22 –
DEFINITIONS
“Mr. Zheng Songhui”
our founder, chairman, chief executive officer and an
executive Director, and our Controlling Shareholder
“New Shares”
the new Shares initially being offered for subscription by
our Company at the Offer Price under the Global Offering
“Offer Price”
the final Hong Kong dollar price per Offer Share (exclusive
of brokerage, SFC transaction levy and Stock Exchange
trading fee) of not more than HK$5.18 per Share and
expected to be not less than HK$4.58 per Share, at which
the Offer Shares are to be subscribed for and issued
pursuant to the Hong Kong Public Offering and the
International Placing, to be determined in the manner
further described in the section headed “Structure of the
Global Offering” in this prospectus
“Offer Shares”
the Hong Kong Public Offer Shares and the International
Placing Shares together with, where relevant, any
additional Shares to be issued pursuant to the exercise of
the Over-allotment Option
“Over-allotment Option”
the option granted by the Company to the International
Underwriters, exercisable by the Sole Global Coordinator
(for itself and on behalf of the other International
Underwriters), with the prior written consent of the
Company, pursuant to which the Company may be required
to allot and issue up to an aggregate of 22,500,000
additional Offer Shares, representing 15% of the initial
size of the Global Offering, to cover over-allocations in the
International Placing as described in the section headed
“Structure of the Global Offering” in this prospectus
“PBOC”
People’s Bank of China (中國人民銀行), the central bank
of the PRC
“PRC”
the People’s Republic of China, and for the purpose of this
prospectus only, excluding Hong Kong Special
Administrative Region, Macau Special Administrative
Region and Taiwan
“PRC Government” or “the Government”
the government of the PRC, including all governmental
subdivisions (including provincial, municipal and other
regional or local government entities) and instrumentalities
thereof, or, where the context requires, any of them
– 23 –
DEFINITIONS
“Predecessor Companies Ordinance”
the Companies Ordinance (Chapter 32 of the Laws of Hong
Kong) prior to its repeal and replacement on the 3 March
2014 by the Companies Ordinance and the Companies
Ordinance (Miscellaneous Provisions)
“Pre-IPO Share Option Scheme”
the Pre-IPO share option scheme conditionally adopted by
the Company on 27 May 2015, a summary of the terms and
conditions of which are set out in the section headed
“Statutory and General Information – D. Pre-IPO Share
Option Scheme” in Appendix V to this prospectus
“Price Determination Agreement”
the agreement to be entered into among our Company (for
ourselves and on behalf of the Selling Shareholders) and
the Sole Global Coordinator (on behalf of the
Underwriter(s)) on the Price Determination Date to record
and fix the Offer Price
“Price Determination Date”
the date on which the Offer Price will be fixed for the
purposes of the Global Offering expected to be on or about
Thursday, 11 June 2015 but no later than Saturday, 13 June
2015
“Regulation S”
Regulation S under the Securities Act
“Reorganisation”
the reorganisation arrangements undergone by our Group
in preparation for the Listing
“Riemann Investment”
Riemann Investment Holdings Limited, a limited liability
company incorporated in Samoa on 7 May 2007 and is 50%
held by Ms. Huang Qianping and 50% by Mr. Fu Sixing,
each an Independent Third Party
“RMB”
Renminbi, the lawful currency of the PRC
“SAFE”
the State Administration of Foreign Exchange of the PRC
(中華人民共和國國家外匯管理局)
“SAFE Regulations”
the regulations published by SAFE, as amended and
supplemental or otherwise modified from time to time
“SAIC”
the State Administration for Industry & Commerce of the
PRC (中華人民共和國國家工商行政管理總局)
“Sale Shares”
the Shares to be offered for sale by the Selling
Shareholders at the Offer Price under the Global Offering
– 24 –
DEFINITIONS
“SAT”
the State Administration of Taxation of the PRC (中華人民
共和國國家稅務總局)
“Securities Act”
the U.S. Securities Act of 1933, as amended from time to
time
“Selling Shareholders”
Mr. Chan Kin Wa and Ms. GUO XUEYAN
“SFC” or “Securities and Futures
Commission”
the Securities and Futures Commission of Hong Kong
“SFO” or “Securities and Futures
Ordinance”
the Securities and Futures Ordinance, (Chapter 571 of the
Laws of Hong Kong), as amended and, supplemented or
otherwise modified from time to time
“Share Option Scheme”
the share option scheme conditionally adopted by our
Company on 27 May 2015, a summary of the terms and
conditions of which are set out in the section headed
“Statutory and General Information – E. Share Option
Scheme” in Appendix V to this prospectus
“Shareholder(s)”
holder(s) of our Share(s)
“Shares”
ordinary shares with nominal value US$0.01 each in the
share capital of our Company
“Shengtai Agricultural Development”
漳州盛泰農業開發有限公司 (Zhangzhou Shengtai
Agricultural Development Company Limited*), a limited
liability company established in the PRC on 26 August
2011 and is 100% held by Fujian Greenfresh Foods, and an
indirect wholly owned subsidiary of our Company
“Sole Global Coordinator”
“Sole Sponsor”
“Song Rising”
Song Rising Co., Ltd, a limited liability company
incorporated in the BVI on 21 February 2011 and is
wholly-owned by Mr. Zheng Songhui, an executive
Director and our Controlling Shareholder
“sq.m.”
square meters
“Stabilising Manager”
– 25 –
DEFINITIONS
“Stock Borrowing Agreement”
the stock borrowing agreement which is expected to be
entered into on or about the Price Determination Date
between Song Rising and the Sole Global Coordinator
pursuant to which the Sole Global Coordinator may borrow
up to 22,500,000 Shares from Song Rising for the purpose
of covering over-allocations in the International Placing
“Subsidiary(ies)”
“Substantial Shareholder(s)”
“Sunny Foods”
Sunny Foods Co., Ltd, a limited liability company
incorporated in the BVI on 21 February 2011 and is
wholly-owned by Mr. Zheng Tianming, an executive
Director
“Takeovers Code”
the Code on Takeovers and Mergers issued by the SFC as
to time
“Track Record Period”
the period comprising the financial years ended 31
December 2012, 2013 and 2014
“Underwriters”
collectively, the Hong Kong Underwriters and the
International Underwriters
“Underwriting Agreements”
collectively, the Hong Kong Underwriting Agreement and
the International Underwriting Agreement
“U.S.” or “United States”
the United States of America, its territories, its possessions
and all areas subject to its jurisdiction
“US$” or “U.S. dollars”
United States dollars, the lawful currency of the United
States of America
“Villagers’ Committee”
in relation to a village, the committee which is established
pursuant to the Organisation Law of the Villagers’ Committees
of PRC (中華人民共和國村民委員會組織法) and which
customarily (i) handles communal and public welfare affairs of
the village, (ii) manages the collectively-owned farm land and
other collectively-owned properties, and (iii) undertakes
services in respect of production and coordination of related
activities within the village
“WHITE Application Form(s)”
the application form(s) for use by the public who require(s)
such Hong Kong Public Offer Shares to be issued in the
applicant’s or applicants’ own name(s)
– 26 –
DEFINITIONS
“Xinghui Trading”
漳州市龍海星輝工貿有限公司 (Zhangzhou Longhai Xinghui
Trading Company Limited*), a limited liability company
established in the PRC on 25 March 2005 and immediately
after the Reorganisation, it will not form part of our Group
“YELLOW Application Form(s)”
the application form(s) for use by the public who require(s)
such Hong Kong Public Offer Shares to be deposited directly
into CCASS
“Zhangzhou Greenfresh”
綠鮮食品（漳州）有限公司 (Greenfresh Foods (Zhangzhou)
Company Limited*), a limited liability company established
in the PRC on 11 January 1999, and is 100% held by Fujian
Greenfresh Foods, and an indirect wholly owned subsidiary
of our Company
“%”
per cent.
Unless otherwise specified, all references to any shareholding in our Company in this prospectus
assumes no allotment or issue of any Shares upon the exercise of any options which are granted under the
Pre-IPO Share Option Scheme and may be granted under the Share Option Scheme or the exercise of the
Over-allotment Option.
Certain amounts and percentage figures included in this prospectus have been subject to rounding
adjustments. Accordingly, figures shown as totals in certain tables may not be an arithmetic aggregation
of the figures preceding them.
In this prospectus, if there is any inconsistency between the Chinese names of the entities,
authorities, organisations, institutions or enterprises established in China or the awards, certificates
given in China and their English translations, the Chinese language version shall prevail. English
translation of company names in Chinese or another language which are marked with “*” is for
identification purpose only.
– 27 –
GLOSSARY OF TECHNICAL TERMS
This glossary contains certain definitions of technical terms used in this prospectus as they
relate to us and as they are used in this prospectus in connection with our business or us. Some of
these definitions may not correspond to standard industry definitions.
“brining”
the act or process involving the immersion of food products
in citric acid and/or salt water to preserve the food for a
long period of time
“button mushroom”
agaricus bisporus (雙孢菇), commonly known as button
mushroom, is a type of edible mushroom with a short thick
stalk and a cap in white or brown colors
“Circulation”
in respect of rural land, means a farmer household that has
the land contracted management right assigns its land
contracted management right (or land use right) to other
farm households or economic organisation by means of
sub-contracting, leasing, interchanging with other farmer
households, transferring or other methods in compliance
with the applicable law
“Contracting”
in respect of rural land, means the contract-letting party
grants the rural land to the contracting party by entering
into a land contracting management contract, so that the
contracting party could use, operate, manage the land,
dispose of the products generated on the land and make
profits, provided that the contracted land shall be used for
agricultural purposes
“Contracted management right”
in respect of rural land, means the right that the contracting
party of the rural land is entitled to occupy, use, make
profit from the contracted land and partial right to dispose
the contracted land in accordance with the applicable law
“Contracting party”
in respect of rural land, means the family-based farmer
households within a collective economic organisation,
which have the right to contract the land of the collective
economic organisation in which they belong to
“Contract-letting party”
in respect of rural land, means the village collective
economic organisation, villagers’ committee or villagers’
group, which has the right to enter into a land contracted
management contract, award the land of its own collective
economic organisation to the contracting party for
operation and use, and supervise the use of the contracted
land
– 28 –
“dehydration”
the act or process involving drying of vegetables by
artificial means
“enokitake”
also known as golden needle mushroom or lily mushroom
(金針菇), is a type of mushroom with firm, white, shiny
caps
“FDA”
the Food and Drug Administration of the United States
“GB”
Guobiao (國標), the Chinese national standard issued by
the SAC (Standardisation Administration of China) (國家
標準化管理委員會) which constitute the basis for product
testing which products must undergo during the CCC (中國
強制性產品認証) certification
“HACCP”
Hazard Analysis Critical Control Point, a management
system in which food safety is addressed through the
analysis and control of biological, chemical and physical
hazards from raw materials production, procurement and
handling, to manufacturing, distribution and consumption
of the finished product
“ISO”
acronym for a series of quality management and quality
assurance standards published by the International
Organisation for Standardisation, a non-government
organisation based in Geneva, Switzerland, for assessing
the quality systems of business organisations
“ISO9001”
a standard and guideline relating to quality management
systems, and represents an international consensus on good
quality management practices. ISO9001:2008 is the
current version of ISO9001
“ISO14001”
a management system which addresses environmental
management through the identification and control of
environmental impact and constantly improvement of
environmental performance. ISO14001:2004 is the current
version of ISO14001
“king trumpet mushroom”
pleurotus eryngii (杏鮑菇), commonly known as king
trumpet mushroom, is a type of edible mushroom with
thick, meaty white stem and a small tan cap
“Morchella esculenta”
also known as morel mushroom (羊肚菌), is a type of
mushroom with a large yellowish sponge with large pits
and ridges raised on a large white stem
– 29 –
“mu”
an area unit used in China, equals to approximately
667 sq.m.
“mycelium”
the vegetative part of an edible fungi, consisting of a mass
of branching and thread-like hyphae
“OEM”
acronym for “original equipment manufacturer”
“pasteurising”
the act or process of heating liquid to a specific
temperature for a specific period of time in order to kill
bacteria
“straw mushroom”
volvariella volvacea, commonly known as straw mushroom
(草菇), typically has mushroom caps and pink spore prints
on it
“tonne”
metric ton, a metric unit of weight
– 30 –
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements, including, but without limitation to, the
words and expressions such as “aim”, “estimate”, “expect”, “believe”, “plan”, “intend”, “anticipate”,
“may”, “seek”, “will”, “would” and “could” and the negative of these words or other similar expressions
or statements, in particular, in the sections headed “Business”, “Financial information” and “Future plans
and use of proceeds” in this prospectus in relation to future events, business or other performance and
development, the future development of our Group’s industry and the future development of the general
economy of our Group’s key markets and globally.
These statements are based on numerous assumptions regarding our Group’s present and future
business strategy and the environment in which our Group will operate in the future. These forwardlooking statements reflecting our Group’s current views with respect to future events are not a guarantee
of future performance and are subject to certain risks, uncertainties and assumptions, including the risk
factors described in this prospectus and the following:
•
our Group’s business and operating strategies and our Group’s ability to implement such
strategies;
•
our Group’s capital expenditure and expansion plans;
•
our Group’s ability to further develop and manage our Group’s expansion projects as planned;
•
our Group’s operations and business prospects;
•
various business opportunities that our Group may pursue;
•
our Group’s financial position;
•
the availability and costs of bank loans and other forms of financing;
•
our Group’s dividend policy;
•
the regulatory environment of our Group’s industry in general;
•
the performance and future developments of our Group’s industry;
•
changes in competitive conditions and our Group’s ability to compete under these conditions;
and
•
other factors beyond our Group’s control.
One or more of these risks may materialise and various underlying assumptions may prove
incorrect.
– 31 –
FORWARD-LOOKING STATEMENTS
Subject to the requirements of the applicable laws, rules and regulations, we do not have any
obligation to update or otherwise revise the forward-looking statements in this prospectus, whether as a
result of new information, future events or otherwise. As a result of these and other risks, uncertainties
and assumptions, the forward-looking events and circumstances discussed in this prospectus might not
occur in the way we expect, or at all. Accordingly, you should not place undue reliance on any forwardlooking information. All forward-looking statements contained in this prospectus are qualified by
reference to the cautionary statements set out in this section.
In this prospectus, statements of or references to the intentions of our Company or any of the
Directors are made as at the date in this prospectus. Any such intentions may potentially change in light
of future developments.
– 32 –
RISK FACTORS
The Global Offering and the investment in our Shares involve certain risks. You should carefully
consider all of the information set out in this prospectus, including, but not limited to, the risks and
uncertainties described in the following risk factors when considering making an investment in our
Shares being offered in the Global Offering. Our operations involve certain risks, many of which are
beyond our control. You should pay attention to the fact that we are a company incorporated in the
Cayman Islands, our business is located in the PRC and we are governed by a legal and regulatory
environment that may differ in some respects from that which prevails in other countries or
jurisdictions. Our business, financial condition and results of operations could be materially and
adversely affected by any of the risks and uncertainties described below. The trading price of our
Shares may decline due to any of the risks and uncertainties and you may lose all or part of your
investment.
RISKS RELATING TO OUR BUSINESS
Changes in consumer tastes, preferences and perceptions may have a material and adverse effect on
our business, results of operations and financial condition.
Food manufacturing industry is subject to changes in consumer tastes, preferences and perceptions.
Our business and financial performance depends on factors which may affect the level and pattern of
consumer spending in the PRC. These factors include consumer preference and tastes, consumer
confidence, consumer income and consumer perceptions of the safety and quality of our products. Any
changes in consumer preferences and tastes, or a decline in consumer confidence or consumer income
could result in lower sales of our products, put pressure on pricing or lead to increased levels of selling
and promotional expenses, which could have an adverse effect on our sales and profits.
Our continued growth and success depends in part on the popularity of our fresh edible fungi
produce and processed food products and our ability to anticipate changes in consumer tastes,
preferences, perceptions and spending habits at any time and to offer, on a timely basis, new products that
meet consumer tastes, preferences and perceptions. Shifts in consumer tastes, preferences and
perceptions away from our fresh produce and processed food products to other kinds of food products
may adversely affect our business. In addition, consumers in the PRC are increasingly becoming
conscious of food safety and quality and impact on health. If we are not able to anticipate and react
quickly and effectively to changes in consumer tastes, preferences and perceptions, or if consumers lose
confidence in the safety and quality of our products, the demand for our products may decrease, and our
business, results of operations and financial condition may be materially and adversely affected.
– 33 –
RISK FACTORS
Our results of operations are subject to biological asset fair value adjustments, which can be highly
volatile and are subject to a number of assumptions.
Being a company principally engaged in the cultivation and supply of fresh edible fungi produce, a
significant portion of our assets are biological assets. Our biological assets comprise king trumpet
mushroom, button mushroom and straw mushroom. Our historical results of operations had been affected
by biological asset fair value adjustments on our fresh edible fungi produce. For the three years ended 31
December 2012, 2013 and 2014, our results of operations were positively affected by gains arising from
changes in fair value less costs to sell of biological assets of RMB97.9 million, RMB146.7 million and
RMB211.1 million, respectively. Changes in fair value less costs to sell of biological assets represent fair
value gains/losses on our biological assets and gains/losses from the sales of edible fungi less the costs of
selling. We expect that our results of operations will continue to be affected by these biological asset fair
value adjustments. For details on the biological asset fair value adjustments, please refer to the sections
headed “Financial Information – Significant Accounting Policies, Judgements and Estimates”, “Financial
Information – Certain Items of Consolidated Statements of Financial Position – Biological Assets” and
“Financial Information – Valuation of Biological Assets” in this prospectus.
The fair value of our biological assets at the end of each reporting period was determined by an
independent professional valuer. The independent professional valuer conducted the physical inspection
for the health condition, quality and quantity of our biological assets as at 31 December 2014. The
valuation of our biological assets as at 31 December 2011, 31 December 2012 and 31 December 2013 by
the independent professional valuer was performed retrospectively by relying on the accuracy and
reliability of historical data of biological assets such as sales volume, selling prices and costs to sell
provided by us. The independent professional valuer conducted market research, checked academic
materials and considered our internal control over inventory systems for the accuracy and reliability of
these historical data. In applying these valuation methods, the independent professional valuer has relied
on a number of assumptions. The key assumptions and inputs for determining the fair value of our
biological assets include the following:
•
Two kinds of cultivation methods have been employed, namely industrial cultivation and
traditional cultivation for edible fungi fresh produce. Industrial cultivation method is applied
to produce king trumpet mushroom and part of button mushroom. Traditional cultivation
method is principally applied to produce button mushroom.
•
The sales volume of edible fungi as at valuation dates was calculated based on historical
harvest and sales records.
•
The weighted average market price of edible fungi was adopted. The weighted average market
price was calculated based on the historical selling prices of king trumpet mushroom and
button mushroom.
•
Costs to sell which include direct raw material, direct labour, labour service and leasing which
were calculated based on historical data.
The fair value of the biological assets could be affected by, among others, the accuracy of those
assumptions. The valuation conducted by the independent professional valuer is subject to the caveat that
the independent professional valuer relied substantially on the accuracy, completeness and
reasonableness of the various assumptions and other data provided by us in preparation of the valuation
report. While these assumptions as adopted in the valuation process have been in line with the actual
results, we cannot assure you that there will be no significant deviation in the future. We cannot assure
– 34 –
RISK FACTORS
you that the fair value gains on our biological assets will not decrease in the future. Any decrease in the
fair value of our biological assets may have a material and adverse effect on our profitability, overall
financial condition and results of operations. In addition, we cannot assure you that the upward
adjustments and gains recognised on our biological assets will generate cash inflow for our operations in
the future. As a result, when evaluating our results of operations and profitability, you should consider
our profits and profit margins without taking into account the effects of these biological asset fair value
adjustments.
We rely on independent third-party distributors and independent third-party trading companies to
sell our products. Any changes in our relationships with our distributors or trading companies may
have a material and adverse effect on our sales, results of operations and financial condition.
We rely on independent third-party distributors and independent third-party trading companies to
sell our products. We sell our fresh edible fungi produce primarily through distributors in the PRC, which
then on-sell our fresh edible fungi produce to sub-distributors and retailers. We sell our canned food to
trading companies in the PRC, which then on-sell our products to overseas distributors in more than 50
countries and regions in Europe, North America, South America, Asia and Africa. We sell our other
processed food products to distributors in the PRC, which then on-sell our products to sub-distributors
and processed mushroom manufacturers. For each of the three years ended 31 December 2012, 2013 and
2014, sales to distributors and trading companies represented 88.2%, 84.9% and 80.6% of our revenue
from continuing operations, respectively. As we mainly sell and distribute our products through
distributors and trading companies, any one of the following events could cause fluctuations or declines
in our revenue and could have an adverse effect on our business, financial condition and results of
operations:
•
reduction, delay or cancellation of orders from one or more of our distributors or trading
companies;
•
selection or increased sales by our distributors or trading companies of our competitors’
products;
•
our failure to renew distribution agreements or sales agreements and maintain relationships
with our existing distributors or trading companies; and
•
inability to timely identify and appoint additional or replacement distributors or trading
companies upon the loss of one or more of our distributors or trading companies.
We may not be able to compete successfully against the larger and better-funded sales and marketing
campaigns of some of our current or future competitors, especially if these competitors provide more
favorable arrangements with their distributors or trading companies. We cannot assure you that we will
not lose any of our distributors or trading companies to our competitors in the future, which may cause us
to lose some or all of our favorable arrangements with such distributors or trading companies and may
even result in the termination of our relationships with such distributors or trading companies. In
addition, we may not be able to successfully manage our distributors or trading companies and the cost of
any consolidation or further expansion of our distribution and sales network may exceed the revenue
generated from these efforts. Furthermore, if the sales volumes of our products to our consumers are not
maintained at a satisfactory level, our distributors or trading companies may not place orders for new
products from us, may decrease the quantity of their usual orders or may ask for discount on the purchase
– 35 –
RISK FACTORS
price. The occurrence of any of these factors could result in a significant decrease in the sales volume of
our products and therefore materially and adversely affect our business, financial condition and results of
operations.
We have limited control over the practice and manner of the sales by our distributors and trading
companies, and the sub-distributors, retailers or overseas distributors of our distributors and
trading companies. If any of our distributors or trading companies fails to distribute our products
in a timely manner or in accordance with the terms of our distribution or sales agreements or the
applicable PRC laws and regulations, or at all, our reputation, brands’ image, financial condition
and results of operations may be materially and adversely affected.
We mainly sell our fresh edible fungi produce and processed food products through our distributors
or trading companies. As such, the performance of, and the ability of our distributors and trading
companies to distribute our products, uphold our brands, expand their businesses and sales network are
crucial to the future of our growth. Due to the large number of our distributors and trading companies and
the size of the market, it is difficult to monitor all aspects of our distributors’ and trading companies’
practices extensively and substantively. We have no ownership or managerial control over any of our
third-party distributors or trading companies. Even though we have direct contractual relationships with
our distributors and trading companies, we cannot assure you that our distributors and trading companies
will at all times strictly adhere to the terms and conditions under the respective distribution or sales
agreements or that they will not compete with each other for market share in respect of our products. In
addition, we cannot assure you that our distributors and trading companies will at all times strictly adhere
to the PRC laws and regulations, including the laws and regulations relating to food safety, product
quality and intellectual property rights, and maintain the required licences and permits to distribute our
products. For more details on the applicable PRC laws and regulations, please see the section headed
“Laws and Regulations of the Industry” in this prospectus.
As we do not have any contractual relationship with sub-distributors, retailers or overseas
distributors who contract with and operate under our distributors and trading companies, we rely on our
sales personnel to monitor their sales practices. As a result, our control over the ultimate retail sales of
our products is limited. Furthermore, we may not be able to monitor our distributors’ or trading
companies’ inventory level in the event that our distributors or trading companies decide to accumulate
our products as inventory. We cannot assure that all our products sold to distributors or trading companies
are subsequently sold to end customers and the sales of our products truly reflect the market demands. If
any of our distributors or trading companies fails to distribute our products in a timely manner or in
accordance with the terms of our distribution or sales agreements or the applicable PRC laws and
regulations, or at all, our brand and reputation and consumers’ perception of our products could also be
tarnished and our business, financial condition and results of operations may be materially and adversely
affected.
We may be affected by the changes in or cessation of preferential tax treatment which may have an
adverse effect on our financial condition and results of operations.
Under the EIT Law, enterprises in the PRC are generally subject to a uniform 25% enterprise income
tax rate on their worldwide income. Certain of our PRC subsidiaries which are recognised as primary
processing of agricultural produce, namely Greenfresh Ecological Agriculture, Greenfresh Biological
Technology, Shengtai Agricultural Development and Jingxiang Foods were exempted from the EIT in the
PRC during the Track Record Period under the EIT Law. For other subsidiaries, under the EIT Law and its
– 36 –
RISK FACTORS
implementation regulations, the standard tax rate of the PRC entities was 25% during the Track Record
Period. There is no assurance that these preferential enterprise income tax rate will continue to apply to
our subsidiaries. Any removal, loss, suspension or reduction of such preferential tax treatment may have
an adverse effect on our financial condition and results of operation.
We do not enter into long-term agreements with our raw material suppliers and therefore our
cultivation or production costs and schedules, financial condition and results of operation may be
adversely affected if we are unable to secure supply.
The key raw materials required for the cultivation of fresh edible fungi produce include strains,
sawdust, bran, dregs of beans, corncob, straw and cow dung. The major raw materials for manufacturing
of our processed food products include fresh produce of edible fungi, vegetables and fruit. We procure all
of our raw materials in the PRC. We do not enter into any long-term supply agreements with our raw
material suppliers as we intend to take advantage of the flexibility in the contractual relationship with our
suppliers. We select our new suppliers based on an internal evaluation procedure which contains a
stringent set of criteria, including quality, price, service, quality control, production capability and
credibility. We will only appoint supplier who can satisfy all our internal selection criteria. Each of our
suppliers is subject to our annual evaluation of quality of the raw materials supplied. For more details,
please see the section headed “Business – Raw Materials and Suppliers” and “Business – Quality
Control” in this prospectus. However, we cannot assure you that we will be able to seek satisfactory
supplier, or our suppliers will be able to supply the required raw materials to our satisfaction in a timely
manner or that they will not significantly increase the prices at the time of our purchases. If we are unable
to secure supply, or if we cannot pass the increase in the costs of raw materials on to our customers, our
cultivation or production costs, cultivation or production volume and schedule, financial condition and
results of operations may be materially and adversely affected.
We are dependent on our contractual arrangements with the Villagers’ Committees and the
individual farmers in respect of cultivation of our button mushroom and straw mushroom.
We work closely with the Villagers’ Committees and individual farmers for the operation of our
button mushroom and straw mushroom cultivation facilities. We entered into lease agreements with the
respective Villagers’ Committees in respect of the agricultural lands or properties where our button
mushroom and straw mushroom cultivation facilities are located. We cannot assure you that the respective
Villagers’ Committees would renew such lease agreements with us upon expiry. In such events, if we are
unable to secure new lease agreements on commercially viable terms with the Villagers’ Committees for
the suitable agricultural lands or properties, we may not be able to satisfy orders from our customers for
our button mushroom and straw mushroom, and accordingly, our business, financial condition and results
of operations may be materially and adversely affected.
We also entered into production contracting management contracts (生產承包管理合同) with
individual farmers to apply traditional cultivation method to produce button mushroom and straw
mushroom under our management and supervision. There is no assurance that the individual farmers will
comply with the terms of the relevant production contracting management contracts and provide the
requisite labour services. In the event of such non-compliance and we are not able to obtain the
alternative labour services at competitive prices or at all, our business, financial condition and results of
operations will be materially and adversely affected.
– 37 –
RISK FACTORS
Any safety problems relating to our raw materials could adversely affect our reputation, our
brands’ image, our ability to sell our products and our financial performance.
The quality of our products could be adversely affected if our raw materials are spoiled,
contaminated or tampered with. Contamination of our raw materials may occur during their production,
transportation or distribution due to reasons unknown to us or out of our control. Some of our raw
materials may also contain harmful chemicals or substances of which we are not aware due to
adulteration by our suppliers. Such raw materials may not be suitable for human consumption and may
cause undesirable side effects to our consumers. We cannot assure you that our suppliers will not
intentionally or inadvertently contaminate our raw materials or provide us with substandard raw
materials.
We have measures in place to control the quality of our raw materials, however, we cannot assure
you that we will be able to detect defective raw materials in every circumstance. For further details of our
quality control measures on our raw materials, please refer to the section headed “Business – Quality
Control – Raw materials quality control” in this prospectus. Any failure to detect defective raw materials
could adversely affect the quality of our products. We could be required to recall certain of our products
and subject to product liability claims, adverse publicity, and investigation and imposition against us of
penalties by relevant authorities, resulting in increased costs and any of these events could have a
material and adverse impact on our reputation, brands’ image, business, financial condition, results of
operations and prospects. Furthermore, food safety scandals occurred in the PRC in recent years may
negatively influence consumer perception and demand for our products, which could in turn adversely
affect our results of operations.
Delays in delivery or poor handling by third party logistics providers may adversely affect our
sales, our reputation and our brands’ image.
We rely on third party logistics providers to provide transportation services for the distribution of
our products to our customers when we are responsible for the transportation according to the relevant
distribution or sales agreements. Delivery disruptions by our logistics providers may occur for various
reasons beyond our control, including transportation bottlenecks, earthquakes and other natural disasters,
labour strikes and political events and could lead to delayed or lost deliveries. In addition, poor handling
by the logistics providers could also cause damage to our products. If our products are not delivered to
our customers on time, or are delivered damaged, we may have to pay compensation and could lose
business as well as suffer harm to our reputation. As a result, delay in getting a product to market for any
reason, including transportation disruption or bad weather, may result in reduced sales and adversely
affect our results of operations.
We are required to adhere to national health and safety standards, and in the event that we are
unsuccessful at meeting these standards, our business, results of operation and brands’ image
would be materially and adversely affected.
We cannot guarantee that our procedures, safeguards and training will be completely effective in
meeting all relevant health and safety requirements and preventing all contaminations. A failure to meet
relevant government requirements or any instance of contamination could occur in our operations or
those of our customers or suppliers. This could result in fines, suspension of operations, loss of
production permits, and in more extreme cases, criminal proceedings against our Company and our
management. Moreover, negative publicity could be generated from false, unfounded or nominal liability
claims or limited recalls. Any of these failures or occurrences could negatively affect our business and
financial performance.
– 38 –
RISK FACTORS
We are subject to the food safety laws and regulations of the PRC. Please refer to the section headed
“Laws and Regulations of the Industry” in this prospectus for more information concerning the relevant
food safety laws and regulations. In light of recent food safety concerns in China, there may be stringent
enforcement of food safety rules and regulations and implementation of new food safety rules and
regulations. In the event that the government increases the stringency of such laws, our production and
distribution costs may increase, and we may be unable to pass these additional costs on to our customers.
We may fail to continuously develop new products or our new products may not be successful which
may have an adverse effect on our business, results of operations and financial condition.
The fresh edible fungi industry in the PRC is a fragmented industry with a large number of players.
In light of the fragmented nature and volatile environment, we will need to continuously develop and
launch new products in order to respond to consumers’ demand and maintain our competitiveness and
market share. Whilst we have in the past successfully developed, promoted and achieved market
acceptance for our products, we cannot assure you that we will be able to continuously develop new
products or our new products in the future will attract sufficient consumer demand or gain sufficient
market share to be profitable. In addition, whilst we have adopted and will continue to adopt strict quality
control procedures, we cannot assure you that our products in the future will continue to be of high
quality. Failure to recover development, production and marketing costs of unsuccessful new products or
maintain the high quality of our products in the future could adversely affect our business, results of
operations and financial condition.
We may encounter difficulties in expanding our distribution and sales network, which may limit our
growth prospects and, in turn, have an adverse effect on our business, financial condition and
results of operations.
As part of our business strategy, we plan to expand our distribution and sales network to grow our
business. However, the success of our expansion plan is subject to, among other things, the following
factors:
•
the existence and availability of suitable regions and locations for expansion of our distribution
and sales network;
•
other ability to negotiate favorable cooperation terms with our distributors and trading
companies;
•
the availability of adequate management and financial resources;
•
the availability of suitable distributors and trading companies;
•
competition from local competitors;
•
our ability to hire, train and retain skilled personnel; and
•
the adaptation of our logistics and other operational and management systems to an expanded
distribution and sales network.
– 39 –
RISK FACTORS
Accordingly, we cannot give assurance that we will be able to achieve our expansion goals or
effectively integrate any new distributors into our existing network. If we encounter difficulties in
expanding our distribution and sales network, our growth prospects may be limited, which could in turn
have an adverse effect on our business, financial condition and results of operations.
We are exposed to the credit risk of our distributors, processed mushroom manufacturers and
trading companies. If our distributors, processed mushroom manufacturers and trading companies
default on their payments to us, our profitability, cash flow and financial position may be materially
and adversely affected.
We are exposed to the credit risk of some of our distributors, processed mushroom manufacturers
and trading companies who are granted credit terms of up to 45 days. Should our customers experience
cash flow difficulties or face possibilities of liquidation due to deterioration in their business
performance or financial position, our profitability, cash flow and financial position may be materially
and adversely affected as our customers may default on their payments to us. As at 31 December 2012,
2013 and 2014, our average trade receivables turnover days of continuing operations were approximately
34 days, 34 days and 35 days, respectively. Please refer to the section headed “Business – Credit control”
in this prospectus for details on our credit policy.
In the event that any material portion of such trade receivables becomes bad debt and cannot be
collected by us, our operations and financial condition may be adversely affected. In addition, in the
event that our trade receivables could not be collected timely, we may need to finance our working capital
requirement by internal resources or borrowings, and any increase in interest rate may adversely affect
our financial position due to increase in finance costs.
Unfavourable fluctuations in the prices of or shortages in raw materials may adversely affect our
profitability and financial performance.
Our cultivation and production volume and cultivation and production costs are dependent on our
ability to source raw materials at acceptable prices and maintain a stable and sufficient supply of raw
materials. If we are unable to obtain raw materials in the quantities and of a quality that we require, our
volume or quality of production and revenue may be adversely affected. If our suppliers are affected by
natural disasters, adverse weather conditions, infectious diseases, pest infestations, disruptions in
transportation infrastructure or other inclement factors, the supply of raw materials from these suppliers
may be adversely affected, and we may not be able to locate alternative supplies of raw materials in
sufficient quantities, of suitable quality or at an acceptable price, which may consequently have an
adverse effect on our business, results of operations and financial condition.
Our cost of raw materials accounted for approximately 56.9%, 48.8% and 43.7% of our cost of sales
for the three years ended 31 December 2012, 2013 and 2014, respectively. Raw materials we use in our
production are subject to price volatility caused by external conditions, such as market supply and
demand, climate and changes in governmental policies. Should there be any shortage in the supply of, or
upsurge in market demand for, our raw materials or the occurrence of other unforeseen circumstances
such as adverse weather conditions or natural disasters, it may lead to an increase in the prices of such
raw materials and/or reduction in our production output. In addition, there is no assurance that we will be
able to pass the increase in prices of our raw materials on to our customers. Hence, any increases in our
raw material costs that we are unable to pass on to our customers may adversely affect our profitability,
business operations and financial performance.
– 40 –
RISK FACTORS
Our business, reputation and brands’ image may be adversely affected by product liability claims,
consumer complaints or adverse publicity in relation to our products.
We may be subject to product liability claims if our products are found to be unfit for consumption.
Products may be rendered unfit for consumption due to contamination of ingredients, whether intentional
or not, delay in delivery, poor handling, packaging rupture, poor condition of storage facilities of
suppliers, distributors or retailers, or unauthorised tampering by distributors, retailers or third parties
during the transit of products. The occurrence of such problems may result in recalls of our products and
significant damage to our brand reputation. During the Track Record Period and up to the Latest
Practicable Date, we did not record product recall and had not received any material complaints or
product liability claims from our customers due to quality defects. However, we cannot assure you that
such incidents will not occur in the future. We may incur legal liabilities and have to compensate
consumers for any loss or damage they suffer in respect of valid product liability claims and, in addition,
we may also be subject to administrative or other government sanctions or penalties. In addition, adverse
publicity from these types of concerns, whether valid or not, may discourage customers from purchasing
our products. If customers lose confidence in our brand, we may experience long term declines in our
sales, which may have an adverse effect on our business, results of operation and financial condition.
Our workers are subject to risks of serious injury caused by the use of production machinery and
equipment, which may result in a material and adverse effect on our business, results of operations
and financial condition.
We use machinery and equipment such as industrial mixing, rolling and compressing machines and
cutting equipment, which are potentially dangerous in our operations. Any significant accident caused by
the use of such equipment or machinery could interrupt our operations and result in legal and regulatory
liabilities. During the Track Record Period and up to the Latest Practicable Date, we had not had any
incidents, claims or complaints which had materially and adversely affected our operations. However, we
cannot guarantee that we will not encounter significant cost, legal or regulatory liabilities as a result of
personal injury of our employees in the future. In accordance with relevant PRC labour laws and
regulations, we provide our employees with a social welfare scheme covering work injury insurance,
amongst others. However, our work injury insurance may not sufficiently cover, or cover at all, losses and
liabilities we may encounter in respect of personal injury of our employees. Therefore we may incur
significant cost which could materially and adversely affect our business, results of operations and
– 41 –
RISK FACTORS
The prices of our products may fluctuate, which may adversely affect our profitability and results
of operations.
We are exposed to business risks arising from changes in the prices of our products resulting from
the ever-changing market force of supply and demand. The other factors include, inter alia,
environmental regulations, weather conditions and diseases. Our Group has little control over these
conditions and factors. During the Track Record Period, the average selling prices of our king trumpet
mushroom per kilogram were RMB9.4, RMB8.3 and RMB7.5 for the three years ended 31 December
2012, 2013 and 2014, respectively. During the Track Record Period, the average selling prices of our
button mushroom and straw mushroom per kilogram were RMB6.1, RMB7.4 and RMB7.8 for the three
years ended 31 December 2012, 2013 and 2014, respectively. During the Track Record Period, the
average selling prices of our canned food products per kilogram were RMB8.2, RMB7.5 and RMB7.6 for
the three years ended 31 December 2012, 2013 and 2014, respectively. During the Track Record Period,
the average selling prices of our other processed food products per kilogram were RMB13.7, RMB15.3
and RMB11.2 for the three years ended 31 December 2012, 2013 and 2014, respectively. If the price of
our products decreases or the cost of raw materials increases, it may adversely affect our revenue, profit
and results of operations.
In the event any of our licenses or approvals are revoked, not renewed or not extended, our business
operations and financial condition may be materially and adversely affected.
In accordance with the applicable PRC laws and regulations, we have obtained various licenses and
permits, including without limitation, the Edible Fungi Strains Production and Operation Permit (食用菌
菌種生產經營許可證), the National Industrial Goods Production Permit (全國工業產品生產許可證), in
order to carry on the business of food production and processing in the PRC. For details on our licenses
and permits, please refer to the section headed “Business – Licenses, Permits and Certificates” in this
prospectus.
In the event any of the above licenses and permits is revoked, not renewed or not extended, we may
not be able to carry on the business of food production and processing in the PRC. During the Track
Record Period, our operations have not been materially affected due to any of the above circumstances.
However, we cannot assure you that any of the above circumstances will not occur in the future, which
may materially and adversely affect our business operations, production and financial performance. In
addition, our customers may lose confidence in us and we may face a decline in the number of orders for
our products which in turn could materially and adversely affect our business, results of operations and
– 42 –
RISK FACTORS
Disruption of operations at cultivation facilities or production facilities may materially and
adversely affect our business operations and financial performance.
Our ability to stably and efficiently produce fresh edible fungi and processed food products at our
cultivation facilities and production facilities, respectively, is critical to our success. As at the Latest
Practicable Date, we had established eight cultivation facilities for our fresh edible fungi produce,
including three king trumpet mushroom facilities and one button mushroom and straw mushroom facility
in Zhangzhou, Fujian province, one king trumpet mushroom facility in Dandong, Liaoning province, one
king trumpet mushroom facility in Changzhou, Jiangsu province and two button mushroom facilities in
Chengdu, Sichuan province. As at the Latest Practicable Date, we had established two production
facilities for our processed food products in Zhangzhou, Fujian province.
Damage or disruption to our operations at our cultivation facilities and production facilities can
result from the following factors, among others:
•
utility supply disruptions, terrorism, strikes or other force majeure events;
•
adverse weather conditions;
•
forced closing or suspension of our cultivation facilities and production facilities;
•
major disease outbreaks at or around our cultivation facilities and production facilities;
•
pollution of underground water resources;
•
failure to comply with applicable regulations and quality assurance guidelines;
•
labour disputes affecting our employees;
•
interruption of the information technology systems that facilitate the management of our
cultivation facilities and production facilities;
•
accidents in the processing plants, including major equipment failures or fires, which may
result in suspension of operations, property damage, severe personal injuries or even fatalities;
and
•
other production or distribution problems, including limitations to production capacity due to
regulatory requirements, changes in the types of products produced or physical limitations that
could impact continuous supply.
During the Track Record Period and up to the Latest Practicable Date, we did not experience any
material disruptions to our cultivation facilities and production facilities. However, we cannot assure you
that the events and factors mentioned above or any other events will not occur and result in a material
disruption to the operations at our cultivation facilities and production facilities in the future. If we fail to
take adequate steps to mitigate the likelihood or potential impact of such events or factors, or to
effectively respond to such events or factors if they occur or materialise, our business, results of
operations and financial condition may be materially and adversely affected.
– 43 –
RISK FACTORS
The occurrence of natural disasters or adverse weather conditions may materially and adversely
affect our business and financial performance.
Our business operations are susceptible to natural disasters and adverse weather conditions such as
droughts, floods and earthquakes, and environmental hazards. The occurrence of any of the above events
in or in close proximity to our cultivation facilities, and/or the facilities of our suppliers from whom we
purchase necessary raw materials used in our products may cause a reduction in our production output, or
cause delay and/or increased costs in our procurement of raw materials. Although our business operations
had not been materially affected by the occurrence of any natural disasters or adverse weather conditions
during the Track Record Period, there can be no assurance that these events will not occur in the future.
The occurrence of any circumstances above may have a material and adverse effect on our business,
prospects and financial performance.
We are exposed to possible infringements of our intellectual property rights, which may materially
and adversely affect our sales, reputation, business operations and financial performance.
Our fresh edible fungi produce and processed food products are produced and marketed in the PRC
and
. We believe that our success relies, in part, on
under our registered trademarks, such as
our ability to protect and use our trademarks. Please refer to the sections headed “Business – Intellectual
Property Rights” and “Statutory and General Information – Further Information about our Business – 2.
Intellectual Property of the Group” in Appendix V to this prospectus for more information on our
intellectual property rights.
We were not aware of any violations or infringements of our intellectual property rights during the
Track Record Period and as at the Latest Practicable Date. However, there can be no assurance that our
intellectual property rights will not be infringed upon and that measures taken by us to protect our
trademarks and patents will be adequate to prevent trademark infringement, product imitation and
counterfeiting by others. In the event that third parties infringe upon our intellectual property rights under
our brand names, we may face great difficulties and costly litigation in order to fully protect our
intellectual property rights, which may in turn affect our profitability. In the event that we are
unsuccessful in policing the violation of our intellectual property rights, the availability of counterfeit
goods in the market may affect consumers’ perception of our product quality and reduce the demand for
our products, which may adversely affect our brand reputation and financial performance.
One of our pending trademark applications, “蘑購城 MOGOUCITY” is used by the website “蘑購城
MOGOUCITY” (http://mogou.junbaike.com/) as its logo. The website is owned and operated by
Shanghai Junwei Network Technology Company Limited (上海菌緯網絡科技有限公司), an Independent
Third Party, which was established by Mr. Li Minpei (李閩培), an employee of the Group, together with
certain of Mr. Li Minpei’s friends. We are not currently using the trademark “蘑購城 MOGOUCITY” for
commercial purpose as we are still in the process of applying for its registration with the Trademark
Office of the Administration for Industry and Commerce of the PRC. Upon the request of the Group,
Shanghai Junwei Network Technology Company Limited had issued a written confirmation letter
confirming that such trademark is designed and owned by the Group and upon registration of the
trademark, it will obtain written authorisation from the Group for the use of the trademark or cease to use
the same at the Group’s direction. Taking into account the confirmation letter, as well as the promotional
benefits to the Group and its brands and products, the Group had no objection to Shanghai Junwei
Network Technology Company Limited to use the logo “蘑購城 MOGOUCITY” in its website. However,
we cannot assure you that Shanghai Junwei Network Technology Company Limited would not violate or
– 44 –
RISK FACTORS
infringe our trademark right upon the registration of trademark “蘑購城 MOGOUCITY” which in turn
may adversely affect our sales, reputation, business operations and financial performance. For more
details, please refer to the section headed “Business – Intellectual Property Rights”.
Over the years, we have accumulated knowledge and experience in relation to the cultivation
method, process and formula of cultivation materials of edible fungi which is part of our proprietary
technical know-how. Thus, effective protection of proprietary information and technical know-how in our
business operations is critical to our business. As certain of our proprietary information and know-how is
not patented, we are vulnerable to unauthorised disclosure of such proprietary information to our
competitors, which may adversely affect our business.
Non-compliance with PRC employee social welfare contribution regulations could lead to the
imposition of fines or penalties.
In accordance with relevant PRC labour laws and regulations, we are required to contribute to
certain employee social welfare schemes including social insurance contribution and housing provident
fund. However, during the Track Record Period, we were not in strict compliance with the requisite
contribution requirements for some of our PRC employees. During the Track Record Period, six of our
PRC subsidiaries had not been making contributions in full to the social welfare schemes for our
employees. As at the Latest Practicable Date, two of our PRC subsidiaries did not register with the
relevant housing provident fund authority and make housing provident fund contributions for all the
employees of such PRC subsidiaries. For the three years ended 31 December 2012, 2013 and 2014, the
total outstanding amount payable by us in relation to social welfare schemes was RMB318,000,
RMB420,000 and RMB733,000, respectively. We believe that such amount of social welfare scheme
contribution will not have material adverse impacts on our Group’s business and operations. For the three
years ended 31 December 2012, 2013 and 2014, the total outstanding amount of housing provident fund
payable by us was RMB467,000, RMB646,000 and RMB706,000, respectively. We believe that the
outstanding housing provident fund contribution will not have material adverse impacts on our Group’s
business and operations.
For non-compliance of social insurance laws and regulations before 1 July 2011, pursuant to the
Interim Regulations Concerning the Levy of Social Insurance Fees (社會保險費徵繳暫行條例)
promulgated on and effective from 22 January 1999, the relevant social security authority may order an
enterprise to pay the outstanding contributions within a prescribed time limit. If an enterprise fails to do
so at the expiration of the time limit, in addition to the outstanding contributions, a late-payment fine of
0.2% per day from the date when the amount became overdue may be imposed.
For non-compliance of social insurance laws and regulations on or after 1 July 2011, pursuant to the
Social Insurance Law of the PRC (中華人民共和國社會保險法) promulgated on 28 October 2010 and
effective as at 1 July 2011, employers are required to contribute, on behalf of their employees, to a
number of social security funds, including funds for basic pension insurance, unemployment insurance,
basic medical insurance, workplace injury insurance and maternity insurance. If the employer does not
pay the full amount of social insurance contribution as scheduled, the social insurance contribution
collection institution shall order it to make the payment or make up the difference within a prescribed
period and impose a daily surcharge equivalent to 0.05% of the overdue payment from the date when the
payment is overdue. If payment is not made within the prescribed period, the relevant administration
department shall impose a fine in an amount of between one to three times of the overdue payment.
– 45 –
RISK FACTORS
The maximum amount of late charges which may potentially be imposed on our Group as a result of
non-compliance with the requirements of social insurance contributions is estimated to be RMB41,000,
RMB71,000 and RMB125,000 for the three years ended 31 December 2012, 2013 and 2014, respectively.
For non-compliance of housing provident fund laws and regulations, pursuant to the Regulations on
Administration of Housing Fund (住房公積金管理條例) as amended on and effective from 24 March
2002, enterprises are obliged to pay and deposit housing provident fund for their employees in full
amount within a prescribed time limit. If an enterprise fails to deposit the housing provident fund within
the time limit or underpays the fund for its employees in accordance with the aforesaid regulations, the
competent department may order it to open an account for housing provident fund for its employees
within a prescribed time period. If the enterprise fails to do so at the expiration of the time limit, a penalty
ranging from RMB10,000 to RMB50,000 may be imposed. For more details, please see the section
headed “Business – Non-compliance” in this prospectus.
We cannot assure you that we will not be subject to the penalties by the relevant PRC authorities for
our past non-compliance. Any such penalties imposed on us could have an adverse effect on our cash
flow, business operation and our reputation.
We are subject to potential adverse consequences due to our lack of valid land use right and
building ownership in respect of certain properties we occupied in the PRC.
Fujian Greenfresh Foods acquired a parcel of collectively-owned land with a total site area of
approximately 3,570 sq.m. from Qiaoshan Villagers’ Committee of Yan Cuo, Longhai, Zhangzhou, Fujian
province, and obtained the collectively-owned land use right certificate of Long Ji Yong (2012) No.
JD0009. However, the acquisition had not been through the land expropriation process of the local
government and the collectively-owned land use rights thereunder were used for non-agricultural
purposes which is prohibited by the relevant applicable laws and regulations in the PRC. For the same
reason, Fujian Greenfresh Foods’ ownership to certain buildings with an aggregate gross floor area of
approximately 1,832 sq.m. constructed on such parcel of land is defective even though Fujian Greenfresh
Foods obtained the building ownership certificate of Long Fang Quan Zheng Zi Di No. 20131392. In
addition, Fujian Greenfresh Foods acquired a parcel of collectively-owned land with a total site area of
approximately 6,406 sq.m. from transferors including among others Minhui Trading, and obtained the
collectively-owned land use right certificate of Long Ji Yong (2012) No. JD0010. However, the
acquisition had not been through land expropriation process of the local government and the
collectively-owned land use rights thereunder were used for non-agricultural purpose, which is
prohibited by the relevant applicable laws and regulations in the PRC. For the same reason, Fujian
Greenfresh Foods’ ownership to certain buildings with an aggregate gross floor area of approximately
4,082 sq.m. constructed on such parcel of land is defective even though Fujian Greenfresh Foods obtained
the building ownership certificates of Long Fang Quan Zheng Zi Di No. 20131391.
These parcels of collectively-owned land are mainly used by the Group for the production of our
processed food products, warehousing, office and ancillary purposes. According to the relevant
applicable laws and regulations, Fujian Greenfresh Foods may be required to vacate from or demolish the
buildings and ancillary facilities on the land for which it is not fully entitled to the collectively-owned
land use rights or the building ownership. As advised by our PRC legal adviser, Fujian Greenfresh Foods,
as a transferee of the acquisitions of the collectively-owned land, will not be subject to any monetary
penalties.
– 46 –
RISK FACTORS
These parcels of collectively-owned land have been approved by the People’s Government of Fujian
Province to be expropriated and the Longhai Municipal Land Resources Bureau (龍海市國土資源局) is
in the process of converting such land from collectively-owned land into state-owned construction land.
On 8 May 2015, Fujian Greenfresh Foods executed the transaction confirmation letter (成交確認書) with
the Longhai Municipal Land Resources Bureau (龍海市國土資源局) regarding the purchase of the land
use right attached to these parcels of land. In light of the transaction confirmation letter, Fujian
Greenfresh Foods has won the bidding of such parcel of land at a price of RMB2.28 million, and it shall
enter into a land use right grant contract with the Longhai Municipal Land Resources Bureau before 8
May 2016. Accordingly, our PRC legal adviser is of the view that there is no legal impediment for our
Group to enter into the land use right grant contract with the relevant authority before the specified time.
We are currently in the process of construction of new production facilities of processed food
products in Zhangzhou, Fujian province to replace our current production facilities for processed food
products. We expect to commence commercial production in January 2016. In the event that the relevant
authority orders us to vacate from or demolish the buildings and ancillary facilities on the land before
January 2016, the operations carried on such parcels of collectively-owned land will be affected. Our
Directors envisage that we will be able to subcontract our sales orders to third party subcontractors. Our
estimated net profit lost as a result of business interruption on the operations on such parcels of
collectively-owned land through subcontracting our sales orders to third party subcontractors is
approximately RMB2.0 million, based on and with reference to the historical net profit contributed by
such two parcels of collectively-owned land for the financial year ended 31 December 2014 and the
difference in net profit margins between production by our Group and subcontracting to third party
subcontractors. However, we cannot assure you that we will be able to subcontract our sales orders to
third party subcontractors in a timely manner or under commercially reasonable terms. If we are unable to
locate third party subcontractors in a timely manner or under commercially reasonable terms, our
business operations and financial position may be materially and adversely affected.
In addition, during the Track Record Period, Zhangzhou Greenfresh had not obtained the
construction works planning permit and the construction works commencement permit for certain
buildings with an aggregate gross floor area of approximately 6,642 sq.m. Pursuant to the Urban and
Rural Planning Law of the PRC, Zhangzhou Greenfresh is subject to a maximum penalty of
RMB542,000, representing 10% of the construction costs of the relevant buildings, due to the failure to
obtain the construction works planning permit. Pursuant to the Administrative Measures on the
Construction Works Commencement Permit, Zhangzhou Greenfresh is subject to a maximum penalty of
RMB100,000, representing 2% of the construction contract price of the relevant buildings, due to the
failure to obtain the construction works commencement permit. We have obtained both of the
construction works planning permit and the construction works commencement permit for such buildings
in January 2015. However, we cannot assure you that we will not be subject to the penalties by the
relevant PRC authorities for our past non-compliance. Any such penalties imposed on us could have an
adverse effect on our cash flow, business operations and our reputation.
For more information of the title defects of the properties we owned or occupied, please refer to the
section headed “Business – Properties” in this prospectus. For more information on the applicable laws
and regulations on collectively-owned land and the land expropriation process, please refer to the section
headed “Laws and Regulations of the Industry – Laws and Regulations relating to the Use, Acquisition
and Lease of Collectively-owned Land”.
– 47 –
RISK FACTORS
Defects related to certain properties leased by us may materially and adversely affect our ability to
use such properties.
As at the Latest Practicable Date, we had leased ten parcels of land used for industrial purpose in
Fujian province and Liaoning province, among which, seven parcels are state-owned land, three parcels
are collectively-owned land.
Among the seven parcels of state-owned land, two factory buildings located in Dandong, Liaoning
province with the gross floor area of 19,290 sq.m. leased by Greenfresh Biological Technology for king
trumpet mushroom cultivation are constructed without obtaining all the construction works planning
permit and construction works commencement permit. According to the relevant PRC laws, the
competent governmental authorities may order that such buildings be dismantled and impose penalties on
the person who constructed the building. In this regard, our occupation and use of the buildings will be
materially adversely affected if the competent governmental authorities order the building to be
dismantled.
Among the seven parcels of leased state-owned land, Zhangzhou Greenfresh funded the
construction of buildings with a gross floor area of 4,426 sq.m. for the production of canned food on a
parcel of leased land without obtaining the construction works planning permit and the construction
works commencement permit prior to the commencement of construction. As a result, pursuant to the
Urban and Rural Planning Law of the PRC, Zhangzhou Greenfresh may be subject to a maximum penalty
of RMB367,000, representing 10% of the construction costs of the relevant buildings, due to the failure to
obtain the construction works planning permit. Pursuant to the Administrative Measures on the
Construction Works Commencement Permit, Zhangzhou Greenfresh may also be subject to a maximum
penalty of RMB73,400, representing 2% of the construction contract price of the relevant buildings, due
to the failure to obtain the construction works commencement permit.
In terms of the three parcels of collectively-owned land, Fujian Greenfresh Foods leased two parcels
of land from Qiaoshan Villagers’ Committee of Yan Cuo, Longhai, Zhangzhou, Fujian province and
Zhangzhou Greenfresh leased one parcel of land from Qiaoshan Villagers’ Committee of Yan Cuo,
Longhai, Zhangzhou, Fujian province, for an aggregate land area of 7,691 sq.m. for warehousing and
ancillary purposes required for the production of processed food products on our two parcels of
collectively-owned land with total site areas of approximately 6,406 sq.m. and 3,570 sq.m., respectively,
amongst other purposes. According to the applicable laws of the PRC, any collectively-owned land for
agricultural purpose shall not be sold, transferred or leased for non-agricultural purpose. As the buildings
constructed on the aforesaid three parcels of land are primarily used for non-agricultural purpose such as
warehouse, ancillary facilities and office, the competent land authority may order that such
non-compliance should be rectified, impose penalties, and confiscate the illegal income derived from
such lease. In the event that the lessors are ordered to rectify the non-compliance and we are required by
the relevant authorities to relocate our operations carried thereunder, the operations carried on our two
parcels of collectively-owned land with total site areas of approximately 6,406 sq.m. and 3,570 sq.m.,
respectively, will be affected. We are currently in the process of construction of new production facilities
of processed food products in Zhangzhou, Fujian province to replace our current production facilities for
processed food products. We expect to commence commercial production in January 2016. In the event
that the relevant authority orders the lessors to rectify the non-compliance before January 2016, our
Directors envisage that we will be able to subcontract our sales orders to third party subcontractors. Our
estimated net profit lost as a result of business interruption on the operations on such parcels of
collectively-owned land through subcontracting our sales orders to third party subcontractors is
approximately RMB2.0 million, based on and with reference to the historical net profit contributed by
– 48 –
RISK FACTORS
such two parcels of collectively-owned land for the financial year ended 31 December 2014 and the
difference in net profit margins between production by our Group and subcontracting to third party
subcontractors. However, we cannot assure you that we will be able to subcontract our sales orders to
third party subcontractors in a timely manner or under commercially reasonable terms. If we are unable to
locate third party subcontractors in a timely manner or under commercially reasonable terms, our
business operations and financial position may be materially and adversely affected.
Production and sales of some of our products are subject to seasonality fluctuations.
Production and sales of some of our products are subject to seasonality fluctuations. During the
Track Record Period, we experienced seasonality fluctuations in our production and sales due to our
customers’ purchase patterns and weather conditions for traditional cultivation. According to our
experience, industrial cultivation is not affected by weather cycles (such as hot summers and cold
winters) so the production of king trumpet mushroom are all year round as all of our king trumpet
mushroom are under industrial cultivation. Our prices of king trumpet mushroom tend to increase around
the Christmas and Chinese New Year holiday period (usually during December, January and February of
each year) and therefore our revenue from sales of king trumpet mushroom tends to be higher accordingly
in those periods. Our production volume of button mushroom and straw mushroom is affected by weather
cycles as the majority of our button mushroom and straw mushroom are under traditional cultivation. Due
to the habit of button mushroom and straw mushroom, the peak season of production of button mushroom
is from October to May of the following year and the peak season of production of straw mushroom is
June and September. As such, the sales of button mushroom and straw mushroom will be generated only
during such periods.
Due to their seasonality, we accept the orders from trading companies and purchase various types of
vegetables and fruit for the production of processed food products in accordance with the respective
seasonal availability of the various raw materials. We purchase fresh produce of vegetables and fruit from
local suppliers in Fujian province which source these vegetables and fruit in Fujian province, Guangdong
province and Guangxi Zhuang Autonomous Region. We manufacture the processed food products during
the harvesting season of the various vegetables and fruit and deliver the products according to the
schedules set out in the relevant sales contracts entered into with trading companies. Our sales and
operating results for any particular period will not necessarily be indicative of our results for the full year
or future periods, and our interim results may not proportionally reflect our annual results.
Our insurance may not sufficiently cover, or may not cover at all, losses and liabilities we may
encounter.
We have purchased insurance for our motor vehicles. We have not maintained insurance for our
cultivation and production facilities and other properties or fixed assets. The lack of insurance coverage
exposes us to risks associated with our business, including damages, liabilities or losses we may incur in
the course of our business, which may be significant. Any uninsured occurrences of loss or damage to our
cultivation and production facilities and other properties or fixed assets may result in the disruption of
our business operations, our Group incurring substantial costs and the diversion of resources, which may
have a material and adverse effect on our business, financial position and results of operations. Moreover,
there are certain losses for which insurance is not available in the PRC on commercially practicable
terms, such as losses suffered due to business interruptions, earthquakes, typhoons, flooding, war or civil
disorder. If we are held responsible for any such damages, liabilities or losses due to insufficiency or
unavailability of insurance, there could be a material adverse effect on our business, financial position
and results of operations. See the section headed “Business – Insurance” in this prospectus for further
details.
– 49 –
RISK FACTORS
Our future success depends on the continuing services of certain key personnel and our ability to
attract and retain talented personnel.
Our continued success is significantly dependent on the continuing services of our senior
management and other key personnel and their expertise and experience. For more details on our
Directors and senior management, please refer to the section headed “Directors and Senior Management”
in this prospectus. Our Directors and senior management have extensive experience in the edible fungi
and processed food products industry. Our chairman, Mr. Zheng Songhui and Mr. Zheng Tianming, both
of whom have joined our Group since November 1995, have about 20 years of management and
operational experiences in our Group. If one or more of the members of our senior management team are
unable or unwilling to continue in their present positions, we may not be able to replace them easily or at
all, and our business may be disrupted and our financial condition and results of operations may be
adversely affected.
Our future success is further dependent upon our ability to attract and retain personnel who have the
necessary experience and expertise. If we cannot recruit and retain the employees necessary to maintain
our operations, our capabilities may be limited which could reduce our profitability and limit our ability
to grow.
RISKS RELATING TO OUR INDUSTRY
The fresh edible fungi and processed food products industries we operate in are fragmented with a
large number of players.
The fresh edible fungi and processed food products industries we operate in are characterised as
fragmented with a large number of players and we compete with a number of existing PRC domestic and
international fresh and processed fungi manufacturers, as well as potential new entrants to the market.
Some of our competitors may have, in comparison to us, lower costs of operation, greater expertise and
more extensive technical capabilities, greater resources to invest in product development and customer
support, longer operating histories, greater pricing flexibility and name recognition, larger customer
bases and/or stronger technical and professional teams. In addition, more specialised manufacturers with
greater financial resources may enter our market in the future. Our ability to compete successfully in the
industry depends on various factors, including our reputation, brands’ image, high quality products,
vertically integrated production capabilities and strong relationships with our customers. We cannot
assure you that we will be able to compete effectively against current and future competitors. Intensified
competition may result in price reduction of our products, a decrease in our profit margins, loss of market
share and increased difficulty in market penetration, which may have a material and adverse effect on our
business, prospects, financial condition and results of operation.
If the fresh edible fungi and processed food products markets do not grow at a rate as we expect, or
at all, or if we fail to keep pace with consumer preferences and demands, our business, results of
operation and financial condition may be adversely affected.
Our growth depends, to a significant extent, on the continued growth in the demand for our products,
such as king trumpet mushroom, button mushroom, straw mushroom and canned food and other
processed food products. Any future reduced demand or any downturn in the relevant sectors may
materially and adversely affect our sales and profitability. Furthermore, we are subject to the changing
consumer preferences and demands. If there is a change in market preference or if we fail to keep pace
with these changes, we may not be able to achieve the growth as expected and our business and financial
condition may be adversely affected.
– 50 –
RISK FACTORS
Consumer concerns about the safety and quality of fresh edible fungi and processed food products
may adversely affect the sales of our products and our financial performance.
Consumer demand may be affected by factors such as negative publicity resulting from the
publication of industry findings, research reports or health concerns concerning food safety of products
produced in the fresh edible fungi and processed food products industries or the PRC in general. Adverse
publicity and news about the safety and quality of domestically produced food products, and
counterfeiting and imitation of food products are widespread practices in the PRC. Although we had not
been affected by any safety or quality concerns on fresh edible fungi or processed food products or any
actual or alleged counterfeiting or imitation of fungi products during the Track Record Period and up to
the Latest Practicable Date, we cannot assure you that these events will not occur in the future. Such
complaints and negative publicity, regardless of their merits, may lead to a loss of consumer confidence,
reduction in the demand for our products, and consequently our business operations, financial
performance and prospects may be adversely affected.
Changes in existing food hygiene laws may expose us to additional costs for compliance and affect
our business operations.
As a manufacturer of products intended for direct human consumption, we are subject to extensive
governmental laws and regulations in relation to food hygiene in the PRC and other countries to which we
distribute our products. For instance, the PRC food hygiene laws require all enterprises engaged in the
production of food products to obtain food production license for each of their production facilities. They
also set out hygiene standards with respect to food and food additives, packaging and containers,
information to be disclosed on packaging as well as hygiene requirements for food production and sites,
facilities and equipment used for the transportation and sale of food.
Failure to comply with food hygiene laws in the PRC or other jurisdictions in which we distribute
our products may result in fines, suspension of operations, loss of food production licenses and, in more
extreme cases, criminal proceedings against us and our management. Any of these events will have an
adverse impact on our production, business, results of operations and financial condition.
There can be no assurance that the PRC government or the governmental authorities of other
jurisdictions in which we distribute or sell our products through sub-distributors and retailers will not
impose additional or stricter laws or regulations on food hygiene in the future, providing for stricter and
more comprehensive monitoring and regulation of food manufacturers and distributors in areas including,
but not limited to, food production and distribution, which may lead to an increase in our costs of
complying with such regulations. We may be unable to pass these additional costs on to our customers,
which may result in an adverse effect on our results of operations.
We are subject to environmental regulations and may be exposed to liability and potential costs for
environmental compliance.
Our operations are subject to national, provincial and local environmental laws, rules and
regulations which, among other things, require manufacturers to conduct an environmental impact
assessment before engaging in new construction projects, pay fees in connection with activities that
discharge waste materials, properly manage and dispose of hazardous substances, and impose fines and
other penalties on activities that threaten the environment. Any violation of these regulations may result
in fines, criminal sanctions, shutdown of our facilities and obligation to take corrective measures. There
is no assurance that we will not incur future obligations or material liabilities relating to environmental
laws and regulations.
– 51 –
RISK FACTORS
Further, the government may adopt more stringent environmental regulations and there is no
assurance that we will be in full compliance with these regulatory requirements at all times. Due to the
possibility of unanticipated regulatory developments, the amount and timing of future environmental
expenditures may vary substantially from those currently anticipated. If there is any unanticipated change
in environmental regulations, we may be required to incur additional capital expenditures to, among other
things, install, replace, upgrade or supplement our equipment relating to pollution control and the use,
storage, handling and disposal of hazardous materials and chemicals, or make operational changes to
limit any adverse impact or potential adverse impact on the environment in order to comply with new
environmental protection laws and regulations. If such costs become prohibitively expensive, we may be
forced to modify, curtail or cease certain aspects of our business operations.
The outbreak of infectious diseases may materially and adversely affect our business and financial
performance.
The outbreak of infectious diseases, including without limitation, Ebola Virus Disease, avian
influenza (H5N1, H7N9 and H10N8), Severe Acute Respiratory Syndrome (“SARS”), influenza A
(H1N1) and/or other infectious diseases within the vicinity of our cultivation bases or processing
facilities or in the PRC, if uncontrolled, may have an adverse effect on business sentiments and the
environment. In addition, if any of our employees, our customers or our suppliers, is affected by the
outbreak of infectious diseases, our business operations may be suspended or disrupted, and the amount
of our customers’ orders and our supply of raw materials may be adversely affected. In addition, public
transportation may be disrupted by the outbreak of public health issues, which may result in the
restriction of our ability to arrange delivery of our products to our customers in the PRC.
Although our business operations had not been materially affected by the occurrence of any of the
above circumstances during the Track Record Period and up to the Latest Practicable Date, there can be
no assurance that these events may not occur in the future. The occurrence of any circumstances above
may have a material and adverse effect on our business, prospects and financial performance.
RISKS RELATING TO DOING BUSINESS IN THE PRC
Uncertainties with respect to the PRC legal system could have an adverse effect on our business and
operations.
Our business is conducted, and our operations are located, mostly in the PRC. Our business in the
PRC is subject to PRC laws and regulations applicable to foreign investment in the PRC. The PRC legal
system is a civil law system based on written statutes. Unlike in the common law system, prior cases have
limited precedential value in deciding subsequent cases in the civil law legal system. Additionally, PRC
written statutes are often principle oriented and require detailed interpretations by the enforcement
bodies for their application and enforcement. When the PRC government started its economic reforms in
1978, it began to build a comprehensive system of laws and regulations to regulate business practices and
the overall economic order of the country. The PRC has made significant progress in the promulgation of
laws and regulations dealing with business and commercial affairs of various participants of the economy,
involving foreign investment, corporate organisation and governance, commercial transactions, taxation
and trade. However, the promulgation of new laws, changes in existing laws and abrogation of local
regulations by national laws may have an adverse effect on our business and operations. Additionally,
given the involvement of different enforcement bodies of the relevant rules and regulations and the
non-binding nature of prior court decisions and administrative rulings, the interpretation and
enforcement of PRC laws and regulations involve significant uncertainties under the current legal
environment.
– 52 –
RISK FACTORS
Changes in economic, political, legal and social developments and conditions in the PRC and
policies adopted by the PRC government may adversely affect our business results of operation and
All of our operating assets are located in the PRC, and our business operation is mostly located in
the PRC. Accordingly, our business, financial condition, results of operations and prospects are, to a
significant degree, subject to the economic, political and social developments in the PRC. The PRC
economy differs from the economies of most developed countries in many respects, including the extent
of government involvement, level of development, growth rate, control of foreign exchange and
allocation of resources. Although the PRC Government’s economic reforms have emphasised the
independence of enterprises, the use of market mechanism, and the improvement of corporate
governance, the PRC Government continues to exercise significant control in regulating industry
developments, allocating resources, controlling payment of foreign currency denominated obligations,
setting monetary policy and providing preferential treatment to particular industries or companies.
While the economy of the PRC has experienced significant growth over the past decade, growth has
been uneven, both geographically and among various sectors of the economy. The PRC Government has
implemented various measures to guide the allocation of resources. While some of these measures may
benefit the overall economy of the PRC, they may have a negative effect on us. For example, our financial
results may be adversely affected by government control over capital investments or changes in tax
regulations that are applicable to us. Any changes in the PRC economic, political and social conditions
may have a material adverse effect on our present and future operations.
The PRC Government’s control over the conversion of foreign exchange may have a material
adverse effect on your investment and limit our ability to utilise our cash effectively.
The PRC Government imposes controls on the convertibility of Renminbi into foreign currencies
and, in certain cases, the remittance of currency out of the PRC. Under existing PRC foreign exchange
regulations, payments of current account items, including profit distributions, interest payments and
expenditures from trade related transactions, can be made in foreign currencies without prior approval
from the SAFE by complying with certain procedural requirements. However, approval from the SAFE or
its local branch is required where Renminbi is to be converted into foreign currency and remitted out of
the PRC to pay capital expenses such as the repayment of loans denominated in foreign currencies. The
PRC Government may also at its discretion restrict access in the future to foreign currencies for current
account transactions.
Under our current corporate structure, our income is primarily derived from dividend payments
from our PRC subsidiaries. Shortages in the availability of foreign currency may restrict the ability of our
PRC subsidiaries to remit sufficient foreign currency to pay dividends or other payments to us, or
otherwise satisfy their foreign currency-denominated obligations. If the foreign exchange control system
prevents us from obtaining sufficient foreign currency to satisfy our currency demands, we may not be
able to pay dividends in foreign currencies to our Shareholders. In addition, since substantial amount of
our future cash flow from operations will be denominated in Renminbi, any existing and future
restrictions on currency exchange may limit our ability to purchase goods and services outside of the PRC
or otherwise fund our business activities that are conducted in foreign currencies.
– 53 –
RISK FACTORS
Dividends paid to our Hong Kong subsidiary might not qualify for the reduced PRC withholding tax
rate under the special arrangement between Hong Kong and the PRC, which may result in a
material adverse effect on our financial condition.
Under the EIT Law and its implementation regulations, PRC-sourced income of foreign enterprises
that are “non-PRC resident enterprises” that do not have an establishment or place of business in the PRC
or, despite the existence of such establishment or place in the PRC, the relevant income is not actually
connected with such establishment or place in the PRC, such as dividends paid by a PRC subsidiary to its
overseas parent, is generally subject to a 10% withholding tax unless the jurisdiction of such foreign
enterprises has a tax treaty with the PRC that provides a different withholding arrangement.
Pursuant to a special arrangement between Hong Kong and the PRC, the withholding tax rate is
lowered to 5% if a Hong Kong resident enterprise is qualified as the beneficial owner and owns more than
25% of a PRC company distributing the dividends. However, according to the Circular of the State
Administration of Taxation on Printing and Issuing the Administrative Measures for Non-resident
Individuals and Enterprises Regarding Favourable Treatment Under Taxation Treaties (for Trial
Implementation) (國家稅務總局關於印發《非居民享受稅收協議待遇管理辦法（試行）》的通知), which
was issued by the SAT on 24 August 2009 and became effective on 1 October 2009, the 5% withholding
tax rate does not automatically apply and approvals from competent local tax authorities are required
before an enterprise can enjoy any benefits under the relevant taxation agreements or treaties. Moreover,
according to the Notice of the State Administration of Taxation on the Issues Concerning the Application
of the Dividend Clauses of Tax Agreements (國家稅務總局關於執行稅收協定股息條款有關問題的通
知) issued by the SAT on 20 February 2009, if the main purpose of an offshore arrangement is to obtain
preferential tax treatment, the PRC tax authorities have the discretion to adjust the preferential tax rate
for which an offshore entity would otherwise be eligible. There is no assurance that the PRC tax
authorities will grant approvals on the 5% withholding tax rate on dividends paid by our PRC subsidiaries
and received by our subsidiary in Hong Kong. If dividends paid to our Hong Kong subsidiary do not
qualify for the reduced PRC withholding tax rate, this may result in a material adverse effect on our
We may be treated as a PRC tax resident enterprise under the EIT law, which may result in our
PRC-sourced income, dividends payable by us to our foreign investors and gains on the sale of our
Shares being subject to PRC withholding taxes and may have a material adverse effect on the value
of your investment.
Under the EIT Law and its implementation regulations, PRC-sourced income of foreign enterprises
that are “non-PRC resident enterprises” that do not have an establishment or place of business in the PRC
or, despite the existence of such establishment or place in the PRC, the relevant income is not actually
connected with such establishment or place in the PRC, is generally subject to a 10% withholding tax
unless the jurisdiction of such foreign enterprises has a tax treaty with the PRC that provides a different
withholding arrangement. Dividends paid by a PRC subsidiary to its overseas parent and any gain realised
on the transfer of shares by such investors will be also subject to 10% PRC income tax if such dividends
payment or gain is regarded as income derived from sources within the PRC.
– 54 –
RISK FACTORS
If we are considered a “PRC resident enterprise”, it is unclear whether the dividends we pay with
respect to our Shares, or the gain you may realise from the transfer of our Shares, would be treated as
income derived from sources within the PRC and be subject to PRC tax. It is unclear whether, if we are
considered a “PRC resident enterprise”, our Shareholders would be able to claim the benefit of income
tax treaties or agreements entered into between the PRC and other countries or regions. If we are required
under the EIT Law to withhold PRC income tax on our dividends payable to our foreign Shareholders
who are not within the PRC, or if you are required to pay PRC income tax on the transfer of your Shares,
the value of your investment in your Shares may be materially and adversely affected.
We may be treated as a PRC tax resident enterprise under the EIT law, which may result in our
worldwide income being subject to PRC taxes and have a material adverse impact on our
profitability.
Under the EIT Law, if an enterprise incorporated outside the PRC has its “de facto management
bodies” within the PRC, such enterprise may be treated as a “PRC resident enterprise” for tax purposes
and be subject to an enterprise income tax rate of 25% on its global income. “De facto management body”
is defined as a body that has significant and overall management and control over the business, personnel,
accounts and properties of an enterprise. In April 2009, the SAT promulgated a circular to clarify certain
criteria for the determination of the “de facto management bodies” for Chinese-invested companies
registered abroad. These criteria include: (i) the enterprise’s day-to-day operational management is
primarily exercised in the PRC; (ii) decisions relating to the enterprise’s financial and human resource
matters are made or subject to approval by organisations or personnel in the PRC; (iii) the enterprise’s
primary assets, accounting books and records, company seals, and board and shareholders’ meeting
minutes are located or maintained in the PRC; and (iv) 50% or more of voting board members or senior
executives of the enterprise habitually reside in the PRC.
In July 2011 and January 2014, the SAT further issued administrative rules regarding administrative
procedures for recognising the “PRC resident enterprise” status of a Chinese-invested company
registered abroad. According to the aforesaid SAT circulars, a Chinese-invested company registered
abroad may either apply for “PRC resident enterprise” status with the in-charge PRC tax authority in the
place where its major Chinese investor is located and the application will be subject to approval of
competent PRC tax authorities, or be recognised as a “PRC resident enterprise” by competent PRC tax
authorities. In this regard, there are uncertainties in whether a Chinese-invested company registered
abroad would be treated as a PRC resident enterprise before obtaining the relevant approval from
competent PRC tax authorities. However, there have been no official implementation rules regarding the
determination of the “de facto management bodies” for foreign enterprises which are not controlled by
PRC enterprises (including companies like ourselves).
We cannot assure you that we will not be considered a PRC resident enterprise for PRC EIT
purposes and be subject to the uniform 25% enterprise income tax on our global incomes. If we are
treated as a “PRC resident enterprise”, we will be subject to the PRC income taxes on our global income,
which may have a material adverse effect on our profitability and distributable profit to our Shareholders.
– 55 –
RISK FACTORS
We may be subject to penalties, including restriction on our ability to inject capital into our PRC
subsidiaries and our PRC subsidiaries’ ability to distribute profits to us, if our PRC resident
shareholders or beneficial owners fail to comply with relevant PRC foreign exchange regulations,
which may have a material adverse impact on our business and financial condition.
SAFE issued Circular No. 37 which became effective on 4 July 2014 and replaced the previous
Circular No. 75. Circular No. 37 requires “PRC residents”, including PRC individuals and enterprises, to
register with SAFE or its local branches in relation to their direct establishment or indirect control of an
offshore special purpose vehicle. An offshore special purpose vehicle is an offshore entity used for the
purpose of overseas investment and financing, with such PRC residents’ legally owned assets or equity
interests in domestic enterprises or offshore assets or interests. In addition, such PRC residents must
update their foreign exchange registrations with SAFE when the offshore special purpose vehicle
undergoes material events relating to any change of basic information (including change of such PRC
citizens or residents, name and operation term), increases or decreases in investment amount, share
transfers or exchanges, or mergers or divisions.
If any shareholder holding interest in an offshore special purpose vehicle, who is a “PRC resident”
as determined by Circular No. 37, fails to fulfill the required foreign exchange registration with the local
SAFE branches, the PRC subsidiaries of that offshore special purpose vehicle may be prohibited from
distributing their profits and dividends to their offshore parent company or from carrying out other
subsequent cross-border foreign exchange activities, and the offshore special purpose vehicle may be
restricted in its ability to contribute additional capital to its PRC subsidiaries. Moreover, failure to
comply with the SAFE registration described above could result in liability under PRC laws for evasion
of applicable foreign exchange restrictions.
We may not be fully informed of the identities of all our shareholders or beneficial owners who are
“PRC residents”, and we cannot provide any assurance that all of our shareholders and beneficial owners
who are “PRC residents” will comply with our request to make, obtain or update any applicable
registrations or comply with other requirements required by the Circular No. 37 or other related rules in
a timely manner. If any of our shareholders who is a “PRC resident” as determined by Circular No. 37
fails to fulfill the required foreign exchange registration with the local SAFE branches, our PRC
subsidiaries may be prohibited from distributing their profits and dividends to us or from carrying out
other subsequent cross-border foreign exchange activities. We may also be restricted in our ability to
contribute additional capital to our PRC subsidiaries, which may adversely affect our business and have
a material adverse effect on our financial condition.
PRC regulation of direct investment and loans by offshore holding companies to PRC entities may
delay or limit us from using the net proceeds from the Global Offering to make additional capital
contributions or loans to our PRC subsidiaries.
As an offshore entity, any capital contributions or loans that our Company makes to our PRC
subsidiaries, including from the net proceeds from the Global Offering, are subject to PRC regulations.
For example, any of our loans to our PRC subsidiaries cannot exceed the difference between the total
amount of investment our PRC subsidiaries are approved to make under relevant PRC laws and the
registered capital of these PRC subsidiaries (if applicable), and such loans must be registered with a local
branch of SAFE. In addition, our capital contributions to our PRC subsidiaries must be approved by
MOFCOM or its local counterpart. We cannot assure you that we will be able to obtain these approvals on
a timely basis, or at all. If we fail to obtain such approvals, our ability to make equity contributions or
– 56 –
RISK FACTORS
provide loans to our PRC subsidiaries or to fund their operations may be adversely affected. In turn, this
may adversely affect our ability to use the net proceeds from the Global Offering as planned, and
adversely impact our PRC subsidiaries’ liquidity and ability to fund their working capital and meet their
obligations and commitments. As a result, this may have a material adverse effect on our overall business,
financial condition and results.
It may be difficult to effect service of process upon us or our Directors or senior management who
reside in the PRC or to enforce non-PRC judgments in the PRC against us.
Substantially all of our assets and the assets of our Directors are located in the PRC. Therefore, it
may not be possible for investors to effect service of process upon us or those persons inside the PRC,
including our Directors or senior management. The PRC has not entered into treaties or arrangements
providing for the recognition and enforcement of judgments made by courts of most other jurisdictions.
On 14 July 2006, the Supreme People’s Court of the PRC and the Hong Kong government signed the
Arrangement on Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters
by the Courts of the Mainland and of the Hong Kong Special Administrative Region Pursuant to Choice of
Court Agreements between Parties Concerned 《
( 最高人民法院關於內地與香港特別行政區法院相互認
可和執行當事人協議管轄的民商事案件判决的安排》). Under such arrangement, where any designated
people’s court of the PRC or any designated Hong Kong court has made an enforceable final judgment
requiring payment of money in a civil and commercial case pursuant to a choice of court agreement in
writing by the parties, any party concerned may apply to the relevant people’s court of the PRC or Hong
Kong court for recognition and enforcement of the judgment. The arrangement came into effect on 1
August 2008, but the outcome and enforceability of any action brought under the arrangement is still
uncertain. In addition, the PRC is not a party to any treaties providing for the reciprocal recognition and
enforcement of judgments of courts with the United States, the United Kingdom, most other Western
countries or Japan, and therefore enforcement in the PRC of judgments of a court in any of these
jurisdictions may be difficult or impossible.
RISKS RELATED TO THE GLOBAL OFFERING
There has been no public market for our Shares prior to this Global Offering, and the liquidity,
market price trading volume of our Shares may be volatile.
There has been no public market for our Shares prior to this Global Offering. We have applied for
the listing of and permission to deal in our Shares on the Stock Exchange. However, even if approved,
being listed on the Stock Exchange does not guarantee that an active trading market for our Shares will
develop following the Global Offering or that our Shares will always be listed and traded on the Stock
Exchange. We cannot assure you that an active public trading market for our Shares will develop or be
sustained.
The Offer Price for our Offer Shares will be determined by our Company (for ourselves and on
behalf of the Selling Shareholders) and the Sole Global Coordinator (for itself and on behalf of the
Underwriters) and may differ significantly from the market price for our Shares following the Global
Offering. We cannot assure you that the market price of our Shares will not decline below the final Offer
Price.
– 57 –
RISK FACTORS
The price and trading volume of our Shares may be highly volatile. Factors such as variations in our
revenue, earnings and cash flows, and announcements of new investments, strategic alliances and/or
acquisitions, fluctuations in market prices for our products and services or fluctuations in market prices
for comparable companies could cause the market price of our Shares to change substantially. Any such
developments may result in large and sudden changes in the volume and price at which our Shares will
trade.
In addition, the Stock Exchange has experienced substantial price and volume fluctuations from
time to time that are not related to the operating performance of any particular company. These
fluctuations may also materially and adversely affect the market price of our Shares.
Investors for our Shares may face difficulties in protecting their interests under Cayman Islands
law, which may provide different remedies to minority shareholders when compared with the laws
of Hong Kong or other jurisdictions.
Our corporate affairs are governed by, among other things, the Articles of Association, the
Companies Law and the common law of the Cayman Islands. The rights of Shareholders to take action
against our Directors, actions by minority shareholders and the fiduciary responsibilities of our Directors
to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands
and the Articles of Association. The common law of the Cayman Islands is derived in part from
comparatively limited judicial precedent in the Cayman Islands as well as that from English common law,
which has persuasive, but not binding, authority on a court in the Cayman Islands. The laws of the
Cayman Islands relating to the protection of the interests of minority shareholders differ in some respects
from those in Hong Kong and other jurisdictions. Such differences mean that the remedies available to
our minority Shareholders may be different from those they would have under the laws of Hong Kong or
other jurisdictions. For detailed information, please refer to the section headed “Summary of the
Constitution of the Company and Cayman Islands Companies Law” in Appendix IV to this prospectus.
Our historical dividend payments should not be taken as an indication of our future dividend policy
or our payment of dividends in the future.
We may distribute dividends by way of cash or by other means that we consider appropriate. A
decision to declare and pay any dividends would require the approval of the Board and will be at their
discretion.
The Board will review our dividend policy from time to time in light of various factors such as our
results of operations, our cash flows, our financial conditions, our Shareholders’ interests, general
business conditions and strategies, our capital requirements, the payment by our subsidiaries of cash
dividends to us and other factors the Board may deem relevant in determining whether dividends are to be
declared and paid. For more details on our dividend policy, please see the section headed “Financial
Information – Dividend Policy” in this prospectus.
shareholders. The absence of dividend payments during the Track Record Period should not be regarded
as an indication of our future dividend policy or our payment of dividends in the future.
– 58 –
RISK FACTORS
Any future issuance of our Shares may dilute the investor’s shareholding in our Company.
Any future capital issuance to expand our business or otherwise may lead to the dilution of
investors’ shareholding in our Company. We may also issue additional Shares pursuant to our Pre-IPO
Share Option Scheme and Share Option Scheme. We may need to raise additional funds in the future to
finance expansion of or new developments relating to our existing operations or new acquisitions. If
additional funds are raised through the issuance of new equity or equity-linked securities of our Company
other than on a pro-rata basis to the existing Shareholders, the percentage ownership of such Shareholders
in our Company may be reduced or such new securities may confer rights and privileges that take priority
over those conferred by our Offer Shares. Purchasers of our Shares may experience dilution in the net
tangible asset book value per share of their Shares if we issue additional Shares or securities convertible
into Shares in the future at a price which is lower than the net tangible asset book value per Share.
Any future offerings or sales of our Shares could materially and adversely affect their prevailing
market price.
Any future offerings or sales of our Shares by us or other Shareholders in the public market, or the
perception that such offerings or sales could occur, may negatively impact the market price of our Shares.
Please refer to the section headed “Underwriting” in this prospectus for details of restrictions that may
apply to future sales of our Shares. Following the expiration of their respective lock-up periods, the
market price of our Shares may decline as a result of future sales of substantial amounts of our Shares or
other securities relating to our Shares (including the issuance of new Shares pursuant to the exercise of
share options granted by us) or the perception that such sales or issuances may occur. We cannot predict
what effect, if any, any perception or actual occurrence of such significant future sale will have on the
market price of our Shares.
You should read the entire prospectus carefully (including the risks disclosed) and we strongly
caution you not to place any reliance on any information in press articles, other media and/or
research analyst reports regarding us, our business, our industry and the Global Offering.
You should read the entire prospectus carefully and rely solely upon the information in this
prospectus in making your investment decisions regarding the Shares. You should note that undue
reliance should not be placed on any forward looking statements contained in this prospectus which may
not occur in the way we expect or may not materialise at all as set out in the section headed
“Forward-looking Statements” in this prospectus. There has been prior to the publication in this
prospectus, and there may be subsequent to the date in this prospectus but prior to the completion of the
Global Offering, press, media and/or research analyst coverage regarding us, our business, our industry
and the Global Offering. We do not accept any responsibility for the accuracy or completeness of the
information in such press articles, other media and/or research analyst reports nor the fairness or
appropriateness of any forecasts, views or opinions expressed by the press, other media and/or research
analysts regarding the Shares, the Global Offering, our business, our industry or us.
We make no representation as to the appropriateness, accuracy, completeness or reliability of any
such information, forecasts, views or opinions expressed or any such publications. To the extent that such
statements, forecasts, views or opinions are inconsistent or conflict with the information in this
prospectus, we disclaim them. Accordingly, prospective investors are cautioned to make their investment
decisions on the basis of the information in this prospectus only and should not rely on any other
information.
– 59 –
WAIVERS FROM STRICT COMPLIANCE WITH THE LISTING RULES
In preparation for the Global Offering, our Company has sought the following waivers from strict
compliance with the relevant provisions of the Listing Rules and exemptions from the relevant provisions
of the Companies Ordinance (Miscellaneous Provisions).
MANAGEMENT PRESENCE IN HONG KONG
Pursuant to Rule 8.12 of the Listing Rules, an issuer must have a sufficient management presence in
Hong Kong. This normally means that at least two of the executive Directors must be ordinarily resident
in Hong Kong. Given that our business and operation are primarily located, managed and conducted in the
PRC, it would be practically difficult and commercially unnecessary for us to relocate two of our
executive Directors to Hong Kong.
Accordingly, our Company has applied to the Stock Exchange for, and the Stock Exchange has
granted, a waiver from compliance with the requirements under Rule 8.12 of the Listing Rules on the
following conditions:
(a)
our Company will appoint two authorised representatives pursuant to Rule 3.05 of the Listing
Rules, namely, Ms. Zheng Ruyan, an executive Director, the joint company secretary and the
chief financial officer of our Company, and Ms. Ng Wing Shan, our Company’s joint company
secretary, who will jointly act as our Company’s principal channel of communication with the
Stock Exchange. Ms. Ng Wing Shan is ordinarily resident in Hong Kong. Each of the
authorised representatives will be available to meet with the Stock Exchange in Hong Kong
within a reasonable time frame upon the request of the Stock Exchange and will be readily
contactable by telephone, facsimile and email. Each of the two authorised representatives is
authorised by the Board to communicate on behalf of our Company with the Stock Exchange;
(b)
our Company has been registered as a non-Hong Kong company under Part 16 of the
Companies Ordinance, and Ms. Ng Wing Shan has been authorised to accept service of legal
process and notice in Hong Kong on behalf of our Company;
(c)
each of our Company’s authorised representatives has means to contact all members of the
Board (including the independent non-executive Directors) and of the senior management team
promptly at all times as and when the Stock Exchange wishes to contact them or any of them
for any matters. To enhance the communication between the Stock Exchange, the authorised
representatives and the Directors, our Company will implement a number of policies whereby
(i) each Director shall provide (if available) his/her mobile phone numbers, residential phone
numbers, office phone numbers, fax numbers and email addresses to the authorised
representatives; (ii) in the event that such Director expects to travel and be out of office, he/she
shall provide the phone number of the place of his/her accommodation to the authorised
representatives; and (iii) all the Directors and authorised representatives will provide (if
available) their respective mobile phone numbers, residential phone numbers, office phone
numbers, fax numbers and email addresses to the Stock Exchange. Our Company shall
promptly inform the Stock Exchange of any changes to the contact details of the authorised
representatives of the Company and the Directors;
– 60 –
(d)
Essence Corporate Finance (Hong Kong) Limited has been appointed as our Company’s
compliance adviser, pursuant to Rule 3A.19 of the Listing Rules, to provide our Company with
professional advice on continuing obligations under the Listing Rules, and to act at all times,
in addition to the two authorised representatives of our Company, as our Company’s additional
channel of communication with the Stock Exchange for the period commencing on the Listing
Date and ending on the date on which our Company complies with Rule 13.46 of the Listing
Rules and publishes our annual report in respect of the first full financial year commencing
after the Listing Date. The contact person of the compliance adviser will be fully available to
answer enquiries from the Stock Exchange;
(e)
each of the Directors (including independent non-executive Directors) not ordinarily resident
in Hong Kong has confirmed that he/she possesses or can apply for valid travel documents to
visit Hong Kong and would be able to meet with the Stock Exchange in Hong Kong upon
reasonable notice; and
(f)
our Company will also appoint other professional advisers (including its legal advisers in
Hong Kong) after the Listing to assist our Company in addressing any enquiries which may be
raised by the Stock Exchange and to ensure that there will be prompt and effective
communication with the Stock Exchange.
We believe that the above-mentioned arrangements will ensure that all members of the Board will be
promptly informed of any matters raised by the Stock Exchange and that disclosure of information and
communication with the Stock Exchange will be made on a timely basis.
JOINT COMPANY SECRETARIES
Pursuant to Rule 8.17 of the Listing Rules, an issuer must appoint a company secretary who satisfies
Rule 3.28 of the Listing Rules. Rule 3.28 of the Listing Rules provides that an issuer must appoint as its
company secretary an individual who, by virtue of his/her academic or professional qualifications or
relevant experience, is, in the opinion of the Stock Exchange, capable of discharging the functions of a
company secretary.
We have appointed Ms. Zheng Ruyan as one of our joint company secretaries. Ms. Zheng Ruyan
does not possess the qualification as stipulated in Rule 3.28 of the Listing Rules, and therefore she does
not meet all the requirements under Rule 3.28 and Rule 8.17 of the Listing Rules. We have appointed Ms.
Ng Wing Shan, who possesses the qualification required under Rule 3.28, to act as another joint company
secretary to provide assistance to Ms. Zheng Ruyan for an initial period of three years from the Listing
Date so as to fully comply with the requirements set forth under Rules 3.28 and 8.17 of the Listing Rules.
Ms. Ng Wing Shan will work closely with Ms. Zheng Ruyan to jointly discharge duties and
responsibilities as joint company secretaries and assist Ms. Zheng Ruyan to acquire the relevant
experience as required under Rule 3.28 of the Listing Rules. In addition, we will ensure Ms. Zheng Ruyan
has access to relevant training and support to familiarise herself with the Listing Rules and the duties
required for a company secretary of a company listed on the Stock Exchange.
– 61 –
We have applied to the Stock Exchange for, and the Stock Exchange has granted, a waiver under and
in respect of Rule 3.28 and Rule 8.17 of the Listing Rules. The waiver is valid for an initial period of three
years from the Listing Date. Upon the expiry of such three-year period, the Stock Exchange will
re-evaluate the experience of Ms. Zheng Ruyan to consider whether she will then have acquired the
relevant experience within the meaning of Rule 3.28 and Rule 8.17 of the Listing Rules and decide
whether a further waiver will be necessary.
For further details about Ms. Zheng Ruyan’s qualifications and experience, please refer to the
section headed “Directors and Senior Management – Directors – Executive Directors” in this prospectus.
– 62 –
INFORMATION ABOUT THIS PROSPECTUS AND THE GLOBAL OFFERING
DIRECTORS’ RESPONSIBILITY FOR THE CONTENTS IN THIS PROSPECTUS
This prospectus, for which our Directors collectively and individually accept full responsibility,
includes particulars given in compliance with the Companies Ordinance (Miscellaneous Provisions), the
Securities and Futures (Stock Market Listing) Rules (Chapter 571V of the Laws of Hong Kong) and the
Listing Rules for the purpose of giving information to the public with regard to us. Our Directors, having
made all reasonable enquires, confirm that to the best of their knowledge and belief, the information
contained in this prospectus is accurate and complete in all material aspects and not misleading or
deceptive, and there are no other matters the omission of which would make any statement herein or this
prospectus misleading.
UNDERWRITING
This prospectus is published solely in connection with the Hong Kong Public Offering which forms
part of the Global Offering. For applicants under the Hong Kong Public Offering, this prospectus and the
Application Forms set out the terms and conditions of the Hong Kong Public Offering.
The Listing is sponsored by the Sole Sponsor. The Hong Kong Public Offering will be fully
underwritten by the Hong Kong Underwriters under the terms of the Hong Kong Underwriting Agreement
and is subject to the agreement to the Offer Price between our Company (for ourselves and on behalf of
the Selling Shareholders) and the Sole Global Coordinator (for itself and on behalf of the other
Underwriters). The Global Offering is managed by the Sole Global Coordinator. The International
Placing will be fully underwritten by the International Underwriters under the terms of the International
Underwriting Agreement. For further information about the Underwriters and the underwriting
arrangements, please refer to the section headed “Underwriting” in this prospectus.
DETERMINATION OF THE OFFER PRICE
The Offer Shares are being offered at the Offer Price which will be determined by the Sole Global
Coordinator (for itself and on behalf of the other Underwriters) and our Company (for ourselves and on
behalf of the Selling Shareholders) on or around Thursday, 11 June 2015 (Hong Kong time) or such later
time as may be agreed between the Sole Global Coordinator (for itself and on behalf of the other
Underwriters) and our Company, but in any event no later than Saturday, 13 June 2015 (Hong Kong time).
If, for any reason, the Offer Price is not agreed among our Company (for ourselves and on behalf of the
Selling Shareholders) and the Sole Global Coordinator (for itself and on behalf of the other
Underwriters), the Global Offering will not proceed.
RESTRICTIONS ON OFFER AND SALE OF OFFER SHARES
No action has been taken to permit a public offering of the Offer Shares or the distribution in this
prospectus and/or the related Application Forms in any jurisdiction other than Hong Kong. Accordingly,
this prospectus may not be used for the purpose of, and does not constitute, an offer or invitation, nor is
it calculated to invite or solicit offers 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.
The distribution in this prospectus and the offering of the Offer Shares in other jurisdictions are subject to
restrictions and may not be made except as permitted under the securities laws of such jurisdiction
pursuant to registration with or an authorisation by the relevant securities regulatory authorities or an
exemption therefrom. In particular, the Offer Shares have not been offered and sold, and will not be
offered or sold, directly or indirectly in the U.S., except in compliance with the relevant laws and
regulations of such jurisdiction.
– 63 –
SELLING SHAREHOLDERS
Name of the Selling Shareholders
Number of Sale Shares
Mr. Chan Kin Wa
Ms. GUO XUEYAN
19,572,366 Shares
5,427,634 Shares
Details of the Selling Shareholders are set out under the section headed “Appendix V – Statutory and
General Information – Particulars of the Selling Shareholders” in this prospectus.
INFORMATION ON THE GLOBAL OFFERING
The Offer Shares are offered to the public in Hong Kong for subscription solely on the basis of the
information contained and the representations made in this prospectus and the related Application Forms.
No person is authorised in connection with the Global Offering to give any information or to make any
representation not contained in this prospectus, and any information or representation not contained in
this prospectus must not be relied upon as having been authorised by our Company, the Selling
Shareholders, the Sole Global Coordinator, the Joint Bookrunners, the Sole Sponsor, the Underwriters,
any of their respective directors, agents or advisers or any other person involved in the Global Offering.
Each person acquiring the Offer Shares will be required, and is deemed by his acquisition of the
Offer Shares, to confirm that he is aware of the restrictions on offers of the Offer Shares described in this
prospectus and that he is not acquiring, and has not been offered any Offer Shares in circumstances that
contravene any such restrictions.
Prospective applicants for Offer Shares should consult their financial advisers and take legal advice,
as appropriate, to inform themselves of, and to observe, all applicable laws and regulations of any
relevant jurisdiction. Prospective applicants for the Offer Shares should inform themselves as to the
relevant legal requirements of applying for the Offer Shares and any applicable exchange control
regulations and applicable taxes in the countries of their respective citizenship, residence or domicile.
APPLICATION FOR LISTING OF THE SHARES ON THE STOCK EXCHANGE
We have applied to the Listing Committee of the Stock Exchange for the listing of, and permission
to deal in, our Shares in issue and to be issued as mentioned in this prospectus (including any Shares
which may be issued pursuant to the exercise of the Over-allotment Option or options which are granted
under the Pre-IPO Share Option Scheme and may be granted under the Share Option Scheme).
No part of our Shares is listed on or dealt in on any other stock exchange and no such listing or
permission to list is being or currently proposed to be sought in the near future.
HONG KONG REGISTER OF MEMBERS AND STAMP DUTY
All Shares issued by us pursuant to applications made in the Hong Kong Public Offering will be
registered on our branch register of members to be maintained in Hong Kong by Tricor Investor Services
Limited, our Hong Kong Share Registrar. Our principal register of members will be maintained in the
Cayman Islands by our Company’s principal share registrar, Codan Trust Company (Cayman) Limited.
Dealings in Shares registered in our Hong Kong Share Registrar will be subject to Hong Kong stamp duty.
Only Shares registered on our Hong Kong register of members can be traded on the Stock Exchange.
– 64 –
PROFESSIONAL TAX ADVICE RECOMMENDED
If you are unsure about the taxation implications of subscribing for or purchasing, holding or
disposing of or dealing in the Offer Shares, you should consult your professional advisers. None of the
Company, the Selling Shareholders, the Sole Sponsor, the Sole Global Coordinator, the Joint
Bookrunners, the Underwriters, their respective directors and any other person involved in the Global
Offering accepts responsibility for any tax effects on, or liability of, any person or holders of Shares
resulting from subscribing for, purchasing, holding or disposing of or dealing in the Offer Shares.
OVER-ALLOTMENT OPTION AND STABILISATION
Details of the arrangements relating to the Over-allotment Option and the related stabilisation
exercise are set out in the section headed “Structure of the Global Offering” in this prospectus.
STOCK BORROWING ARRANGEMENT
For the purpose of covering over-allocations in the International Placing, the Stabilising Manager,
in its capacity as stabilising manager, may borrow up to 22,500,000 Shares from Song Rising, equivalent
to the maximum number of Shares to be issued on a full exercise of the Over-allotment Option, under the
Stock Borrowing Agreement. Such stock borrowing arrangement will be in compliance with Rule
10.07(3) of the Listing Rules.
PROCEDURE FOR APPLICATION FOR THE HONG KONG PUBLIC OFFER SHARES
The procedure for application for the Hong Kong Public Offer Shares is set out in the section headed
“How to Apply for the Hong Kong Public Offer Shares” in this prospectus and on the relevant Application
Forms.
STRUCTURE OF THE GLOBAL OFFERING
Details of the structure of the Global Offering, including conditions of the Global Offering, are set
out in the section headed “Structure of the Global Offering” in this prospectus.
SHARES WILL BE ELIGIBLE FOR ADMISSION INTO CCASS
If the Stock Exchange grants the listing of, and permission to deal in, the Shares on the Stock
Exchange and we comply with the stock admission requirements of HKSCC, the Shares will be accepted
as eligible securities by HKSCC for deposit, clearance and settlement in CCASS with effect from the date
of commencement of dealings in the Shares on the Stock Exchange or such other date HKSCC chooses.
Investors should seek the advice of their stockbroker or other professional advisers for details of those
settlement arrangements as such arrangements will affect their rights, interest and liabilities.
Settlement of transactions between participants of the Stock Exchange is required to take place in
CCASS on the second business day after any trading day.
All necessary arrangements have been made for the Shares to be admitted to CCASS.
All activities under CCASS are subject to the General Rules of CCASS and CCASS Operational
Procedures in effect from time to time.
– 65 –
COMMENCEMENT OF DEALINGS IN THE SHARES
Dealings in the Shares on the Stock Exchange are expected to commence at 9:00 a.m. on Thursday,
18 June 2015.
The Shares will be traded in board lots of 1,000 Shares each.
ROUNDING
Unless otherwise stated, all the numerical figures are rounded to one decimal place. Any
discrepancies in any table or chart between totals and sums of amounts listed therein are due to rounding.
LANGUAGE
If there is any inconsistency between this prospectus and the Chinese translation in this prospectus,
this prospectus shall prevail. Translated English names of Chinese laws and regulations, governmental
authorities, departments, entities (including certain of our subsidiaries), institutions, natural persons,
facilities, certificates, titles and the like included in this prospectus and for which no official English
translation exists are unofficial translations for identification purposes only. In the event of any
inconsistency, the Chinese name prevails.
EXCHANGE RATE CONVERSION
Solely for your convenience, this prospectus contains translations of certain Renminbi amounts into
Hong Kong dollars, of Renminbi amounts into U.S. dollars and of Hong Kong dollars into U.S. dollars at
specified rates.
Unless we indicate otherwise, the translation of Renminbi into Hong Kong dollars, of Renminbi into
U.S. dollars and of Hong Kong dollars into U.S. dollars, and vice versa, in this prospectus as at the Latest
Practicable Date was made at the following rate:
RMB0.80 to HK$1.00
RMB1.00 to US$0.16
HK$1.00 to US$0.13
No representation is made that any amounts in Renminbi, Hong Kong dollars or U.S. dollars can be
or could have been at the relevant dates converted at the above rates or any other rates or at all.
– 66 –
DIRECTORS AND PARTIES INVOLVED IN THE GLOBAL OFFERING
DIRECTORS
Name
Residential Address
Nationality
Executive Directors:
Zheng Songhui (鄭松輝)
Room 102, No. 297 Bing Lang Dong Li
Siming District, Xiamen
Fujian Province, PRC
Chinese
Zheng Tianming (鄭天明)
Qiao Shan No. 107, Qiaoshan Village Yancuo
Town, Longhai
Chinese
Zheng Ruyan (鄭如燕)
Unit 1510, No.9 Jinzhong Road
Huli District, Xiamen
Chinese
1-4-0404, Yuan No. 10, Dongbai Street
Guangqu Road
Beijing, PRC
Chinese
Mak Hing Keung Thomas (麥興強)
4/F, Cherry Court, 12 Tai Hang Road
Tai Hang, Hong Kong
Canadian
Lou Robert Hsiu-sung (樓秀嵩)
5/F, No. 8, 176 Xiang, Siwei Road
18 Lin, Qunxian Li
Daan District, Taipei
Chinese
Cheng Hiu Yung (鄭曉勇)
Flat 4, 30/F
Block H, Kam Ho House
Phase 5, Kam Fung Court
Ma On Shan, New Territories
Hong Kong
Chinese
Non-executive Director:
Zhang Lin (張琳)
Independent Non-executive Directors:
For further information regarding our Directors, please refer to the section headed “Directors and
Senior Management” in this prospectus.
– 67 –
PARTIES INVOLVED IN THE GLOBAL OFFERING
Sole Sponsor
39/F, One Exchange Square
Central
Hong Kong
Central
Hong Kong
Joint Bookrunners and
Joint Lead Managers
Central
Hong Kong
22/F, Li Po Chun Chambers
189 Des Voeux Road Central
Hong Kong
Co-lead Manager
SBI China Capital Financial Services Limited
Unit A2, 32/F, United Centre
95 Queensway
Hong Kong
Legal advisers to the Company
As to Hong Kong law
Jun He Law Offices
Suite 3701-10, 37/F
Jardine House
1 Connaught Place
Central
Hong Kong
As to Cayman Islands and
British Virgin Islands laws
Walkers
Suite 1501-1507
Alexandra House
18 Chater Road
Central
Hong Kong
– 68 –
As to PRC law
Jun He Law Offices
25/F, Tower 3
Jing An Kerry Centre
1228 Middle Yan’an Road
Shanghai 200040
The PRC
Legal advisers to the Sole Sponsor and
the Underwriters
As to Hong Kong law
DLA Piper Hong Kong
17/F, Edinburgh Tower
The Landmark
15 Queen’s Road Central
Hong Kong
As to PRC law
Jingtian & Gongcheng Law Firm
Suite 1202-1204, K. Wah Centre
1010 Huaihai Road (M)
Xuhui District
Shanghai 200031
The PRC
Auditors and reporting accountants
RSM Nelson Wheeler
29th Floor, Caroline Centre
28 Yun Ping Road
Causeway Bay
Hong Kong
Property valuer and
biological assets valuer
Jones Lang LaSalle Corporate Appraisal and
Advisory Limited
6/F, Three Pacific Place
1 Queen’s Road East, Admiralty
Hong Kong
Internal control consultant
RSM Nelson Wheeler Consulting Limited
29th Floor, Caroline Centre
28 Yun Ping Road
Causeway Bay
Hong Kong
– 69 –
Independent market consultant
Euromonitor International Limited
60-61 Britton Street
London
EC1M 5UX
Property Inspection Institute
Fujian Bo Hai Engineering Technology Co., Ltd
(福建博海工程技術有限公司)
Building No. 2, Chixing Industrial Region
Xindian Town, Jin’an District, Fuzhou
Fujian Province
The PRC
Receiving bank
Industrial and Commercial Bank of China (Asia) Limited
33/F, ICBC Tower
3 Garden Road
Central
Hong Kong
Selling Shareholders
Mr. Chan Kin Wa
Ms. GUO XUEYAN
– 70 –
CORPORATE INFORMATION
Registered office
Cricket Square
Hutchins Drive, P.O. Box 2681
Grand Cayman KY1-1111
Cayman Islands
Headquarters and principal place of
business in the PRC
8th Floor, Building No. 10
Guanyinshan Business Center
Siming District, Xiamen
China
Place of business in Hong Kong
18/F, Tesbury Centre
28 Queen’s Road East
Wanchai
Hong Kong
Website address
www.china-greenfresh.com
(this website address and its contents do not form part of
this prospectus)
Joint company secretaries
Ms. Zheng Ruyan
Ms. Ng Wing Shan
Wanchai
Hong Kong
(associate member of the Hong Kong Institute of
Chartered Secretaries and the Institute of Chartered
Secretaries and Administrators in the United Kingdom)
Authorised representatives
Ms. Zheng Ruyan
Ms. Ng Wing Shan
Wanchai
Hong Kong
– 71 –
CORPORATE INFORMATION
Principal banker
Agricultural Bank of China (Longhai Branch)
13/F, Gong Shang Building
No.45 Ziguang Road, Shima Town, Longhai
Audit committee
Mr. Mak Hing Keung Thomas (Chairman)
Mr. Lou Robert Hsiu-sung
Mr. Cheng Hiu Yung
Remuneration committee
Mr. Cheng Hiu Yung (Chairman)
Mr. Mak Hing Keung Thomas
Mr. Zheng Songhui
Nomination committee
Mr. Zheng Songhui (Chairman)
Mr. Lou Robert Hsiu-sung
Mr. Cheng Hiu Yung
Principal share registrar and
transfer office
Codan Trust Company (Cayman) Limited
Cricket Square
Hutchins Drive, P.O. Box 2681
Grand Cayman KY1-1111
Cayman Islands
Hong Kong branch share registrar
and transfer office
Tricor Investor Services Limited
Level 22
Hopewell Centre
Hong Kong
Compliance adviser
Central
Hong Kong
– 72 –
INDUSTRY OVERVIEW
Certain information and statistics relating to the industry in which our Group operates provided
in this section have been derived from official government sources. Our Directors believe that the
sources of the information in this “Industry Overview” section are appropriate sources for such
information, and Our Group has taken reasonable care in extracting and reproducing such
information. Our Directors have no reason to believe that such information is materially false or
misleading, and no fact has been omitted that would render such information materially false or
misleading. However, the information has not been independently verified by Our Directors, the
Selling Shareholders, the Sole Sponsor, the Sole Global Coordinator, the Joint Bookrunners, the
Underwriters, or any other party involved in the Global Offering and no representation is given as to
its accuracy.
Certain information and statistics are extracted from the Euromonitor Report. The information
extracted from the Euromonitor Report reflects an estimate of the market’s size and performance
from publicly available secondary sources and trade survey analysis of the opinions and perspectives
of leading industry players, and is prepared primarily as a market research tool. The information
extracted from the Euromonitor Report should not be viewed as a basis for investments provided by
Euromonitor and references to the Euromonitor Report should not be considered as Euromonitor’s
opinion as to the value of any security or the advisability of investing in the Company. While
reasonable care has been taken in the extraction, compilation and reproduction of such information
and statistics by the Company, none of the Selling Shareholders, the Sole Sponsor, the Sole Global
Coordinator, the Joint Bookrunners, the Underwriters, their respective affiliates, directors or
advisers, nor any party involved in the Global Offering including Euromonitor International Limited
have independently verified such information and statistics directly or indirectly derived from
official government publications, and such parties do not make any representation as to their
accuracy. The information and statistics may not be consistent with other information and statistics
compiled by other parties.
SOURCES OF INFORMATION
Report conducted by Euromonitor
Euromonitor is an Independent Third Party market research company providing trade and strategy
research to support corporate strategic review, new business planning, product and brand management,
competitive strategies and informed supply chain views, along with 80 countries’ industry data and over
200 countries’ macro information and consumer trend information. Euromonitor was commissioned by
our Group to prepare the Euromonitor Report in respect of the king trumpet mushroom, button mushroom
and canned vegetables and fruit categories in the PRC for the period from 2009 to 2013 and the projection
from 2014 to 2018. For the avoidance of doubt, king trumpet mushroom, button mushroom and canned
vegetables and fruit categories in this section refer to the following, respectively:
Pleurotus eryngii
(杏鮑菇)
(also commonly
known as king
trumpet mushroom)
Pleurotus eryngii is a type of edible
mushroom with a thick meaty white stem
and a small tan cap (in young specimens).
King trumpet mushroom in this section
includes fresh, frozen, dried, salted,
preserved and canned variants.
– 73 –
INDUSTRY OVERVIEW
Agaricus bisporus
(雙孢菇)
(also commonly
known as button
mushroom)
Agaricus bisporus refers to the edible
mushroom that is with a short thick stalk and
a cap in white or brown colors. It is the most
common type of mushroom. Button
mushroom in this section includes fresh,
frozen, dried, salted, preserved and canned
variants.
Canned vegetables
and fruit
•
Canned/preserved vegetables in this
section refer to processed vegetables
(single type and mixed) such as peas,
corn, mushrooms, bamboo shoots,
asparagus, water chestnuts, chilis, cow
peas, carrots and olives, which are sold in
cans, glass jars, and aluminium/retort
packaging, excluding tomatoes, beans or
pickled vegetables.
•
Canned fruit in this section refer to an
aggregation of preserved and stewed fruit
packaged in metal cans, glass jars, and
bricks/cups typically containing apples,
mandarin oranges, cherries, peaches,
pineapples, cocktails, pears, longgan,
lychee, compote, coconuts and the like.
We have paid a fee of approximately RMB339,200 for the Euromonitor Report, which we believe
reflects market rates. Our Directors are of the view that the payment of the fee does not affect the fairness
of conclusions in the Euromonitor Report. Information disclosed in this prospectus which is attributable
to Euromonitor has been extracted from the Euromonitor Report, which was prepared in the ordinary
course of business of Euromonitor, and published with the consent of Euromonitor. Euromonitor is not an
official government source for such information, but the Sole Sponsor and the Directors have exercised
reasonable care in reproducing such information and have no reasonable grounds to believe that any such
information being included in this prospectus is untrue.
Research Methodology
Euromonitor prepared the Euromonitor Report based on a robust view and independent market
assessment for China’s edible fungi and canned vegetables and fruit market categories. Euromonitor
utilised various sources including but not limited to government statistics, industry reports, industry
associations’ publications, public information and financials of industry players, and existing data from
Euromonitor’s passport database. The primary research involved reviewing information sourced from
store visits undertaken by local analysts in the PRC and trade interviews conducted with organisations
including manufacturers, distributors and retailers in the industry, as well as trade associations for their
opinions and insights. All primary and secondary sources of data and information were collated,
cross-checked and analysed to ensure a robust research feed for analysis and to build industry consensus
to the extent possible with the final data.
– 74 –
INDUSTRY OVERVIEW
The Euromonitor Report includes both historical and forecast information on the edible fungi and
canned vegetables and fruit industry in the PRC, which has been quoted in this prospectus. Euromonitor
adopted its standard practice of both quantitative and qualitative forecasting in terms of projecting the
market size by production volume, on the basis of an in-depth review of the historical development trend
of the markets. This review was cross-checked with established industry figures and trade interviews
where available.
In compiling and preparing the research, Euromonitor also adopted certain assumptions and relied
on other secondary and primary sources of information while making projections for the forecast period
of 2014-2018 for the edible fungi and canned vegetables and fruit industry in the PRC, including the
following:
(i)
the overall political environment in the PRC and globally will remain stable;
(ii) disposable income of the urban population and the gross income of the rural population in the
PRC will continue to increase at a steady pace;
(iii) the economic environment in the PRC will remain stable;
(iv) consumers’ consumption behaviours in the PRC will not alter significantly; and
(v)
the social environment in the PRC will remain stable.
Based on the above, our Directors are satisfied, and the Sole Sponsor concurs, that the disclosure of
future projections and industry data included in this section is not misleading.
Our Directors confirmed that, as at the Latest Practicable Date, after taking reasonable care, there
had been no adverse change in the market information since the date of the Euromonitor Report which
may qualify, contradict or have an impact on the information in this section.
Except as otherwise noted, all of the data and forecasts contained in this section are derived from the
Euromonitor Report.
CHINA MACRO ECONOMY OVERVIEW
The PRC economy has experienced dynamic growth in the past 30 years and economic stimulus
policies recently implemented by the Chinese Government have continued to boost economic growth.
With the increasing trend towards urbanisation, income levels for both urban and rural residents
increased every year from 2009 to 2013. According to the National Bureau of Statistics of China, the per
capita disposable income for urban residents increased from RMB17,174.7 in 2009 to RMB26,955.1 in
2013, representing a CAGR of 11.9%, while the per capita annual net income of rural residents in the
PRC increased from RMB5,153.2 in 2009 to RMB8,895.9 by 2013, representing a CAGR of 14.6%. The
increase in income and greater purchasing power fuelled the middle-to-upper-end consumer goods
sectors, allowing Chinese consumers to trade up on purchases, and give more attention to the safety,
quality, raw materials as well as the health and nutrition for food consumption, including mushroom.
– 75 –
INDUSTRY OVERVIEW
The total retail sales of consumer goods in the PRC recorded a growth at a value CAGR of 15.7%
from 2009 to 2013. Consumer Price Index (“CPI”) in the PRC recorded a low point in 2009 and
experienced a strong rebound in 2011, as domestic consumption was driven up by PRC government’s
stimulus package. Since 2012, CPI growth rate has sustained at around 1% to 2%. Given the slowed-down
but overall steady trends of China’s robust macro economy, it is fair to predict that CPI would sustain its
growth at around 1% to 2% in the coming years.
The following chart illustrates the CPI in the PRC from January 2009 to November 2014.
CPI 108
106
104
102
100
98
96
94
2009
January
Source:
2010
January
2011
January
2012
January
2013
January
2014
January
National Bureau of Statistics of the PRC
EDIBLE FUNGI MARKET SIZE IN THE PRC
According to the China Edible Fungi Association, China’s edible fungi production volume grew
from approximately 20.2 million tonnes in 2009 to approximately 31.3 million tonnes in 2013,
representing a CAGR of 11.5% from 2009 to 2013. Nearly 90% of total output of edible fungi was
consumed domestically. These edible fungi products primarily include fresh edible fungi produce, dried
mushrooms, salted mushrooms and canned edible fungi. Canned edible fungi are mainly for exportation,
accounting for approximately 60% of China’s total edible fungi exports. It is estimated that China’s
edible fungi production volume will grow from 34.6 million tonnes in 2014 to 48.9 million tonnes in
2018, representing a CAGR of 9.1%.
King Trumpet Mushroom Supply
Since 2009, China’s production volume of king trumpet mushrooms has been growing at annual rate
of above 20%. According to the China Edible Fungi Association, industrial production accounted for
more than 50% of China’s total production of king trumpet mushroom. Zhangzhou, Fujian province, was
home to approximately 75 large industrial king trumpet mushroom producers in 2013 with a combined
daily output of approximately 280 tonnes or annual output of 100,000 tonnes. Zhangzhou has become one
of the largest king trumpet mushroom producing areas in China.
According to the Euromonitor Report, production volume of king trumpet mushroom in the PRC
exceeded 924,000 tonnes in 2013, increased by 26.8% from 2012. It is expected that the production
volume of king trumpet mushroom will increase from approximately 1.1 million tonnes in 2014 to
approximately 1.8 million tonnes in 2018, representing a CAGR of 13.6%.
– 76 –
INDUSTRY OVERVIEW
The following chart demonstrates the production volume of king trumpet mushroom in the PRC
from 2009 to 2013 and its forecast from 2014 to 2018.
2,000
45%
39.4%
1,800
40%
1,600
35%
28.4%
1,400
30%
26.8%
1,200
25%
24.2%
1,000
15.4%
800
600
1,066.7
400
200
0
15.5%
421.0
523.0
2010
2011
729.3
1,232.5
20%
13.2%
10.9%
1,414.3
924.5
1,601.2
1,776.5
2009
15%
10%
5%
328.0
2012
2013
2014E
2015E
King Trumpet Mushroom Production Volume – ’000 tonnes
Source:
14.8%
2016E
2017E
2018E
0%
Year-on-year Growth %
China Edible Fungi Association, Euromonitor’s estimates from trade interviews and desk research.
King Trumpet Mushroom Demand
It is an industry norm to categorise king trumpet mushroom into three grades, namely top-graded,
second-graded and lower-graded. It is common to grade king trumpet mushroom largely based on the
factors such as size, form and intactness though there are variations about the grading standards in
different regions in the PRC. The wholesale price of top-graded king trumpet mushroom was at
approximately RMB30 per kilogram or above in 2012 which was notably higher than that of second
graded and lower-graded king trumpet mushroom.
According to the Euromonitor Report, approximately 80.0% of king trumpet mushroom produced
by the top five leading producers of king trumpet mushroom as identified in the Euromonitor Report,
including Fujian Greenfresh Foods, is top-graded king trumpet mushroom. According to the Euromonitor
Report, given Fujian Greenfresh Foods was the largest producer of king trumpet mushroom in terms of
production volume in 2013 with a market share of 2.5% in 2013, Fujian Greenfresh Foods was also a
leading producer of top-graded king trumpet mushroom in terms of production volume and market share
in 2013.
Domestic sales of king trumpet mushroom increased at a CAGR of 27.6%, from 309,500 tonnes in
2009 to 820,400 tonnes in 2013, while production grew nearly 30% annually during the same period. Due
to the under-supply of top-graded mushroom and over-supply of lower quality king trumpet mushroom,
there was an imbalance between production volume and sales volume. This was in large part attributable
to the entry of a large number of smaller sized producers since 2012 that however lowered the average
product quality. It is estimated that within years, the supply-demand of king trumpet mushroom sector
will become more balanced and that the sales volume of king trumpet mushroom will increase from less
than 1.0 million tonnes in 2014 to approximately 1.7 million tonnes in 2018, representing a CAGR of
14.7%.
– 77 –
INDUSTRY OVERVIEW
The following chart demonstrates the sales volume of king trumpet mushroom in the PRC from 2009
to 2013 and its forecast from 2014 to 2018.
1,800
40%
35.0%
1,600
1,400
35%
28.5%
30%
1,200
22.8%
24.5%
1,000
25%
18.3%
17.5%
15.8%
800
11.4%
600
970.5
400
200
0
397.6
495.2
2010
2011
668.3
1,140.2
1,320.1
820.4
1,510.6
15%
10%
1,682.2
5%
309.5
2009
2012
2013
2014E
2015E
King Trumpet Mushroom Domestic Sales Volume – ’000 tonnes
Source:
20%
14.4%
2016E
2017E
2018E
0%
Historical Price Trend of King Trumpet Mushroom and Raw Materials
The price of king trumpet mushroom was historically affected by various factors, including among
others, industrial production, seasonality in cultivation and consumer habits. Prices of king trumpet
mushroom are generally higher from July to September, and are usually the highest at the beginning of
the year.
According to the Ministry of Agriculture’s national agricultural product wholesale price
information website (pfscnew.agri.gov.cn), the national average wholesale price for king trumpet
mushroom increased sharply in 2009 from approximately RMB9 per kilogram to approximately RMB13
per kilogram. In December 2011, wholesale prices of king trumpet mushroom reached a record high level
of approximately RMB23 per kilogram. From 2009 to 2011, demand for king trumpet mushroom was
robust, and mainly came from food service consumption in high-end restaurants, as well as family
consumption in first-tier cities, and thus product quality was generally good. Consumption volume
expanded rapidly, while production capacity had yet to be stretched. As a result, price stayed high. In
2012, as industrial production pushed up the total output dramatically whilst market demand remained
robust, wholesale prices of king trumpet mushroom were overall stable in 2012. In 2013, wholesale prices
during the peak season hovered around RMB9 per kilogram and spiked in January and February of 2014
to above RMB10 per kilogram. The average wholesale prices of king trumpet mushroom throughout the
rest of 2014 stablised at approximately RMB7 per kilogram or above and experienced a trend parallel to
2013 with less fluctuation. The wholesale prices of king trumpet mushroom were not available as at the
Latest Practicable Date.
Market demand for high-quality top-grade and premium king trumpet mushroom remained high and
prices for high-end king trumpet mushroom were largely unchanged over the recent years. Premium king
trumpet mushroom from Gutian, Fujian province, recorded wholesale prices of up to RMB20 per
kilogram, while those for top-grade king trumpet mushroom achieved as high as RMB50 per kilogram.
– 78 –
INDUSTRY OVERVIEW
The main raw materials for growing king trumpet mushroom include strains, bran, dregs of beans,
corncob, corn powder and sawdust, which are all agricultural by-products or organic wastes. These
materials are consistently at low cost and easily accessible. Due to the fragmented nature of agricultural
by-products, there lacks robust price information recorded or centralised within the agricultural systems,
and therefore raw materials price information is unavailable.
The following chart demonstrates the average monthly wholesale price of king trumpet mushroom
in the PRC from January 2014 to January 2015:
Wholesale Price
RMB/
12
kilogram
10
8
6
4
Ja
0
n14
Fe
b1
M 4
ar
-1
A 4
pr
-1
M 4
ay
Ju 14
n14
Ju
l-1
A 4
ug
-1
Se 4
p1
O 4
ct
-1
N 4
ov
-1
D 4
ec
-1
Ja 4
n15
2
Source:
Ministry of Agriculture’s national agricultural product wholesale price information website
(pfscnew.agri.gov.cn)
Button Mushroom Supply
The production of button mushroom largely depends on individual growers, who contributed to
nearly 90% of the total production volume. Industrial production volume only constitutes 10% of the total
button mushroom production volume. The remaining output was from semi-industrial production at
mushroom factories. In order to facilitate the button mushroom market, the relevant local governments
work with the villagers’ committees to establish button mushroom production bases near major
cultivation areas as platforms of pricing, trading, logistics and market information, and to build up
connections for individual growers and edible fungi companies which provide strains and technical
support as well as purchasing final products from individual growers.
According to the Euromonitor Report, China’s total production of button mushroom was
approximately 2.3 million tonnes in 2013, increased by approximately 4.0% from 2012. The total button
mushroom production volume increased at a CAGR of 1.1% from 2009 to 2013. It is estimated that the
total button mushroom production volume will increase from approximately 2.4 million tonnes in 2014 to
approximately 2.7 million tonnes in 2018, representing a CAGR of 3.2%.
– 79 –
INDUSTRY OVERVIEW
The following chart demonstrates the production volume of button mushroom in the PRC from 2009
to 2013 and its forecast from 2014 to 2018.
3,000
15%
11.4%
2,500
10%
4.2%
4.0%
2,000
2,462.1
2,181.0
3.2%
2.8%
5%
2,696.0
0%
2,276.3
1.3%
1,500
3.8%
3.1%
2,373.0
2,188.3
2,447.1
2,539.6 2,622.0
2,210.0
1,000
-5%
500
-10%
-11.1%
0
2009
2010
2011
2012
2013
2014E
2015E
2016E
Button Mushroom Production Volume – ’000 tonnes
Source:
2017E
2018E
-15%
Button Mushroom Demand
Overall, the button mushroom sector experienced an estimated high sales-to-production ratio in the
period from 2009 to 2013. The joint cooperative model involving production bases, edible fungi
companies and individual growers is widely adopted and ensures centralised inventory management and
sales management to maintain turnover. The total button mushroom sales volume slightly increased from
approximately 2.1 million tonnes in 2009 to approximately 2.2 million tonnes in 2013, representing a
CAGR of 1.1%. It is estimated that the total sales volume of button mushroom will increase from
approximately 2.3 million tonnes in 2014 to approximately 2.6 million tonnes in 2018, representing a
CAGR of 3.3%.
The following chart demonstrates the sales volume of button mushroom in the PRC from 2009 to
2013 and its forecast from 2014 to 2018.
3,000
10%
7.7%
8%
2,500
6%
4.2%
2,000
4.0%
2,215.5
3.2%
3.8%
3.4% 2.9%
1,500
2,316.8
2,124.1
2,303.5
2,125.6
4%
2%
1.3%
2,376.2
2,466.8 2,550.0
2,625.0
2,150.9
0%
-2%
1,000
-4%
-6%
500
-8%
-8.3%
0
2009
2010
2011
2012
2013
2014E
Button Mushroom Domestic Sales Volume – ’000 tonnes
Source:
2015E
2016E
2017E
2018E
-10%
– 80 –
INDUSTRY OVERVIEW
Historical Price Trend of Button Mushroom and Raw Material
According to the Ministry of Agriculture’s national agricultural product wholesale price
information website (pfscnew.agri.gov.cn), wholesale prices of button mushroom have been steadily on
the rise since 2009, from approximately RMB5 per kilogram to RMB8 per kilogram to approximately
RMB10 per kilogram to RMB14 per kilogram, reached a peak in 2012 and then declined since 2013 to
approximately RMB8 per kilogram to RMB11 per kilogram. In 2013, prices in the Northern China market
flowed within the range of RMB5 per kilogram to RMB9 per kilogram. However, in coastal regions such
as Jiangsu and Zhejiang provinces, where climate affects the production, price variations can be up to
RMB10 per kilogram within a year. In 2013, prices in the Southern China market ranged from RMB8 per
kilogram to RMB18 per kilogram. In 2014, the wholesale price of button mushroom in national average
further levelled out to between RMB6 per kilogram and RMB10 per kilogram, but exhibited greater
stability than previous years. The wholesale prices of button mushroom were not available as at the Latest
Practicable Date.
The main raw materials for the production of button mushroom include straw and cow dung, both of
which are agricultural by-products or organic waste. These materials are consistently cheap with easy
access. The entire production is also a waste recycling process that lowers the cost of button mushroom.
Due to the fragmented nature of agricultural by-products, there lacks robust price information recorded
or centralised within the agricultural systems, and therefore raw materials price information is
unavailable.
The following chart demonstrates the average monthly wholesale price of button mushroom in the
PRC from 2011 to 2014.
Wholesale Price
18
RMB/
kilogram
16
14
12
2011
10
2012
8
2013
6
2014
4
2
Month
0
1
Source:
2
3
4
5
6
7
8
9
10
11
12
Ministry of Agriculture’s national product wholesale price information website (pfscnew.agri.gov.cn)
– 81 –
INDUSTRY OVERVIEW
DRIVERS OF EDIBLE FUNGI MARKET
According to the Euromonitor Report, the PRC edible fungi market is primarily driven by the
following major drivers:
•
improved health awareness among consumers in pursuit of dietary nutrition. Improved living
standards, higher disposable income and improved health awareness drive Chinese consumers
to increase spending in edible fungi, which is characterised with high nutritional value, green
sources, freshness, eco-friendly and pollution-free features.
•
great growth potentials of mushroom consumption in food service and modern retail channels.
In 2013, China’s food service industry generated RMB2,539.2 billion in sales revenue, an
increase by 9% compared to 2012. Demand for high-quality edible fungi as dish ingredients in
restaurants continues to grow. In addition, sales of edible fungi have recorded vibrant growth
in retail channels such as hypermarkets, supermarkets and online retailers.
•
efforts of central and local governments to encourage development of value-added agriculture.
The PRC central government issued the No. 1 file of “Several Opinions on Comprehensively
Deepening Rural Reform and Accelerating the Promotion of Agricultural Modernisation” in 19
January 2014, which emphasises the development and advancement of modern agriculture. The
development of the edible fungi industry is part of such advancement. Local governments in
some major producing regions, such as Gaomi, Shandong province; Mudanjiang, Heilongjiang
province; Gutian, Fujian province, provide leading mushroom producing companies in the
local market with incentives as favourable land use policy, funding support and brand
certification. Leading mushroom producing companies, recommended by county- or city-level
agriculture authorities, are eligible to apply for provincial-level project funds which can be
used to build agricultural zones, agricultural product wholesale markets and logistics centres.
Government funding also helps the formation of agricultural clusters and raise the level of
mechanisation in farming, which also drives the income growth for farmers.
FUTURE OPPORTUNITIES
The PRC edible fungi market demonstrates high growth potential in edible fungi consumption per
capita. As consumers become more health conscious with more nutrition intake, edible fungi
consumption is expected to grow in the future. Industrial production, which involves maturing
mechanisation, full-process automation and digital management, will be more widely used in the edible
fungi cultivation. In the future, major mushroom-producing regions are expected to continue the
commitment to building modern warehousing and logistics facilities, cold chains, agro-commodities
wholesale markets and distribution centres. In addition, large size edible fungi companies will attempt to
expand to both upstream and downstream industries such as mushroom processing, food service and
agricultural by-product to make full use of the resources of mushroom growing, to increase profitability
and expand their distribution networks.
– 82 –
INDUSTRY OVERVIEW
THREATS AND CHALLENGES OF EDIBLE FUNGI MARKET
According to the Euromonitor report, the PRC edible fungi market has following major challenges
for future development:
•
labour-intensive industry with relatively low investment in research and technology
development. Overall, China’s edible fungi industry is still in a developing stage and is
currently in a state of labour-intensive and experimental production. Major industrial
production regions are in different stages of development, lacking a consolidated planning and
development strategy at national level. Low levels of mechanisation restrain production
efficiency and supply of high-quality species. As a result, many species are inconsistent in
quality especially among the large number of middle-to-small scaled producers.
•
overcapacity impedes profitability of certain mushroom species. For example, enokitake (金針
菇) has experienced sharp price declines in recent years as a result of over-industrialisation and
surging output, resulting in the huge losses and even shutdown of many mushroom
manufacturers. Some companies previously specialising in enokitake have shifted their
attention to king trumpet mushroom in 2013 and therefore the number of producers of king
trumpet mushroom increased dramatically from 2012 to 2013, which however declined the
overall king trumpet mushroom quality, which led to a temporary imbalance between demand
and supply. In the future, those companies with low mechanisation and quality issues will be
likely eliminated from the market.
•
the PRC Government’s anti-corruption regulations curbing the consumption for expensive
mushroom in high-end restaurants. The central government’s tightened rules to restrain
extravagance have adversely affected the sale of high-end restaurants, including premium
dishes and the food ingredients. High-end food service demand for premium fresh mushroom
produce would be affected correspondingly.
COMPETITIVE LANDSCAPE AND NATURE OF COMPETITION
King trumpet mushroom
According to China Edible Fungi Association, there were more than 500 industrial producers of king
trumpet mushroom in the PRC as at the end of 2013 with small and medium sized new entrants. Entry
barriers and the competitiveness largely lie in product quality, research and development, manufacturing
equipment, branding as well as the capital.
– 83 –
INDUSTRY OVERVIEW
The five largest producers in aggregate produced almost 10% of China’s total king trumpet
mushroom by production volume in 2013. Amongst the top five players of king trumpet mushroom,
Fujian Greenfresh Foods and Lvya (Jiangsu) Mushroom Co., Ltd. run with a complete supply chain by
consolidating growing, production, and processing, research and development and distribution. Fujian
Greenfresh Foods was ranked the first in terms of production volume in 2013, with an annual output of
approximately 23,300 tonnes, or 2.5% share of China’s total king trumpet mushroom production volume.
The rankings in terms of production volume of China’s king trumpet mushroom were not available at the
Latest Practicable Date. The Company was generally positioned above the industry average. According to
the Company, it recorded a sales volume of king trumpet mushroom of approximately 14,489 tonnes,
23,579 tonnes and 26,628 tonnes for the three years ended 31 December 2012, 2013 and 2014
respectively. For the same periods, the Company’s average selling price of king trumpet mushroom was
RMB9.4 per kilogram, RMB8.3 per kilogram and RMB7.5 per kilogram respectively.
The table below sets out the top five leading producers of king trumpet mushroom in terms of
production volume in 2013.
Top Five Leading Players of King Trumpet Mushroom by Production Volume in China, 2013
2013
Ranking
Production
Volume
Company Name
Share %
Listed
Company
’000 Tonnes
1
2
Others
Fujian Greenfresh Foods
Lianyungang Xiangru Mushroom
Co., Ltd.
Lvya (Jiangsu) Mushroom Co., Ltd.
Shandong Baoyi Biotechnology Co., Ltd.
Lvyuan Yongle Mushroom Technology
Co., Ltd.
–
Total
–
3
4
5
Source:
23.3
2.5%
No
18.5
16.5
16.5
2.0%
1.8%
1.8%
No
No
No
15.0
834.7
1.6%
90.3%
No
924.5
100.0%
Euromonitor’s estimates from trade interviews and desk research.
Notes:
(1)
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 revenue
numbers 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 market shares based on
estimates provided by various trade sources (i.e. not just the companies themselves) and seeking a consensus on these
estimates as much as possible.
(2)
The rankings were based on estimates of companies’ production volume of king trumpet mushroom in the year 2013.
– 84 –
INDUSTRY OVERVIEW
Button Mushroom
The button mushroom market in China is fairly fragmented, mainly due to a large number of
independent growers. By 2013, the nation only registered less than 40 large-scale industrial producers for
button mushroom. Amongst the top ten largest producers, the industrial mushroom growers in aggregate
accounted for approximately 9% share of China’s total button mushroom production volume.
Fujian Greenfresh Foods was ranked the seventh in China by a production volume of approximately
14,400 tonnes of button mushroom in 2013. The rankings in terms of production volume of China’s
button mushroom were not available at the Latest Practicable Date. According to the Company, it
recorded a sales volume of button mushroom and straw mushroom of approximately 9,487 tonnes and
12,964 tonnes and 22,546 tonnes for the three years ended 31 December 2012, 2013 and 2014
respectively. For the same periods, the Company’s average selling price of button mushroom and straw
mushroom was RMB6.1 per kilogram, RMB7.4 per kilogram and RMB7.8 per kilogram respectively.
The table below sets out the top ten leading producers of button mushroom in terms of production
volume in 2013.
Top Ten Leading Players of Button Mushroom by Production Volume in China, 2013
2013
Ranking
Production
Volume
Company Name
Share %
Listed
Company
’000 Tonnes
1
10
Others
Jiangsu Yuguan Modern Agricultural S&T
Co., Ltd.
Shanxi Yuhao Mushroom Planting and
Manufacturing Co., Ltd.
Liaoning Pastoral Industry Co., Ltd.
Shandong Jisheng Food Co., Ltd
Shandong Jiufa Edible Fungus Co., Ltd.
Jilin Jiaohe Heitu Baiyun Mushroom
Co., Ltd.
Shandong Fubang Mushroom Co., Ltd.
Shandong Fanglv Agriculture Technology
Co., Ltd.
Shandong Qisheng Mushroom Co., Ltd.
–
Total
–
2
3
4
5
6
7
8
9
Source:
45.0
2.0%
No
30.0
21.5
20.0
18.0
1.3%
0.9%
0.9%
0.8%
No
No
No
No
15.0
14.4
14.0
0.7%
0.6%
0.6%
No
No
No
12.0
7.8
2,078.6
0.5%
0.3%
91.3%
No
No
2,276.3
100.0%
Euromonitor’s estimates from trade interviews and desk research.
– 85 –
INDUSTRY OVERVIEW
Notes:
(1)
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 revenue
numbers 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 market shares based on
estimates provided by various trade sources (i.e. not just the companies themselves) and sought a consensus on these
estimates as much as possible.
(2)
The rankings were based on estimates of companies’ production volume of button mushroom in the year 2013.
CANNED VEGETABLES AND FRUIT MARKET
Production volume of canned vegetables and fruit increased from 1.7 million tonnes in 2009 to 2.1
million tonnes in 2013, representing a CAGR of 4.6%. Canned vegetables and fruit is a typical
export-oriented industry. China’s export of canned products was booming when it came to be a WTO
member in 2001. Among canned food manufacturers, those in Fujian, Guangdong and Shandong
provinces have led the upward trend. It is estimated that the production volume of canned vegetables and
fruit will increase from approximately 2.1 million tonnes in 2014 to 2.5 million tonnes in 2018,
representing a CAGR of 3.7%.
Export of certain categories of canned vegetables and fruit has dropped since 2011, primarily due to
the imposition of trade barriers by certain countries such as the European Union countries and Canada
and competitions from other countries. According to comtrade.un.org sources, total export volume of
canned vegetables and fruit continued to grow, with an increase from approximately 1.7 million tonnes in
2009 to approximately 2.1 million tonnes in 2013.
The following chart demonstrates the production volume of canned vegetables and fruit in the PRC
from 2009 to 2013 and its forecast from 2014 to 2018.
3,000
12%
10.9%
2,500
10%
2,465.8
2,000
2,002.6
1,500
2,280.5
1,916.2
1,929.3
8%
2,372.2
6%
3.9%
3.8%
1,000
500
2,068.5
2,130.4 2,200.1
3.3%
3.0%
3.3%
3.7%
4.0%
4%
2%
1,728.6
0.7%
0
2009
2010
2011
2012
2013
2014E
2015E
Canned Fruit and Vegetable Production Volume – ’000 tonnes
Source:
2016E
2017E
2018E
0%
China Customs Year Book, http://comtrade.un.org/, Euromonitor’s estimates from trade interviews and desk
research.
– 86 –
INDUSTRY OVERVIEW
Demand and supply of raw materials of canned vegetables and fruit
The raw materials of canned vegetables and fruit produced by Fujian Greenfresh Foods cover a wide
range of various vegetables and fruit. The raw materials of the major canned vegetables and fruit products
are mushroom, Ma bamboo shoots and lychee.
In general, market price of mushroom has been overall in a stable but downwards trend in recent
years. This is mostly due to the continued industrialisation of production of many mushroom varieties,
which leads to economy of scale of production and helps bring down average prices. However, for certain
mushroom varieties such as enoki (or needle mushroom), mass industrialisation by under-qualified
producers has hurt the product quality and lowered average price, and even led to the overcapacity.
Market price of Ma bamboo shoots is in a general upward trend since 2008. Some of the major
production areas, such as Zhangzhou, Fujian province and Yingde, Guangxi Zhuang Autonomous Region
established production bases in recent years to better manage productivity and product quality, which
effectively raised the average selling price of Ma bamboo shoots. Back in 2008, average wholesale price
of Ma bamboo shoots was below RMB1 per kilogram. The following years saw constant price increase to
around RMB1.5 per kilogram in 2012. In 2013, price was flat due to the increased supplies caused by the
alternating rainy and sunny climate, which boosted Ma bamboo growing. However in 2014, the continued
rainy weather inhibited Ma bamboo growth and supply was cut to half of that in 2013. As a result,
wholesale price increased by 30% to approximately RMB2 per kilogram. Due to the limited number and
high concentration of major production areas, price of Ma bamboo shoots still show signs of volatility,
and is also subject to climatic changes.
Lychee sees significant production in provinces such as Fujian in China. Market price of lychee has
been a bit unstable in recent years. On one hand, domestic demand for fresh lychee as well as overseas
demand for canned lychee grow robustly over the years. On the other hand, supply is not as stable and is
subject to multiple factors, including climatic changes, timing of fruiting, and growers’ incentives (to
expand or to cut planting areas and yields), which are typical amongst many fruit categories. These
factors in aggregate led to price drops or price hikes in specific years. For example, in 2012, wholesale
price of lychee climbed by 30.0% to approximately RMB20 per kilogram or above. In 2014, wholesale
price of lychee levelled out from historical high to approximately RMB10 per kilogram. Nevertheless, the
price trends vary with production regions and lychee varieties. For leading production regions such as
Yunxiao, Fujian Province, local planters have been optimising its product varieties so as to maintain price
stability as well as profit margin.
– 87 –
INDUSTRY OVERVIEW
Drivers of Canned Vegetables and Fruit Market
According to the Euromonitor Report, the canned vegetables and fruit market is primarily driven by
favourable environment in the PRC domestic market. With the rise in living standards and the quickening
work pace of modern society, canned vegetables and fruit are gaining popularity due to their convenience
and ensured safety. Through sealing and sterilisation technology, food safety is guaranteed while
nutritional value is maintained. Domestic consumers are expected to accept canned food as part of their
daily diet in the near future. In addition, major canned food manufacturers are dedicated to explore
domestic market by exploring alternative channels, such as western restaurants, dessert shops and
bakeries, with an effort to find future opportunities in the domestic market. Besides, leading canned food
manufacturers are dedicated to consumer education, in order to build consumer perception of canned food
as healthy and with less preservatives and additives. The canned vegetables and fruit market is also driven
by recovering export market and the emerging export destination. The total canned vegetables and fruit
exports in 2013 experienced a slight growth of approximately 3.3% compared to 2012. Steady growth in
exports of canned edible fungi, bamboo shoots and lychee will also encourage manufacturers to increase
production. Moreover, there are emerging markets in Russia, Southeastern Asia and Latin America,
which are expected to drive the production of canned vegetables and fruit.
Future opportunities, threats and challenges of canned vegetables and fruit Market
According to the Euromonitor Report, the canned vegetables and fruit market presents more
opportunities with the new package materials, For example, fruit and vegetables packaged in aluminium
film bags (鋁膜包裝), the newly launched soft packages have the potential to capture a large and
emerging consumer base in the domestic market. In addition, flavoured canned vegetables and fruit are
more competitive in the markets and provide a greater variety to consumers. A growing number of
manufacturers have applied flavouring and seasoning to many products, such as canned edible fungi and
asparagus. Better customisation on canned flavours has significantly strengthened the competitiveness of
canned vegetables and fruit exports. Canned vegetables and fruit also offer a variety of materials for
culinary, which are not only convenient in preservation and usage, but are also accessible regardless of
seasonality in supplies. During the Annual Conference of the Canned Food Industrial Association in
2013, it was proposed that canned vegetables and fruit manufacturers should cooperate with chained
restaurants. The development of such relationship would facilitate domestic sales of canned vegetables
and fruit.
According to the Euromonitor Report, the canned vegetables and fruit market faces the threats and
challenges in quality control and international trade barriers and intensified competition. Canned
vegetables and fruit manufacturing involves the following stages i.e., canning, sealing, sterilisation,
examination, and stock of products. The sterilisation process of low acid canned food and acidified
canned food (such as canned edible fungi, canned peach) is especially hard to control. There were a
number of cases in recent years in which the Chinese canned vegetables and fruit failed the Food and
Drug Administration test by the United States, as well as quality standards in other export destination
countries.
Overseas demand for canned vegetables and fruit was also largely impacted by international trade
barriers such as European Union’s anti-dumping against China-produced canned oranges in 2008 and the
United States’ anti-dumping against China-produced canned edible fungi from 2005 to 2009. In addition,
along with the appreciation of Chinese currency as well as the rising labour cost, China’s exports of
canned food also experienced intensified competition from other countries.
– 88 –
LAWS AND REGULATIONS OF THE INDUSTRY
REGULATORY OVERVIEW
This section sets out summaries of certain aspects of the laws, rules, regulations, government and
industry policies and requirements, which are relevant to our Group’s operations and business in the PRC.
LAWS AND REGULATIONS RELATING TO FOREIGN INVESTMENT
Wholly Foreign-Owned Enterprise Law
The establishment procedures, approval procedures, registered capital requirement, foreign exchange
restriction, accounting practices, taxation and labour matters with respect to wholly foreign-owned
enterprises are governed by the Wholly Foreign-Owned Enterprise Law of the PRC 《
( 中華人民共和國外資
企業法》), which was promulgated by the Standing Committee of the National People’s Congress of the PRC
(“NPC”) on 12 April 1986 and amended on 31 October 2000, and the Implementation Rules under the
Wholly Foreign-Owned Enterprise Law 《
( 中華人民共和國外資企業法實施細則》), which was
promulgated by the State Council on 12 December 1990 and amended on 12 April 2001 and was partly
amended by Decision of the PRC State Council on Repealing and Amending Some Administrative
Regulations (2014) 《
( 國務院關於廢止和修改部分行政法規的決定（2014）》) on 19 February 2014.
Catalog for Guidance on Foreign Investments in Industries (2015 edition) 《
( 外商投資產業指導目錄》
2015修訂) (“Catalog 2015”)
Catalog 2015 was promulgated by the National Development and Reform Commission (“NDRC”)
and Ministry of Commerce of the PRC (“MOFCOM”) on 10 March 2015 and came into effect on 10 April
2015. Catalog 2015 contains three genres, catalog of industries in which foreign investment is
encouraged, catalog of industries in which foreign investment is restricted, catalog of industries in which
foreign investment is prohibited. For industries not mentioned in the Catalogue of Industries, they are
deemed to be catalog of industries in which foreign investment is permissible. Among our principal
business segments, the plantation, processing of the fruit, vegetables, edible fungi are not mentioned in
the Catalog 2015, and therefore shall be classified as permissible catalog.
Approval on Foreign Invested Projects
Pursuant to the Decision on the Reform of Investment System 《
( 關於投資體制改革的決定》)
promulgated by the State Council on 16 July 2004, the central government of the PRC has the power to
determine whether the approval and/or filing system applies to a specific investment. Accordingly, the State
Council released the Investment Project Catalogue Approved by the Government (2004 Edition) 《
( 政府核准
的投資項目目錄（2004年本）》(“Government Approval Catalog 2004”) on 16 July 2004. On 2 December
2013, the State council amended Government Approval Catalog 2004 and released the Investment Project
Catalogue Approved by the Government (2013 Edition) 《
( 政府核准的投資項目目錄（2013年本）》
(“Government Approval Catalog 2013”); on 31 October 2014, the State Council amended the Government
Approval Catalog 2013 and released Government Approval Catalog 2014. Under the Government Approval
Catalog 2014, any enterprise engaged in an enterprise investment projects that falls in one or more listed
items therein is subject to approvals of central government or competent local government (as the case may
be). Enterprise investment projects other than those listed in the Governmental Approvals Catalog 2014
should be filed with the competent administrative department of the government.
– 89 –
On 17 May 2014, NDRC promulgated the Administrative Measures for Approval and Filing of
Foreign Investment Projects 《
( 外商投資項目核准和備案管理辦法》). Pursuant to the Administrative
Measures, the Chinese controlled encouraged foreign invested projects under the Catalogue for Guidance
on Foreign Investment Industries with total investment (including capital addition) of US$300 million or
above shall be approved by the NDRC, and the Chinese controlled encouraged foreign invested projects
with total investment (including capital increase) of less than US$300 million shall be approved by the
local government. Except for the aforesaid projects, the encouraged foreign invested projects are only
subject to filing with the competent government authorities.
LAWS AND REGULATIONS RELATING TO AGRICULTURE
Agriculture
The Agriculture Law of the PRC 《
( 中華人民共和國農業法》) was promulgated by Standing
Committee of the National People’s Congress on 2 July 1993 and amended on 28 December 2002, on 27
August 2009 and on 28 December 2012. The law is enacted with a view to consolidating and
strengthening the position of agriculture as the foundation of the national economy. The main objective in
developing agriculture includes enhancing the quality and efficiency of agriculture as a whole, ensuring
the supply and quality of agricultural products and gradually bringing about the modernisation of
agriculture. The system of registration or license shall be applied in respect of the production and
operation of the means of agricultural production as seeds, pesticides, veterinary medicines, fodder and
feed additives, fertilisers and farm machines. Governments at all levels shall establish a sound system for
the safe use of the means of agricultural production while manufactures and sellers of the same shall be
responsible for the quality of the products they manufacture and sell.
Edible Fungi
On 27 March 2006, Ministry of Agriculture of the PRC promulgated the Measures for the
Administration of Cultures of Edible Fungi 《
( 食用菌菌種管理辦法》), which was further amended on 31
December 2013, 25 April 2014 and 29 April 2015. The measures mainly govern the activities in relation
to the selection of varieties of edible fungi, production, operation, application, management of the
cultures of edible fungi. Pursuant to the measures, cultures are divided into three grades: stock cultures,
original cultures and cultivars. Any entity and individual engaging in the production of cultures shall
obtain the Permit of Production and Operation of Cultures of the Edible Fungi, whereas the entity or
individual which only engages in the operation of cultivars may not be required to obtain the said Permit
but shall file with the competent agricultural authority. Meanwhile, the operator shall be equipped with
relevant knowledge about cultures, have appropriate equipment and facilities to store the cultures.
– 90 –
LAWS AND REGULATIONS RELATING TO FOOD INDUSTRY
Food safety
On 28 February 2009, the Food Safety Law of the PRC 《
( 中華人民共和國食品安全法》) (the “Food
Safety Law”) was promulgated by the Standing Committee of the NPC and took effective on 1 June 2009,
and on 20 July 2009 the Implementing Regulations for the Food Safety Law of the PRC 《
( 中華人民共和
國食品安全法實施條例》) were promulgated by the State Council of the PRC. The Food Safety Law and
its implementation regulations require that:
(1)
food producers and distributors should apply for the food production licenses and food
distribution licenses, respectively, however, a food producer who has obtained a food
production licenses does not need to obtain a food distribution license for selling the food
produced by itself at its production facilities;
(2)
food production and operation should comply with food-safety standards and certain other
requirements and food producers should not purchase or use raw food materials, food additives
or food related products which do not meet food-safety standards;
(3)
each food producer or distributor should establish and maintain a personnel health
management system. Any person who engages in food production or distribution is required to
take a physical examination each year and obtain health certificate prior to working;
(4)
food producers should check the licenses and food eligibility certification documents of their
suppliers before purchasing raw food materials, food additives and food-related products from
them and food producing enterprise should establish a record system for its procurement and
pre-delivery inspection and ensure the records should be authentic and be reserved for at least
two years; and
(5)
the packages of pre-packed food should bear labels which explicitly show the information
including the name, specifications, net content, date of production, list of ingredients or
components, producer’s name, address and contact information, shelf life, product standard
code, storage conditions, the general name of the food additives used in the national standards,
category number of the food production license, and other content acquired by laws,
regulations or food safety standards.
The Food Safety Laws requires the establishment of a food recall system by the food producer and
distributor. When a food producer discovers that its food product does not comply with food safety
standards, it shall immediately stop production, recall the food on the market, notify the relevant
producers, distributors and consumers, and keep the record of the recall and notification. When a food
distributor discovers that the food it distributes does not comply with food safety standards, it shall
immediately stop distributing such food, notify the relevant producers, sub-distributors and consumers,
and keep the record of the cessation of distribution and the notification. The food producers shall take
measures to safely recall and destroy the affected food, and report the treatment of the recalled food to the
competent quality supervision administration.
– 91 –
In the event of any breach of the Food Safety Law, relevant authorities may confiscate any illegal
gains and food products, issue warnings and impose rectification orders and monetary penalties ranging
from two to ten times the value of the products illegally produced and distributed, as well as revoke the
food safety certificate and impose criminal liability in severe cases.
License for food production
In accordance with provisions of the Regulations on the Administration of Production License for
Industrial Products of the PRC 《
( 中華人民共和國工業產品生產許可證管理條例》), which was
promulgated by the State Council of the PRC and came into effect on 1 September 2005 and the
Implementing Measures for the Regulations on the Administration of Production License for Industrial
Products of the PRC 《
( 中華人民共和國工業產品生產許可證管理條例實施辦法》) which were
promulgated by the General Administration of Quality Supervision, Inspection and Quarantine of the
PRC (“GAQSIQ”) and came into effect on 1 August 2014, the PRC implements a production license
system in respect of the manufacturing of important industrial products, including meat, beverage, rice,
wine and other food directly affecting human health; GAQSIQ and its local counterparties are responsible
for the nationwide or local administration of production license for industrial products.
Food distribution permits
According to the Measures for the Supervision and Administration of Food Safety in the
Distribution Sector 《
( 流通環節食品安全監督管理辦法》) and the Administrative Measures for Food
Distribution Permits 《
( 食品流通許可證管理辦法》) both issued by the SAIC and became effective on
30 July 2009, food safety in the distribution sector is subject to the supervision and administration of
SAIC and its local counterparties. Food distributors are required to obtain Food Distribution Permits
before applying for business licenses. A food distribution permit is valid for three years and may be
renewed by filing an application within 30 days prior to the expiration date.
LAWS AND REGULATIONS RELATING TO PRODUCT QUALITY
Product quality law
In accordance with the Product Quality Law of the PRC 《
( 中華人民共和國產品質量法》)
promulgated on 22 February 1993 and was subsequently amended on 8 July 2000, producers are liable for
the quality of the products they produce. Where anyone produces or sells products that do not comply
with the relevant national or industrial standards safeguarding the health and safety of the persons and
property, the relevant authority will order such person to suspend the production or sales, confiscate the
products, impose a fine of an amount higher than the value of the products and less than three times of the
value of the products, confiscate illegal gains (if any) as well as revoke the business license in severe
cases. Where the activities constitute a crime, the offender will be prosecuted.
– 92 –
Agricultural products quality safety law
According to the Agricultural Products Quality Safety Law of the PRC 《
( 中華人民共和國農產品質
量安全法》), which was promulgated by the standing committee of the National People’s Congress and
became effective on 1 November 2006, producers of agricultural products shall use chemical products in
a appropriate manner and avoid contaminating agricultural production sites. Agricultural producers shall
also ensure that the preservatives, additives and other chemicals used in the process of the packaging,
preservation, storage and transportation of agricultural products shall conform to the relevant mandatory
technical specifications set forth by the PRC government.
Product liabilities
Manufacturers and distributors of defective products in the PRC may incur liability for losses and
injuries caused by such products. Under the General Principles of the Civil Laws of the PRC 《
( 中華人民
共和國民法通則》), which became effective on 1 January 1987 and amended on 27 August 2009 and the
Law on the Protection of Consumer Rights and Interests of the PRC 《
( 中華人民共和國消費者權益保護
法》), which became effective on 1 January 1994 and was amended on 27 August 1999 and 25 October
2013, the manufacturers and distributors will be held liable for losses and damages suffered by consumers
caused by the defective products manufactured or distributed by them. Where the liability is attributable
to the manufacturer, the seller has the right to recover such compensation from the manufacturer after it
makes compensation to the consumer.
Under the above-mentioned laws and regulations, manufacturers are required to ensure that products
meet the requirements for safeguarding human health and safety, and safety of assets, failing to do so will
lead to a series of penalties, including the suspension of production and sale, confiscation of the products
and earnings, imposition of fines, revocation of business licenses, and/or even criminal liabilities. In
addition, if the products cause personal injuries or other form of torts, the manufacturers and distributors
of the products may be subject to tort liability.
LAWS AND REGULATIONS RELATING TO FOREIGN EXCHANGE
Foreign exchange administration
The Regulation on the Administration of Settlement, Sale and Payment of Foreign Exchange 《
( 結匯、
售匯及付匯管理規定》) governs foreign exchange transactions of foreign invested enterprises, which was
promulgated by the People’s Bank of China on 20 June 1996 and became effective on 1 July 1996. According
to the regulation, foreign invested enterprises are permitted to convert after-tax dividends into foreign
exchange and to remit such foreign exchange from their bank accounts in the PRC. Foreign invested
enterprises may also effect payments for current account items without approval of the SAFE , with valid
receipts and proof of the relevant transactions. However, prior approval from SAFE is required for foreign
exchange conversions for capital account items, including direct investments and capital contributions.
– 93 –
Under the Foreign Currency Administration Rules of the PRC 《
( 中華人民共和國外匯管理條例》)
which was promulgated by the State Council and amended on 14 January 1997 and on 1 August 2008, and
various regulations issued by SAFE, RMB may be converted into foreign currencies without approval for
the purpose of current account items, including the distribution of dividends, interest payments, trade and
service-related foreign exchange transactions. Conversion of RMB into other currencies for capital
account items, such as direct investments, loans, security investments and repatriation of investments,
however, is still subject to the approval of SAFE or its competent local branches. Under Foreign Currency
Administration Rules of the PRC, enterprises may only buy, sell or remit foreign currencies at those
banks authorised to conduct foreign exchange business after providing valid commercial documents and
relevant supporting documents and, in the case of capital account item transactions, obtaining approval
from SAFE or its competent local branches. Capital investments by enterprises outside of the PRC are
also subject to limitations, which include approvals by MOFCOM, SAFE and NDRC, or their respective
competent local branches.
In accordance with the Notice on Reforming the Administrative Approach Regarding the Settlement
of the Foreign Exchange Capitals of Foreign-invested Enterprises 《
( 國家外匯管理局關於改革外商投資
企業外匯資本金結匯管理方式的通知》) issued by SAFE on 30 March 2015, which became effective on 1
June 2015, foreign-invested enterprises are allowed to settle their foreign exchange capital on a
discretionary basis. A foreign-invested enterprise shall truthfully use its capital for its own operational
purposes within its business scope, and may make domestic equity investment with the settled foreign
exchange amount. SAFE conducts the verification and inspection on the foreign-invested enterprises, and
may disqualify a foreign-invested enterprise that commits grave or malicious irregularities from
discretionary settlement of foreign exchange.
On 19 November 2012, SAFE promulgated the Circular of Further Improving and Adjusting Foreign
Exchange Administration Policies on Foreign Direct Investment 《
( 國家外匯管理局關於進一步改進和調
整直接投資外匯管理政策的通知》, the “Circular No. 59”), which became effective on 17 December
2012. The Circular No. 59 substantially amends and simplifies the current foreign exchange procedure.
According to the Circular No. 59, the opening of various foreign exchange accounts for direct investment
no longer requires SAFE’s approval or verification, and purchase and remittance of foreign exchange as
a result of capital reduction, liquidation, early repatriation or share transfer in a foreign invested
enterprise no longer requires SAFE’s approval.
Dividend distribution
The principal laws governing dividend distributions by our PRC Subsidiaries include the PRC
Company Law 《
( 中華人民共和國公司法》), which was promulgated on 29 December 1993 and became
effective on 1 July 1994 and was subsequently amended on 25 December 1999, 28 August 2004 and
27 October 2005 and on 28 December 2013. Dividend distribution by a wholly foreign-owned enterprises
(“WFOE”) is further governed by the Wholly Foreign-Owned Enterprise Law of the PRC 《
( 中華人民共
和國外資企業法》), which was promulgated on 12 April 1986 and revised on 31 October 2000 and its
Implementation Regulations 《
( 中華人民共和國外資企業法實施細則》) promulgated on 12 December
1990 and revised on 12 Apri1 2001 and 19 February 2014.
– 94 –
PRC companies may pay dividends only out of their accumulated profits, if any, determined in
accordance with PRC accounting principles. In addition, PRC companies, are required to set aside each
year at least 10% of their after-tax profit based on PRC accounting principles to their statutory general
reserves funds until the cumulative amount of such reserve fund reaches 50% of their registered capital.
These reserves are not distributable as cash dividends. Furthermore, a WFOE in the PRC may also be
required to set aside individual funds for employee welfare, bonuses and development, at the discretion of
such PRC companies and as stipulated in their articles of association. These reserves or funds are not
distributable as dividends.
Circular No. 75 and Circular No. 37
On 21 October 2005, the SAFE promulgated the Notice of the SAFE on Relevant Issues concerning
Foreign Exchange Administration for Domestic Residents to Engage in Financing and in Return
Investment via Overseas Special Purpose Companies 《
( 國家外匯管理局關於境內居民通過境外特殊目
的公司融資及返程投資外匯管理有關問題的通知》) (the “Circular No. 75”). According to the Circular
No. 75 and the following related implementation rules issued by the SAFE, a PRC domestic resident legal
person or a PRC domestic resident natural person is required to effect foreign exchange registration with
the local foreign exchange bureau, when such domestic residents use its/his/her enterprise assets or
interests in the PRC to establish or take control of a special purpose company (“SPV”) abroad, and
its/his/her domestic enterprises receive round-trip investments from funds raised by such SPV controlled
by domestic residents.
On 4 July 2014, the SAFE promulgated the Notice of the SAFE on Relevant Issues concerning
Foreign Exchange Administration Relating to Domestic Residents’ Offshore Investment and Financing
and Round-Trip Investment through Special Purpose Vehicles 《
( 國家外匯管理局關於境內居民通過特殊
目的公司境外投融資及返程投資外匯管理有關問題的通知》) (the “Circular No. 37”), which replaced
the Circular No. 75. The requirement for conducting foreign exchange registration of round-trip
investments by a PRC domestic resident through SPV is still retained.
The Circular No. 37 narrows the scope of registrable offshore SPVs, to the extent that only those
(first level) offshore SPVs that are directly established or controlled by domestic residents shall be
registered. In addition, the scope of the change registration is limited to the change of information in
relation to the domestic individual resident, and the capital increase, decrease, equity transfer or swap,
etc., by domestic individual resident.
Failure to comply with the registration procedures of Circular No. 37 may result in penalties and
sanctions, including the imposition of restrictions on the ability of the Offshore SPV’s PRC subsidiary to
distribute dividends to its overseas parent.
– 95 –
LAWS AND REGULATIONS RELATING TO INTELLECTUAL PROPERTY RIGHTS
Trademark Law
As required by the Trademark Law of the PRC 《
( 中華人民共和國商標法》), which became effective
on 1 March 1983 and was amended on 27 October 2001 and 30 August 2013 and Regulation for the
Implementation of Trademark Law of the PRC 《
( 中華人民共和國商標法實施條例》), which was
promulgated on 3 August 2002 and was amended on 29 April 2014 and came into effect on 1 May 2014,
the Trademark Office of the SAIC (the “Trademark Office”) shall be responsible for the registration and
administration of trademarks throughout the country; the Trademark Review and Adjudication Board of
the SAIC shall be responsible for hearing trademark disputes.
Registered trademarks refer to trademarks that have been approved and registered by the Trademark
Office, which include commodity trademarks, service trademarks, collective marks and certification
marks. The trademark registrant shall enjoy an exclusive right to use the trademark, which shall be
protected by law. Any mark in the form of word, graphic, alphabet, number, 3D (three-dimension) mark,
color combination or the combination of these elements that can distinguish the commodities of the
natural person, legal person or other organisations from those of others can be registered as a trademark.
Trademark for which an application is filed for registration shall be as distinctive as to be distinguishable,
and shall not go against the legitimate right previously obtained by others. A trademark registrant is
entitled to tag the words “Registered Trademark” or a sign indicating that it is registered.
Patent Law
Patents in the PRC are mainly protected under the Patent Law of the PRC 《
( 中華人民共和國專利
法》), which was promulgated by the Standing Committee of the NPC on 12 March 1984 and amended
on 4 September 1992, 25 August 2000 and 27 December 2008, and its implementation rules 《
( 中華人
民共和國專利法實施細則》), which was promulgated by the State Council on 15 June 2001 and
amended on 28 December 2002 and 9 January 2010. The Patent Law of the PRC and its implementation
rules provide for three types of patents, “invention”, “utility model” and “design”. “Invention” refers to
any new technical solution relating to a product, a process or improvement thereof; “utility model”
refers to any new technical solution relating to the shape, structure, or their combination of a product,
which is suitable for practical use; and “design” refers to any new design of the shape, pattern, color or
the combination of any two of them of a product, which creates an aesthetic feeling and is suitable for
industrial application. The duration of a patent right for “invention” is 20 years, and the duration of a
patent right for “utility model” or “designs” is 10 years, from the date of application.
LAWS AND REGULATIONS RELATING TO TAXATION
Enterprise income tax (“EIT”)
According to the PRC EIT Law, which was promulgated on 16 March 2007 and became effective
from 1 January 2008, the income tax for both domestic and foreign-invested enterprises is at a uniform
rate of 25%. The Regulation on the Implementation of Enterprise Income Tax Law of the PRC 《
( 中華人
民共和國企業所得稅法實施條例》) (the “EIT Rules”) was promulgated on 6 December 2007 and
became effective from 1 January 2008.
– 96 –
Under the EIT Law, enterprises are classified as either “resident enterprises” or “non-resident
enterprises”. Enterprises established under foreign law with “de facto management bodies” outside the
PRC but have an establishment or place of business in the PRC, or which do not have an establishment or
place of business in the PRC but have income originating from China are considered as “non-resident
enterprises”, which shall pay income tax at the rate of 10% in relation to the income originating from
China unless a tax treaty benefit can be claimed. Enterprises established under the laws of foreign
countries or regions whose “de facto management organisation” located within the PRC territory are
considered as “resident enterprises,” and thus generally be subject to the enterprise income tax at the rate
of 25% on their global income. The implementing rules of the EIT Law define “de facto management” as
“bodies that substantially carry out comprehensive management and control on the business operation,
employees, accounts and assets of enterprises”.
Moreover, pursuant to the Arrangement between Mainland China and the Hong Kong Special
Administrative Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with
respect to Taxes on income 《
( 內地和香港特別行政區關於對所得稅免雙重徵稅和防止偷漏稅的安排》), a
PRC resident enterprise which distributes dividends to its Hong Kong shareholders should pay income
tax according to PRC law, however, if the beneficiary of the dividends is a Hong Kong resident enterprise,
which directly holds no less than 25% equity interests of the aforesaid enterprise (i.e. the dividend
distributor), the tax levied shall be 5% of the distributed dividends. If the beneficiary is a Hong Kong
resident enterprise, which directly holds less than 25% equity interests of the aforesaid enterprise, the tax
levied shall be 10% of the distributed dividends. Meanwhile, Circular of the State Administration of
Taxation on the Interpretation and the Determination of the “Beneficial Owners” in the Tax Treaties
(《國家稅務總局關於如何理解和認定稅收協定中「受益所有人」的通知》) has stipulated some factors
that are unfavorable to the determination of “beneficial owner”.
Pursuant to the PRC EIT Law and the EIT Rules, income from equity investment between qualified
resident enterprises such as dividends and bonuses, which refers to investment income derived by a
resident enterprise from direct investment in another resident enterprise, is tax-exempt income.
Value added tax (“VAT”)
According to the Provisional Regulations on Value-added Tax of the PRC 《
( 中華人民共和國增值稅
暫行條例》), which was promulgated by the State Council and came into effect on 1 January 1994 and
amended on 10 November 2008 and came into effect on 1 January 2009 and the Detailed Rules for the
Implementation of the Provisional Regulations on Value-added Tax of the PRC (Revised in 2011) 《
( 中華
人民共和國增值稅暫行條例實施細則（2011年修訂）》), which was promulgated by the Ministry of
Finance and the SAT on 15 December 2008 and amended on 28 October 2011 and came into effect on 1
November 2011 (collectively, the “VAT Law”), all enterprises and individuals that engage in the sale of
goods, the provision of processing, repair and replacement services, and the importation of goods within
the territory of the PRC must pay value-added tax.
According to the Circular of the Ministry of Finance and the State Administration of Taxation on the
Application of Low Value-added Tax Rate and Simplified Method to Certain Goods 《
( 財政部、國家稅務
總局關於部分貨物適用增值稅低稅率和簡易辦法徵收增值稅政策的通知》) (the “VAT Notice”), and
the Notice of the Ministry of Finance and the State Administration of Taxation on Issuing the Explanatory
Notice on the Scope of Agricultural Products Subject to Taxation 《
( 財政部、國家稅務總局關於印發
〈農業產品徵稅範圍註釋〉的通知》), the value-added tax rate is 13% for taxpayers that sell or import
goods such as agricultural products (which refers to primary plant and animal products including grains,
– 97 –
vegetables, livestock and poultry products). The value-added tax rate is 17% for taxpayers that sell or
import goods that are not specifically listed in the VAT Law and VAT Notice, or provide processing,
repairs and replacement services.
LAWS AND REGULATIONS RELATING TO ENVIRONMENTAL PROTECTION
Certain PRC environmental laws and regulations are applicable to our production, mainly including the
PRC Environmental Protection Law 《
( 中華人民共和國環境保護法》), Law of the PRC on the Prevention
and Control of Water Pollution 《
( 中華人民共和國水污染防治法》), Law of the PRC on the Prevention and
Control of Atmospheric Pollution 《
( 中華人民共和國大氣污染防治法》), Law of the PRC on the Prevention
and Control of Pollution from Environmental Noise 《
( 中華人民共和國環境噪聲污染防治法》), Law of the
PRC on the Prevention and Control of Environmental Pollution by Solid Waste 《
( 中華人民共和國固體廢物
污染環境防治法》) and the PRC Environmental Impact Assessment Law 《
( 中華人民共和國環境影響評價
法》), which establishes the legal framework for environmental protection in the PRC.
The Law on Appraising of Environment Impact of the PRC 《
( 中華人民共和國環境影響評價法》),
which was promulgated by the Standing Committee of the NPC and became effective on 1 September
2003, the Administration Rules on Environmental Protection of Construction Projects 《
( 建設項目環境保
護管理條例》), which was promulgated by the State Council and became effective on 29 November 1998,
and the Measures for the Administration of Examination and Approval of Environmental Protection
Facilities of Construction Projects 《
( 建設項目竣工環境保護驗收管理辦法》), which was promulgated
by the State Environmental Protection Administration of the PRC and became effective on 1 February
2002, require enterprises planning construction projects to engage qualified professional institution to
provide assessment reports on the environmental impact of such projects. The assessment reports must be
approved by the competent environmental protection authorities prior to commencement of any
construction work. Enterprises shall file an application for examination and acceptance of the
environmental protection facilities upon the completion of the construction project. A construction
project may be formally put into production or use only if the corresponding environmental protection
facilities have passed the acceptance examination.
According to the List of Systematic Management on Construction Projects Impact Assessment (the
“List”) 《
( 建設項目環境影響評價分類管理名錄》), promulgated by the Ministry of Environmental
Protection and became effective on 1 October 2008, the State has implemented the classification
management system based on the project’s impact on the environment. Construction enterprises shall, in
accordance with the classification of the List, respectively submit the environmental impact assessment
report, the environmental impact report form or fill the environmental impact registration form.
Pursuant to the Regulations on the Environment Protect of Fujian Province 《
( 福建省環境保護條
例》) promulgated by the People’s Congress of Fujian Province on 5 July 1995 and amended on 20
January 2002 and 31 March 2012, construction projects shall be subject to environmental impact
assessment in accordance with the laws and regulations of the PRC. Facilities for the prevention and
control of pollution in a construction project shall be designed, built and put into construction and use
together with the principal part of the project. For enterprises discharging pollutants shall obtain the
pollutant emission license and discharge pollutants accordingly as well.
– 98 –
LAWS AND REGULATIONS RELATING TO LABOUR
Employment contracts
According to the Labour Law of the PRC 《
( 中華人民共和國勞動法》) promulgated on 5 July 1994
and effective on 1 January 1995, enterprises and institutions shall establish and perfect their system of
work place safety and sanitation and strictly abide by state rules and standards on work place safety.
Labour safety and sanitation facilities shall comply with statutory standards. Enterprises and Institutions
shall provide employees with a safe work place and sanitation conditions which are in compliance with
relevant laws and regulations of labour protection.
The Employment Contract Law of the PRC 《
( 中華人民共和國勞動合同法》) was promulgated by
the Standing Committee of NPC on 29 June 2007 and came into effect on 1 January 2008 and was
amended on 28 December 2012. In order to implement the Employment Contract Law, Implementing
Regulations of the Labour Contract Law of the PRC 《
( 中華人民共和國勞動合同法實施條例》) was
promulgated by the PRC State Council on 18 September 2008. The Employment Contract Law is
primarily aimed at regulating employee/employer rights and obligations, including matters with respect
to the establishment, performance and termination of labour contracts. The newly amended Employment
Contract Law which became effective on 1 July 2013 imposes more stringent requirements on labour
dispatch and more stringent penalties on unlawful labour dispatch practices. According to the
amendments, the number of dispatched workers that hired by an employer may not exceed a certain
percentage of the total number of employees and the dispatched workers can only engage in temporary,
auxiliary or substitutive work. The amended Labour Contract Law also requires contract workers doing
the same work as full-time employees receive the same compensation. In the event that an employer has
caused a dispatched worker to suffer damages, the labour dispatch entity and the employer shall jointly
and severally bear compensation liability to such worker.
The Pilot Measures for Management on Employment Filing of Fujian Province 《
( 福建省勞動用工
備案管理試行辦法》), which was promulgated by the Bureau of Human Resources and Social Security of
Fujian Province and came into effects on 8 April 2009, requires that the enterprises employing labours
shall make filings with regard to the execution, revision (only referring to changing the term of the
employment contract), renewal, rescission, and termination of the employment contract. The measures
stipulate three types of filings, the initial filing, filing for changes, and filing for deregistration, all of
which shall be recorded in the Employment Filing Manual. The filing shall include the description of the
employer, the employees, the employment contracts and the collective contracts.
Employee funds
As required under the Regulation of Insurance for Labour Injury 《
( 工傷保險條例》), which was
promulgated on 20 December 2010 and became effective on 1 January 2011, the Provisional Measures for
Maternity Insurance of Employees of Corporations 《
( 企業職工生育保險試行辦法》), implemented on 1
January 1995, the Decisions on the Establishment of a Unified Programme for Old-Aged Pension
Insurance of the State Council 《
( 國務院關於建立統一的企業職工基本養老保險制度的決定》), issued
on 16 July 1997, the Decisions on the Establishment of the Medical Insurance Programme for Urban
Workers of the State Council 《
( 國務院關於建立城鎮職工基本醫療保險制度的決定》), promulgated on
14 December 1998, the Unemployment Insurance Measures 《
( 失業保險條例》), promulgated on 22
January 1999, and the Social Insurance Law of the PRC 《
( 中華人民共和國社會保險法》), implemented
on 1 July 2011, enterprises are obliged to provide their employees in the PRC with welfare schemes
covering pension insurance, unemployment insurance, maternity insurance, labour injury insurance and
medical insurance.
– 99 –
Enterprises must apply for social insurance registration with local social insurance agencies and pay
premiums for their employees. If an enterprise fails to pay the required premiums on time or in full
amount, the authorities in charge will demand the enterprise to settle the overdue amount within a
stipulated time period and impose a 0.05% overdue fine. If the overdue amount is still not settled within
the stipulated time period, an additional fine with an amount of three to five times of the overdue amount
will be imposed.
According to the Regulation on Management of Housing Accumulation Fund 《
( 住房公積金管理條
例》), which was promulgated by the State Council on 3 April 1999, became effective on the same day and
was amended on 24 March 2002, enterprises must register with the competent managing center for
housing accumulation funds and, upon the examination by such managing center of housing
accumulation fund, complete procedures for opening an account at the relevant bank for the deposit of
employees’ housing accumulation funds. Employers are required to contribute, on behalf of their
employees, to housing accumulation funds. The payment is required to be made to local administrative
authorities. Any employer who fails to contribute may be fined and ordered to make good the deficit
within a stipulated time limit.
LAWS AND REGULATIONS RELATING TO MERGER AND ACQUISITION
Under the Rules on the Merger and Acquisition of Domestic Enterprises by Foreign Investors in the
PRC 《
( 關於外國投資者併購境內企業的規定》) (the “M&A Rules”), which was issued by the
MOFCOM, the State-owned Assets Supervision and Administration Commission of the State Council,
SAT, SAIC, CSRC and SAFE on 8 August 2006, effective on 8 September 2006 and further amended on
22 June 2009 by the MOFCOM, a foreign investor is required to obtain necessary approvals when (i) a
foreign investor acquires equity in a domestic non-foreign invested enterprise (the “domestic
enterprises”) thereby converting it into a foreign-invested enterprise, or subscribes for new equity in a
domestic enterprise via an increase of registered capital thereby converting it into a foreign-invested
enterprise; or (ii) a foreign investor establishes a foreign-invested enterprise which purchases and
operates the assets of a domestic enterprise, or which purchases the assets of a domestic enterprise and
injects those assets to establish a foreign-invested enterprise. According to Article 11 of the M&A Rules,
where a domestic company or enterprise, or domestic natural person, through an overseas company
legally established or controlled by it/him/her, acquires a domestic company which is related to or
connected with it/him/her, approval from MOFCOM is required.
LAWS AND REGULATIONS RELATING TO THE USE, ACQUISITION AND LEASE OF
COLLECTIVELY-OWNED LAND
Acquisition of Collectively-owned Land
Pursuant to the Land Administration Law of the PRC 《
( 中華人民共和國土地管理法》) (“Land
Administration Law”) promulgated on 25 June 1986, effective on 1 January 1987 and as amended on 29
December 1988, 29 August 1998 and 28 August 2004, all land in the PRC is either state-owned or
collectively-owned, depending on the location of the land. All land in the urban areas of a city or town is
state-owned, and all land in the suburban areas of a city or town and rural area is, unless otherwise
specified by law, collectively-owned. The land use right of collectives shall not be granted, transferred or
leased for non-agricultural constructions, except in the case of legal transfer of the land that conforms to
the general plan for the utilisation of land and legally obtained by enterprises due to bankruptcy or
acquisition.
– 100 –
In particular, an entity may not directly acquire the collectively-owned land from the owners of the
collectively-owned land (i.e. peasants collectives). Any entity or individual that needs a parcel of land for
a particular construction project shall apply for the use of state-owned land for construction. The State
Council and the provincial government has the power to approve the expropriation of the
collectively-owned land and the government of municipality or county should pay the compensation to
the peasants concerned, such that the land is converted from collectively-owned land into state-owned
construction land.
Subsequently, the entity or individual may acquire the state-owned land through a bidding, auction
and listing procedure. According to the Provisions on Transfer of the Use Right of State-owned
Construction Land through Bidding, Auction and Listing 《
( 招標拍賣掛牌出讓國有建設用地使用權規
定》), promulgated on 9 May 2002, effective on 1 July 2002 and as amended on 1 November 2007, the
transfer of business land for industrial, commercial, tourism, entertainment and commercial residential
building purposes and the transfer of a land parcel that has more than two potential users shall be
transferred by means of bidding, auction or listing. Any individual or entity within the territory of the
PRC may apply to participate in the bidding, auction and listing. The land administration department of
municipality or county shall determine the base bid or base price in accordance with the land appraisal
and the government's industrial policy. The base bid or price shall not be lower than the minimum
standard specified by the State. If the bidder’s construction plan of the land is in compliance with the
requirements prescribed in the announcement published by the competent land administration and it
offers the highest price in the bidding, such bidder would win the bidding. The entity or individual which
wins the bidding through the bidding process should enter into the grant contract of land use right
contract with the land administration department and pay grant fees and other charges to the government
for the grant of land use right. After the aforementioned formalities are completed, the entity or
individual will obtain the land use right of the state-owned land accordingly.
The following flow chart illustrates the proper steps that should be taken to acquire the use right of
state-owned construction land through bidding, auction and listing:
Government expropriates
collectively-owned land
and the land ownership is
converted from
collectively owned to
state owned.
Land administration
department publishes
the announcement for
the bidding, auction
and listing of a parcel
of land.
The bidders submit
the required
documentation
within the time limit
prescribed in the
announcement.
The entity obtains
the land use right
of the state-owned
land.
Land administration
department enters into a
grant contract of land use
right with the winning
bidder and the winning
bidder pays the grant fees
and other charges.
The bidder who offers
the highest price and is
in compliance with the
requirements required
by the announcement
would win the bidding.
– 101 –
Lease of Collectively-owned Land
Lease of collectively-owned land for industrial purpose
Pursuant to the Land Administration Law, the land use right owned by collectives shall not be
granted, transferred or leased for non-agricultural construction, except in the case of legal transfer of the
land that conforms to the general plan for the utilisation of land and legally obtained by enterprises due to
bankruptcy or acquisition.
Circulation of rural land
According to the Law on the Contracting of Rural Land of the PRC 《
( 中華人民共和國農村土地承
包法》), which was promulgated on 29 August 2002 and became effective on 1 March 2003 and as
amended on 27 August 2009, and Measures for the Administration of Circulation of Rural Land
Contracted Management Right 《
( 農村土地承包經營權流轉管理辦法》), which was promulgated on 19
January 2005 and became effective on 1 March 2005, members (i.e. the farmer-households) of a
collective economic organisation in rural areas have the right to contract (承包) the rural land awarded by
their collective economic organisation. The farmer-households of the collective economic organisation,
as the contractors (承包人), are entitled to acquire the contracted management right of rural land from the
contract-letting party (發包人) (i.e. the villagers’ committee or the collective economic organisation).
Moreover, if an entity or an individual, who is not a member of the collective economic organisation,
intends to contract the collectively-owned land, such entity or individual shall obtain the prior consent of
at least two-thirds of the members of the villagers’ conference or of the representatives of villagers, and
the contract shall be submitted to the people’s government of the town for approval.
As provided by the Measures for the Administration of Circulation of Rural Land Contracted
Management Right 《
( 農村土地承包經營權流轉管理辦法》), the rural land contracted management right
lawfully obtained by a contractor may be circulated by way of subcontracting, leasing, interchanging (i.e.
the exchange of the contracted management right of one parcel of rural land for another parcel of rural
land), transferring and farmer-households may entrust the contract-letting party or intermediary
organisation to circulate the contracted management right of rural land. A contractor or the
contract-letting party may sign a written circulation contract with the lessee and such circulation contract
shall be filed with the rural land contracting management authority of the relevant village or town.
By way of example, the following flow chart illustrates the proper steps that should be taken to lease
a parcel of collectively-owned land for agricultural purposes:
Farmer-households
contract the land
from the contractletting party.
Farmer-households
entrust the contractletting party to
circulate the land
they contracted.
– 102 –
An entity leases
The lease is filed
the collectively-
with the competent
owned land from the
authorities of
contract-letting party.
the village or town.
HISTORY AND CORPORATE STRUCTURE
OUR ORIGIN AND HISTORY
Mr. Zheng Songhui, our founder, chairman of our Board, the chief executive officer and an executive
Director, founded our Group in the mid-1990s. The source of funding in founding our Group came from
the personal financial resources of Mr. Zheng Songhui accumulated from his previous furniture
manufacturing and processing business before tapping into the fresh and processed food industry. For
further details of the background information of Mr. Zheng Songhui, please refer to the section headed
“Directors and Senior Management – Directors – Executive Directors” in this prospectus.
OUR BUSINESS DEVELOPMENT
The following is a summary of our Group’s key business development milestones:
Year
Key business development milestones
1995
Fujian Greenfresh Foods was established.
1996
We built an agricultural raw material production base covering an area of
1,500 mu.
1999
Zhangzhou Greenfresh was established.
2003
Our research and development department was established to focus on the
innovation of edible fungi products.
2004
Our trial cultivation base was established to cooperate with farmers to
engage in the production of king trumpet mushroom and button mushroom.
2005
We strengthened our cooperation with farmers to expand the production
area of king trumpet mushroom and button mushroom products.
2007
We began to develop and market a series of products including fresh
produce, dried food and frozen food.
2009
Greenfresh Ecological Agriculture was established and the planning for
edible fungi products outside Fujian Province was finalised.
2010
We established an edible fungi innovation base with the characteristics of a
vertically integrated production chain.
2011
Greenfresh Business School was established. We were recognised as a Top
Ten Chinese Canned Food Enterprise for Exports of 2011 (2011年度中國罐
頭（出口）十強企業) and National Agricultural Industrialisation Key
Leading Enterprise (農業產業化國家重點龍頭企業).
2012
Our brand
名商標).
was recognised as Well-known Trademark in China (中國馳
– 103 –
Year
Key business development milestones
2014
We entered into strategic cooperation agreements with COFCO Wo Mai
Wang Co., Ltd. (中糧我買網有限公司) and COFCO Industrial Food Import
and Export Co., Ltd. (中糧工業食品進出口有限公司), affiliates of COFCO
Fund, in November 2014. We are entitled to priority rights in selling our
edible fungi products through the e-commerce platform and distribution
channels operated by them respectively.
OUR CORPORATE DEVELOPMENT
Details of the establishment and the major changes in equity in the major operating members of our
Group during the Track Record Period are set out below:
Subsidiaries as at the Latest Practicable Date
1.
Fujian Greenfresh Foods is a wholly-owned subsidiary of our Company and is principally engaged
in the business of investment holding and canned food manufacturing. Fujian Greenfresh Foods was
established in the PRC on 3 November 1995 as a limited liability company with a registered capital of
RMB1,680,000, of which RMB1,344,000, RMB168,000 and RMB168,000 were respectively contributed
in cash by Mr. Zheng Songhui, his wife, Ms. Zheng Huizhen and his father, Mr. Zheng Zhixiang. Upon its
establishment, Fujian Greenfresh Foods was held as to 80% by Mr. Zheng Songhui, 10% by Ms. Zheng
Huizhen and 10% by Mr. Zheng Zhixiang respectively.
In May 2002, as part of their own respective investment restructurings, Ms. Zheng Huizhen
transferred her 10% equity interest in Fujian Greenfresh Foods to Ms. Ji Lina, an Independent Third
Party, at a consideration of RMB168,000. Mr. Zheng Zhixiang transferred his 10% equity interest in
Fujian Greenfresh Foods to Mr. Zheng Songhui at a consideration of RMB168,000. Upon completion of
the said share transfers, Fujian Greenfresh Foods was held as to 90% by Mr. Zheng Songhui and 10% by
Ms. Ji Lina.
In January 2005, the registered capital of Fujian Greenfresh Foods was increased to RMB4,000,000,
with the capital increase of RMB2,320,000 contributed in cash by Mr. Zheng Songhui. Upon completion
of the said capital increase, Fujian Greenfresh Foods was held as to 95.8% by Mr. Zheng Songhui and
4.2% by Ms. Ji Lina.
In May 2005, by reason of her own investment decision, Ms. Ji Lina transferred her 4.2% equity
interest in Fujian Greenfresh Foods to Ms. Cai Xiaoning at a consideration of RMB168,000. Ms. Cai
Xiaoning is an Independent Third Party. Upon completion of the said share transfer, Fujian Greenfresh
Foods was held as to 95.8% by Mr. Zheng Songhui and 4.2% by Ms. Cai Xiaoning respectively.
In March 2006, the registered capital of Fujian Greenfresh Foods was increased to RMB15,000,000,
with the capital increase of RMB10,600,000 and RMB400,000 contributed in cash by Mr. Zheng Songhui
and Ms. Cai Xiaoning respectively. Upon completion of the said capital increase, Fujian Greenfresh
Foods was held as to 96.2% by Mr. Zheng Songhui and 3.8% by Ms. Cai Xiaoning.
– 104 –
In October 2006, the registered capital of Fujian Greenfresh Foods was increased to
RMB27,000,000, with the capital increase of RMB12,000,000 contributed in cash by Mr. Zheng Songhui.
Upon completion of the said capital increase, Fujian Greenfresh Foods was held as to 97.9% by Mr.
Zheng Songhui and 2.1% by Ms. Cai Xiaoning.
In December 2006, the registered capital of Fujian Greenfresh Foods was increased to
RMB38,000,000, with the capital increase of RMB11,000,000 contributed in cash by Mr. Zheng Songhui.
Upon completion of the said capital increase, Fujian Greenfresh Foods was held as to 98.5% by Mr.
Zheng Songhui and 1.5% by Ms. Cai Xiaoning.
In March 2008, the registered capital of Fujian Greenfresh Foods was increased to RMB50,000,000,
with the capital increase of RMB10,068,000 and RMB1,932,000 contributed in cash by Mr. Zheng
Songhui and Ms. Cai Xiaoning respectively. Upon completion of the said capital increase, Fujian
Greenfresh Foods was held as to 95% by Mr. Zheng Songhui and 5% by Ms. Cai Xiaoning.
In December 2009, the registered capital of Fujian Greenfresh Foods was increased to
RMB68,000,000, with the capital increase of RMB17,100,000 and RMB900,000 contributed in cash by
Mr. Zheng Songhui and Ms. Cai Xiaoning respectively. Upon completion of the said capital increase,
Fujian Greenfresh Foods was held as to 95% by Mr. Zheng Songhui and 5% by Ms. Cai Xiaoning.
In November 2010, by reason of her own investment decision, Ms. Cai Xiaoning transferred her 5%
equity interest in Fujian Greenfresh Foods to Mr. Zheng Songhui at a consideration of RMB3,400,000.
Upon completion of the said share transfer, Fujian Greenfresh Foods was held as to 100% by Mr. Zheng
Songhui.
In May 2011, as part of his investment restructuring, Mr. Zheng Songhui transferred his 5% equity
interest in Fujian Greenfresh Foods to Mr. Zheng Tianming at a consideration of RMB3,400,000. Upon
completion of the said share transfer, Fujian Greenfresh Foods was held as to 95% by Mr. Zheng Songhui
and 5% by Mr. Zheng Tianming respectively.
In September 2012, as part of the Reorganisation, Mr. Zheng Songhui and Mr. Zheng Tianming
transferred their 95% and 5% equity interests in Fujian Greenfresh Foods to Jingxiang Foods at a
consideration of RMB65,550,000 and RMB3,450,000 respectively. Upon completion of the said share
transfers, Fujian Greenfresh Foods was held as to 100% by Jingxiang Foods.
2.
Zhangzhou Greenfresh
Zhangzhou Greenfresh is a wholly-owned subsidiary of our Company and is principally engaged in
manufacturing of canned food. Zhangzhou Greenfresh was established in the PRC on 11 January 1999 as
a limited liability company with a registered capital of RMB7,000,000, of which RMB4,900,000 was
contributed partly in cash and partly in the form of machinery and factory properties by Longhai
Greenfresh Canned Foods Company Limited* (龍海市綠寶食品罐頭有限公司) (“Longhai Canned
Foods”) and RMB2,100,000 was contributed in cash by Mr. Dai Guanglong, an Independent Third Party.
At the time of the establishment of Zhangzhou Greenfresh and until October 2010. Longhai Canned
Foods was held as to 90% by Mr. Zheng Songhui and 10% by Mr. Zheng Tianming. Upon its
establishment, Zhangzhou Greenfresh was held as to 70% by Longhai Canned Foods and 30% by Mr. Dai
Guanglong respectively.
– 105 –
In April 2006, to simplify our corporate structure, Longhai Canned Foods transferred its 70% equity
interest in Zhangzhou Greenfresh to Fujian Greenfresh Foods at a consideration of RMB4,900,000. Upon
completion of the said share transfer, Zhangzhou Greenfresh was held as to 70% by Fujian Greenfresh
Foods and 30% by Mr. Dai Guanglong.
In July 2011, Mr. Dai Guanglong, by reason of his own investment decision, transferred his 30%
equity interest in Zhangzhou Greenfresh to Fujian Greenfresh Foods at a consideration of
RMB2,100,000. Upon completion of the said share transfer, Zhangzhou Greenfresh was held as to 100%
by Fujian Greenfresh Foods.
According to the initial articles of association of Zhangzhou Greenfresh adopted upon its
establishment, 15% of the initial registered capital of Zhangzhou Greenfresh should be contributed
within three months from the date of issue of the business license and the remaining 85% should be
contributed within one year from the date of issue of the business license. According to the capital
verification report of Zhangzhou Greenfresh the remaining 85% of the initial registered capital of
Zhangzhou Greenfresh was fully contributed by 23 February 2005. The date of contribution was not in
compliance with the requirements under the initial articles of association of Zhangzhou Greenfresh. On 9
August 2012, 龍海巿對外貿易經濟合作局 (Bureau of Foreign Trade and Economic Cooperation of
Longhai*) issued a confirmation letter confirming that the delay in contribution and the change in method
of contribution of the initial registered capital of Zhangzhou Greenfresh had been rectified and
shareholders of Zhangzhou Greenfresh would not be subject to any liability therefor and the irregularities
would not affect the legal establishment and valid existence of Zhangzhou Greenfresh. Since the initial
registered capital of Zhangzhou Greenfresh had been fully contributed, and Zhangzhou Greenfresh had
passed the annual examination by 漳州市工商行政管理局 (Administration for Industry & Commerce of
Zhangzhou) and has also obtained valid business license issued by 漳州市工商行政管理局
(Administration for Industry & Commerce of Zhangzhou) as well as the said confirmation letter issued by
龍海巿對外貿易經濟合作局 (Bureau of Foreign and Trade Economic Cooperation of Longhai*), our
PRC legal adviser is of the view that the delay in contribution and the change in method of contribution
of the initial registered capital had no material adverse impact on the valid continuity of Zhangzhou
Greenfresh. Save for the aforesaid, our PRC legal adviser has confirmed that all the share transfers and
capital increases in respect of Zhangzhou Greenfresh had completed the necessary legal procedures, and
obtained the approvals of, and has been duly registered with, the relevant responsible authorities.
3.
Jingxiang Foods
Jingxiang Foods is a wholly-owned subsidiary of the Company and is an investment holding
company. Jingxiang Foods was established in the PRC as a wholly foreign-owned limited liability
company on 24 December 2001 with registered capital of US$120,000, which was contributed in cash by
Mr. Alex Wong. Pursuant to a trust deed dated 20 December 2001, Mr. Alex Wong, who is a US national,
held the equity interests in Jingxiang Foods on trust for Mr. Zheng Songhui as to 85% and Mr. Zheng
Tianming as to 15%. All the funds and capital for the establishment of Jingxiang Foods came from Mr.
Zheng Songhui and Mr. Zheng Tianming. The trust arrangement between Mr. Alex Wong as trustee on the
one hand and Mr. Zheng Songhui and Mr. Zheng Tianming as beneficiaries on the other hand had been
made in order to enjoy the administrative convenience in favour of foreign investments. Save for the said
trust arrangement, Mr. Alex Wong is an Independent Third Party.
– 106 –
In June 2011, as part of the Reorganisation, Mr. Alex Wong transferred his 100% equity interest in
Jingxiang Foods to Greenfresh HK at a consideration of US$120,000. Upon completion of the said share
transfer, Jingxiang Foods was held as to 100% by Greenfresh HK.
In January 2013, the registered capital of Jingxiang Foods was increased to US$9,620,000 with the
increase in capital of US$9,500,000 contributed in cash by Greenfresh HK.
In June 2014, the registered capital of Jingxiang Foods was increased to US$13,620,000 with the
increase in capital of US$4,000,000 contributed in cash by Greenfresh HK.
According to the initial articles of association of Jingxiang Foods adopted upon its establishment,
15% of the initial registered capital of Jingxiang Foods should be contributed within 90 days from the
date of issue of the business license and the remaining 85% should be contributed by 24 December 2002.
According to a reply letter issued by 龍海巿對外貿易經濟合作局 (Bureau of Foreign and Trade
Economic Cooperation of Longhai*), the deadline for contribution of the remaining 85% of the initial
registered capital was extended to 30 June 2004. According to the capital verification report of Jingxiang
Foods, the remaining 85% of the initial registered capital of Jingxiang Foods was fully contributed by 28
February 2005. The date of contribution was not in compliance with the requirements under the initial
articles of association and the said reply letter. 龍海巿對外貿易經濟合作局 (Bureau of Foreign and
Trade Economic Cooperation of Longhai*) issued a confirmation letter confirming that the delay in
contribution of the initial registered capital of Jingxiang Foods had been rectified and the shareholder of
Jingxiang Foods would not be subject to any liability therefor. Since the initial registered capital of
Jingxiang Foods had been fully contributed by 28 February 2005, Jingxiang Foods had passed the annual
examination by 漳州市工商行政管理局 (Administration for Industry & Commerce of Zhangzhou), it has
also obtained valid foreign investment license issued by the Fujian people’s government, the business
license issued by 漳州市工商行政管理局 (Administration for Industry & Commerce of Zhangzhou), and
the said confirmation letter issued by 龍海巿對外貿易經濟合作局 (Bureau of Foreign and Trade
Economic Cooperation of Longhai*). Our PRC legal adviser is of the view that the delay in contribution
of the initial registered capital had no material adverse impact on the valid continuity of Jingxiang Foods.
Save for the aforesaid, our PRC legal adviser has confirmed that all the share transfers and capital
increases in respect of Jingxiang Foods had completed the necessary legal procedures, and obtained the
approvals of and has been duly registered with the relevant responsible authorities.
4.
Greenfresh Ecological Agriculture
Greenfresh Ecological Agriculture is a wholly-owned subsidiary of our Company and is a company
principally engaged in investment holding and edible fungi cultivation. It was established in the PRC on
24 November 2009 as a limited liability company with a registered capital of RMB1,000,000, of which
RMB950,000 was contributed in cash by Fujian Greenfresh Foods and RMB50,000 was contributed in
cash by Ms. Cai Xiaoning respectively. Upon its establishment, Greenfresh Ecological Agriculture was
held as to 95% by Fujian Greenfresh Foods and 5% by Ms. Cai Xiaoning respectively.
In July 2010, the registered capital of Greenfresh Ecological Agriculture was increased to
RMB5,000,000, with the capital increase of RMB4,750,000 and RMB250,000 contributed in cash by
Fujian Greenfresh Foods and Ms. Cai Xiaoning respectively. Upon completion of the said capital
increase, Greenfresh Ecological Agriculture was held as to 95% by Fujian Greenfresh Foods and 5% by
Ms. Cai Xiaoning.
– 107 –
In November 2010, Ms. Cai Xiaoning transferred her 5% equity interest in Greenfresh Ecological
Agriculture to Fujian Greenfresh Foods at a consideration of RMB250,000. Upon completion of the said
share transfer, Greenfresh Ecological Agriculture was held as to 100% by Fujian Greenfresh Foods.
In May 2011, the registered capital of Greenfresh Ecological Agriculture was increased to
RMB30,000,000, with the capital increase of RMB25,000,000 contributed in cash by Fujian Greenfresh
Foods.
5.
Shengtai Agricultural Development
Shengtai Agricultural Development is a wholly-owned subsidiary of our Company and is principally
engaged in trading of processed food. It was established in the PRC on 26 August 2011 as a limited
liability company with a registered capital of RMB500,000 contributed in cash by Greenfresh Ecological
Agriculture. Upon its establishment, Shengtai Agricultural Development was held as to 100% by
Greenfresh Ecological Agriculture.
In June 2012, Greenfresh Ecological Agriculture transferred its 100% equity interest in Shengtai
Agricultural Development to Fujian Greenfresh Foods at a consideration of RMB500,000. Upon
completion of the said share transfer, Shengtai Agricultural Development was held as to 100% by Fujian
Greenfresh Foods.
6.
Greenfresh Biological Technology
Greenfresh Biological Technology is a wholly-owned subsidiary of our Company and is principally
engaged in edible fungi cultivation. It was established in the PRC on 9 April 2012 as a limited liability
company with a registered capital of RMB5,000,000 contributed in cash by Greenfresh Ecological
Agriculture. Upon its establishment, Greenfresh Biological Technology was held as to 100% by
Greenfresh Ecological Agriculture.
Subsidiaries Disposed of in 2011 and during the Track Record Period
1.
Xinghui Trading
Xinghui Trading was established in the PRC on 25 March 2005 as a limited liability company.
Immediately before its disposal in July 2011, Xinghui Trading had no material operations and was held as
to 80% by Fujian Greenfresh Foods and 20% by Mr. Yang Wenhui, an Independent Third Party. As part of
the Reorganisation, Fujian Greenfresh Foods disposed of its 80% equity interest in Xinghui Trading to
Mr. Yang Wenhui, an Independent Third Party. For further details of the disposal of Xinghui Trading,
please refer to “Reorganisation – (c) Disposal of Xinghui Trading, Minhui Trading and Minhui Hong
Kong” in this section below.
2.
Minhui Trading and Minhui Hong Kong
Minhui Trading was established in the PRC on 21 November 1994 as a limited liability company.
Minhui Hong Kong was incorporated in Hong Kong on 22 March 2010 as a limited liability company.
Immediately before its disposal in June 2012, Minhui Trading was principally engaged in canned food
trading business in the PRC and was held as to 100% by Fujian Greenfresh Foods, while Minhui Hong
Kong was a dormant company and was held as to 100% by Minhui Trading. As part of the Reorganisation,
– 108 –
Fujian Greenfresh Foods disposed of its 80% and 20% equity interests in Minhui Trading, and hence
Minhui Hong Kong, which was a wholly-owned subsidiary of Minhui Trading, to Ms. Zheng Yanhua and
Mr. Zheng Qiujian, both Independent Third Parties. For further details of the disposal of Minhui Trading
and Minhui Hong Kong, please refer to “Reorganisation – (c) Disposal of Xinghui Trading, Minhui
Trading and Minhui Hong Kong” in this section below.
REORGANISATION
The following chart sets out the shareholding and corporate structure of our Group immediately
before the implementation of the Reorganisation:
(a)
Mr. Zheng
Songhui
95%
100%
Zhangzhou
Greenfresh
(PRC)
100%
(b)
Mr. Zheng
Tianming
Mr. Alex Wong
5%
100%
Jingxiang Foods
(PRC)
(PRC)
(Note)
100%
Shengtai
Agricultural
Development
Greenfresh
Ecological
Agriculture
(PRC)
(PRC)
80%
100%
Xinghui
Trading
Minhui
Trading
(PRC)
(PRC)
100%
Minhui
Hong Kong
(Hong Kong)
Note: Mr. Alex Wong held the equity interests in Jingxiang Foods on trust for Mr. Zheng Songhui as to 85% and Mr. Zheng
Tianming as to 15%.
In preparation for the Global Offering, we carried out a series of restructuring steps for the purpose
of establishing and streamlining our corporate structure for the Listing and to facilitate our growth and
expansion strategy. The principal steps involved in the Reorganisation are summarised below:
(a)
Incorporation of Song Rising, Sunny Foods, Greenfresh HK, the Company and Empire Foods
On 21 February 2011, Song Rising was incorporated with limited liability in the BVI with an
authorised share capital of US$50,000 divided into 50,000 shares with a par value of US$1.00 each. On
the same day, 50,000 shares with a par value of US$1.00 each were allotted and issued to Mr. Zheng
Songhui. As a result, Song Rising became directly and wholly-owned by Mr. Zheng Songhui.
On 21 February 2011, Sunny Foods was incorporated with limited liability in the BVI with an
the same day, 50,000 shares with a par value of US$1.00 were allotted and issued to Mr. Zheng Tianming.
As a result, Sunny Foods became directly and wholly-owned by Mr. Zheng Tianming.
– 109 –
On 25 February 2011, Greenfresh HK was incorporated with limited liability in Hong Kong with an
authorised share capital of HK$10,000 divided into 10,000 shares with a par value of HK$1.00 each. At
the time of its incorporation, 7,000 shares, 1,500 shares, 600 shares, 600 shares and 300 shares with a par
value of HK$1.00 each were allotted and issued to Mr. Zheng Songhui, Mr. Zheng Tianming, Ms. GUO
XUEYAN, Mr. Chan Kin Wa and Riemann Investment respectively. As a result, Greenfresh HK became
held as to 70% by Mr. Zheng Songhui, 15% by Mr. Zheng Tianming, 6% by Ms. GUO XUEYAN, 6% by
Mr. Chan Kin Wa and 3% by Riemann Investment respectively. Save for his/her/its shareholding in our
Company, each of Ms. GUO XUEYAN, Mr. Chan Kin Wa and Riemann Investment is an Independent
Third Party.
On 28 March 2011, our Company was incorporated as an exempted company with limited liability in
the Cayman Islands with an authorised share capital of US$50,000 divided into 50,000 shares with a par
value of US$1.00 each. Upon its incorporation, 1 share with a par value of US$1.00 was allotted and
issued to Close Subscribers (Cayman) Limited, the initial subscriber, and was transferred to Song Rising
on the same day. On the same day, an additional 34,999 shares, 7,500 shares, 3,000 shares, 3,000 shares
and 1,500 shares with a par value of US$1.00 each were allotted and issued to Song Rising, Sunny Foods,
Ms. GUO XUEYAN, Mr. Chan Kin Wa and Riemann Investment respectively. Following which, the
Company became held as to 70% by Song Rising, 15% by Sunny Foods, 6% by Ms. GUO XUEYAN, 6%
by Mr. Chan Kin Wa and 3% by Riemann Investment respectively. According to a trust deed dated 18
February 2011 (the “2011 Trust Deed”) between Mr. Zheng Tianming as trustee and Mr. Zheng Songhui
as beneficiary 5,000 shares of a par value of US$1.00 each, representing 10% of the then issued share
capital of the Company legally held by Sunny Foods was held on trust for Mr. Zheng Songhui. The trust
arrangement was established as Mr. Zheng Tianming and Mr. Zheng Songhui believed at the material time
it would be more convenient to have one of the minority shareholders (namely Sunny Foods) to hold more
than 10% of the shareholding in the Company. The subscriptions for shares by the Minority Shareholders
upon the incorporation of our Company was part of their investments in our Group. For further details of
the investments by the Minority Shareholders, please refer to “Pre-IPO Investments – Investments of the
Minority Shareholders” in this section.
On 23 June 2011, Empire Foods was incorporated with limited liability in the BVI with an
the same day, 50,000 shares with a par value of US$1.00 were allotted and issued to our Company. As a
result, Empire Foods became directly and wholly-owned by our Company.
(b) Acquisition of Greenfresh HK by Empire Foods
Pursuant to five instruments of transfer all dated 19 December 2011, Empire Foods acquired 7,000
shares, 1,500 shares, 600 shares, 600 shares and 300 shares of a par value of HK$1.00 each of Greenfresh
HK, representing 100% of the issued share capital of Greenfresh HK, from its then existing shareholders,
namely Mr. Zheng Songhui, Mr. Zheng Tianming, Ms. GUO XUEYAN, Mr. Chan Kin Wa and Riemann
Investment, at cash considerations of HK$7,000, HK$1,500, HK$600, HK$600 and HK$300 respectively.
The acquisition had been properly and legally settled, and completed with the register of members of
Greenfresh HK updated on 19 December 2011. Upon completion of the aforesaid share transfers,
Greenfresh HK became a directly and wholly-owned subsidiary of Empire Foods.
– 110 –
(c)
Disposal of Xinghui Trading, Minhui Trading and Minhui Hong Kong
Pursuant to a share transfer agreement dated 8 July 2011, Fujian Greenfresh Foods disposed of its
80% equity interest in Xinghui Trading to Mr. Yang Wenhui, an Independent Third Party, at a cash
consideration of RMB4,800,000, which was determined with reference to the then registered capital of
Xinghui Trading. The disposal had been properly and legally settled and completed. Upon completion of
the aforesaid disposal on 13 July 2011, Fujian Greenfresh Foods ceased to hold any interest in Xinghui
Trading. Immediately before the disposal, Xinghui Trading had no material operations and our Group
disposed of Xinghui Trading to streamline its corporate structure and focus on its principal business
activities of production and sales of edible fungi and processed edible fungi.
Pursuant to two share transfer agreements both dated 21 June 2012, Fujian Greenfresh Foods
disposed of its 80% and 20% equity interests in Minhui Trading, and hence Minhui Hong Kong, which
was wholly owned by Minhui Trading, to Ms. Zheng Yanhua and Mr. Zheng Qiujian, both Independent
Third Parties, at considerations of RMB1,000,000 and RMB4,000,000 respectively, which were
determined with reference to the then registered capital of Minhui Trading. The disposal had been
properly and legally settled and completed. Upon completion of the aforesaid disposals on 25 June 2012,
Fujian Greenfresh Foods ceased to hold any interest in Minhui Trading and hence Minhui Hong Kong.
Minhui Trading was principally engaged in trading business in the PRC and Minhui Hong Kong was a
dormant company immediately before disposal. Our Group disposed of Minhui Trading and Minhui Hong
Kong as the trading business was less profitable as well as to focus on its principal business activities of
production and sales of edible fungi and processed edible fungi.
(d) Establishment of Greenfresh Biological Technology
On 9 April 2012, Greenfresh Biological Technology was established in the PRC with an initial
registered capital of RMB5,000,000 by Greenfresh Ecological Agriculture.
(e)
Acquisition of Jingxiang Foods by Greenfresh HK
Pursuant to a share transfer agreement dated 8 June 2011, Greenfresh HK acquired 100% equity
interest in Jingxiang Foods from Mr. Alex Wong at cash consideration of US$120,000, which was
determined with reference to the then registered capital of Jingxiang Foods. The transfer had been
properly and legally settled and completed. Upon completion of the aforesaid equity transfer on 6 August
2011, Jingxiang Foods became a directly wholly-owned subsidiary of Greenfresh HK.
(f)
Acquisition of Fujian Greenfresh Foods by Jingxiang Foods
Pursuant to two share transfer agreements both dated 26 September 2012, Jingxiang Foods acquired
95% and 5% equity interests in Fujian Greenfresh Foods from Mr. Zheng Songhui and Mr. Zheng
Tianming at cash considerations of RMB65,550,000 and RMB3,450,000 respectively. The said
considerations were determined with reference to the then registered capital of Fujian Greenfresh Foods.
The transfers had been properly and legally settled and completed. Upon completion of the aforesaid
acquisitions on 14 August 2012, Fujian Greenfresh Foods became a directly wholly-owned subsidiary of
Jingxiang Foods.
– 111 –
(g)
Investment made by COFCO Fund
Pursuant to a share subscription agreement dated 5 November 2012, COFCO Fund subscribed for
4,054 shares of US$1.00 each of our Company at an aggregate issue price in U.S. dollars equivalent to
RMB60 million. The issue price was determined based on arm’s length negotiations with regard to our
Group’s financial condition and results of operations. Upon completion of the aforesaid subscription, the
Company was then held as to approximately 64.74% by Song Rising, 13.88% by Sunny Foods, 7.50% by
COFCO Fund, 5.55% by Ms. GUO XUEYAN, 5.55% by Mr. Chan Kin Wa and 2.78% by Riemann
Investment respectively. For further details of the investment of COFCO Fund, please refer to the
sub-section headed “Pre-IPO Investments” in this section.
(h) Investment made by Grand Ample
Pursuant to a share subscription agreement dated 9 June 2014 (the “Grand Ample Subscription
Agreement”), Grand Ample subscribed for 3,425 shares of US$1.00 each of our Company at an aggregate
issue price in U.S. dollars equivalent to RMB70.9 million. The issue price was determined based on arm’s
length negotiations with regard to our Group’s financial condition and results of operations. Incidental to
the Grand Ample Subscription Agreement, on 9 June 2014, Grand Ample, our Company, Mr. Zheng
Songhui and Song Rising and the other then existing shareholders of our Company (namely COFCO
Fund, Sunny Foods, Ms. GUO XUEYAN, Mr. Chan Kin Wa and Riemann Investment) entered into a
shareholders’ agreement (the “Grand Ample Shareholders’ Agreement”). Neither the Grand Ample
Subscription Agreement nor the Grand Ample Shareholders’ Agreement provided any special rights in
favour of Grand Ample. The investment was properly and legally settled and completed on 2 July 2014.
Upon completion of the aforesaid subscription, the Company was then held as to approximately 60.89%
by Song Rising, 13.05% by Sunny Foods, 7.05% by COFCO Fund, 5.96% by Grand Ample, 5.22% by Ms.
GUO XUEYAN, 5.22% by Mr. Chan Kin Wa and 2.61% by Riemann Investment respectively. We utilised
the investment proceeds of Grand Ample for business development, working capital and other corporate
purposes. As at the Latest Practicable Date, the net proceeds from the investment of Grand Ample had
been fully utilised.
At the time of the investment, Grand Ample was wholly owned by Ms. Ng Man Ching, who is a
private investor and an Independent Third Party. By reason of her own investment decision, Ms. Ng Man
Ching decided to dispose of her shareholding in Grand Ample and hence her investment in our Company.
Pursuant to a share transfer agreement dated 10 December 2014, Ms. Ng Man Ching transferred 1 share
of nominal value of US$1.00, representing the entire issued share capital in Grand Ample to Mr. Zheng
Songhui at a consideration of RMB75,331,250 which was determined based on arm’s length negotiations
with regard to the cost and the reasonable return of Ms. Ng Man Ching’s investment in our Company. The
transfer was properly and legally settled and completed on 18 December 2014. Accordingly, Ms. Ng Man
Ching ceased to have any interest in our Company, while the interest of Mr. Zheng Songhui increased by
approximately 5.96% being the interest held by Grand Ample. Grand Ample is an investment holding
company, and the only asset of which is the shares of the Company.
– 112 –
(i)
Transfers to Absolute Bright and Termination of 2011 Trust Deed
Transfer to Absolute Bright
Pursuant to a deed of gift dated 6 November 2014, Song Rising transferred 1,750 shares of a
par value of US$1.00 each of the Company, representing approximately 3.04% of the then issued
share capital of the Company, to Absolute Bright at nil consideration. Absolute Bright is a company
directly and wholly owned by Ms. Zheng Yangyu, daughter of Mr. Zheng Songhui, and the transfer
was a gift granted by Mr. Zheng Songhui to his daughter. The transfer was properly and legally
settled and completed on 7 November 2014.
Termination of 2011 Trust Deed
To simplify the shareholding structure, Mr. Zheng Songhui decided to terminate the trust
arrangement under the 2011 Trust Deed as mentioned in step (a) above. Pursuant to an instrument of
transfer dated 8 December 2014, Sunny Foods transferred 5,000 shares of a par value of US$1.00
each of the Company, representing approximately 8.7% of the issued share capital of our Company,
to Song Rising at a consideration of US$5,000 based on the par value of the transferred shares. The
transfer was properly and legally settled and completed on 8 December 2014.
(j)
Subdivision of Shares and Increase in Authorised Share Capital
On 12 December 2014, the Company subdivided all its issued and unissued shares with par value of
US$1.00 each into 100 Shares with par value of US$0.01 each and the authorised share capital of the
Company was increased by US$19,900,000 to US$20,000,000 by the creation of an additional
1,990,000,000 Shares.
– 113 –
SHAREHOLDING AND CORPORATE STRUCTURE
Our Shareholding and Corporate Structure after Completion of the Reorganisation but before the
Global Offering
The shareholding and corporate structure of our Group immediately after completion of the
Reorganisation is set out as follows:
Mr. Zheng
Songhui
Ms. Zheng
Yangyu
(Note 1)
(Note 1)
100%
100%
Song Rising
Grand Ample
Absolute Bright
(BVI)
(Note 1)
(BVI)
(Note 1)
(Seychelles)
(Note 1)
100%
66.55%
5.96%
3.04%
Ms. Huang
Qianping
Mr. Zheng
Tianming
Mr. Fu Sixing
50%
50%
100%
Sunny Foods
Ms. GUO
XUEYAN
(BVI)
Mr. Chan
Kin Wa
(Note 2)
(Note 2)
5.22%
4.35%
Riemann
Investment
COFCO Fund
(Samoa)
(Note 2)
(PRC)
(Note 3)
5.22%
2.61%
7.05%
100%
Company
(Cayman Islands)
100%
Empire Foods
(BVI)
100%
Greenfresh HK
(Hong Kong)
offshore
100%
onshore
Jingxiang Foods
(PRC)
100%
(PRC)
100%
Zhangzhou
Greenfresh
(PRC)
100%
100%
Shengtai
Agricultural
Development
Greenfresh
Ecological
Agriculture
(PRC)
(PRC)
100%
Greenfresh
Biological
Technology
(PRC)
Notes:
(1)
Mr. Zheng Songhui, Song Rising, Grand Ample, Ms. Zheng Yangyu and Absolute Bright are together directly or
indirectly interested in 10% or more of the share capital of the Company.
(2)
Each of Ms. GUO XUEYAN, Mr. Chan Kin Wa and Riemann Investment is an Independent Third Party. Mr. Chan Kin
Wa and Ms. GUO XUEYAN, as the Selling Shareholders, will respectively sell all and part of his/her Shares in the
Global Offering. The Shares held by Ms. GUO XUEYAN and Riemann Investment are not subject to any lock-up
arrangement and will be counted towards public float after the Listing for the purpose of Rule 8.08 of the Listing
Rules.
(3)
The Shares held by COFCO Fund will be subject to a six-month lock-up period after the Listing. COFCO Fund is an
Independent Third Party. The Shares held by COFCO Fund will be counted towards public float after the Listing for
the purpose of Rule 8.08 of the Listing Rules.
– 114 –
Capitalisation Issue and Global Offering
Conditional upon the creation of the Company’s share premium account as a result of the issue of the
Offer Shares pursuant to the Global Offering, an amount of US$3,692,521 standing to the credit of the
share premium account of the Company will be capitalised by applying such sum towards paying up in
full at par a total of 369,252,100 Shares for allotment and issue to the then existing Shareholders.
Our Shareholding and Corporate Structure after Completion of the Global Offering and the
Capitalisation Issue
after completion of the Capitalisation Issue and completion of the Global Offering, assuming the
Over-allotment Option is not exercised and there is no exercise of any options granted under the Pre-IPO
Share Option Scheme and may be granted under the Share Option Scheme:
Mr. Zheng
Songhui
(Note 1)
Ms. Zheng
Yangyu
(Note 1)
100%
100%
100%
Song Rising
Grand Ample
Absolute Bright
(BVI)
(Note 1)
(BVI)
(Note 1)
(Seychelles)
(Note 1)
49.91%
4.47%
2.28%
Ms. Huang
Qianping
Mr. Zheng
Tianming
Mr. Fu Sixing
50%
50%
100%
Sunny Foods
(BVI)
3.26%
Ms. GUO
XUEYAN
(Note 2)
Riemann
Investment
COFCO Fund
(Samoa)
(Note 2)
(PRC)
(Note 3)
2.83%
1.96%
5.29%
Other Public
Shareholders
30%
100%
Company
(Cayman Islands)
100%
Empire Foods
(BVI)
100%
Greenfresh HK
(Hong Kong)
offshore
100%
onshore
Jingxiang Foods
(PRC)
100%
(PRC)
100%
Zhangzhou
Greenfresh
(PRC)
100%
100%
Shengtai
Agricultural
Development
Greenfresh
Ecological
Agriculture
(PRC)
(PRC)
100%
Greenfresh
Biological
Technology
(PRC)
Notes:
(1)
(2)
Each of Ms. GUO XUEYAN and Riemann Investment is an Independent Third Party. The Shares held by Ms. GUO
XUEYAN and Riemann Investment are not subject to any lock-up arrangement and will be counted towards public
float after the Listing for the purpose of Rule 8.08 of the Listing Rules.
(3)
– 115 –
after completion of the Capitalisation Issue and completion of the Global Offering, assuming the
Over-allotment Option is fully exercised and there is no exercise of any options granted under the
Pre-IPO Share Option Scheme and may be granted under the Share Option Scheme:
Mr. Zheng
Songhui
(Note 1)
Ms. Zheng
Yangyu
(Note 1)
100%
100%
100%
Song Rising
Grand Ample
Absolute Bright
(BVI)
(Note 1)
(BVI)
(Note 1)
(Seychelles)
(Note 1)
47.76%
4.28%
2.19%
Ms. Huang
Qianping
Mr. Zheng
Tianming
Mr. Fu Sixing
50%
50%
100%
Sunny Foods
(BVI)
Ms. GUO
XUEYAN
Riemann
Investment
COFCO Fund
(Samoa)
(Note 2)
(PRC)
(Note 3)
(Note 2)
3.12%
2.71%
Other Public
Shareholders
5.06%
1.87%
33.01%
100%
Company
(Cayman Islands)
100%
Empire Foods
(BVI)
100%
Greenfresh HK
(Hong Kong)
offshore
100%
onshore
Jingxiang Foods
(PRC)
100%
(PRC)
100%
Zhangzhou
Greenfresh
(PRC)
100%
100%
Shengtai
Agricultural
Development
Greenfresh
Ecological
Agriculture
(PRC)
(PRC)
100%
Greenfresh
Biological
Technology
(PRC)
Notes:
(1)
(2)
Each of Ms. GUO XUEYAN and Riemann Investment is an Independent Third Party. The Shares held by Ms. GUO
XUEYAN and Riemann Investment are not subject to any lock-up arrangement and will be counted towards public
float after the Listing for the purpose of Rule 8.08 of the Listing Rules.
(3)
– 116 –
PRE-IPO INVESTMENTS
Investments of the Minority Shareholders
Pursuant to three agreements (the “Minority Shareholders’ Investment Agreements”) dated 8
October 2010, 15 October 2010 and 18 October 2010 respectively, Riemann Investment, Ms. GUO
XUEYAN and Mr. Chan Kin Wa respectively agreed with Mr. Zheng Songhui to invest in our Group. It
was also agreed that our Group would undergo reorganisation such that our Company would be
incorporated as the ultimate holding company of the then operating subsidiaries of our Group, and the
investments of the Minority Shareholders would be by way of subscription of shares at par value upon
incorporation of our Company such that Riemann Investment, Ms. GUO XUEYAN and Mr. Chan Kin Wa
would subscribe at par value for 1,500 shares, 3,000 shares and 3,000 shares of par value of US$1.00
each, representing 3%, 6% and 6% of the then issued share capital of our Company at the time of its
incorporation. Riemann Investment, Ms. GUO XUEYAN and Mr. Chan Kin Wa would pay to Mr. Zheng
Songhui a consideration of RMB9 million, RMB18 million and RMB18 million respectively for
acquisition of their respective investment. The said considerations were determined after arm’s length
negotiation between each of the Minority Shareholders and Mr. Zheng Songhui after taking into
consideration of the then estimated consolidated net profits of our Group for 2011. The considerations
had been fully settled by end of 2012 after completion of acquisition of Fujian Greenfresh Foods by
Jingxiang Foods in August 2012 as the final step of reorganisation contemplated under the Minority
Shareholders’ Investment Agreements.
Under the Minority Shareholders’ Investment Agreements, Riemann Investment, Ms. GUO
XUEYAN and Mr. Chan Kin Wa were not given any special rights and they are not required to be subject
to any lock-up arrangement after the Listing. Each of Riemann Investment, Ms. GUO XUEYAN and Mr.
Chan Kin Wa is an Independent Third Party. Mr. Chan Kin Wa and Ms. GUO XUEYAN, as the Selling
Shareholders, will respectively sell all and part of his/her Shares in the Global Offering. The Shares held
by Riemann Investment and Ms. GUO XUEYAN will be counted towards the public float after the Listing
for the purpose of Rule 8.08 of the Listing Rules.
The following table summarises the details of the investments of the Minority Shareholders:
Names of the Investors
Riemann Investment, Ms. GUO XUEYAN and Mr. Chan Kin
Wa
Information of the Investors
Each of Riemann Investment, Ms. GUO XUEYAN and Mr.
Chan Kin Wa is a private investor and an Independent Third
Party. Riemann Investment is held as to 50% by Ms. Huang
Qianping and 50% by Mr. Fu Sixing, both are Independent
Third Parties. Ms. GUO XUEYAN, Mr. Chan Kin Wa, Ms.
Huang Qianping and Mr. Fu Sixing are personal friends of Mr.
Zheng Songhui.
Completion date and date of payment
of consideration of
the Investment
14 August 2012 (completion date); and 19 December 2012
(date of final payment of consideration)
– 117 –
Number of Shares Subscribed
1,500 shares, 3,000 shares and 3,000 shares of US$1.00 each in
the capital of our Company (representing approximately 3%,
6% and 6% of the then issued share capital of our Company
upon its incorporation) for Riemann Investment, Ms. GUO
XUEYAN and Mr. Chan Kin Wa respectively
Amount of consideration
RMB9 million, RMB18 million and RMB18 million paid to
Mr. Zheng Songhui together with the subscription price of
US$1,500, US$3,000 and US$3,000 credited to the share
capital of our Company for Riemann Investment, Ms. GUO
XUEYAN and Mr. Chan Kin Wa respectively
Number of Shares held by
the Investors upon
the Capitalisation Issue
9,786,183 Shares, 19,572,366 Shares and 19,572,366 Shares
for Riemann Investment, Ms. GUO XUEYAN and Mr. Chan
Kin Wa respectively (representing approximately 2.61%,
5.22% and 5.22% of our issued share capital upon the
Capitalisation Issue but without taking into account the new
Shares to be issued pursuant to the Global Offering) (assuming
the Over-allotment Option is not exercised and taking into no
account of the Share which may be issued pursuant to the
exercise of the options granted under the Pre-IPO Share Option
Scheme and may be granted under the Share Option Scheme)
the Investors upon
the Capitalisation Issue and
completion of
the Global Offering
9,786,183 Shares, 14,144,732 Shares and nil Shares for
Riemann Investment, Ms. GUO XUEYAN and Mr. Chan Kin
Wa respectively (representing approximately 1.96%, 2.83%
and nil% of our issued share capital upon the Capitalisation
Issue and completion of the Global Offering) (assuming the
Over-allotment Option is not exercised and taking into no
account of the Share which may be issued pursuant to the
exercise of the options granted under the Pre-IPO Share Option
Scheme and may be granted under the Share Option Scheme),
as Mr. Chan Kin Wa and Ms. GUO XUEYAN will respectively
sell all and part of his/her Shares as the Selling Shareholders
Cost per Share paid by
the Investors
(taking into account
the Capitalisation Issue)
HK$1.16 (representing a discount of approximately 76.23% to
the mid-point of the indicative offer price range of HK$4.58 to
HK$5.18)
Special Rights
None of Riemann Investment, Ms. GUO XUEYAN and Mr.
Chan Kin Wa enjoys any special rights
– 118 –
Use of Proceeds
Save for the subscription price of US$1,500, US$3,000 and
US$3,000 which were credited to the share capital of our
Company, the considerations of RMB9 million, RMB18
million and RMB18 million were paid by Riemann Investment,
Ms. GUO XUEYAN and Mr. Chan Kin Wa respectively to Mr.
Zheng Songhui
Investment of COFCO Fund
On 5 November 2012, a share subscription agreement (the “COFCO Subscription Agreement”)
was entered into by and among COFCO Fund, our Company, Song Rising and Mr. Zheng Songhui,
pursuant to which COFCO Fund agreed to subscribe for 4,054 shares of US$1.00 each in the capital of
our Company at an aggregate issue price in U.S. dollars equivalent to RMB60 million. The consideration
for the investment was determined based on arm’s length negotiations with regard to our Group’s
financial condition and results of operations. The investment was properly and legally settled and
completed on 6 February 2013. Upon completion of the COFCO Subscription Agreement, COFCO Fund,
our Company, Mr. Zheng Songhui, Song Rising and the other then existing shareholders of our Company
(namely Sunny Foods, Ms. GUO XUEYAN, Mr. Chan Kin Wa and Riemann Investment) entered into a
shareholders’ agreement (the “COFCO Shareholders’ Agreement”) which provides for certain special
rights to be given to COFCO Fund. As one of the conditions precedent to the COFCO Subscription
Agreement, on 6 February 2013, Song Rising (as mortgagor) entered into a share mortgage (the “Share
Mortgage”) over 4,054 shares of nominal value of US$1.00 of our Company held by Song Rising in
favour of COFCO Fund (as mortgagee) as security for the performance of the COFCO Subscription
Agreement by Song Rising.
Pursuant to the supplemental agreement dated 5 June 2013 to the COFCO Subscription Agreement
and the supplemental agreement dated 5 June 2013 to the COFCO Shareholders’ Agreement, all the
special rights granted to COFCO Fund and the Share Mortgage were terminated. Pursuant to the COFCO
Subscription Agreement, any special rights granted to COFCO Fund under the COFCO Subscription
Agreement and other transaction documents which are not permitted to survive upon Listing under
applicable laws and rules, shall be discontinued upon our Company’s filing for its application for the
Listing. Pursuant to the COFCO Shareholders’ Agreement, the COFCO Shareholders’ Agreement shall
automatically terminate immediately upon the filing of the application for the Listing.
The terms of the COFCO Subscription Agreement and the COFCO Shareholders’ Agreement did not
impose any lock-up obligations over the Shares held by COFCO Fund upon Listing. However, COFCO
Fund has separately voluntarily undertaken to our Company, the Sole Sponsor and the Sole Global
Coordinator that, except pursuant to the Global Offering or any offer for sale contained in this prospectus,
during the six-month period from the Listing Date, COFCO Fund would not dispose of or transfer any of
the Shares held by it. COFCO Fund is an Independent Third Party. The Shares held by COFCO Fund will
be counted towards the public float after the Listing for purpose of Rule 8.08 of the Listing Rules.
– 119 –
The following table summarises the principal terms of the COFCO Subscription Agreement and the
COFCO Shareholders’ Agreement:
*
Name of the Investor
中糧（北京）農業產業股權投資基金（有限合夥） (COFCO
(Beijing) Agricultural Industrial Equity Investment Fund
(A Limited Partnership)*), a limited partnership
established under the laws of the PRC
Information of the Investor
COFCO Fund is jointly established in the PRC by COFCO
Group Limited, China Jianyin Investment Limited, Louis
Dreyfus Commodities Asia Pte Ltd, Sumitomo Mitsui
Banking Corporation Limited, Horley Investments Limited
and COFCO Agricultural Industrial Investment Fund
Management Co., Ltd., and is principally engaged in
investment of private enterprises in agriculture and food
industries and the related management and consulting
services.
Completion date and date of
payment of consideration of
the Investment
6 February 2013
Number of Shares Subscribed
4,054 shares of nominal value of US$1.00 each in our
Company (representing approximately 7.50% of the then
enlarged issued share capital of the Company upon
completion of the investment on a fully-diluted basis)
Aggregate issue price
RMB60 million (U.S. dollars equivalent)
the Investor upon
the Capitalisation Issue and
completion of the Global Offering
26,448,790 Shares ((i) representing approximately 7.05%
of our issued share capital upon the Capitalisation Issue but
without taking into account the new Shares to be issued
pursuant to the Global Offering; and (ii) representing
approximately 5.29% of our issued share capital upon the
Capitalisation Issue and completion of the Global Offering
respectively) (assuming the Over-allotment Option is not
exercised and taking into no account of the Share which
may be issued pursuant to the exercise of the options
granted under the Pre-IPO Share Option Scheme and may
be granted under the Share Option Scheme)
Cost per Share paid by
the Investors
(taking into account
the Capitalisation Issue)
HK$2.87 (representing a discount of approximately
41.19% to the mid-point of the indicative offer price range
of HK$4.58 to HK$5.18)
for identification purposes only
– 120 –
Special Rights
Certain special rights had been granted to COFCO Fund
under the COFCO Subscription Agreement and the COFCO
Shareholders’ Agreement. The special rights granted to
COFCO Fund were (i) information and inspection rights;
(ii) the rights of participation in the issuance of new
securities; (iii) anti-dilution rights; (iv) co-sale rights and
put right upon sales of shares by Song Rising; (v)
protective rights requiring COFCO Fund’s prior approval
for certain actions by our Group; (vi) nomination right for
one director to the Board; and (vii) non-disposal
undertaking by Song Rising. These special rights had been
terminated pursuant to the supplemental agreements both
dated 5 June 2013 to the COFCO Subscription Agreement
and the COFCO Shareholders’ Agreement.
Pursuant to the COFCO Subscription Agreement, any
special rights granted to COFCO Fund under the COFCO
Subscription Agreement and other transaction documents
which are not permitted to survive upon Listing under
applicable laws and rules, shall be discontinued upon our
Company’s filing for its application for the Listing.
Pursuant to the COFCO Shareholders’ Agreement, the
COFCO Shareholders’ Agreement shall automatically
terminate immediately upon filing of the application for
the Listing.
Ms. Zhang Lin, our non-executive Director, was appointed
as a Director on 4 February 2013 pursuant to the
nomination rights granted to COFCO Fund under the
COFCO Shareholders’ Agreement. Upon Listing, Ms.
Zhang Lin will be subject to re-election procedures as
provided in the Articles of Association (and subject to the
requirements of the Listing Rules) at the annual general
meeting of our Company. For details of Ms. Zhang Lin,
please refer to the section headed “Directors and Senior
Management – Directors – Non-executive Director” in this
prospectus.
– 121 –
Share mortgage
As one of the conditions precedent to the COFCO
Subscription Agreement, on 6 February 2013, Song Rising
(as mortgagor) entered into a share mortgage over 4,054
shares of nominal value of US$1.00 of our Company held
by Song Rising in favour of COFCO Fund (as mortgagee)
as security for the performance of the COFCO Subscription
Agreement by Song Rising. The said share mortgage had
been terminated and released pursuant to the supplemental
agreement dated 5 June 2013 to the COFCO Subscription
Agreement.
Use of Proceeds
We utilised the investment proceeds of COFCO Fund for
business development, working capital and other corporate
purposes. As at the Latest Practicable Date, the net
proceeds from the investment of COFCO Fund had been
fully utilised.
Sponsor’s Confirmation
The Sole Sponsor has determined that the terms of the Pre-IPO Investments are under normal
commercial terms and confirmed that the Pre-IPO Investments are in compliance with the Interim
Guidance on Pre-IPO Investment issued the Stock Exchange on 13 October 2010 (as amended), Guidance
Letters HKEx-GL44-12 (issued in October 2012) and HKEx-GL43-12 (issued in October 2012 and
updated in July 2013).
LEGAL COMPLIANCE
Our PRC legal adviser has confirmed that all relevant approvals and permits in relation to the share
transfers in respect of the PRC companies in our Group as described above had been obtained and the
procedures involved had been carried out in accordance with PRC laws and regulations.
M&A Rules
According to the Provisions of the Ministry of Commerce on M&A of a Domestic Enterprise by
Foreign Investors 《
( 關於外國投資者併購境內企業的規定》) (the “M&A Rules”) jointly issued by the
Ministry of Commerce of the PRC (the “MOFCOM”), the State-owned Assets Supervision and
Administration Commission of the State Council, the SAT, the CSRC, the SAIC and the SAFE on 8
August 2006, effective as at 8 September 2006 and amended on 22 June 2009, a foreign investor is
required to obtain necessary approvals when it (i) acquires the equity of a domestic enterprise so as to
convert the domestic enterprise into a foreign-invested enterprise; (ii) subscribes the increased capital of
a domestic enterprise so as to convert the domestic enterprise into a foreign-invested enterprise; (iii)
establishes a foreign-invested enterprise through which it purchases the assets of a domestic enterprise
and operates these assets; or (iv) purchases the assets of a domestic enterprise, and then invests such
assets to establish a foreign-invested enterprise. The M&A Rules, among other things, further purport to
require that an offshore special vehicle, or a special purpose vehicle, 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 special purpose vehicle’s securities on an overseas stock exchange,
especially in the event that the special purpose vehicle acquires shares of or equity interests in the PRC
companies in exchange for the shares of offshore companies.
– 122 –
Our PRC legal adviser is of the opinion that since Jingxiang Foods had been established as a
wholly-foreign owned enterprise before the M&A Rules were effective, the acquisition of Mr. Alex
Wong’s 100% equity interest in Jingxiang Foods by Greenfresh HK does not fall within the scope of such
acquisition of domestic company by foreign investor as stipulated under the M&A Rules.
Our PRC legal adviser has further advised that, pursuant to Article 52 of the M&A Rules, the
acquisition of 100% equity interest in Fujian Greenfresh Foods by Jingxiang Foods constituted an
acquisition of a domestic company in China by a foreign-invested enterprise, which was subject to the
Interim Provisions on the Domestic Investment of Foreign-funded Enterprises 《
( 關於外商投資企業境內
投資的暫行規定》) (the “Re-investment Provisions”) issued by the Ministry of Foreign Trade and
Economic Cooperation and the SAIC.
Our PRC legal adviser has confirmed that the M&A Rules do not apply to the Reorganisation of our
Group as described above, but do not exclude the possibility of new explanations or provisions to the
M&A Rules issued by the MOFCOM, the CSRC or other PRC government authority in the future. Our
PRC legal adviser further advised that the acquisition of 100% equity interest in Fujian Greenfresh Foods
by Jingxiang Foods comply with the Re-investment Provisions, which does not require any approval from
the CSRC, MOFCOM or other relevant PRC authorities.
SAFE Registration in the PRC
On 21 October 2005, SAFE promulgated the Circular No. 75. According to the Circular No. 75, a
PRC domestic resident is required to effect foreign exchange registration with the local foreign exchange
bureau, when such domestic resident uses its/his/her enterprise assets or interests in the PRC to establish
or take control of a special purpose vehicle abroad, and its/his/her domestic enterprises receive round-trip
investments from funds raised by such special purpose vehicle controlled by the domestic residents.
As Mr. Zheng Songhui and Mr. Zheng Tianming are PRC residents within the scope of Circular No.
75, they should register with the local branch of SAFE. According to the Registration Form for PRC
Residents to Engage in Overseas Investment 《
( 境內居民個人境外投資外匯登記表》) issued by Fujian
SAFE, Mr. Zheng Songhui and Mr. Zheng Tianming have completed the required procedures to register
with Fujian SAFE under the then effective Circular No. 75.
On 4 July 2014, SAFE promulgated Circular No. 37, which replaced Circular No. 75. The
requirement for conducting foreign exchange registration of round-trip investments by a PRC domestic
resident through a special purpose vehicle is still retained. As Mr. Zheng Songhui acquired 100% equity
interest held by Ms. Ng Man Ching in Grand Ample pursuant to a share transfer agreement dated 10
December 2014, Mr. Zheng Songhui’s holding of the equity interest in Grand Ample is subject to the
requirement of foreign exchange registration under the Circular No. 37.
According to the Registration Form for PRC Residents to Engage in Overseas Investment 《
( 境內居
民個人境外投資外匯登記表》) issued by Fujian SAFE, Mr. Zheng Songhui has completed the foreign
exchange registration required by Circular No. 37 on 18 March 2015.
– 123 –
INTENDED LISTING IN TAIWAN
We contemplated a listing (“Intended Listing in Taiwan”) of our securities on the Taiwan Stock
Exchange (“TWSE”) and our sponsor for the Intended Listing in Taiwan (“Taiwan Sponsor”) made the
requisite filings with TWSE in March 2014 in respect of the commencement of our consultation from the
Taiwan Sponsor in respect of our intention of the Intended Listing in Taiwan. As advised by the Taiwan
Sponsor at the relevant time, the Taiwan stock market was a comparatively attractive market for
agricultural technology companies such as our Group to consider raising funds through an initial public
offering. As part of the pre-listing preparation for the Intended Listing in Taiwan, and similar to other
foreign issuers who wish to list on the TWSE, we were required to receive consultation from the Taiwan
Sponsor for no less than six months before submitting the formal listing application to the TWSE. The
Taiwan Sponsor, on behalf of our Company, made monthly filings in relation to the consultation received
from the Taiwan Sponsor in preparation for the formal listing application to the TWSE.
In May 2014, Taiwan Securities and Futures Bureau issued an official announcement in respect of its
tightened policy stating that only those PRC companies invested in by Taiwanese nationals are qualified
to be listed on the Taiwan stock markets. By taking full consideration of (i) the implementation of such
tightened policy; (ii) the fact that our Group’s business was operated in the PRC; and (iii) the fact that the
Controlling Shareholders of our Group were PRC nationals, we decided to terminate the proposed listing
of our securities on the TWSE and seek a listing on the Stock Exchange instead. In October 2014, the
Taiwan Sponsor notified the Taiwan Stock Exchange Corporation and the GreTai Securities Market in
relation to the termination of the engagement between the Taiwan Sponsor and our Company with effect
on the same date, and that the requisite monthly filings to Taiwan Stock Exchange Corporation in respect
of the proposed listing would also cease. To date, our Company has not submitted any formal application
for listing of our securities on the TWSE nor the GreTai Securities Market and there is no present
intention to do so. We confirm that neither the TWSE nor the relevant authorities had raised any
comments or concerns regarding the Intended Listing in Taiwan. The Taiwan Sponsor, being the principal
channel of communication with the regulator, and the reporting accountants of the Intended Listing in
Taiwan have confirmed that they had no disagreement with our Company and that there was no matter that
needed to be brought to the attention of the regulators in Hong Kong with respect to the termination of the
Intended Listing in Taiwan.
By reason of the termination of the Intended Listing in Taiwan, the engagement between our
Company and the Taiwan Sponsor also ceased. As the Taiwan Sponsor is not licensed to advise on listing
applications on the Stock Exchange, we engaged the Sole Sponsor in respect of the Listing. Having
performed necessary due diligence on the Intended Listing in Taiwan and having considered the above,
save for the information as disclosed in this prospectus, the Sole Sponsor, itself not being licensed to
advise on listing applications on the TWSE, is not aware of (a) any other matters relating to the Intended
Listing in Taiwan that are relevant to the Listing and should reasonably be highlighted in this prospectus
for investors to form an informed assessment; (b) any other matters relating to the Intended Listing in
Taiwan that might have implications on the Company’s suitability for listing or on the accuracy and
completeness of information disclosed in this prospectus; and (c) any other matters that ought to be
brought to the attention of the regulators and the investors in Hong Kong in relation to the Intended
Listing in Taiwan or the termination of the Company’s engagement with the Taiwan Sponsor.
– 124 –
BUSINESS
OVERVIEW
We are a leading integrated supplier of edible fungi products in the PRC. According to Euromonitor,
we were the largest producer of king trumpet mushroom and the seventh largest supplier of button
mushroom in the PRC in terms of production volume in 2013 with a market share of 2.5% and 0.6% in
2013, respectively. Our edible fungi business operations are vertically integrated, covering the cultivation
and sales of fresh edible fungi produce as well as the manufacturing and sales of various processed edible
fungi products. Such integrated business model distinguishes us from other fresh and processed edible
fungi suppliers in the PRC, most of which are mainly engaged in part or parts of the value chain of
cultivation, processing and sales of edible fungi. We are also a manufacturer of processed food products
such as canned food and other processed food products in the PRC. In addition, we are currently engaged
in canned food trading business through Greenfresh HK.
As at the Latest Practicable Date, our products were primarily marketed under our core brands
and
, and are mainly categorised into two major series, namely (i) fresh edible fungi produce
consisting of king trumpet mushroom, button mushroom and straw mushroom; and (ii) processed food
products consisting of canned food such as canned edible fungi, canned vegetables, canned fruit, and
other processed food products such as brined mushroom, preserved vegetables and dried mushroom.
Our history can be traced back to 1995, when Fujian Greenfresh Foods first started manufacturing
canned food in Zhangzhou, Fujian province. Our Group commenced commercial cultivation and sales of
edible fungi in 2009. The long history of our operations and strong recognition of our brands are key
factors in our success, for which we have received various awards and certifications, including
Well-known Trademark in China (中國馳名商標) for our brand
in 2012 by the SAIC, National Top
Ten Innovative Brands of Canned Food of 2013 (2013年度全國罐頭食品十大創新品牌) in 2013 by
China Canned Food Industry Association (中國罐頭工業協會), National Agricultural Industrialisation
Key Leading Enterprise (農業產產業化國家重點龍頭企業) in 2011 and 2014 jointly by Ministry of
Agriculture, National Development and Reform Commission, Ministry of Finance, Ministry of
Commerce, PBOC, SAT, CSRC and All China Federation of Supply and Marketing Cooperatives
(農業部、國家發展和改革委員會、財政部、商務部、中國人民銀行、國家稅務總局、中國證券監督
管理委員會和中華全國供銷合作總社), Top Ten Chinese Canned Food Enterprise for Exports of 2011
(2011年度中國罐頭（出口）十強企業) by China Canned Food Industry Association (中國罐頭工業協會)
and National Top Ten Edible Fungi Industrial Production Enterprise (全國食用菌產業化建設十強企業)
in 2013 by China Edible Fungi Association (中國食用菌協會).
We have an extensive nationwide distribution and sales network that spreads over 19 provinces,
autonomous region and municipalities in the PRC. We sell our fresh edible fungi produce primarily to
distributors in the PRC, which then on-sell our fresh edible fungi produce to sub-distributors and
retailers. To a lesser extent, we also sell some of our fresh edible fungi produce directly to processed
mushroom manufacturers in the PRC which manufacture canned edible fungi. We sell our canned food to
trading companies in the PRC, which then on-sell our products to distributors in more than 50 countries
and regions in Europe, North America, South America, Asia and Africa. We mainly sell our other
and processed mushroom manufacturers.
– 125 –
BUSINESS
We strategically locate our cultivation facilities of our fresh edible fungi produce in different
regions in the PRC which are in the proximity of local major agricultural product markets. As at the
Latest Practicable Date, we had established eight cultivation facilities for our fresh edible fungi produce,
including (i) three king trumpet mushroom facilities and one button mushroom and straw mushroom
facility in Zhangzhou, Fujian province; (ii) one king trumpet mushroom facility in Dandong, Liaoning
province; (iii) one king trumpet mushroom facility in Changzhou, Jiangsu province; and (iv) two button
mushroom facilities in Chengdu, Sichuan province. The aggregate land area covers approximately an area
of 1.1 million sq.m. As at the Latest Practicable Date, we had established two production facilities for our
processed food products in Zhangzhou, Fujian province. The aggregate production facilities covers
approximately an aggregate land area of 23,000 sq.m., with an annual designed production volume of
26,220 tonnes.
Our strong research and development team together with the collaborative effort from universities
and institutions we have engaged in research and development, have allowed us to conduct research in
edible fungi industrial cultivation method and process, processed food manufacturing method and
techniques and introduce new edible fungi products to refine our existing product offerings to tailor to the
latest demand of consumers. We have established two in-house research and development laboratories in
the production facility for our processed food products and our king trumpet mushroom cultivation
facility, both in Zhangzhou, Fujian province to enable us to improve our edible fungi cultivation method
and our processed food manufacturing techniques. With such in-house research and development
capacity, we were recognised as Fujian Edible Fungi Industrial Cultivation and Fine Processing
Enterprise Engineering Technology Research Center (福建省食用菌工廠化栽培及精加工企業工程技術
研究中心) in 2012 by Fujian Provincial Department of Science and Technology (福建省科學技術廳).
Further, we have established Fujian Academician Expert Work Station (福建省院士專家工作站) in
collaboration with Engineering Research Center of Edible and Medicinal Fungi of Ministry of Education
of the PRC (食藥用菌教育部工程研究中心) in November 2012 for the research and development on
strains, formula, cultivation processes and deep processing of edible fungi and other biological
technologies.
We highly emphasise product quality of our fresh edible fungi produce and processed food products.
We have been accredited with GB/T19001-2008/ISO9001:2008 (quality management system),
GB/T24001-2004/ISO14001:2004 (environment management system), GB/T28001-2011/
OHSAS18001:2007 (occupation health and safety management system), GB/T22000-2006/
ISO22000:2005 (food safety management system) and GB14881-2013 (HACCP system) certifications
from Fujian Southeast Standard Certification Center (福建東南標準認證中心) and organic food products
certificates (有機產品認證證書) from Beijing Co-ops Integrity Certification Center (北京中合金諾認證
中心) in respect of king trumpet mushroom cultivated at our Jiaomei cultivation facilities in Zhangzhou,
Fujian province according to the relevant national standards in relation to organic food in the PRC. We
were also granted the Certificate of Pollution-free Agricultural Products (無公害農產品證書) for our
king trumpet mushroom and its cultivation process in November 2011 by the Ministry of Agriculture.
Moreover, we have been certified for our canned food under the British Retail Council (BRC) global
standard for food safety and International Food Standard (IFS) by accredited certification bodies in
Europe. We have registered with U.S. Food and Drug Administration (FDA) under Food Facility
Registration Module (FFRM) as a manufacturer or processor of certain canned food exported to the
United States.
During the Track Record Period, we were engaged in trading operations in the PRC through Minhui
Trading. We discontinued such trading operations as we disposed of Minhui Trading in 2012.
– 126 –
BUSINESS
We have achieved a solid track record of consistent growth in revenue and profit. For the three years
ended 31 December 2012, 2013 and 2014, we recorded a total revenue from our continuing operations of
approximately RMB425.4 million, RMB471.5 million and RMB545.7 million, respectively, while our net
profit from our continuing operations for the three years ended 31 December 2012, 2013 and 2014 were
approximately RMB91.2 million, RMB147.8 million and RMB175.1 million, respectively.
OUR COMPETITIVE STRENGTHS
We believe that the following competitive strengths have allowed us to achieve sustainable growth
and profitability and maintain our leading position in the fresh edible fungi produce market and enable us
to compete effectively in the processed food product market in the PRC:
Vertically integrated business model with cost effective operations
Our edible fungi business operations are vertically integrated, covering the cultivation and sales of
fresh edible fungi produce as well as the manufacturing and sales of various processed edible fungi
products. Such integrated business model distinguishes us from other fresh and processed edible fungi
suppliers in the PRC, most of which are mainly engaged in part or parts of the value chain of cultivation,
processing and sales of edible fungi. Our product offerings cover both fresh edible fungi produce and
processed food products. We not only focus on the cultivation and sales of fresh edible fungi produce, but
also provide fresh edible fungi produce as raw materials to our various processed food products such as
canned edible fungi and brined mushroom. Our canned food are made-to-order from trading companies
who then on-sell our products to overseas distributors. We arrange the manufacturing of processed food
products upon the receipt of customers’ orders. Our cultivation capabilities enable us to secure the
timing, quality and quantity of fresh edible fungi produce supply as raw materials of certain processed
food products featuring edible fungi. During the Track Record Period, the fresh edible fungi produce
supplied to our processed food product production amounted to RMB22.5 million, RMB13.7 million and
RMB39.7 million, respectively. We are able to plan the cultivation and harvest of edible fungi according
to customers’ orders, including the type and volume of edible fungi and delivery schedules. In addition,
leveraging our research and development capabilities, we are able to employ our cultivation waste of king
trumpet mushroom as the raw materials for cultivation of our button mushroom and straw mushroom so as
to lower our cost of raw materials and increase our profitability. We believe the diversity of our product
offerings generated from our integrated operations allow us to reduce our business and operational risks.
In addition, such vertically integrated business allows our cost control over processed food products and
further improve our profit margin.
– 127 –
BUSINESS
Leading position in the fresh edible fungi produce market in the PRC with strong brand recognition
and high product quality
We have been able to secure a leading market position in the fresh edible fungi produce market in the
PRC. According to Euromonitor, we were the largest producer of king trumpet mushroom and the seventh
largest producer of button mushroom in the PRC in terms of production volume in 2013 with a market
share of 2.5% and 0.6%, respectively. Our market leading position and our strong brand recognition are
not only evidenced by our strong production performance, but also by the awards and accreditations
received, including Well-known Trademark in China (中國馳名商標) in 2012 by the SAIC, National
Agricultural Industrialisation Key Leading Enterprise (農業產業化國家重點龍頭企業) in 2011 and 2014
jointly by Ministry of Agriculture, National Development and Reform Commission, Ministry of Finance,
Ministry of Commerce, PBOC, SAT, CSRC and All China Federation of Supply and Marketing
Cooperatives (農業部、國家發展和改革委員會、財政部、商務部、中國人民銀行、國家稅務總局、
中國證券監督管理委員會和中華全國供銷合作總社), National Top Ten Edible Fungi Industrialisation
Production Enterprise (全國食用菌產業化建設十強企業) in 2013 by China Edible Fungi Association (中
國食用菌協會) and Top Ten Agricultural Industrialisation Leading Enterprises (2013年度農業產業化十
強龍頭企業) in 2014 by Zhangzhou Municipal Government (漳州市政府). For further details of our
awards, please refer to the section headed “Business – Awards” in this prospectus.
Our products are primarily marketed under our core brands
and
which are widely
known to customers for the quality and food safety of our products. To ensure the product quality, we
have implemented strict quality control measures in every steps of our cultivation and manufacturing
processes. We have a dedicated quality control team to ensure that our internal quality procedures are
duly followed. All our cultivation and production facilities and procedures follow the relevant PRC laws
and regulations in relation to food production. As at the Latest Practicable Date, we had been accredited
with GB/T19001-2008/ ISO9001:2008 (quality management system), GB/T24001-2004/ISO14001:2004
(environment management system), GB/T28001-2011/OHSAS18001:2007 (occupation health and safety
management system), GB/T22000-2006/ISO22000:2005 (food safety management system) and
GB14881-2013 (HACCP system) certifications from Fujian Southeast Standard Certification Center (福
建東南標準認證中心) and organic food products certificates (有機產品認證證書) from Beijing Co-ops
Integrity Certification Center (北京中合金諾認證中心) in respect of king trumpet mushroom cultivated
at our Jiaomei cultivation facilities in Zhangzhou, Fujian province according to the relevant national
standards in relation to organic food in the PRC. We also have been granted the Certificate of
Pollution-free Agricultural Products (無公害農產品證書) for our king trumpet mushroom and its
cultivation process in November 2011 by the Ministry of Agriculture. Moreover, we have been certified
for our canned food under the British Retail Council (BRC) global standard for food safety and
International Food Standard (IFS) by accredited certification bodies in Europe. We have registered with
U.S. Food and Drug Administration (FDA) under Food Facility Registration Module (FFRM) as a
manufacturer or processor of certain canned food exported to the United States. These certifications
signify our commitment and active pursuit of high quality control standards and stringent food safety
measures throughout our operational and production processes. We believe the strong brand recognition
of our brands and our high quality products will continue to be a main factor driving our future success
and we are well positioned to leverage our strength in the edible fungi industry to capture future growth.
– 128 –
BUSINESS
Nationwide and extensive distribution and sales network across the PRC
We have an nationwide and extensive distribution and sales network consisting of distribution
channels operated by distributors, processed mushroom manufacturers and trading companies which are
Independent Third Parties in the PRC. As at 31 December 2014, our distribution and sales network
spreads over 19 provinces, autonomous region and municipalities in the PRC. We sell our fresh edible
fungi produce primarily to distributors in the PRC, which then on-sell our fresh edible fungi produce to
sub-distributors and retailers. To a lesser extent, we also sell some of our fresh edible fungi produce
directly to processed mushroom manufacturers in the PRC which manufacture canned edible fungi. As at
31 December 2012, 2013 and 2014, we had 56, 63 and 56 distributors of our fresh edible fungi produce,
respectively, while we had 8, 11 and 9 processed mushroom manufacturer customers, respectively as at
the same dates. We sell our canned food to trading companies in the PRC, which then on-sell our products
to distributors in more than 50 countries and regions in Europe, North America, South America, Asia and
Africa. As at 31 December 2012, 2013 and 2014, we sold canned food to 45, 37 and 47 trading companies
respectively. We sell our other processed food products to distributors, which then on-sell our products to
sub-distributors and processed mushroom manufacturers. As at 31 December 2012, 2013 and 2014, we
had 64, 55 and 22 distributors for our other processed food products, respectively. Our extensive
distribution and sales network allows us to distribute our products at all levels, from cities and urban
centres to counties and towns across the PRC. This extensive distribution and sales network allows us to
benefit from our distributors’ and trading companies’ established distribution channels and resources,
save costs that would otherwise be required to build up an extensive logistic network across the PRC,
increase the effectiveness of the penetration of our products and the launch of our new products to the
market within a short period of time.
We believe we have established an effective channel management system. Our extensive nationwide
distribution and sales network is supported by our strong sales and marketing team. As at the Latest
Practicable Date, our sales and marketing department consisted of 26 employees, a majority of which
have over 10 years of experience in sales of food products. Our sales personnel work with and provide
support to our distributors and trading companies to market and promote our products in different regions
across the PRC. Our sales personnel also gather market intelligence from distributors and trading
companies so as to monitor changing market trends, consumer preferences, sales performance of our
products and of our competitors and providing feedback to us on a regular basis, which allows us to
anticipate and respond to these changes in a timely manner as well as to facilitate our marketing
strategies.
We believe our well-established nationwide distribution and sales network will continue to allow us
to successfully market and deliver products to consumers and support future growth.
– 129 –
BUSINESS
Strong research and development capabilities with the ability to develop new products
We have a strong team of research and development personnel. As at the Latest Practicable Date, our
research and development team comprised twelve employees. Our research and development team is
responsible for conducting research in edible fungi cultivation methods and processes, processed food
manufacturing methods and techniques and introducing new edible fungi products to refine our existing
product offerings to tailor to the latest demand of consumers. We have established two in-house research
and development laboratories in the production facility for our processed food products and our king
trumpet mushroom cultivation facility, both in Zhangzhou, Fujian province to enable us to improve our
edible fungi cultivation method and our processed food manufacturing techniques. Our in-house research
and development laboratories provides a platform for the development of new edible fungi products,
refinement of our current product offerings, enhancement of our cultivation and production methods and
techniques, training of our research and development personnel, and sufficient testing of our newly
developed products before they are introduced to the market. With such in-house research and
development capacity, we were recognised as Fujian Edible Fungi Industrial Cultivation and Fine
Processing Enterprise Engineering Technology Research Center (福建省食用菌工廠化栽培及精加工企業
工程技術研究中心) by Fujian Provincial Department of Science and Technology (福建省科學技術廳).
Moreover, we were awarded Fujian Provincial Scientific and Technological Enterprise Certificate (福建省科
技型企業證書) by the Fujian Provincial Department of Science and Technology (福建省科學技術廳) and
Fujian Provincial Intellectual Property Outstanding Enterprise (福建省知識產權優勢企業) by the Fujian
Intellectual Property Office (福建省知識產權局). As a result of our research and development efforts, we
have successfully developed a small size king trumpet mushroom which is suitable for household
consumption in the PRC through our proprietary bottle-cultivation techniques (杏鮑菇瓶栽技術). We
intend to commence the massive commercial cultivation of such small size king trumpet mushroom in
2015.
Moreover, with the use of our in-house research and development team and a research and
development platform, we are keen to explore cooperation opportunities with leading agricultural
universities and institutions in the PRC to jointly develop advanced systems and processes of cultivation
of edible fungi in order to improve the quality and yield of our fresh edible fungi produce and to develop
new products. For example, in 2010, we entered into project cooperation agreements with Fujian
Agriculture and Forestry University (福建農林大學) to jointly develop edible fungi cultivation
energy-saving and simplification technology (食用菌栽培節能與輕簡化技術示範推廣) and edible fungi
quality control technology and quality reservation technology (食用菌質量安全控制技術和採後保質新
技術示範推廣). Further, we have established the Fujian Academician Expert Work Station (福建省院士
專家工作站) in collaboration with Engineering Research Center of Edible and Medicinal Fungi of
Ministry of Education of the PRC (食藥用菌教育部工程研究中心) in November 2012. The Fujian
Academician Expert Work Station is responsible for the research and development on strains, formula,
cultivation processes and deep processing of edible fungi and other biological technologies. The work
product of the Fujian Academician Expert Work Station belongs to us. In addition, in September 2014, we
entered into a two-year service agreement with Mr. Li Yu, an academician of Chinese Academy of
Engineering (中國工程院) and a professor of Jilin Agricultural University (吉林農業大學), pursuant to
which we appointed Mr. Li Yu as the chief technology consultant of our Group.
We believe our strong brand recognition and leading position in the edible fungi market in the PRC
is partly contributed by our ability to continuously and quickly develop various products to meet the
changing demands of consumers. We believe that our strong research and development capabilities will
continue to contribute to our growth and profitability.
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Experienced management team with a proven track record to lead our development
Our management team is composed of knowledgeable and experienced personnel with a proven
track record in the edible fungi and processed food product industries. Our senior management team
members have extensive operational and management experience in the cultivation and manufacturing of
fresh edible fungi produce and processed food products in the PRC. Mr. Zheng Songhui, our founder,
chairman of our Board, the chief executive officer and an executive Director, has about 20 years of
experience in edible fungi and processed food product industries. Mr. Zheng Tianming, an executive
Director, has joined our Group since our inception in November 1995 and has since then been assisting
Mr. Zheng Songhui in the development of our Group by taking an active part in the production and
operation of our Group. Mr. Zheng Songhui was appointed as the leading talent of technology
entrepreneurship of Fujian province (福建省科技創業領軍人才) by the talent working committee of
Fujian Provincial Committee of Communist Party of the PRC (中共福建省委人才工組領導小組) in 2014
and elected as the vice chairperson of Industrial Sub-committee of China Edible Fungi Association (中國
食用菌協會工廠化專業委員會) in 2013. Moreover, Mr. Zheng Songhui was awarded Outstand Talent (優
秀人才) by the government of Zhangzhou (漳州市人民政府) in 2012, Outstanding Entrepreneur in the
PRC (中國傑出企業家) by China Economy And Trade Promotion Association (中國經濟貿易促進會) in
January 2011, China Outstanding Innovation Entrepreneur (中國優秀創新企業家) jointly by China
Private Entrepreneur Association (中國民營企業家協會) and China Academy of Science Information
Consulting Center (中國科學院信息諮詢中心) in August 2010 and Asia Top 10 Innovation Personality
(亞洲品牌十大創新人物) by Asia Brand Ceremony (亞洲品牌盛典) in September 2009. Leveraging Mr.
Zheng Songhui’s foresight and in-depth industry knowledge, our management team is able to formulate
sound business strategies, assess and manage risks, anticipate changes in consumer preferences, and
capture significant market opportunities. For example, although we commenced commercial cultivation
and sales of fresh edible fungi produce in 2009, we have grown rapidly to become a leading integrated
edible fungi product supplier in the PRC.
Our dedicated management team spearheads our business operations and drives our future growth
plans. Their experience in, and knowledge of, the industries in which we operate also enables us to
develop new products and identify new business opportunities. Our management team has played a key
role in building a corporate culture which encourages consistent delivery of high quality products and
continuous innovation. Our management team contributed significantly to our continued growth during
the Track Record Period. We believe our experienced management team is a key to our success in the past
and will continue to contribute to our growth of our operations and profitability in the future.
OUR STRATEGIES
We intend to achieve sustainable growth in sales and profit and further strengthen our leading
position in the fresh edible fungi produce industry and current position in processed food products
industry by implementing the following strategies:
Further strengthen our leading market position through expansion of our cultivation and
production capacity and improvement of operational efficiency
We aim to capture a greater share of the fresh edible fungi produce and processed food products
markets in the PRC, thereby strengthening our leading positions in the fresh edible fungi produce market
and current position in processed food products market. To further strengthen our market position, we
plan to increase our cultivation and production capacity to meet increasing market demand. According to
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Euromonitor, the PRC king trumpet mushroom market in terms of total sales volume grew by a CAGR of
27.6% from 309,500 tonnes in 2009 to 820,400 tonnes in 2013, and is estimated to grow by a CAGR of
14.7% from 1.0 million tonnes in 2014 to 1.7 million tonnes in 2018. According to Euromonitor, the PRC
canned vegetables and fruit market in terms of total production volume grew from 1.7 million tonnes in
2009 to 2.1 million tonnes in 2013, representing a CAGR of 4.6%, and is estimated to grow from 2.1
million tonnes in 2014 to 2.5 million tonnes in 2018, representing a CAGR of 3.7%.
Recent Expansion
We are currently expanding our cultivation capacity through acquisition and installation of
bottle-cultivation king trumpet mushroom facilities at our cultivation facilities in Zhangzhou, Fujian
province as we have been foreseeing an increasing demand for small size king trumpet mushroom for
household consumption in the PRC. We commenced construction of bottle-cultivation king trumpet
mushroom facilities since 2013. Our bottle-cultivation king trumpet mushroom facilities cover an area of
approximately 32,581 sq.m. of land in total with an aggregate gross floor area of approximately 12,368
sq.m. We anticipate that the construction of the bottle-cultivation king trumpet mushroom facilities will
be completed by December 2015. The annual designed cultivation volume of bottle-cultivation king
trumpet mushroom is estimated to be 1,980 tonnes. The estimated total investment of our
bottle-cultivation king trumpet mushroom facilities amounted to approximately RMB40.4 million, and as
at the Latest Practicable Date, we had incurred RMB8.2 million. We plan to utilise the funds generated by
our operating activities to fund the remaining investment cost. Assuming the utilisation rate for
bottle-cultivation king trumpet mushroom facilities is 95.0% and the average selling price of our king
trumpet mushroom is RMB8.5 per kilogram, we expect the total investment will pay back by 2021. We
expect upcoming customers’ orders to support our expansion plan. For example, in January 2015, we
entered into letters of intent with certain distributors to establish long term cooperative relationship in
relation to purchase of our bottle-cultivation king trumpet mushroom once our cultivation facilities starts
operation.
In consideration of improving and enhancement of productivity and efficiency, we are currently in
the process of construction of new production facilities of processed food products in Zhangzhou, Fujian
province to replace our current production facilities for processed food products. We commenced
construction of such new production facilities since July 2013. We have not obtained the construction
works planning permit and the construction works commencement permit for such production facilities
before we commenced construction. We have obtained both of the construction works planning permit
and the construction works commencement permit in January 2015. For further information of such
incident of defective title, please refer to the section headed “Business – Properties – Owned properties”.
Our new production facilities cover an area of approximately 6,110 sq.m. of land in total with an
aggregate gross floor area of approximately 6,641 sq.m. We anticipate that the construction of such
production facilities and the installation of equipment and machinery will be completed by December
2015. We expect to launch the trial operation in December 2015 and commence commercial production in
January 2016. The annual designed production volume of processed food products is estimated to be
33,660 tonnes. The estimated total investment of such production facilities amounted to approximately
RMB18.1 million, and as at the Latest Practicable Date, we had incurred RMB6.9 million. We plan to
utilise the funds generated by our operating activities to fund the remaining investment cost. Assuming
the utilisation rate of such production facilities is 70.0% for our processed food products, and the average
selling price of our processed food products is RMB7.5 per kilogram, we expect the total investment will
pay back by 2018.
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Planned Expansion
In anticipation of the increased demand of king trumpet mushroom in the Southern China and
Eastern China markets and in order to cater for more orders for canned food from our customers, we also
plan to establish Guangxi Biological Technology Food Industry Park in Hezhou, Guangxi Zhuang
Autonomous Region and Zhangzhou Biological Technology Food Industry Park in Zhangzhou, Fujian
province which house king trumpet mushroom cultivation facilities and canned food production
facilities.
The estimated total investment amount are approximately RMB246.0 million and RMB201.0
million for Guangxi Biological Technology Food Industry Park and Zhangzhou Biological Technology
Food Industry Park, respectively, of which the estimated investment amount of the first phase of each of
Guangxi Biological Technology Food Industry Park and Zhangzhou Biological Technology Food
Industry Park are RMB198.0 million and RMB157.0 million, respectively. We incurred RMB43.8 million
in relation to the acquisition of land in relation to Guangxi Biological Technology Food Industry Park for
the year ended 31 December 2013. As at the Latest Practicable Date, we had not contemplated the specific
plan for phase two of each industry parks. The table below sets forth the details of our planned first phase
of each of Guangxi Biological Technology Food Industry Park and Zhangzhou Biological Technology
Food Industry Park:
Location of facilities
Year of
Type of products
commencement
produced
Total land area of operation
(sq.m.)
Guangxi Biological Technology
Food Industry Park
– king trumpet mushroom
king trumpet
(bag-cultivation) facility
mushroom
Designed
cultivation/
production
capacity
Estimated total
investment
cost(1)
(tonnes)
(RMB’000)
Source of funds for the estimated
total investment costs(2)
46,667
2016
5,040
58,440 Partly from the net proceeds
of the Global Offering
and partly from funds
generated from our
operating activities
(bottle-cultivation) facility
king trumpet
mushroom
26,667
2016
1,800
generated from our
– canned food facility
canned food
66,667
2016
28,800
generated from our
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Year of
Type of products
commencement
produced
(sq.m.)
– administrative building,
staff dormitory and
ancillary facilities
Designed
cultivation/
production
capacity
Estimated total
investment
cost(1)
(tonnes)
(RMB’000)
N/A
26,667
2016
N/A
generated from our
king trumpet
mushroom
46,667
2016
5,040
generated from our
canned food
66,667
2016
28,800
generated from our
staff dormitory and
N/A
26,667
2016
N/A
generated from our
Zhangzhou Biological
Technology
Food Industry Park
Notes:
(1)
Estimated total investment cost includes cost of payment of acquisition price of land, land levelling and greening, the
construction of cultivation facilities and production facilities, acquisition and installation of relevant equipment.
(2)
For more information of the source of funds, please refer to the section headed “Future Plans and Use of Proceeds” in
this prospectus.
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Assuming the utilisation rates for king trumpet mushroom facilities and canned food production
facilities in both industry parks are 95.0% and 70.0%, respectively, the average selling prices of our king
trumpet mushroom and canned food are RMB8.5 per kilogram and RMB7.5 per kilogram, respectively,
the construction period for both industry parks is approximately 12 to 16 months, and we will receive the
net proceeds of the Global Offering by the end of June 2015, we expect the total investment of the first
phase of each of Guangxi Biological Technology Food Industry Park and Zhangzhou Biological
Technology Food Industry Park will pay back by 2022.
We are committed to the improvement of our cultivation and manufacturing processes and
techniques to increase the utilisation rate of our cultivation and production facilities and increase
profitability of our operations. For example, we have obtained various patents in the PRC in connection
with the improvement of the cultivation processes of edible fungi and the processed food product
manufacturing process and efficiency. For more information on our patents registered in the PRC, please
refer to the section headed “Appendix V – Statutory and General Information – B. Further Information
About Our Business – 2. Intellectual Property of the Group” in this prospectus. We intend to implement
in the new cultivation and manufacturing facilities a vertically integrated production system which covers
all major steps, from raw material supply, raw material processing to finished products. We are currently
utilising our research and development capabilities to develop innovative cultivation techniques to
further automate our cultivation of edible fungi, as well as the recycling of cultivation waste in order to
materialise high value-added comprehensive utilisation of king trumpet mushroom. We believe that we
will leverage the enhanced manufacturing capacity and strengthened research and development capability
to minimise manufacturing costs and optimise our profit margin.
Further expand the breadth and depth of our distribution and sales network across the PRC
We believe further expansion of our existing distribution and sales network is crucial to further
increase our market share and coverage, which can be achieved by broadening and deepening our
distribution and sales network. Therefore, we will continue to develop our own distribution channels into
other geographic markets with high growth potential.
For our mature markets in Liaoning province, Jilin province, Guangdong province, Fujian province,
Sichuan province and Jiangxi province, we intend to expand our distribution network by relying on the
expansion of distribution coverage by distributors. Building on our strong presence in these markets, we
aim to increase the number of local distributors and increase the market penetration of our offerings. We
will also primarily distribute and promote sales of our products in these more mature markets following
our expansion of cultivation and production capacity in response to the increased demand of consumers.
For our less mature markets in Northwestern, Southwestern and Southern regions such as Shaanxi
province, Yunnan province and Guangxi Zhuang Autonomous Region in the PRC, by leveraging our
experience gained in developing our more mature markets, we intend to continue to support our
distributors, in particular, distributors who have strong track records, to expand their distribution
channels in these markets. We aim to develop these less mature markets into our more mature markets in
the future.
Furthermore, we intend to expand our distribution and sales channels of our edible fungi products
offerings by leveraging the established distribution network operated by COFCO Fund, one of our
Shareholders. For example, we entered into strategic cooperation agreements with COFCO Wo Mai Wang
Co., Ltd. (中糧我買網有限公司) and COFCO Industrial Food Import and Export Co., Ltd. (中糧工業食
品進出口有限公司), affiliates of COFCO Fund, in November 2014, respectively, pursuant to which we
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are entitled to, under the same conditions, priority rights in selling our fresh edible fungi produce and
processed food products featuring edible fungi through the e-commerce platform operated by COFCO Wo
Mai Wang Co., Ltd. (中糧我買網有限公司) and distribution channels operated by COFCO Industrial
Food Import and Export Co., Ltd. (中糧工業食品進出口有限公司), respectively. The strategic
cooperation agreements provided that the specific terms of cooperation arrangements will be set forth in
separate agreements to be entered into between both parties. As at the Latest Practicable Date, we had not
entered into any separate agreements with COFCO Industrial Food Import and Export Co., Ltd. (中糧工
業食品進出口有限公司) or COFCO Wo Mai Wang Co., Ltd. (中糧我買網有限公司).
Increase recognition and awareness of our brands by increasing marketing and promotional
activities
We believe successful branding is key to our business development and that the wide recognition
and popularity of our core brands have been a major factor for our Group’s success. To further strengthen
our established reputation of our brands, we plan to continue to promote our brand image through
marketing and promotional initiatives to increase the profile and value of our brand, particularly to our
target customers, and differentiate ourselves from our competitors. Further, in order to cultivate a
consumer base of the younger generation and raise their awareness of our brands, we intend to devote
more resources to marketing events that target them. For example, we have established China Edible
Fungi Scientific Museum (中國食用菌科技館) in our king trumpet mushroom cultivation facility in
Zhangzhou, Fujian province as a consumer edible fungi education base to promote our edible fungi
product offerings to the younger generation. Further, we plan to construct a mushroom garden affiliated
to our China Edible Fungi Scientific Museum at our king trumpet mushroom cultivation facility in
Zhangzhou, Fujian province. The mushroom garden is positioned as an out-door science education base
which integrate the functions of exhibition, promotion and scientific education of edible fungi products.
In addition, we will continue to participate in various trade shows and food exhibitions to make our
products more visible to potential customers and to collect up-to-date information on market trends and
consumer preferences. Through the implementation of these strategies, we aim to continue to promote
our brands and products to a broader spectrum of consumers across different age groups to address the
full range of consumer needs and further enhance our brand recognition.
Diversify our product offerings and develop new products
We believe that continuous product innovation and improvement is an important factor for us to
further strengthen our market position. We plan to invest in and strengthen our market-oriented product
development effort to continuously provide new products that are tailored to the consumers’ preferences.
We believe that this can be achieved by leveraging our in-house research and development capacity and
collaborating with leading agricultural universities and institutions specialising in agricultural science in
the PRC to explore new cultivation method and process, processed food manufacturing method and
techniques and introduce edible fungi products in order to diversify our product offerings. For example,
we plan to refine our existing product offerings by introducing a production line of small size of king
trumpet mushroom which is suitable for household consumption in the PRC by our bottle-cultivation
techniques (杏鮑菇瓶栽技術) in 2015. We also plan to invest in and enhance our research and
development capabilities by procurement of advanced testing and laboratory equipment for our research
and development laboratory at our king trumpet mushroom cultivation facility in Zhangzhou, Fujian
province. Furthermore, we have invested in the research and development for the commercial cultivation
of other kinds of edible fungi such as oyster mushroom (秀珍菇) and brown beech mushroom (茶樹菇)
for preparation of potential new product offerings in the future.
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Pursue appropriate strategic acquisition opportunities
We plan to continue to grow our business by acquiring two existing king trumpet mushroom
cultivation facilities in Northeastern and Southwestern China although we currently do not have
identified any acquisition targets. We will identify suitable king trumpet mushroom cultivation facilities
based on factors such as local market demand, development potential, complementary effect with our
existing products and price. We believe suitable acquisition opportunities of existing king trumpet
mushroom cultivation facilities will further expand our cultivation capacities, widen our distribution
coverage and increase our profitability. We believe that, as we have extensive experience in managing
multiple cultivation facilities in different locations in the PRC, we can continue to grow our business
through acquisitions.
OUR PRODUCTS
We are principally engaged in the cultivation and sales of fresh edible fungi produce and
manufacturing and sales of processed food products. As at the Latest Practicable Date, our products were
mainly categorised into two series, namely (i) fresh edible fungi produce consisting of king trumpet
such as brined mushroom, preserved vegetables and dried mushroom. During the Track Record Period,
we were also engaged in trading business involving canned food and furniture in the PRC through Minhui
Trading which we disposed of in 2012. The following table sets forth our sales by product categories for
the years indicated:
2012
% of total
revenue
RMB’000
King trumpet mushroom . . . .
Button mushroom and
straw mushroom . . . . . . .
Canned food . . . . . . . . . .
Other processed food products .
2013
2014
% of total
revenue
RMB’000
% of total
revenue
RMB’000
. . . . . . .
135,640
26.4%
196,306
41.6%
199,272
36.5%
. . . . . . .
57,644
11.2%
96,117
20.4%
175,860
32.2%
. . . . . . .
. . . . . . .
166,483
65,661
32.5%
12.8%
129,208
49,859
27.4%
10.6%
124,690
45,843
22.9%
8.4%
425,428
82.9%
471,490
100.0%
545,665
100.0%
Trading . . . . . . . . . . . . . . . . . . . .
87,868
17.1%
–
–
–
–
Total . . . . . . . . . . . . . . . . . . . . .
513,296
100.0%
471,490
100.0%
545,665
100.0%
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We offer our products to the market primarily under our core brands
and
. The
following table sets forth details of our principal products offered in the market as at the Latest
Practicable Date:
Product category
Brands
Average selling
price range
Typical life
span
RMB per
kilogram
7 to 11
1 to 15 days
Button mushroom
7 to 12
1 to 3 days
Straw mushroom
6 to 9
1 to 3 days
10 to 13
3 years
5 to 9
3 years
Canned food
Canned edible fungi
Canned vegetables
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BUSINESS
Product category
Brands
Average selling
price range
Typical life
span
Sample product picture
RMB per
kilogram
Canned fruit
8 to 10
3 years
9 to 13
1 year
Preserved vegetables
5 to 30
1 year
Snacks
60 to 80
1 year
140 to 3,068(1)
1 year
Brined mushroom
Dried mushroom
N/A
N/A
Note:
(1)
Our dried mushroom includes certain high value ingredients, such as Morchella esculenta (羊肚菌). As a result, we
recorded a wide price range of dried mushroom during the Track Record Period.
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We first launched the cultivation of king trumpet mushroom in 2009. Our king trumpet mushroom is
our most successful product during the Track Record Period, sales of which constituted the largest
component of our revenue from continuing operations and accounted for 31.9%, 41.6% and 36.5% of our
revenue from continuing operations for the three years ended 31 December 2012, 2013 and 2014,
respectively. As at the Latest Practicable Date, we offered eight classes of different sizes of king trumpet
mushroom.
Button mushroom and straw mushroom
We first launched the cultivation of button mushroom and straw mushroom in 2009 and 2012,
respectively. Sales of our button mushroom and straw mushroom accounted for 13.5%, 20.4% and 32.2%
of our revenue from continuing operations for the three years ended 31 December 2012, 2013 and 2014,
respectively. As at the Latest Practicable Date, we offered three classes of different sizes of button
mushroom and one class of straw mushroom.
Canned food
We first launched production of canned food in 1995. We produce canned food according to the
specifications and design provided by trading companies. A majority of our canned food are produced
under OEM arrangements and labeled with brands and logos of overseas distributors or retailers while the
remaining is produced and marketed under our own brand. Sales of our canned food accounted for 39.1%,
27.4% and 22.9% of our revenue from continuing operations for the three years ended 31 December 2012,
2013 and 2014, respectively. As at the Latest Practicable Date, we offered three major types of canned
food, namely, canned edible fungi, canned vegetables and canned fruit.
Apart from the canned food, we also manufacture and sell a wide range of other processed food
products, including brined mushroom, preserved vegetables, snacks and dried mushroom. We sell other
processed food products under our own brand. Sales of our other processed food products accounted for
15.4%, 10.6% and 8.4% of our revenue from continuing operations for each of the three years ended 31
December 2012, 2013 and 2014, respectively. We discontinued the production of snacks in November
2013 because the return on snacks (taking the advertising and promotion expenses into account) did not
meet our expectation and considering the required investment of resources in the marketing efforts to
establish our brand of snack. Therefore we decided to focus on our main business of the cultivation and
sales of fresh edible fungi produce.
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DISTRIBUTION AND SALES NETWORK
Our geographical coverage
We have an extensive nationwide distribution and sales network in the PRC consisting primarily of
distribution channels operated by our distributors, processed mushroom manufacturers and trading
companies. As at 31 December 2014, our products were sold in over 19 provinces, autonomous region and
municipalities across the PRC.
The following table sets forth our revenue of our continuing operations by geographical regions and
product category for the years indicated:
2012
2013
% of
revenue
from
continuing
operations
RMB’000
2014
% of
revenue
from
continuing
operations
RMB’000
% of
revenue
from
continuing
operations
RMB’000
PRC
Eastern China . . . . . . . . . . . . . . . .
339,126
79.7%
291,116
61.8%
326,178
59.8%
King trumpet mushroom . . . . . . . . . . . .
64,795
15.2%
58,932
12.5%
57,045
10.5%
Button mushroom and straw mushroom . . . . .
45,740
10.8%
61,452
13.0%
102,850
18.9%
Canned food . . . . . . . . . . . . . . . . .
164,750
38.7%
127,607
27.1%
124,037
22.7%
Other processed food products . . . . . . . . .
63,841
15.0%
43,125
9.2%
42,246
7.7%
Southern China . . . . . . . . . . . . . . .
28,083
6.6%
51,436
10.9%
53,315
9.8%
27,949
6.6%
47,002
10.0%
53,179
9.8%
–
N/A
–
N/A
–
N/A
Canned food . . . . . . . . . . . . . . . . .
134
0.0%
270
0.0%
108
0.0%
–
N/A
4,164
0.9%
28
0.0%
Northern China . . . . . . . . . . . . . . .
2,471
0.6%
6,109
1.3%
11,293
2.1%
528
0.1%
4,568
1.0%
10,282
1.9%
–
N/A
–
N/A
–
N/A
Canned food . . . . . . . . . . . . . . . . .
1,598
0.4%
1,332
0.3%
1,011
0.2%
345
0.1%
209
0.0%
–
N/A
Central China . . . . . . . . . . . . . . . .
20,088
4.7%
18,975
4.0%
27,686
5.1%
14,356
3.4%
16,938
3.6%
18,728
3.5%
4,710
1.1%
976
0.2%
8,958
1.6%
Canned food . . . . . . . . . . . . . . . . .
–
N/A
–
N/A
–
N/A
1,022
0.2%
1,061
0.2%
–
N/A
Northeastern China . . . . . . . . . . . . .
20,476
4.8%
38,417
8.2%
36,689
6.7%
20,023
4.7%
38,417
8.2%
36,675
6.7%
–
N/A
–
N/A
–
N/A
Canned food . . . . . . . . . . . . . . . . .
–
N/A
–
N/A
14
0.0%
453
0.1%
–
N/A
–
N/A
– 141 –
BUSINESS
2012
2013
% of
revenue
from
continuing
operations
RMB’000
2014
% of
revenue
from
continuing
operations
RMB’000
% of
revenue
from
continuing
operations
RMB’000
Southwestern China . . . . . . . . . . . . .
10,168
2.4%
45,934
9.7%
77,760
14.2%
2,973
0.7%
10,946
2.3%
13,606
2.5%
11.7%
7,195
1.7%
33,689
7.1%
64,053
Canned food . . . . . . . . . . . . . . . . .
–
N/A
–
N/A
–
N/A
–
N/A
1,299
0.3%
101
0.0%
Northwestern China . . . . . . . . . . . . .
5,016
1.2%
19,503
4.1%
9,757
1.8%
5,016
1.2%
19,503
4.1%
9,757
1.8%
–
N/A
–
N/A
–
N/A
Canned food . . . . . . . . . . . . . . . . .
–
N/A
–
N/A
–
N/A
–
N/A
–
N/A
–
N/A
Overseas . . . . . . . . . . . . . . . . . . .
–
–
–
–
2,987
0.5%
Total . . . . . . . . . . . . . . . . . . . . .
425,428
100.0%
471,490
100.0%
545,665
100.0%
Notes:
(1)
Eastern China represents Shanghai municipality, Shandong, Jiangxi, Jiangsu, Zhejiang, Anhui and Fujian provinces
(2)
Southern China represents Guangdong province and Guangxi Zhuang Autonomous Region
(3)
Northern China represents Beijing municipality
(4)
Central China represents Henan, Hubei and Hunan provinces
(5)
Northeastern China represents Jilin, Liaoning and Heilongjiang provinces
(6)
Southwestern China represents Sichuan and Yunnan provinces
(7)
Northwestern China represents Shaanxi province
(8)
Overseas represents the United States
– 142 –
BUSINESS
The following map shows the coverage of our sales network by location of our customers in the PRC
as at 31 December 2014:
Heilongjiang
Harbin
Changchun
Jilin
Xi’an
Fushun
Liaoning
Shenyang
Dandong
Dalian
Beijing
Shangqiu Qingdao
Shandong
Henan
Shaanxi
Ma’anshan
Hefei
Nanjing
Changzhou
Jiangsu
Wuxi
Shanghai
Hubei
Sichuan
Hunan
HangzhouSuzhou
Ningbo
Wuhan
Quzhou
Nanchang
Zhejiang
Changsha
Anhui
Jiangxi
Fujian
Chengdu
Yunnan
Guangxi
Guangdong
Fuzhou
Quanzhou
Xiamen
Zhangzhou
Guangzhou
Shenzhen
Kunming
Nanning
Hezhou
Northeastern China represents Heilongjiang, Jilin, Liaoning
Northern China represents Beijing
Eastern China represents Shanghai, Shandong, Jiangsu, Zhejiang, Jiangxi, Fujian, Anhui
Central China represents Hubei, Hunan, Henan
Southern China represents Guangdong, Guangxi
Northwestern China represents Shaanxi
Southwestern China represents Yunnan, Sichuan
Apart from domestic sales of our products in the PRC, we also conducted intermediary trade of
canned food during the Track Record Period through Greenfresh HK, our wholly-owned subsidiary.
During the Track Record Period, Greenfresh HK purchased canned food from trading companies in the
PRC and then sold to the customers in overseas countries. The trading companies in the PRC were
responsible for exporting the canned food to the relevant overseas countries. The canned food was
shipped from the PRC directly to the relevant overseas countries. To the best knowledge of our Directors,
the trading companies in the PRC and the customers in the relevant overseas countries were all
Independent Third Parties. For the three years ended 31 December 2012, 2013 and 2014, our sales under
intermediary trade amounted to nil, nil and RMB3.0 million, respectively, representing nil, nil and 0.5%
of our revenue from continuing operations during the same periods, respectively. As advised by our PRC
legal adviser and Hong Kong legal adviser, neither Greenfresh HK is required to obtain any license or
permit in the PRC or Hong Kong in order to conduct such intermediary trading business.
– 143 –
BUSINESS
Our customers
Consistent with market practice, we sell our fresh edible fungi produce primarily to distributors in
the PRC, which then on-sell our fresh edible fungi produce to sub-distributors and retailers. To a lesser
extent, we also sell some of our fresh edible fungi produce directly to processed mushroom manufacturers
in the PRC which manufacture canned edible fungi. We sell our canned food to trading companies in the
PRC, which then on-sell our products to overseas distributors in more than 50 countries and regions in
Europe, North America, South America, Asia and Africa. We sell our other processed food products to
distributors in the PRC, which then on-sell our products to sub-distributors and processed mushroom
manufacturers.
The following table sets forth our revenue from continuing operations generated by sales channel
for the periods indicated:
2012
RMB’000
Sales to distributors of our fresh
edible fungi produce
King trumpet mushroom . . . . . . . . . . .
Button mushroom . . . . . . . . . . . . . . .
Sales to processed mushroom
manufacturers
Button mushroom . . . . . . . . . . . . . . .
Straw mushroom . . . . . . . . . . . . . . .
Sales to trading companies
Canned food . . . . . . . . . . . . . . . . .
Sales to distributors of our other processed
food products
Other processed food products . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . .
2013
%
RMB’000
2014
%
RMB’000
%
135,640
7,333
31.9%
1.7%
196,306
25,233
41.6%
5.3%
199,272
70,161
36.5%
12.8%
45,986
4,325
10.8%
1.0%
65,384
5,500
13.9%
1.2%
95,440
10,259
17.5%
1.9%
166,483
39.1%
129,208
27.4%
124,690
22.9%
65,661
15.5%
49,859
10.6%
45,843
8.4%
425,428
100.0%
471,490
100.0%
545,665
100.0%
For the three years ended 31 December 2012, 2013 and 2014, sales to our largest customers
accounted for 9.5%, 7.8% and 8.0%, respectively, of our total revenue. For the same periods, our five
largest customers combined accounted for 28.5%, 23.0% and 29.2%, respectively, of our total revenue.
During the Track Record Period and up to the Latest Practicable Date, none of our suppliers was also our
major customer. As at the Latest Practicable Date, our five largest customers during the Track Record
Period had maintained business relationship with us for at least one year. During the Track Record Period
and up to the Latest Practicable Date, we did not have any material dispute with our customers.
– 144 –
BUSINESS
The following table sets forth certain information with respect to our five largest customers during
the Track Record Period.
Five largest
customers
Customer A
The year for which the
customer was
one of our
five largest customers
Customer B
2012, 2013 and
2014
2012 and 2013
Customer C
2012 and 2013
Customer D
2012
Customer E
2012
Customer F
2013
Customer G
2013 and 2014
Customer H (1)
2014
Customer I
2014
Customer J
2014
Customer type/
Business scope
Trading company/Canned
food export
food export
food export
food export
Processed mushroom
manufacturer/Canned
food processing
food export
food export
food export
Processed mushroom
manufacturer/Edible
fungi production and
processing
Processed mushroom
manufacturer/Canned
edible fungi production
Headquarters
Length of relationship
with our Group as at
31 December 2014
Fujian province
8 years
Fujian province
8 years
Fujian province
5 years
Fujian province
8 years
Jiangxi province
1 year
Fujian province
3 years
Fujian province
5 years
Fujian province
7 years
Fujian province
3 years
Fujian province
6 years
Note:
(1)
Customer H is Minhui Trading which we disposed of in 2012. We sold canned food to Minhui Trading in 2013 and
2014 at arm's length basis. The length of relationship with our Group as at 31 December 2014 includes the period of
time during which Minhui Trading was our wholly-owned subsidiary.
To the best knowledge of our Directors, none of our Directors or their associates, or any
Shareholders, who owns more than 5% of our issued share capital, had any interest in any of our five
largest customers for the three years ended 31 December 2012, 2013 and 2014 and up to the Latest
Practicable Date.
Sales to distributors of fresh edible fungi produce
Our distributors are our major customers which on-sell our fresh edible fungi produce to
sub-distributors and retailers. The majority of our distributors of fresh edible fungi produce are
individual distributors while the others are corporate distributors. The sub-distributors and retailers are
– 145 –
BUSINESS
mainly local individual agricultural wholesalers and supermarkets, respectively. For the three years
ended 31 December 2012, 2013 and 2014, sales to our distributors of our fresh edible fungi produce
amounted to RMB143.0 million, RMB221.5 million and RMB269.4 million, respectively, representing
33.6%, 46.9% and 49.3% of our revenue from continuing operations during the same periods,
respectively.
We have established an extensive nationwide distribution network. As at 31 December 2012, 2013
and 2014, we had 56, 63 and 56 distributors of our fresh edible fungi produce, respectively. We believe
that this extensive distribution network allows us to benefit from our distributors’ established distribution
channels and resources, save costs that would otherwise be required to build up an extensive logistics
network across the PRC, increase the effectiveness of the penetration of our products and the launch of
our new products to the market within a short period of time.
We select our distributors on the basis of a number of factors, including their nature of business,
their coverage of distribution networks, recent sales performance of other products, operation facilities,
number of employees and creditworthiness to ensure they can meet our requirements.
The following table sets forth the changes in the number of our distributors of our fresh edible fungi
produce for the periods indicated:
2012
Number of distributors at the beginning of the
year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of new distributors added
during the year . . . . . . . . . . . . . . . . . . . . . . . .
Number of existing distributors terminated during
the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net increase (decrease) in the number
of distributors during the year . . . . . . . . . . . . .
Number of distributors at the end
of the year. . . . . . . . . . . . . . . . . . . . . . . . . . .
2013
2014
32
56
63
37
36
11
(13)
(29)
(18)
24
7
(7)
56
63
56
In line with our expansion of cultivation capacity of fresh edible fungi produce during the Track
Record Period, we added 37, 36 and 11 new distributors of our fresh edible fungi produce for the three
years ended 31 December 2012, 2013 and 2014, respectively. In order to improve the quality of our
distribution network, we terminated our contractual relationship with 13, 29 and 18 distributors of our
fresh edible fungi produce who (i) were small-scale distributors with minimal purchase amount, (ii) were
one-off distributors and/or (iii) had unsatisfactory business operation capabilities, for the same periods.
In 2012, there was a significant net increase in the number of our distributors of our fresh edible fungi
produce as we actively expanded our distribution network primarily due to the commencement of
cultivation at our king trumpet mushroom facility in Dandong, Liaoning province and the commencement
of the industrial cultivation of button mushroom at our button mushroom facility in Chengdu, Sichuan
province. The net increase in the number of distributors in 2013 was primarily due to the expansion of our
distribution network as a result of the commencement of cultivation of king trumpet mushroom at our
cultivation facility in Changzhou, Jiangsu province and in Zhangzhou (Zhangpu No. 3 facility), Fujian
province. For the year ended 31 December 2014, the number of our distributors of our fresh edible fungi
– 146 –
BUSINESS
produce decreased primarily because we terminated small-scale distributors of our fresh edible fungi
produce in Liaoning and Jiangsu provinces in the PRC as these distributors are one-off customers with
relative small purchase volume in order to guarantee the supply to large-scale and recurrent distributors
with relative large purchase volume.
During the Track Record Period and up to the Latest Practicable Date, we had one distributor which
was wholly-owned by one of our ex-employees. Our Directors confirm that the sales to such distributor
had been on normal commercial terms which were consistent with the terms offered to other distributors.
Our Directors also confirm that no employees had acted as distributors while still being employees during
the Track Record Period and up to the Latest Practicable Date.
To the best knowledge of our Directors, save for the disclosure above, during the Track Record
Period and up to the Latest Practicable Date, all of our distributors of our fresh edible fungi produce were
Independent Third Parties, and none of our distributors was wholly-owned or majority controlled by our
current or ex-employees nor does any of them used our trade or brand names. To the best knowledge of
our Directors, our distributors of our fresh edible fungi produce are primarily engaged in the business of
edible fungi distribution in the PRC. Further, our Directors are not aware any of the sub-distributors or
retailers of our distributors was not an Independent Third Party during the Track Record Period and up to
the Latest Practicable Date.
Designated geographical region
Our distributors of our fresh edible fungi produce are local, rather than national, distributors who
are primarily involved in the distribution of our products in their respective regions. Although we do not
grant exclusivity to our distributors of our fresh edible fungi produce nor we provide designated
geographical area in the distribution agreement, we believe there is no potential cannibalisation or
competition among our distributors of our fresh edible fungi produce as their respective distribution
channels do not overlap. Further, we require our sales personnel to conduct regular on-site inspections on
our distributors of our fresh edible fungi produce and keep track of any potential cannibalisation or
competition among them. During the Track Record Period, we were not aware of any material
cannibalisation or competition among our distributors of our fresh edible fungi produce in the same
region.
Supply commitment, minimum purchase requirement, sales targets and rebates
We provide supply commitment to our distributors of our fresh edible fungi produce to guarantee a
minimum amount of supply of fresh edible fungi produce. We set annual supply commitments in the
standard distribution agreements which are negotiated and determined with reference to various criteria,
including the past performance of the distributor, the market conditions and our own estimated annual
production volume. During the Track Record Period and up to the Latest Practicable Date, we had
satisfied our annual supply commitments. There is no minimum purchase requirement provided under the
distribution agreement. We do not provide sales targets nor rebates to our distributors in the distribution
agreements.
We recognise our sales once our fresh edible fungi produce have been sold to the distributors and all
titles and risks in connection with such products will also be passed to the distributors. After the
distributors have acknowledged receipt of those products, they will not be entitled to any recourse from
our Group if they fail to sell our products to the sub-distributors or retailers.
– 147 –
BUSINESS
Management of our distributors
We require our sales personnel to conduct regular inspections on our distributors to collect
information about their sales volumes, selling prices, monitor the number of distributors in any given area
and keep track of any potential competition among our distributors. Through these inspections, we seek
to ensure that the terms and conditions of the distribution agreements are being complied with throughout
our distribution network.
In line with market practice, distributors of our fresh edible fungi produce do not keep material
amount of inventories as the distributors will distribute and sell the fresh produce to sub-distributors or
retailers within a short period of time after they receive our products due to the perishable nature of fresh
edible fungi produce. Sub-distributors of our distributors will not keep material amount of inventories as
well because they distribute and sell the fresh produce to their customers due to the perishable nature of
fresh edible fungi produce. During the Track Record Period and up to the Latest Practicable Date, we
were not aware of any material accumulation of stock by our distributors of fresh edible fungi produce
and sub-distributors of our distributors.
We regularly evaluate the performance of our distributors based primarily on the following factors:
•
overall sales performance;
•
performance under the distribution agreement;
•
payment history; and
•
maintenance of their creditworthiness.
We normally renew the relevant distribution agreements on an annual basis with the distributors who
pass our performance evaluation.
For further details regarding our pricing policy applied to our distributors, please refer to the
sections headed “Business – Distribution and Sales Network – Pricing policy” in this prospectus.
We sell all of our canned food to trading companies in the PRC, which then on-sell our products to
overseas distributors in more than 50 countries and regions in Europe, North America, South America,
Asia and Africa. Our trading companies customers are all corporate entities with export qualification in
the PRC. The overseas distributors are corporate importers of the relevant jurisdictions. For the three
years ended 31 December 2012, 2013 and 2014, our sales to trading companies amounted to RMB166.5
million, RMB129.2 million and RMB124.7 million, respectively, representing 39.1%, 27.4% and 22.9%
of our total sales during the same periods, respectively.
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BUSINESS
As at 31 December 2012, 2013 and 2014, we had 45, 37 and 47 trading companies as our customers,
respectively. During the Track Record Period and up to the Latest Practicable Date, all of these trading
companies were Independent Third Parties. Further, our Directors are not aware any of the overseas
distributors of our trading companies customers was not an Independent Third Party during the Track
Record Period and up to the Latest Practicable Date. The following table sets forth the changes in the
number of trading companies for the periods indicated:
2012
Number of trading companies at
the beginning of the year . . . . . . . . . . . . . . . . .
Number of new trading companies added during
the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of existing trading companies terminated
during the year . . . . . . . . . . . . . . . . . . . . . . . .
Net increase (decrease) in the number
of trading companies during
the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of trading companies at
2013
2014
49
45
37
14
10
22
(18)
(18)
(12)
(4)
(8)
10
45
37
47
Our trading companies customers comprise recurrent customers and one-off customers. During the
Track Record Period, the new trading companies that purchased canned food from us and the trading
companies which terminated business relationship with us mainly represented trading companies who did
one-off purchase from us due to the fluctuation on the number of orders those trading companies received
from overseas distributors.
We generally enter into sales agreements with trading companies for a term ranging from three
months to one year subject to the delivery schedule specified in the relevant sales agreements. The sales
agreements set forth the product name, specification, quantity of products, packaging specifications,
delivery time and venue. We are required to pay our trading companies customers liquidated damages if
we breach the terms of the purchase orders in accordance with the relevant legal provisions.
We recognise our sales once our canned food have been sold to the trading companies and all titles
and risks in connection with such products will also be passed to the trading companies. After the trading
companies have acknowledged receipt of those products, they will not be entitled to any recourse from
our Group if they fail to sell our products to overseas distributors.
Management of trading companies
We require our sales personnel to conduct regular inspections on trading companies to collect
information about their sales volumes, selling prices and sales returns of our products. Through these
inspections, we seek to ensure that the terms and conditions of the sales agreements with trading
companies are being complied with.
In line with the market practice, trading companies do not keep material amount of inventories as
they enter into sales agreements with us after receiving orders from overseas distributors. During the
Track Record Period and up to the Latest Practicable Date, we were not aware of any material
accumulation of stock by our trading companies customers. Overseas distributors will monitor and
control the level of their inventories based on the market demand of the relevant jurisdictions.
– 149 –
BUSINESS
We regularly evaluate the performance of our trading companies customers based primarily on the
following factors:
•
•
•
•
We normally renew the relevant sales agreements on an annual basis with the trading companies
customers who pass our performance evaluation.
Sales to distributors of our other processed food products
We sell brined mushroom to distributors in the PRC, which on-sell our products to the processed
mushroom manufacturers. We sell preserved vegetables and snacks to distributors in the PRC, which
on-sell our products to the sub-distributors. The majority of our distributors are corporate distributors
while the others are individual distributors. The sub-distributors of our distributors are mainly local
corporate distributors which are engaged in the business of food distribution. For the three years ended 31
December 2012, 2013 and 2014, sales to these distributors amounted to RMB65.7 million, RMB49.9
million and RMB45.8 million, respectively, representing 15.5%, 10.6% and 8.4% of our revenue from
continuing operations during the same periods, respectively.
As at 31 December 2012, 2013 and 2014, we had 64, 55 and 22 distributors, respectively. The
number of our distributors decreased in 2013 and 2014 primarily due to our decision to discontinue the
production of snacks and the cessation of production of snacks in November 2013.
To the best knowledge of our Directors, during the Track Record Period and up to the Latest
Practicable Date, all of our distributors of other processed food products were Independent Third Parties,
and none of our distributors was wholly-owned or majority-controlled by our current or ex-employees nor
does any of them used our trade or brand names. To the best knowledge of our Directors, our distributors
of other processed food products are primarily engaged in the business of food distribution in the PRC.
Further, our Directors are not aware any of the sub-distributors or processed mushroom manufacturers of
our distributors was not an Independent Third Party during the Track Record Period and up to the Latest
Practicable Date.
Designated geographical region
We typically grant our distributors of preserved vegetables and snacks distribution rights to
distribute our products within a designated geographical area to avoid cannibalisation among themselves.
Pursuant to the standard distribution agreements, our distributors are prohibited from selling our products
in other areas beyond those designated by us. We are entitled to unilaterally terminate the distribution
agreements with distributors if they are in breach of such restriction. Our products are also printed with
date of production which allow our sales representatives to keep track of any product being sold to other
regions beyond those designated by us since each batch of products with specific date of production is
sold to specific distributors. Further, we require our sales personnel to conduct regular on-site inspections
on our distributors and keep track of any potential cannibalisation or competition among our distributors.
During the Track Record Period, we were not aware of any material cannibalisation or competition
among our distributors in the same region.
– 150 –
BUSINESS
Sales targets and rebates
We set annual sales targets in the standard distribution agreements which are negotiated and
determined with reference to various criteria, including the past performance of the distributors of our
other processed food products, the market condition, our plan in launching new products and our own
annual sales targets. Our distributors of our other processed food products are encouraged to attain such
targets. If they fail to meet such targets, we have the discretion not to renew the relevant distribution
agreements with them the following year. In order to encourage our distributors to extend their
distribution coverage so as to increase the market share of our products, we also provide incentives to our
distributors in the form of rebates if they achieve certain sales targets. During the Track Record Period,
we typically agreed to provide incentives to our distributors of our other processed food products in the
form of rebates of 1.0% of their purchase amount if they achieve the sales targets stipulated in such
agreements. Such rebates will be settled at the expiry of the distribution agreement.
Management of our distributors
We require our sales personnel to conduct regular inspections on our distributors of our other
processed food products to collect information about their sales volumes, selling prices, inventory levels
and sales returns of our products, ensure that our products are distributed by our distributors of our other
processed food products within the agreed geographical region, monitor the number of distributors of our
other processed food products in any given area and keep track of any potential competition among our
distributors of our other processed food products. Through these inspections, we seek to ensure that the
terms and conditions of the distribution agreements are being complied with throughout our distribution
network. We are entitled to terminate the distribution agreements if our distributors of our other
processed food products breach certain provisions stipulated in the agreements, including distribution
geographical region restrictions and sales targets.
Our distributors of our brined mushroom do not keep material amount of inventories because these
distributors purchase brined mushroom from us based on the quantity of orders they received from the
processed mushroom manufactures who produce processed mushroom products. Our distributors and
sub-distributors of preserved vegetables and snacks do not keep material amount of inventories as well
because we produce and sell preserved vegetables and snacks to our distributors based on the orders from
our distributors with reference to the market demand of our products. During the Track Record Period and
up to the Latest Practicable Date, we were not aware of any material accumulation of stock by our
distributors of our other processed food products and sub-distributors of our distributors.
We regularly evaluate the performance of our distributors based primarily on the following factors:
•
•
•
•
We normally renew the relevant distribution agreements on an annual basis with the distributors of
our other processed food products who pass our performance evaluation.
– 151 –
BUSINESS
Standard distribution/sales agreements
We generally enter into standard distribution agreements or sales contracts with our distributors and
trading companies. All distributors and trading companies purchase our products as principals who place
purchase orders with us from time to time with specifications on the type and quantity of products. We are
not obligated to accept any return of products that have not been sold by our distributors or trading
companies. The distributors or trading companies would bear the loss for the unsold products. During the
Track Record Period, we did not accept any return of unsold products from our distributors or trading
companies.
The following table sets forth a summary of the principal terms of our standard distribution/sales
agreements with our distributors and trading companies as at the Latest Practicable Date:
Principal terms
Distributors of fresh edible
fungi produce
Term of agreement One year
Termination
Distributors of other processed
food products
•
Brined mushroom:
three months to one
year
•
and snacks:
one year
The distribution agreement is •
terminable by either party
•
by giving notice to, and
verified by the other party
in the event that the other
party fails to perform any
of the obligations
stipulated in the agreement
due to natural disasters,
major insect pests and
other occurrences of force
majeure.
– 152 –
Trading companies
Three months
to one year
Brined mushroom: N/A N/A
and snacks: We are
entitled to terminate the
agreement if the
distributor (i) fails to
meet the sales target
within the consecutive
three months;
(ii) distributes the
products outside the
designated geographical
area; (iii) distribute
fake products under our
brands; (iv) fails to
meet our pricing policy;
and (v) does harm to
our reputation.
BUSINESS
Principal terms
fungi produce
Distribution within N/A
a designated
geographical
area (yes/no)
Pricing
Recommended
price ranges for
on-sell of
products
(yes/no)
Trading companies
•
•
and snacks: Yes
Both parties to determine
•
with reference to
the prevailing market price
at delivery. The prevailing
market price is determined •
based on a few factors
such as (i) the proposed
price provided by the
distributor; (ii) the price of
the most recent purchase
by the same distributor;
and (iii) the local market
price intelligence provided
by our sales personnel.
Brined mushroom:
fixed price specified in
the sales agreement
N/A
•
•
and snacks: Yes
•
•
and snacks: N/A
•
•
and snacks: N/A
Minimum purchase N/A
amount (yes/no)
Minimum supply
amount (yes/no)
food products
Yes
– 153 –
Fixed prices
stipulated in
the sales
agreement
and snacks: we shall
notify the distributor 15
business days in
advance if there is any
adjustment to the price
set forth in the
distribution agreement.
The new price shall
take effective after our
notification to the
distributor. Distributor
is prohibited to
distribute the products
at a price below the
price at which we sell
to them.
BUSINESS
food products
Trading companies
•
Brined mushroom: we
or distributors bear the
cost
We or
distributors
bear the costs
•
and snacks: Distributors
bear the cost
•
•
and snacks: Yes
•
•
and snacks: Yes
Return or exchange N/A
of defective
products
•
•
and snacks: Yes
Return of unsold
or expired
products
(yes/no)
N/A
•
•
and snacks: N/A
Credit terms
45 days
•
Brined mushroom:
45 days
•
and snacks: N/A
•
•
and snacks: Yes
•
•
and snacks: N/A
Principal terms
Delivery costs
Sales target
(yes/no)
Rebates (yes/no)
fungi produce
We or distributors
bear the costs
N/A
N/A
Confidentiality
undertaking
(yes/no)
N/A
Non-competition
undertaking
(yes/no)
N/A
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45 days
BUSINESS
Sales to processed mushroom manufacturers
We sell part of our fresh button mushroom and straw mushroom produce directly to processed
mushroom manufacturers which use such fresh produce as raw materials for their own production of
processed mushroom products. For the three years ended 31 December 2012, 2013 and 2014, sales to
processed mushroom manufacturers amounted to RMB50.3 million, RMB70.9 million and RMB105.9
million, respectively, representing 11.8%, 15.1% and 19.4% of our revenue from continuing operations
during the same periods, respectively. As at 31 December 2012, 2013 and 2014, we had sales to 8, 11 and
9 processed mushroom manufacturers, respectively. To the best knowledge of our Directors, during the
Track Record Period and as at the Latest Practicable Date, all of our processed mushroom manufacturers
were Independent Third Parties.
Pricing policy
The selling prices of our products are jointly determined by our senior management and sales
departments on the basis of cost-plus method. We adopt a market pricing strategy when we determine the
price of our products. In determining our pricing strategies, we take into account the market demand and
supply of our products, the anticipated market trends, costs of our raw materials, cultivation or
production costs, product type, the prices of our competitors’ products, historical sales data of our
products and expected profit margins to be enjoyed by our distributors, trading companies and us. We
review and adjust these prices periodically based on these factors and other general market condition. We
have limited control over the prices at which our distributors, processed mushroom manufacturers and
trading companies are willing to purchase our products as prices are driven mainly by economic factors
such as demand and supply. We also have limited control over the prices at which our distributors of fresh
edible fungi produce, processed mushroom manufacturers and trading companies are willing to sell our
products to their respective customers.
For preserved vegetables and snacks, we sell our products to our distributors at prices stipulated in
the distribution agreements. The distributors are obliged to sell the products at the prices stipulated in the
distribution agreement and are prohibited to lower or increase the selling prices. We also set up
recommended price ranges for our distributors to on-sell our products to sub-distributors. As stipulated in
our standard distribution agreement, our distributors are required to add 3% to 10% of the price at which
we sell to them when they sell our products to their sub-distributors.
Credit control
We generally grant a credit period of up to 45 days to our customers depending on their credit
history, historical sales performance, estimated future purchases, relationship history with us and
business scale.
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BUSINESS
As at 31 December 2012, 2013 and 2014, our trade receivables turnover days of continuing
operations were approximately 34 days, 34 days and 35 days, respectively. Our finance and accounting
department carries out monthly reconciliation exercise of all outstanding accounts receivables and
produces receivables reconciliation reports monthly. If a distributor does not settle its outstanding
receivables when they are due, we will consider suspending our delivery of products to such distributor
until its outstanding receivables have been settled. Our management team monitors our receivable
balances on an ongoing basis and considers whether bad or doubtful debt provisions are necessary. As at
31 December 2012, 2013 and 2014, we did not record allowance for doubtful debts. For these reasons, our
Directors do not consider there is any material liquidity risk associated with our credit policy. For further
details regarding our credit control policy, please refer to the section headed “Financial Information –
Certain Items of Consolidated Statements of Financial Position – Trade receivables” in this prospectus.
Product return and recall policy
We accept return or exchange of any defective product or damaged product after our examination
and approval. We will refund our customers the relevant purchase amount for any defective or damaged
product returned to us or exchange the defective or damaged products for new products. The liability of
defects of our products is borne by us solely. There is no allocation of liability for product defects
between our suppliers and us.
Apart from product quality issues, we do not accept return or exchange of any unsold products,
expired product or product that is getting close to expiry from our customers. During the Track Record
Period and up to the Latest Practicable Date, we did not experience any material product return of any
unsold product, expired product or product that is getting close to expiry from our customers. We also do
not expect any return of unsold product, expired product or product that is getting close to expiry from
our customers in the foreseeable future.
For the three years ended 31 December 2012, 2013 and 2014, the amount of sales return from our
customers amounted to nil, RMB0.9 million and nil, respectively, and mainly because the packaging
materials of canned food did not meet the requirements of our customers. During the Track Record Period
and up to the Latest Practicable Date, we did not experience any material product return or made any
product recall due to product quality defects or damages during delivery.
Seasonality
During the Track Record Period, we experienced the seasonality fluctuations in our production and
sales due to our customers’ purchase patterns and weather condition for traditional cultivation. According
to our experience, industrial cultivation is not affected by weather cycles (such as hot summers and cold
winters) so the production of king trumpet mushroom are all year round as all of our king trumpet
mushroom are under industrial cultivation. Our price of king trumpet mushroom tend to increase around
the Christmas and Chinese New Year holiday period (usually during December, January and February of
each year) and therefore our revenue from sales of king trumpet mushroom tends to be higher accordingly
in those periods. Our production volume of button mushroom and straw mushroom is affected by weather
cycles as the majority of our button mushroom and straw mushroom are under traditional cultivation. Due
to the habit of button mushroom and straw mushroom, the peak season of production of button mushroom
is from October to May of the following year and the peak season of production of straw mushroom is
June and September. As such, the sales of button mushroom and straw mushroom will be generated only
during such periods.
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BUSINESS
vegetables and fruit for the production of canned food in accordance with the respective seasonal
availability of the various raw materials. We purchase fresh produce of vegetables and fruit from local
suppliers in Fujian province which source these vegetables and fruit in Fujian province, Guangdong
province and Guangxi Zhuang Autonomous Region. We manufacture canned food during the harvesting
season of the various vegetables and fruit and deliver the products according to the schedules set forth in
the relevant sales contracts entered into with trading companies.
For more details relating to seasonality of our production and sales of products, please refer to the
section headed “Risk Factors – Risks Relating to our Business – Production and sales of some of our
products are subject to seasonality fluctuations” in this prospectus.
After-sales service
We have established customer complaints processing procedures to better serve our customers and
take corrective and improvement measures in a timely manner. It is our policy that complaints from our
customers or consumers shall be handled and answered upon receipt in accordance with the written
procedures. Sales department and quality control department are jointly responsible for the analysis of
complaints from customers on product quality. In addition, our sales department and quality control
department pay visits to our customers to assist them in solving any sales-related issues. During the Track
Record Period and up to the Latest Practicable Date, we did not record product recall and had not received
any material complaints or product liability claims from our customers.
OUR BRANDS AND MARKETING AND PROMOTIONAL ACTIVITIES
Currently a majority of our products are marketed and sold under our core brands
and
.
Our
brand was recognised as Well-Known Trademark in China (中國馳名商標) in 2012 by the SAIC
and National Top Ten Innovative Brands of Canned Food of 2013 (2013年度全國罐頭食品十大創新品
牌) in 2013 by China Canned Food Industry Association (中國罐頭工業協會). To promote our brand
recognition, enhance the visibility and marketability of our products, we engage in a variety of marketing
and promotional activities, including trade shows and food exhibitions for our canned edible fungi and
other processed food products. Our senior management together with our sales and marketing department
set annual sales targets and conduct corresponding performance review of the marketing achievements.
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BUSINESS
Going forward, we intend to engage in other advertising channels, including advertisements on the
internet, television, public transport and printed media, such as outdoor billboards and newspapers, to
increase the awareness of our brands and products in both domestic and overseas markets. This will allow
us to further enhance our brand recognition and attract more media and public attention to our brands and
products. Further, in order to cultivate a consumer base of younger generation and raise their awareness
of our brands, we intend to devote more resources to marketing events that target them. For example, we
have established China Edible Fungi Scientific Museum (中國食用菌科技館) in our king trumpet
mushroom cultivation facility in Zhangzhou, Fujian province as a consumer edible fungi education base
to promote our edible fungi products to the younger generation. We plan to establish a button mushroom
garden as a supplement to the China Edible Fungi Scientific Museum. In addition, we will continue to
participate in various domestic and international trade shows and food exhibitions to make our products
more visible to potential buyers and collect up-to-date information on market trends and consumer
preferences. Moreover, we intend to sell our products online through e-commerce platform operator. For
example, we entered into strategic cooperation agreements with COFCO Wo Mai Wang Co., Ltd. (中糧我
買網有限公司) in November 2014, pursuant to which we are entitled to, under the same conditions,
priority rights in selling our fresh edible fungi produce and processed food products featuring edible
fungi through the e-commerce platform operated by COFCO Wo Mai Wang Co., Ltd. (中糧我買網有限公
司). The strategic cooperation agreement provided that the specific terms of cooperation arrangements
will be set forth in separate agreements to be entered into between both parties. As at the Latest
Practicable Date, we had not entered into any separate agreements with COFCO Wo Mai Wang Co., Ltd.
(中糧我買網有限公司).
For the three years ended 31 December 2012, 2013 and 2014, we incurred advertising and
promotional expenses of RMB1.1 million, RMB0.8 million and RMB1.5 million, respectively,
representing 0.3%, 0.2% and 0.3% of our total revenue of continuing operations during the same periods,
respectively.
Sales and marketing team
As at the Latest Practicable Date, our sales and marketing department consisted of 26 employees
who are grouped into teams according to different products and different geographical regions in which
our distributors, trading companies and processed mushroom manufacturer customers are located. A
majority of our sales personnel have over 10 years of experience in the sales of food products. They are
primarily responsible for approaching potential customers, liaising with our existing customers,
promoting our products, assisting with the provision of after-sales services to our customers,
implementing our marketing strategies, supervising marketing and promotional activities, assisting our
distributors to expand the coverage of their distribution network in the PRC, gathering market
intelligence including sales performance of our competitors, providing feedback to us on a regular basis,
conducting regular inspections on our distributors and trading companies and other sales channels than
our distributors and trading companies, and monitoring the performance of our distributors and trading
companies. For further details regarding the role of our sales personnel in management of our distributors
and trading companies, please also refer to the sections headed “Business – Distribution and Sales
Network – Our customers – Sales to distributors of fresh edible fungi produce – Management of our
distributors”, “Business – Distribution and Sales Network – Our customers – Sales to trading
companies – Management of trading companies” and “Business – Distribution and Sales Network – Our
customers – Sales to distributors of our other processed food products – Management of our distributors”
in this prospectus.
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BUSINESS
CULTIVATION OF FRESH EDIBLE FUNGI
Cultivation process
Overview
We employ two kinds of cultivation methods, namely industrial cultivation and traditional
cultivation for our fresh edible fungi produce.
Industrial cultivation ( 工廠化種植 )
We apply industrial cultivation method to produce all of our king trumpet mushroom and part of our
button mushroom. Industrial cultivation involves employing advanced and automated machineries and
equipment in connection with refrigeration, heating and ventilation to control temperature, humidity,
carbon dioxide density and illumination during the cultivation process in order to create the most
appropriate and ideal environment for the growth of edible fungi. Industrial cultivation standardises
cultivation processes, stabilises mushroom yield and improves product quality without exposure to
environmental and natural risks, and therefore makes all-year-round cultivation of edible fungi possible
without regional or seasonal limitations.
Traditional cultivation ( 傳統種植 )
We principally apply traditional cultivation method to produce button mushroom and straw
mushroom. Traditional cultivation is subject to environmental and natural condition and thus experiences
seasonality. We lease the land or buildings of respective cultivation facilities from various Villagers’
Committees and engage individual farmers to apply traditional cultivation method to produce button
mushroom and straw mushroom. We provide raw materials and technical expertise to the farmers. The
farmers are responsible for the cultivation of button mushroom and straw mushroom under our
management and supervision. We are responsible for the sales of button mushroom and straw mushroom
to our customers.
The traditional cultivation process of button mushroom and straw mushroom is similar to the
industrial cultivation process of button mushroom. The primary difference between these two kinds of
cultivation methods is that the industrial cultivation process involves automated equipment and
machinery while every step in the traditional cultivation process relies on manual labour. Another
primary difference between the two kinds of cultivation methods is that the industrial cultivation process
involves all year round cultivation and harvesting, while the growing and harvesting cycles under the
traditional cultivation process are affected by weather cycles, resulting in peak seasons for production
under the traditional cultivation method during the year. Please refer to the charts illustrating the typical
growing and harvesting cycles of king trumpet mushroom, button mushroom and straw mushroom in this
section of this prospectus for further details. For details on the seasonality fluctuations on the production
of our products, please refer to the section headed “Business – Seasonality” in this prospectus.
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BUSINESS
The chart below illustrates the typical growing and harvesting cycle of king trumpet mushroom,
button mushroom and straw mushroom throughout the year.
January
February
The harvesting period of button mushroom
cultivated under the traditional cultivation method
in Fujian province and Sichuan province.
March
April
King trumpet mushroom and
button mushroom cultivated under
the industrial cultivation method
are cultivated and harvested
all year round.
May
The growing period of the first crop of
straw mushroom in Fujian province.
June
The harvesting period of the first crop of
straw mushroom in Fujian province.
July
August
The growing period and harvesting period of
the second crop of straw mushroom
in Fujian province. The growing period of
button mushroom cultivated under
the traditional cultivation method
September
October
The growing period of button mushroom cultivated
under the traditional cultivation method in Fujian province.
The harvesting period of button mushroom cultivated under
the traditional cultivation method in Sichuan province.
November
The harvesting period of button mushroom
cultivated under the traditional cultivation method
December
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BUSINESS
Cultivation process of king trumpet mushroom
The entire industrial cultivation process of king trumpet mushroom commencing from preparation
of raw materials to harvesting takes approximately 60 days. The period from 0 to 43th day is the growing
period and the period from 44th to 60th day is the harvesting period. The chart below illustrates major
steps of typical industrial cultivation processes for king trumpet mushroom:
Preparation of raw materials
(購入原材料)
Pre-wetting of
mixed ingredients
(預濕拌料)
Bag making
(製袋)
Sterilisation
(滅菌)
Cooling
(冷卻)
Inoculation
(接種)
Cultivars
(育菌)
Fruiting
(出菇)
Harvesting
(採收)
Packaging
(包裝)
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BUSINESS
Preparation of raw materials:
Procurement of qualified raw and auxiliary materials
needed for production such as sawdust, bagasse, corncob,
bran and dregs of beans.
Pre-wetting of mixed ingredients:
The synthesis and pre-wetting of raw and auxiliary
materials according to a formula and carry out level 3
mixing by the mixing machine and then deliver to the bag
making machine.
Bag making:
After the mixing, the compost is placed into polypropylene
bags according to specific weight by automatic bag making
machine to form the fungus package.
Sterilisation:
After bag making, the fungus package will move to an
autoclave sterilisation cabinet and undergo high
temperature sterilisation for a long period of time.
Cooling:
After sterilisation, the fungus package will be moved into a
clean room and cooled by normal room temperature as well
as forced cooling, so that the temperature would reach the
temperature for inoculation.
Inoculation:
To inoculate cultures of fungi on to the fungus package in a
bio-clean room.
Cultivars:
After inoculation, the fungus package will be moved into
the cultivate room quickly for cultivation with constant
temperature, constant humidity and good ventilation, the
fungus package will be gradually overgrown with mature
cultures of fungi and mycelium.
Fruiting:
The matured fungus package will be moved into the
fruition houses, the lids of the fungus package will be
opened according to the growing time, fruiting will be
induced by making physical adjustment of lighting,
temperature, humidity and the concentration of carbon
dioxide, and then the buds will be sparse manually
according to the growing condition so that the shape of
king trumpet mushroom will grow in line with market
needs.
Harvesting:
The matured king trumpet mushroom will be harvested and
moved into the cold storage.
Packaging:
The king trumpet mushroom will be trimmed and then
packed in vacuum packs and stored in insulation foam box.
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BUSINESS
Cultivation process of button mushroom and straw mushroom
The entire industrial cultivation process of button mushroom takes approximately 60 days. The
period from 0 to 38th day is the growing period. The sowing is conducted only once at the beginning of
the entire industrial cultivation process. Button mushroom under industrial cultivation could be harvested
three times during the period from 39th to 60th day which is divided into three crops. The period of time
of such three crops is estimated to be approximately 3 days, 10 days and 10 days, respectively. Each crop
is assumed to be harvested with equal quantity of button mushroom. After harvesting the third crop, a new
60-day cultivation process begins. The chart below illustrates major steps of typical industrial cultivation
process of button mushroom:
Preparation of
raw materials
(備料)
Pre-wetting
(預濕)
Primary fermentation
(一次發酵)
Secondary fermentation
(二次發酵)
Feeding
(上料)
Seeding
(播種)
Management of
spawn running
(發菌管理)
Casing
(覆土)
Fruiting
(出菇)
Harvesting
(採收)
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BUSINESS
Preparation of raw materials:
Advanced procurement of raw and auxiliary materials such
as barley grass and chicken manure based on the
production arrangements.
Pre-wetting:
Put the advance prepared barley grass into the pre-wet area
for pre-wetting process.
Primary fermentation:
Use the new material tossing machine to toss the pre-wet
compost evenly into the primary fermentation tunnel at a
certain height, and heaping up periodically.
Secondary fermentation:
Use the raw material tossing machine to toss the primary
fermented compost evenly into the secondary fermentation
tunnel at a certain height.
Feeding and Seeding:
Use the feeding machine to mix the fully fermented
compost with the cultures of fungi and then put onto the
mushroom beds, and strews cultures of fungi evenly on the
feeding surface.
Management of spawn running:
The management of the compost pack with the mycelium
process.
Casing:
After the compost is covered with the mycelium, use the
casing machine to evenly spread the prepared turfy soil
over the feeding surface of the mushroom beds.
Fruiting:
Fruiting bodies grow and become mushrooms after they
matured.
Harvesting:
Harvesting the mushrooms which are in line with the
requirement.
The entire traditional cultivation process for button mushroom takes approximately eight to nine
months from August to April of the following year. The sowing is conducted only once at the beginning of
the entire traditional cultivation process. Button mushroom under traditional cultivation could be
harvested 11 times from November to April of the following year which is divided into 11 crops and the
length of period of each 11 crops is different subject to the weather and geographical condition. After
harvesting the last crop, a new cultivation process will begin in August. The entire traditional cultivation
process for straw mushroom commences from May to June and August to September every year. The
straw mushroom is sowed once in May and August and harvested in June and September, respectively.
The major steps of typical traditional cultivation process of button mushroom and straw mushroom is
similar to that of the industrial cultivation process of button mushroom.
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BUSINESS
Cultivation facilities
As at the Latest Practicable Date, we had been accredited with organic food products certificates (有
機產品認證證書) from Beijing Co-ops Integrity Certification Center (北京中合金諾認證中心) in respect
of king trumpet mushroom cultivated at our Jiaomei cultivation facilities in Zhangzhou, Fujian province
according to the relevant national standards in relation to organic food in the PRC. We also have been
granted the Certificate of Pollution-free Agricultural Products (無公害農產品證書) for our king trumpet
mushroom and its cultivation process in November 2011 by the Ministry of Agriculture.
The aggregate land area covers approximately 1.1 million sq.m. We strategically locate our
cultivation facilities of our fresh edible fungi produce in different regions in the PRC which are in the
proximity of local major agricultural product markets. As at the Latest Practicable Date, we had
established eight cultivation facilities for our fresh edible fungi produce, including (i) three king trumpet
mushroom facilities and one button mushroom and straw mushroom facility in Zhangzhou, Fujian
province; (ii) one king trumpet mushroom facility in Dandong, Liaoning province; (iii) one king trumpet
mushroom facility in Changzhou, Jiangsu province; and (iv) two button mushroom facilities in Chengdu,
Sichuan province. In determining the location of our cultivation facilities, we take into account the
proximity to our markets and the location of the plantation and cultivation bases of our raw materials so
as to facilitate their delivery and lower transportation costs.
We purchased parcels of land for the construction of our owned king trumpet mushroom cultivation
facilities in Zhangzhou, Fujian province. We entered into various lease agreements with Independent
Third Parties to lease properties at our king trumpet mushroom cultivation facilities in Zhangzhou, Fujian
province, Dandong, Liaoning province and Changzhou, Jiangsu province. We entered into various lease
agreements with the relevant Villagers’ Committees to lease the farmland and other properties at our
button mushroom cultivation facilities in Chengdu, Sichuan province and button mushroom and straw
mushroom cultivation facilities Zhangzhou, Fujian province. The farmland lease agreements with
Villagers’ Committees are typically with a term of nine months from September to May of the following
year which is within the cultivation season of button mushroom.
Our own employees are responsible for the cultivation of king trumpet mushroom at our cultivation
facilities. We outsource the cultivation service of our button mushroom and straw mushroom to local
farmers at our button mushroom cultivation facilities in Chengdu, Sichuan province and button
mushroom and straw mushroom cultivation facilities in Zhangzhou, Fujian province by entering into
production contracting management contracts (生產承包管理合同) with local farmers. We provide
technical guidance to the local farmers and monitor the cultivation process in order to ensure that button
mushroom or straw mushroom is cultivated in accordance with our quality requirements. The
compensation we paid to local farmers was fixed to a certain monetary amount per sq.m. mainly with
reference to the monthly average income of the local farmers and the period of time of the cultivation of
button mushroom and straw mushroom. As advised by our PRC legal adviser, the production contracting
management contracts entered into with local farmers is not in violation of the relevant PRC laws and
regulations. The principal terms of the production contracting management contracts are as follows:
•
for a term of nine months from September to May of the following year or three months from
July to September which is within the cultivation seasons of button mushroom and straw
mushroom, respectively;
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BUSINESS
•
we provide with local farmers with required raw materials, detailed cultivation plan and
process and detailed quantity and quality requirement of button mushroom or straw mushroom;
•
the local farmers bear the daily maintenance costs at the cultivation facilities during the term of
the contracts;
•
we could unilaterally terminate the agreements without any obligation of compensation to the
local farmers in the event that the local farmers breach the agreements which results in material
adverse consequence, relinquish the contracting service after entering into the agreement,
destroy properties owned by us which results in material losses or tarnish the image and
reputation of us which results in material adverse consequence; and
•
settled after the sale of button mushroom or straw mushroom to our customers.
The table below sets forth the location, type of edible fungi produced, size and the year of
commencement of operation of our cultivation facilities as at the Latest Practicable Date:
Cultivation
facilities
Address
Type of edible
fungi produced
Total
land
area
(sq.m.)
Owned facilities
Zhangzhou king trumpet
mushroom facility
(Fujian province)
1. Jiaomei
2. Chengxi
3a. Zhangpu (No. 1
facility)
Leased facilities
Zhangzhou king trumpet
mushroom facility
(Fujian province)
3b. Zhangpu (No. 2
facility)
3c. Zhangpu (No. 3
facility)
3d. Zhangpu (No. 4
facility)
4. Dandong king
trumpet
mushroom facility
(Liaoning
province)
5. Changzhou king
trumpet
mushroom facility
(Jiangsu province)
Jiaomei Town, Longhai,
Zhangzhou, Fujian Province, PRC
Chengxi Town, Longhai,
Shiliu Town, Zhangpu County,
Changqiao Town, Zhangpu County,
Chengnan Industrial Park,
Kuandian County,
Dandong, Liaoning Province, PRC
Zouqu Town, Wujin District,
Changzhou, Jiangsu Province, PRC
Total
Year of
cultivation commencement
area (1)
of operation
Expiry date
of leasehold
(sq.m.)
48,380
N/A
2011 N/A
20,624
N/A
2009 N/A
29,748
N/A
2010 N/A
12,006
N/A
2010 31 January 2020
13,340
N/A
2013 30 April 2020
12,000
N/A
2015 29 February 2020
40,020
N/A
2012 19 February 2022
20,010
N/A
2013 30 April 2023
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BUSINESS
Cultivation
facilities
Total
land
area
Type of edible
fungi produced
Address
(sq.m.)
6. Chengdu button
Jixian Town, Chongzhou,
mushroom facility Chengdu, Sichuan Province, PRC
(Sichuan
Dongchang Town, Dayi County,
province)
Chengdu, Sichuan Province, PRC
(traditional
Caichang Town, Dayi County,
cultivation)
Sancha Town, Dayi County,
7. Chengdu button
Caichang Town, Dayi County,
mushroom facility Chengdu, Sichuan Province, PRC
(Sichuan
province)
(industrial
cultivation)
8. Zhangzhou button
Jiaomei Town, Longhai,
mushroom and
straw mushroom
facility
(Fujian province)
(traditional
cultivation)
Total
Year of
cultivation commencement
area (1)
of operation
(sq.m.)
Button mushroom
677,005
677,005
Button mushroom
46,690
28,800
217,300
892,191
Button mushroom and
straw mushroom
Expiry date
of leasehold
2011 30 April 2015 (2)
2012 30 September 2019
2009 30 April 2016
Notes:
(1)
The cultivation area is inapplicable for our king trumpet mushroom as we cultivate king trumpet mushroom in bags.
The cultivation area of Chengdu button mushroom facility (industrial cultivation) is smaller than the land area of such
facility is because the land area includes areas of greenery, storage, roads and plants. The cultivation area of
Zhangzhou button mushroom and straw mushroom facility is larger than the land area of such facility because the
cultivation of button mushroom and straw mushroom in such facility involves cultivation shelves therefore the
cultivation area is the sum of the area of all cultivation shelves which is larger than the land area of such facility.
(2)
We typically enter into lease agreements with respect to our traditional cultivation facility in Chengdu, Sichuan
province in August every year. The term of such lease agreements is from August to April of the following year
corresponding to duration of the entire cultivation process under traditional cultivation method. We expect to renew
the current leases in August 2015.
The table below sets forth our edible fungi produced, designed cultivation capacity, cultivation
volume and utilisation rate for the periods indicated:
As at
31 December
2012
Location of cultivation facility
Zhangzhou king trumpet mushroom
facility (Fujian province)
– Jiaomei
– Chengxi
Type of
edible fungi
produced
Year ended 31 December 2012
Cultivation
area (1)
Designed
cultivation
capacity (2)
Cultivation
volume
Utilisation
rate (2)
(sq.m.)
(tonnes)
(tonnes)
(%)
King trumpet
mushroom
King trumpet
mushroom
– 167 –
N/A
4,410
4,188
95.0%
N/A
2,772
2,612
94.2%
BUSINESS
As at
31 December
2012
– Zhangpu (No. 1 facility)
Dandong king trumpet mushroom
facility (Liaoning province)
Chengdu button mushroom facility
(Sichuan province)
(traditional cultivation)
(Sichuan province)
(industrial cultivation)
Zhangzhou button mushroom and
straw mushroom facility
(Fujian province)
Ningdu button mushroom facility
(Jiangxi province)
Gongan Button mushroom facility
(Hubei province) (3)
Type of
edible fungi
produced
Cultivation
area (1)
Designed
cultivation
capacity (2)
Cultivation
volume
Utilisation
rate (2)
(sq.m.)
(tonnes)
(tonnes)
(%)
King trumpet
mushroom
King trumpet
mushroom
King trumpet
mushroom
Button
mushroom
N/A
2,268
2,050
90.4%
N/A
1,260
1,172
93.0%
N/A
2,457
2,194
84.3%
223,445
N/A
1,067
N/A
Button
mushroom
14,400
60
38
64.1%
Button
mushroom
and straw
mushroom
422,872
N/A
N/A
Button
mushroom
104,800
N/A
6,263
(button
mushroom)
703
(straw
mushroom)
3,669
Button
mushroom
N/A
N/A
848
N/A
N/A
Notes:
(1)
(2)
The designed cultivation capacity of our respective king trumpet mushroom facilities for the year ended 31 December
2012 equals to the daily king trumpet mushrooms harvested at the relevant cultivation facilities multiplied by 360
days. The daily king trumpet mushrooms harvested were calculated as to the estimated historical average weight of
king trumpet mushroom harvested per bag multiplied by the total number of bags of king trumpet mushrooms
harvested per day. It is reasonable to assume the king trumpet mushroom could be harvested 360 days a year because
the industrial cultivation method is applied at our cultivation facilities which results in all year round cultivation and
harvesting. The designed cultivation capacity and utilisation rate of our respective button mushroom and straw
mushroom facilities under traditional cultivation method for the year ended 31 December 2012 are inapplicable
because the button mushroom and straw mushroom harvested per sq.m. under traditional cultivation method could not
be accurately estimated due to environmental and other natural condition.
(3)
Gongan button mushroom facility was closed in 2012, primarily because the operations at such cultivation facility was
not cost-effective as it was located relatively far from local major agricultural product markets which resulted in
inconvenient transportation of our fresh produce. Further, we planned to concentrate our resources to operate the
button mushroom cultivation facilities in Zhangzhou, Fujian province and Chengdu, Sichuan province in order to
reduce the operating costs.
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As at
31 December
2013
– Jiaomei
– Chengxi
Changzhou king trumpet mushroom
facility (Jiangsu province)
(Sichuan province)
(Sichuan province)
(Fujian province)
Ningdu button mushroom facilities
(Jiangxi province) (3)
Type of
edible fungi
produced
Cultivation
area (1)
Designed
cultivation
capacity (2)
Cultivation
volume
Utilisation
rate (2)
(sq.m.)
(tonnes)
(tonnes)
(%)
King trumpet
mushroom
King trumpet
mushroom
King trumpet
mushroom
King trumpet
mushroom
King trumpet
mushroom
King trumpet
mushroom
King trumpet
mushroom
Button
mushroom
N/A
4,662
4,419
94.8%
N/A
2,772
2,758
99.5%
N/A
2,268
2,234
98.4%
N/A
1,260
1,259
99.9%
N/A
1,134
1,026
90.5%
N/A
5,292
4,078
77.1%
N/A
1,304
1,054
78.4%
677,005
N/A
2,209
N/A
Button
mushroom
21,600
3,024
2,004
66.3%
Button
mushroom
and straw
mushroom
892,191
N/A
N/A
Button
mushroom
N/A
N/A
8,260
(button
mushroom)
711
(straw
mushroom)
1,246
N/A
Notes:
(1)
(2)
mushroom facilities under traditional cultivation method for the year ended 31 December 2013 are inapplicable
because the button mushroom and straw mushroom harvested per sq.m. under traditional cultivation method could not
be accurately estimated due to environmental and other natural condition.
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(3)
Ningdu button mushroom facility was closed in 2013 primarily because the operations at such cultivation facility was
not cost-effective as it was located relatively far from local major agricultural product markets which resulted in
inconvenient transportation of our fresh produce. Further, we planned to concentrate our resources to operate the
button mushroom cultivation facilities in Zhangzhou, Fujian province and Chengdu, Sichuan province in order to
reduce the operating costs.
As at
31 December
2014
– Jiaomei
– Chengxi
Changzhou king trumpet mushroom
facility (Jiangsu province)
(Sichuan province)
(Sichuan province)
(Fujian province)
Type of
edible fungi
produced
Cultivation
area (1)
Designed
cultivation
capacity (2)
Cultivation
volume
Utilisation
rate (2)
(sq.m.)
(tonnes)
(tonnes)
(%)
King trumpet
mushroom
King trumpet
mushroom
King trumpet
mushroom
King trumpet
mushroom
King trumpet
mushroom
King trumpet
mushroom
King trumpet
mushroom
Button
mushroom
N/A
4,662
4,565
97.9%
N/A
2,772
2,589
93.4%
N/A
2,268
2,309
101.8% (3)
N/A
1,260
1,250
99.2%
N/A
2,016
1,660
82.3%
N/A
5,292
4,431
83.7%
N/A
2,016
1,530
75.9%
677,005
N/A
3,148
N/A
Button
mushroom
28,800
4,838
3,860
79.8%
Button
mushroom
and straw
mushroom
892,191
N/A
19,664
(button
mushroom)
1,462
(straw
mushroom)
N/A
Notes:
(1)
Cultivation area is inapplicable for our king trumpet mushroom as we cultivate king trumpet mushroom in bags.
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(2)
mushroom facilities under traditional method for the year ended 31 December 2014 are inapplicable because the
button mushroom and straw mushroom harvested per sq.m. under traditional cultivation method could not be
accurately estimated due to environmental and other natural condition.
(3)
The utilisation rate of 101.8% at Zhangpu (No.1 facility) for the year ended 31 December 2014 primarily due to an
increase in average yield of king trumpet mushroom in 2014 as a result of our improvement of productivity and
efficiency of the cultivation process by leveraging our research and development capabilities compared to designed
average yield of king trumpet mushroom which was determined at the commencement of production of Zhangpu (No.1
facility) in 2011.
PRODUCTION OF PROCESSED FOOD PRODUCTS
The production of our canned food is based on our customers’ orders. The final canned food is
according to the customers’ requirements, such as food type, container, and preservation method. Upon
the receipt of orders of customers, our sales department fills in production notification form with order
information and production forecast to our production department. Product management prepares
production plans with highlights of priority and deadline, based on the review of the notification forms,
periodic internal discussions and discussion with sales department in relation to production capacity and
delivery schedule. Procurement of raw materials and the production are arranged according to the
production plans. Production department monitors the daily production activities through daily reports.
In the event that delay is foreseeable, production department shall immediately inform sales department,
which shall further coordinate with customers in relation to the possible delay.
Production process
The entire process of our processed food products commencing from the preparation of raw
materials to the completion of production takes approximately 24 hours.
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We set forth below the typical production process for canned food, one of our major processed food
products:
Procurement and inspection
of raw materials
(原材料採購、驗收)
Rinsing
(漂洗)
Pre-cooking and cooling
(預煮、冷卻)
Sorting
(分級處理)
Canning of raw materials
(原料裝罐)
Addition of soup base and
auxiliary mateials
(灌湯、輔料添加)
Sealing
(封口)
Sterilisation and cooling
(殺菌、冷卻)
Roller can drying and
warehousing
(擦罐、入庫)
Inspection and packing
(打檢包裝)
Procurement and inspection of raw
materials:
Procurement of the required raw and auxiliary materials
and conduct inspection by batch.
Rinsing:
Pour the raw materials that passed the inspection into a
rinsing pool and rinse them with tap water that complies
with the hygiene requirements, so as to remove impurities
such as mud and sands.
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Pre-cooking and cooling:
After rinsing, pour (or fill) the raw materials into an
automatic pre-cooking machine where they are sterilised
by cooking with high temperature water for a certain period
of time. Use hygienic tap water to cool the raw materials in
a timely manner.
Sorting:
Pour (or fill) the raw materials into an automatic sorting
machine for sorting into different sizes or grades according
to the production specifications, then carry out screening,
classification and inspection on the raw materials.
Canning of raw materials:
Canning of the up to standard raw materials after sorting in
accordance with the canning (bottling) specifications.
Addition of soup base and
auxiliary materials:
Add in up to standard soup base and other ingredients
according to the recipes or automatically.
Sealing:
Use the automatic sealing machine for the vacuum canning
(bottling) of the cans filled with raw materials and soup
base.
Sterilisation and cooling:
After sealing, put the stacked cans into an automatic
sterilizer for high temperature sterilisation for a certain
period of time, then put the sterilised cans into up to
standard tap water for cooling.
Roller can drying and warehousing:
After cooling, send the cans to an automatic air drying
machine and a roller can dryer for drying, then send the
cans to the semi-finished product warehouse.
Inspection and packing:
Conduction inspection on the cans according to the
delivery requirements, then label and pack them before
sending them to the finished product warehouse.
Production facilities
As at the Latest Practicable Date, we had established two production facilities for our processed
food products in Zhangzhou, Fujian province with an aggregate land area of approximately 23,000 sq.m.
As at the Latest Practicable Date, these two production facilities housed three production lines in
operation. In determining the location of our production facilities, we take into account the proximity to
our market and the location of the plantation and manufacturing bases of our raw materials so as to
facilitate their delivery and lower transportation costs.
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Production capacity
The table below sets forth the number of production lines for our products and their designed
production capacity, production volume and utilisation rate for the periods indicated:
Products and
production lines
Zhangzhou Lvbao facility
Zhangzhou Lvxian facility
Zhangzhou brined
mushroom production
area in Zhangzhou
Lvxian facility
Canned food
and snacks
Canned food
Brined mushroom
Designed
production
capacity (1)
Production
volume
Utilisation rate
(tonnes)
(tonnes)
(%)
14,490 (2)
1,800 (2)
9,953
1,269
68.7%
70.5%
11,730
N/A (4)
13,766
1,873
117.3% (3)
N/A (4)
Notes:
(1)
The designed production capacity of our canned food at the respective production facilities for the year ended 31
December 2012 equals to the daily weight of semi-products in tonnes sterilised at the relevant production facilities
multiplied by 276 days. The designed production capacity of our preserved vegetable and snacks at the respective
production facilities for the year ended 31 December 2012 equals to the daily weight of semi-products in tonnes that
have completed the sealing process at the relevant production facilities multiplied by 276 days. We estimated the
duration of production of 276 days by excluding Sundays and average scheduled downtime for maintenance and repair
in a year of 365 days.
(2)
The total production capacity at Zhangzhou Lvbao facility was shared between canned food production line and
preserved vegetables and snacks production line. The maximum designed production capacity at Zhangzhou Lvbao
facility for the year ended 31 December 2012 was 14,490 tonnes of processed food products. The designed production
capacity of canned food was estimated to be 14,490 tonnes assuming the production capacity at Zhangzhou Lvbao
facility was fully utilised to produce canned food. The designed production capacity of preserved vegetables and
snacks was estimated to be 1,800 tonnes assuming the production capacity at Zhangzhou Lvbao facility was fully
utilised to produce preserved vegetables and snacks.
(3)
The utilisation rate of our Zhangzhou Lvxian facility exceeded 100.0% for the year ended 31 December 2012 primarily
due to our increased actual production time for canned food in response to the increased purchase orders we received
during the same period.
(4)
There is no designed production capacity and utilisation rate for brined mushroom because brined mushroom is made
of our fresh button mushroom produce during the cultivation season which is subject to the cultivation volume of
button mushroom of the relevant periods.
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Products and
production lines
Zhangzhou brined
mushroom production
area in Zhangzhou
Lvxian facility
Canned food
and snacks
Canned food
Brined mushroom
Designed
production
capacity (1)
Production
volume
Utilisation rate
(tonnes)
(tonnes)
(%)
14,490 (2)
3,000 (2)
7,213
1,105
49.8%
36.8%
11,730
N/A (3)
9,640
1,375
82.2%
N/A (3)
Notes:
(1)
The designed production capacity of our respective canned food facilities for the year ended 31 December 2013 equals
to the daily weight of semi-products in tonnes sterilised at the relevant production facilities multiplied by 276 days.
The designed production capacity of our preserved vegetable and snacks at the respective production facilities for the
year ended 31 December 2013 equals to the daily weight of semi-products in tonnes that have completed the sealing
process at the relevant production facilities multiplied by 276 days. We estimated the duration of production of 276
days by excluding Sundays and average scheduled downtime for maintenance and repair in a year of 365 days.
(2)
preserved vegetables and snacks production line. The maximum designed production capacity at Zhangzhou Lvbao
facility for the year ended 31 December 2013 was 14,490 tonnes of processed food products. The designed production
capacity of canned food was estimated to be 14,490 tonnes assuming the production capacity at Zhangzhou Lvbao
facility was fully utilised to produce canned food. The designed production capacity of preserved vegetables and
snacks was estimated to be 3,000 tonnes assuming the production capacity at Zhangzhou Lvbao facility was fully
utilised to produce preserved vegetables and snacks.
(3)
Products and production
lines
Zhangzhou brined
mushroom production
area in Zhangzhou
Lvxian facility
Canned food
Canned food
Brined mushroom
Designed
production
capacity (1)
Production
volume
Utilisation rate
(tonnes)
(tonnes)
(%)
14,490 (2)
3,000 (2)
11,730
N/A (4)
8,890
15
7,818
970
61.4%
0.5% (3)
66.6%
N/A (4)
Notes:
(1)
The designed production capacity of our respective canned food facilities for the year ended 31 December 2014 equals
to the daily weight of semi-products in tonnes sterilised at the relevant production facilities multiplied by 276 days.
The designed production capacity of our preserved vegetable at the respective production facilities for the year ended
31 December 2014 equals to the daily weight of semi-products in tonnes that have completed the sealing process at the
relevant production facilities multiplied by 276 days. We estimated the duration of production of 276 days by
excluding Sundays and average scheduled downtime for maintenance and repair in a year of 365 days.
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(2)
preserved vegetables production line. The maximum designed production capacity at Zhangzhou Lvbao facility for the
year ended 31 December 2014 was 14,490 tonnes of processed food products. The designed production capacity of
canned food was estimated to be 14,490 tonnes assuming the production capacity at Zhangzhou Lvbao facility was
fully utilised to produce canned food. The designed production capacity of preserved vegetables was estimated to be
3,000 tonnes assuming the production capacity at Zhangzhou Lvbao facility was fully utilised to produce preserved
vegetables.
(3)
(4)
The utilisation rate was 0.5% for the year ended 31 December 2014 because of the cessation of production of snacks in
November 2013 and the decrease in the production volume of preserved vegetables.
Our production lines generally operate eight hours per day and six days a week. Our production
lines are operated in one work shift per day. As at the Latest Practicable Date, we employed
approximately 200 production workers to operate and manage our production lines of our processed food
products.
Our production plants are equipped with automated production machineries sourced from the PRC.
All of these production machineries are owned by us. A number of our production machineries were
specifically designed and made to meet our requirements for specific functions, and achieve better
product quality and higher cost efficiency. We also endeavor to keep abreast of technological advances in
our production facilities and regularly monitor and upgrade our production technology, equipment and
processes.
Equipment Maintenance
Our production team is responsible for the equipment maintenance. They are responsible for
carrying out daily, weekly and monthly inspections and routine daily cleaning and maintenance of our
production equipment. Each production employee is responsible for the daily cleaning and maintenance
of the production equipment. Major maintenance and repair work is conducted annually. For the three
years ended 31 December 2012, 2013 and 2014, the average scheduled downtime for maintenance and
repair of each of our production lines was 23 days, 25 days and 28 days, respectively. Manufacturers of
our equipment also provide on-site equipment maintenance services on an as needed basis during
warranty period for the equipment. The following table sets forth the average age of major equipments of
our production lines during the Track Record Period:
Location of
production facilities
Number of
production lines
Average age
Zhangzhou
Lvbao facility
2 5.9 years, 6.1 years and 6.4
years as at 31 December
2012, 2013 and 2014,
respectively
Zhangzhou
Lvxian facility
1 4.7 years, 5.1 years and 5.4
years as at 31 December
2012, 2013 and 2014,
respectively
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We did not experience any material or prolonged interruptions to our production process due to
equipment or machinery failure during the Track Record Period.
EXPANSION PLANS, SITE SELECTION AND DEVELOPMENT
We aim to capture a greater share of the fresh edible fungi produce and processed food products
markets in the PRC, thereby strengthening our leading positions in the fresh edible fungi produce market
and current position of processed food products market. To further strengthen our market position, we
plan to increase our cultivation and production capacity to meet increasing market demand. According to
Euromonitor, the PRC king trumpet mushroom market in terms of total sales volume grew by a CAGR of
27.6% from 309,500 tonnes in 2009 to 820,400 tonnes in 2013, and is estimated to grow by a CAGR of
14.7% from 1.0 million tonnes in 2014 to 1.7 million tonnes in 2018. According to Euromonitor, the PRC
canned vegetables and fruit market in terms of total production volume grew from 1.7 million tonnes in
2009 to 2.1 million tonnes in 2013, representing a CAGR of 4.6%, and is estimated to grow from 2.1
million tonnes in 2014 to 2.5 million tonnes in 2018, representing a CAGR of 3.7%.
Recent Expansion
We are currently expanding our cultivation capacity through acquisition and installation of
bottle-cultivation king trumpet mushroom facilities at our cultivation facilities in Zhangzhou, Fujian
province as we have been foreseeing an increasing demand for small size king trumpet mushroom for
household consumption in the PRC. We commenced construction of bottle-cultivation king trumpet
mushroom facilities since 2013. Our bottle-cultivation king trumpet mushroom facilities cover an area of
approximately 32,581 sq.m. of land in total with an aggregate gross floor area of approximately 12,368
sq.m. We anticipate that the construction of the bottle-cultivation king trumpet mushroom facilities will
be completed by December 2015. The annual designed cultivation volume of bottle-cultivation king
trumpet mushroom is estimated to be 1,980 tonnes. The estimated total investment of our
bottle-cultivation king trumpet mushroom facilities amounted to approximately RMB40.4 million, and as
at the Latest Practicable Date, we had incurred RMB8.2 million. We plan to utilise the funds generated by
our operating activities to fund the remaining investment cost. Assuming the utilisation rate for
bottle-cultivation king trumpet mushroom facilities is 95.0% and the average selling price of our king
trumpet mushroom is RMB8.5 per kilogram, we expect the total investment will pay back by 2021. We
expect upcoming customers’ orders to support our expansion plan. For example, in January 2015, we
entered into letters of intent with certain distributors to establish long term cooperative relationship in
relation to purchase of our bottle-cultivation king trumpet mushroom once our cultivation facilities starts
operation.
In consideration of improving and enhancement of productivity and efficiency, we are currently in
the process of construction of new production facilities of processed food products in Zhangzhou, Fujian
province to replace our current production facilities for processed food products. We commenced
construction of such new production facilities since July 2013. We have not obtained the construction
works planning permit and the construction works commencement permit for such production facilities
before we commenced construction. We have obtained both of the construction works planning permit
and the construction works commencement permit in January 2015. For further information of such
incident of defective title, please refer to the section headed "Business – Properties – Owned Properties".
Our new production facilities cover an area of approximately 6,110 sq.m. of land in total with an
aggregate gross floor area of approximately 6,641 sq.m. We anticipate that the construction of such
production facilities and the installation of equipment and machinery will be completed by December
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2015. We expect to launch the trial operation in December 2015 and commence commercial production in
January 2016. The annual designed production volume of processed food products is estimated to be
33,660 tonnes. The estimated total investment of such production facilities amounted to approximately
RMB18.1 million, and as at the Latest Practicable Date, we had incurred RMB6.9 million. We plan to
utilise the funds generated by our operating activities to fund the remaining investment cost. Assuming
the utilisation rate of such production facilities is 70.0% for our processed food products, and the average
selling price of our processed food products is RMB7.5 per kilogram, we expect the total investment will
pay back by 2018.
Planned Expansion
In anticipation of the increased demand of king trumpet mushroom in the Southern China and
Eastern China markets, we plan to establish Guangxi Biological Technology Food Industry Park in
Hezhou, Guangxi Zhuang Autonomous Region and Zhangzhou Biological Technology Food Industry
Park in Zhangzhou, Fujian province which house king trumpet mushroom cultivation facilities. The
aforesaid two industry parks also house canned food production facilities as we plan to expand our
production capacity in order to cater for more orders for canned button mushroom during the harvesting
season of button mushroom in Zhangzhou, Fujian province and orders for canned water chestnut and
canned ginkgo biloba from trading companies. The under-utilisation of our existing canned food
production facilities during the Track Record Period was because our canned food production capacity
was fully utilised during the harvesting season of button mushroom commencing from November to May
of the following year to produce canned button mushroom which is a major kind of our canned food while
our canned food production facilities experienced low utilisation commencing from May to November of
the following year during which we produced canned vegetables and canned fruit, which in aggregate
resulted in overall under-utilisation of our existing canned food production facilities during the Track
Record Period. During the Track Record Period, we received orders for our canned button mushroom
which exceeds our existing production capacity during the harvesting season of button mushroom in
Zhangzhou, Fujian province. We believe there is a need to capture the market opportunities. Moreover,
we received orders for canned water chestnut and canned ginkgo biloba during the Track Record Period.
However, we were not able to accept such orders as we did not offer canned water chestnut and canned
ginkgo biloba. We plan to establish the production facilities in Guangxi Zhuang Autonomous Region
which is a major production area of water chestnut and ginkgo biloba in the PRC. The establishment of
the production facilities in Guangxi Zhuang Autonomous Region will enable us to cater for the orders for
canned water chestnut and canned ginkgo biloba. In consideration of the full utilisation of our existing
canned food production capacity in Zhangzhou, Fujian province during the harvesting season of button
mushroom, our Directors are of the view that the expansion of our canned food production capacity by
establishment of production facilities in the planned two industry parks could enable us to cater for more
orders of our canned button mushroom during the harvesting season of button mushroom and orders for
canned water chestnut and canned ginkgo biloba in the future. For further details, please refer to “Future
Plans and Use of Proceeds” in this prospectus.
On 6 December 2013, we entered into a letter of intent with Hezhou Wanggao Industry Park
Administrative Committee (賀州旺高工業園管理委員會) in Hezhou, Guangxi Zhuang Autonomous
Region, pursuant to which Hezhou Wanggao Industry Park Administrative Committee agreed to provide
with us parcels of land for our planned Guangxi Biological Technology Food Industry Park. On 24
November 2014, we entered into a letter of intent with the government of Dongyuan Town of Longhai
City (龍海市東園鎮人民政府) in Zhangzhou, Fujian province, pursuant to which the government of
Longhai agreed to provide with us parcels of land for our planned Zhangzhou Biological Technology
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Food Industry Park. The specific land area, price and the terms of grant of the land use right will be
subject to the land use right grant contracts to be entered into with local land administrative authorities in
Hezhou, Guangxi Zhuang Autonomous Region and Longhai, Fujian province.
The estimated total investment amount are approximately RMB246.0 million and RMB201.0
million for Guangxi Biological Technology Food Industry Park and Zhangzhou Biological Technology
Food Industry Park, respectively, of which the estimated investment amount of the first phase of each of
Industry Park are RMB198.0 million and RMB157.0 million, respectively. We incurred RMB43.8 million
in relation to the acquisition of land in relation to Guangxi Biological Technology Food Industry Park for
the year ended 31 December 2013. As at the Latest Practicable Date, we had not contemplated the specific
plan for phase two of each industry parks. The table below sets forth the details of our planned first phase
of each of Guangxi Biological Technology Food Industry Park and Zhangzhou Biological Technology
Food Industry Park:
Type of products
produced
Year of
commencement
(sq.m.)
Guangxi Biological
Technology
Food Industry Park
king trumpet
mushroom
Designed
cultivation/
production
capacity
(tonnes)
Estimated total
investment
cost(1)
(RMB’000)
46,667
2016
5,040
58,440 Partly from the net
proceeds of the Global
Offering and partly
from funds generated
from our operating
activities
(bottle-cultivation)
facility
king trumpet
mushroom
26,667
2016
1,800
Offering and partly
from our operating
activities
canned food
66,667
2016
28,800
Offering and partly
from our operating
activities
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Type of products
produced
Year of
commencement
(sq.m.)
staff dormitory and
N/A
Zhangzhou Biological
Technology
Food Industry Park
king trumpet
mushroom
Designed
cultivation/
production
capacity
(tonnes)
Estimated total
investment
cost(1)
(RMB’000)
26,667
2016
N/A
Offering and partly
from our operating
activities
46,667
2016
5,040
Offering and partly
from our operating
activities
canned food
66,667
2016
28,800
Offering and partly
from our operating
activities
staff dormitory and
N/A
26,667
2016
N/A
Offering and partly
from our operating
activities
Notes:
(1)
Estimated total investment cost includes cost of payment of acquisition price of land, land levelling and greening, the
construction of cultivation facilities and production facilities, acquisition and installation of relevant equipment.
(2)
For more information of the source of funds, please refer to the section headed “Future Plans and Use of Proceeds” in
this prospectus.
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Assuming the utilisation rates for king trumpet mushroom facilities and canned food production
facilities in both industry parks are 95.0% and 70.0%, respectively, the average selling prices of our king
trumpet mushroom and canned food are RMB8.5 per kilogram and RMB7.5 per kilogram, respectively,
the construction period for both industry parks is approximately 12 to 16 months, and we will receive the
net proceeds of the Global Offering by the end of June 2015, we expect the total investment of the first
phase of each of Guangxi Biological Technology Food Industry Park and Zhangzhou Biological
Technology Food Industry Park will pay back by 2022.
RAW MATERIALS AND SUPPLIERS
Raw Materials
Our raw materials primarily include (i) cultivation materials such as strains, sawdust, bran, dregs of
beans, corncob, straw and cow dung for fresh edible fungi produce; (ii) fresh produce of edible fungi,
vegetables and fruit; and (iii) packaging materials. The following table sets forth the costs of cultivation
materials, fresh fruit and vegetables and packaging materials and their percentage of our cost of sales for
the periods indicated:
2012
2013
% of
cost of sales
RMB’000
RMB’000
2014
% of
cost of sales
RMB’000
% of
cost of sales
Cultivation materials . . . . . . . . . . . . .
Fresh fruit and vegetables . . . . . . . . . .
Packaging materials . . . . . . . . . . . . .
65,279
116,968
45,342
16.3%
29.3%
11.3%
94,761
83,294
37,755
21.4%
18.9%
8.5%
109,009
96,347
35,294
19.8%
17.5%
6.4%
Total . . . . . . . . . . . . . . . . . . . . .
227,589
56.9%
215,810
48.8%
240,650
43.7%
Our Directors believe that the fluctuation of the prices of the primary raw materials we used in the
cultivation and production of our products during the Track Record Period are dependent on a number of
factors, including the weather, cultivation and production location, vegetables and fruit production,
transportation and processing costs, government regulations and policies, and the supply and demand for
such raw materials in the PRC during the relevant period.
Certain of our major raw materials, such as fresh fruit and vegetables, are agricultural produce and
thus subject to the market fluctuation. Fluctuation of market price for our raw materials did not have a
material impact on our costs of raw material during the Track Record Period as the increase in prices of
certain raw materials was partially offset by the decrease in prices of certain other raw materials during
the same period. We are also generally able to pass on increases in cost of raw materials of our products
to our customers. To manage fluctuation of raw material prices, we have introduced a number of
measures, such as optimisation of cultivation and production procedures and change of formula of
cultivation materials for king trumpet mushroom and button mushroom, to reduce the cost of materials
and to monitor the use of raw materials by leveraging our research and development capabilities. In
addition, we diversify our products for production during production seasons to reduce our reliance on
certain specific raw materials and to have flexibility in choosing the products requiring low raw materials
costs. In the event that the supply of certain raw materials is expected to significantly fluctuate, our
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procurement team is required to report relevant departments in time and take precaution measures
accordingly. For further details of the sensitivity of our net profit during the Track Record Period in
relation to movements in our costs of cultivation materials, fresh fruit and vegetables and packaging
materials, please refer to the section headed “Financial Information – Description of Selected Statements
of Profit or Loss Items – Cost of sales” in this prospectus.
Our dedicated procurement team is responsible for carrying out the following cost control measures:
(i) monitoring the market prices of our raw materials on a regular basis, (ii) conducting analysis to
anticipate potential changes in the market prices of our raw materials, (iii) negotiating and determining
the purchase prices of raw materials with our suppliers, with reference to the market data obtained during
the regular monitoring of and analysis on the market prices of our raw materials, and (iv) identifying
alternative raw materials suppliers who provide the most competitive prices. Our Directors believe that
adopting these cost control measures enable us to have a more comprehensive and better understanding of
the fluctuation of prices of our raw materials, increase our bargaining power, and allow us to obtain more
competitive prices when negotiating the supply contracts with our suppliers.
Our raw material procurement is determined by our production schedule. Our production and sales
departments determine the expected production and sales volume at a particular time to formulate our
procurement plan. Our procurement department then contacts suppliers with our raw materials
requirements. We centralise the procurement of our raw materials for different products to take advantage
of our economies of scale and to increase our negotiation leverage with suppliers. We believe this
centralised procurement system enables us to obtain more competitive prices.
Suppliers
We typically purchase raw materials from the suppliers as set forth in our qualified suppliers list
maintained by our procurement department. As primary raw materials have significant impact on the
quality of our products, we select our new suppliers based on an internal suppliers evaluation procedure
which contains a stringent set of criteria, including quality, price, service, quality control, production
capability and credibility which involves assessment of the quality of sample of raw materials supplied
and stringent inspection of quality and service during the probation period. We will only appoint
suppliers who can satisfy all our internal selection criteria. Each of our suppliers is subject to our annual
evaluation of quality of the raw materials supplied. During the Track Record Period and up to the Latest
Practicable Date, we did not experience any significant problems with the quality of raw materials
provided by our suppliers.
We normally enter into sales agreements with our suppliers to specify name of raw materials,
quality, specifications, terms of delivery, credit period and payment methods. The price of our fresh fruit
and vegetables and cultivation materials are determined according to the prevailing market price at
delivery while the price of packaging materials is fixed in the sales contracts. We maintain at least two
suppliers for each type of our primary raw materials. During the Track Record Period, we did not
encounter any shortage of supply of our raw materials.
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All of our raw materials are procured in the PRC, with a majority being procured at the location of
the cultivation facilities. Our suppliers are responsible for arranging delivery of the raw materials to our
cultivation or production facilities at their own costs. During the Track Record Period, we did not
encounter any delay in delivery of raw materials by our suppliers that significantly affected our
manufacturing operations. After we have received the raw materials, we will perform quality checks and
are entitled to return the raw materials which fail to meet our quality standards or the standards set by the
PRC government to our suppliers. For further details of our quality control measures on our raw
materials, please refer to the section headed “Business – Quality Control – Raw materials quality control”
in this prospectus.
Our suppliers usually provide us with a credit term of 15 to 30 days and we usually settle our trade
payables by wire transfers.
Company plus farmer model (公司加農戶模式)
In addition to fresh fruit and vegetables we purchase to produce our processed food products, we
also purchase king trumpet mushroom from local farmers under company plus farmer model. We
typically entered into king trumpet mushroom exclusive sales contract with local farmers who have
qualified cultivation capability and cultivation facilities in Zhangzhou, Fujian province pursuant to which
we agreed to provide financial support, technical service and management guidance to such farmers who
in turn agreed to sell all king trumpet mushroom cultivated at their facilities to us exclusively. The
principal terms of the king trumpet mushroom exclusive sales contracts are as follows:
•
for a term of one year;
•
we provide local farmers with financial support in the form of a deposit repayable at the expiry
of the term of the relevant contracts, technical service and management guidance on the
cultivation of king trumpet mushroom;
•
the farmers are obliged to sell all king trumpet mushroom cultivated at their cultivation
facilities according to the relevant specification and requirements to us exclusively; and
•
the sale price of king trumpet mushroom is not higher than the 80% of the local prevailing
market price.
For the three years ended 31 December 2012, 2013 and 2014, purchases from our largest supplier
accounted for 10.4%, 3.4% and 4.7%, respectively, of our total purchases of raw materials. For the same
periods, our five largest suppliers combined accounted for 26.1%, 16.4% and 22.5%, respectively, of our
total purchases of raw materials. During the Track Record Period and up to the Latest Practicable Date,
none of our customers was also our major suppliers. As at the Latest Practicable Date, our five largest
suppliers during the Track Record Period had maintained a working relationship with us for at least one
year.
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The table below sets forth certain information with respect to our Group’s five largest suppliers
during the Track Record Period.
The year for which
the supplier was
one of our Group’s
five largest suppliers
Five largest
suppliers
Supplier A(1)
2012
Supplier B
2012
Supplier C(1)
2012
Supplier D(1)
2012
Supplier E
2012
Supplier F
2013 and 2014
Supplier G
2013 and 2014
Supplier H
2013 and 2014
Supplier I
2013 and 2014
Supplier J
2013
Supplier K
2014
Supplier type/
Business scope
Trading company/
Import and export
trading
Fresh vegetables and fruit
supplier/Agricultural
trading
Trading company/
Import and export
trading
Packaging materials
supplier/Import and
export trading
Fresh vegetables and
fruit supplier/
Agricultural trading
Cultivation materials
trading
trading
trading
cultivation
trading
cultivation
Headquarters
Fujian province
4 years
Fujian province
4 years
Fujian province
4 years
Fujian province
1 year
Fujian province
7 years
Fujian province
4 years
Fujian province
4 years
Fujian province
4 years
Fujian province
2 years
Fujian province
4 years
Fujian province
3 years
Note:
(1)
Suppliers A, C, and D were the suppliers of our discontinued trading business.
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Length of relationship
with our Group as at
31 December 2014
BUSINESS
To the best knowledge of our Directors, none of our Directors or their associates, or any
Shareholders, who owns more than 5% of our issued share capital, had any interest in any of our five
largest suppliers for the three years ended 31 December 2012, 2013 and 2014 and up to the Latest
Practicable Date.
During the Track Record Period and as at the Latest Practicable Date, we did not have any material
disputes with our suppliers.
QUALITY CONTROL
We place great emphasis on the quality of our products and adhere to stringent quality control
measures over our entire production process, from selection of suppliers and sourcing of raw materials to
our manufacturing process, inspection of finished goods and inventory storage. Our quality control team
comprised 29 employees as at the Latest Practicable Date, with an average of seven years’ experience in
implementing quality control measures in edible fungi and processed food product industries. We require
our quality control team to obtain relevant knowledge and trainings in relation to the production, product
and service assessment.
Our quality control team is responsible for formulating our quality control system in accordance
with the relevant PRC laws and regulations, and monitoring our entire production process. In addition, to
ensure continuous improvement in the quality of our products, our quality control team reviews the
implementation of our quality control system on a regular basis and submits to the management product
quality inspection reports which set forth the quality inspection results of our raw materials and finished
products, quality control conditions in our cultivation process, manufacturing process, product
acceptance rate, details of complaints received from customers on quality of our products (if any), details
of product recalls (if any), compliance with the relevant national standards on product quality and food
safety and recommended improvement procedures.
As at the Latest Practicable Date, we had been accredited with, by application,
GB/T19001-2008/ISO9001:2008 (quality management system), GB/T24001-2004/ISO14001:2004
(environment management system), GB/T28001-2011/OHSAS18001:2007 (occupation health and safety
management system), GB/T22000-2006/ISO22000:2005 (food safety management system) and
GB14881-2013 (HACCP system) certifications from Fujian Southeast Standard Certification Center (福
建東南標準認證中心) and organic food products certificates (有機產品認證證書) from Beijing Co-ops
Integrity Certification Center (北京中合金諾認證中心) in respect of king trumpet mushroom cultivated
at our Jiaomei cultivation facilities in Zhangzhou, Fujian province according to the relevant national
standards in relation to organic food in the PRC. We also have been granted the Certificate of
Pollution-free Agricultural Products (無公害農產品證書) for our king trumpet mushroom and its
cultivation process in November 2011 by the Ministry of Agriculture. Moreover, we have been certified
for our canned food under the British Retail Council (BRC) global standard for food safety and
International Food Standard (IFS) by accredited certification bodies in Europe. We have registered with
U.S. Food and Drug Administration (FDA) under Food Facility Registration Module (FFRM) as a
manufacturer or processor of certain canned food exported to the United States. These certifications
signify our commitment and active pursuit of high quality control standards throughout our operational
and production processes. ISO9001 is a standard and guideline relating to quality management systems,
and represents an international consensus on good quality management practices. ISO9001 is maintained
by the International Organisation for Standardisation, or ISO, and is administered by accreditation and
certification organisations. ISO14001 is a management system which addresses environmental
management through the identification and control of environmental impact and constantly improvement
of environmental performance.
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We have also obtained the production license for industrial products (全國工業產品生產許可證) for
the manufacturing of our products from the provincial-level Bureau of Quality and Technical Supervision
for all of our processed food production plants. For our canned food sales, we have obtained the
registration certificate of manufacturing enterprises on export food (出口食品生產企業備案證明) issued
by the Xiamen Entry-Exit Inspection and Quarantine Bureau (廈門出入境檢驗檢疫局) in order to obtain
and maintain the production license for industrial products and the sanitary registration certificate of
export commodities, we have to meet the quality and hygiene standards set by the PRC government,
covering different stages of the production process from raw material procurement, manufacturing,
maintenance of production facilities, finished products and storage. Moreover, we are subject to annual
inspection from the relevant PRC government authorities. During the Track Record Period and up to the
Latest Practicable Date, we did not fail to pass any such inspection from the relevant PRC government
authorities.
We implement strict quality control procedures throughout the production and service process.
Below is an overview of our quality control procedures applicable to our raw material sourcing,
production process and our finished products.
Raw materials quality control
We have stringent procedures in place in the selection of our new suppliers. Please refer to the
section headed “Business – Raw Materials and Suppliers – Suppliers” in this prospectus for further
details. We also conduct annual evaluations on each of our existing suppliers.
Besides, we have implemented an inspection and testing procedure whereby each batch of raw
materials delivered to our cultivation and production facilities are sampled for inspection and testing in
accordance our quality requirements upon they are accepted. Testing is conducted in accordance with the
testing required by the standards set by the PRC government. These standards set out the required
nutrient content, water content, hygiene standards and maximum permitted levels of contamination in
these raw materials. We have also implemented storage control procedures in relation to the storage of
raw material.
Production process quality control
For cultivation of fresh edible fungi, we conduct routine inspection at check points of each of our
cultivation and production processes. In addition, each check point is inspected by a dedicated inspector
to ensure work-in-progress meet the quality requirements.
For our processed food products, we strictly follow the relevant industry standards throughout our
production process. Each stage of our production process is closely monitored by our quality control team
who conducts quality sample testing and inspection on our semi-finished products at various stages of our
production process. Our quality control team is responsible for ensuring that (i) our production
procedures, including the use of ingredients, follow our internal production guidelines, (ii) our products
are consistent in size, weight, appearance and water content, (iii) there is no contamination in our
products, and (iv) our products meet our quality and hygiene standards and the standards set by the PRC
government. Only those products which pass our quality checks can proceed to the next stage of
production.
In addition, we adopt the relevant national strict hygiene and safety standards of PRC government at
all of our production facilities. Our employees are required to follow strict sanitising procedures and
receive sanitation trainings in connection with the production.
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Finished product quality control
Each batch of our finished products is sample-tested and inspected to ensure that they are consistent
in labeling and packaging and the relevant quality standards have been met. These standards include the
PRC National Standards (中華人民共和國國家標準) and the standards and requirements set forth in the
relevant sales contracts. We have also implemented finished product storage control procedure in relation
to the storage of our finished products, including shelf life, storage temperature, humidity and ventilation
requirements. Products in storage are also subject to regular quality audits depending on their shelf lives.
Further, it is our policy that all complaints from our customers or consumers are handled upon
receipt. Our sales and marketing team and quality control team are responsible for handling complaints
from our customers or consumers and answering their enquiries in relation to our products. Complaints
are collected, processed and provided to relevant departments for their analysts with a view to improving
and resolving any deficiency promptly so as to enhance customer satisfaction. The responsible
department is also required to prepare a quality improvement report detailing the reasons of complaints in
question, how the complaints were handled and preventive measures to prevent recurrence of similar
incidents. During the Track Record Period, we did not encounter any material complaints on product
quality or any material product return or product recall due to product quality defects.
INVENTORY AND LOGISTICS
Inventory management
Our inventory comprises of raw materials, work-in-progress and finished products. Our raw
materials mainly include cultivation materials such as strains, bran, dregs of beans, corncob, straw and
cow dung for our fresh edible fungi produce, and fresh vegetables and fruit for our canned food. Finished
products mainly include our processed food products. We maintain a computerised enterprise resource
planning system to track the in-coming and out-going inventory. This system enables us to monitor levels
of inventory on a timely basis so as to maintain an optimum level of raw materials and finished products.
We keep an adequate level of cultivation materials in accordance with the cultivation schedule of
king trumpet mushroom, button mushroom and straw mushroom every year. We sell our king trumpet
mushroom, button mushroom and straw mushroom as fresh edible fungi produce. As our king trumpet
mushroom is usually sold within 72 hours after harvesting and button mushroom and straw mushroom are
usually sold promptly after harvesting, our inventory level of our finished products of fresh edible fungi
produce is minimal.
We generally do not maintain a regular stock of fresh vegetables and fruit for manufacturing our
canned food because all of our canned food are made-to-order. We typically procure fresh vegetables and
fruit based on the orders from trading companies. The inventory of finished products of our canned food
fluctuate during the Track Record Period primarily due to the delivery schedule specified in the relevant
sales contracts entered into with trading companies.
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We also regularly conduct stock-take of our inventories. Our warehouse employees are required to
prepare monthly, semi-annual and annual records on our inventory levels. During the Track Record
Period, we did not experience any shortage of inventory. We have warehouses in each of our cultivation
facilities and production facilities to store our inventories. Our finished products are stored in designated
zones within our warehouses according to their manufacturing dates and product categories. To maintain
their freshness, our finished products are stored in well-ventilated and temperature and humidity
controlled warehouses. Moreover, we undertake pest control regularly to ensure our warehouses are
pest-free. We also undertake safety measures to minimise fire hazards and contamination to our finished
products. Please refer to the section headed “Financial Information – Valuation of Biological Assets –
Stock-take and Internal Control” for the details of our biological assets management.
Logistics
We outsource our product transportation to logistics providers when the relevant distribution or
sales agreements provide that we are responsible for the transportation of products to the customers. We
select our logistics providers on the basis of their transportation efficiency, transportation capability,
service fee, service quality and track records. We enter into service contracts with our logistics providers
with a term of one year. During the Track Record Period and as at the Latest Practicable Date, all of our
logistics providers were Independent Third Parties.
Our products are delivered by trucks to our customers. Our logistics providers are required to
transport our products from our facilities to the location designated by us in our delivery orders. We
require our logistics providers to follow certain transportation procedures to ensure that our products are
transported under proper conditions. Our logistics providers are liable to compensate us any loss arising
from spoilage, damage, contamination or loss of products which arises during transportation. We are also
entitled to liquidated damages in the event of delay of delivery. We have obtained Certificate of the
Customs of the People’s Republic of China Registration of Consignees and Consigners of Imports and
Exports for Customs Declaration (中華人民共和國海關進出口貨物收貨人報關註冊登記證書) issued by
the General Administration of Customs of Zhangzhou of the PRC (漳州市海關).
We believe the above outsourcing arrangements allow us to reduce our capital investment and
transfer the risks associated with delivery of our products, including those arising from delay of delivery,
spoilage, damage, contamination or loss of products during transportation. During the Track Record
Period and up to the Latest Practicable Date, we did not experience any significant delay in delivery that
materially affected our business operations. We believe that there are sufficient alternative logistics
providers who provide transportation services based on terms similar to those from the logistics providers
we engaged during the Track Record Period.
RESEARCH AND DEVELOPMENT
We have a strong team of research and development personnel. As at the Latest Practicable Date, our
research and development team comprised 12 members, one of them is an expert member of the
committee of canned food technology of the China National Food Industry Association (中國食品工業協
會罐藏食品科技工作委員會). The China National Food Industry Association was approved by the State
Council of the PRC and established in 1981, which functions include promoting and developing the food
industry in the PRC and assisting with the enactment of relevant regulations and establishment of
national standards. Our research and development team is responsible for conducting research in edible
fungi cultivation method and process, processed food manufacturing method and techniques and
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introduce new edible fungi products to refine our existing product offerings to tailor to the latest demand
of consumers. We have established two in-house research and development laboratories in our processed
food production facility in Zhangzhou, Fujian province and our king trumpet mushroom cultivation
facility in Zhangzhou, Fujian province, respectively, to enable us to improve our edible fungi cultivation
method and our processed food manufacturing techniques. Our in-house research and development
laboratories provide a platform for the development of new edible fungi products, refinement of our
current product offerings, enhancement of our cultivation and production methods and techniques,
training of our research and development personnel, and sufficient testing of our newly developed
products before they are introduced to the market. With such in-house research and development capacity,
we were recognised as Fujian Edible Fungi Industrial Cultivation and Fine Processing Enterprise
Engineering Technology Research Center (福建省食用菌工廠化栽培及精加工企業工程技術研究中心)
by Fujian Provincial Department of Science and Technology (福建省科學技術廳). Moreover, we were
awarded Fujian Provincial Scientific and Technological Enterprise Certificate (福建省科技型企業證書)
by the Fujian Provincial Department of Science and Technology (福建省科學技術廳) and Fujian
Provincial Intellectual Property Outstanding Enterprise (福建省知識產權優勢企業) by the Fujian
Intellectual Property Office (福建省知識產權局).
Moreover, with the use of our in-house research and development team and a research and
development platform, we are keen to explore cooperation opportunities with leading agricultural
universities and institutions in the PRC to jointly develop advanced systems and processes of cultivation
of edible fungi in order to improve the quality and yield of our fresh edible fungi produce and to develop
new products. For example, in 2010, we entered into project cooperation agreements with Fujian
Agriculture and Forestry University (福建農林大學) to jointly develop and promote edible fungi
cultivation energy-saving and simplification technology (食用菌栽培節能與輕簡化技術示範推廣) and
edible fungi quality control technology and quality reservation technology (食用菌質量安全控制技術和
採後保質新技術示範推廣). Further, we have established the Fujian Academician Expert Work Station
(福建省院士專家工作站) in collaboration with Engineering Research Center of Edible and Medicinal
Fungi of Ministry of Education of the PRC (食藥用菌教育部工程研究中心) in November 2012. The
Fujian Academician Expert Work Station is responsible for the research and development on strains,
formula, cultivation processes and deep processing of edible fungi and other biological technologies. The
work product of the Fujian Academician Expert Work Station belongs to us. In addition, in September
2014, we entered into a two-year service agreement with Mr. Li Yu, an academician of Chinese Academy
of Engineering (中國工程院) and a professor of Jilin Agricultural University (吉林農業大學), pursuant
to which we appointed Mr. Li Yu as the chief technology consultant of our Group.
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The following table sets forth the details of the research we jointly carried out with our research
partner during the Track Record Period:
Research items
Research fees
paid to research
partners/funds
contributed to the
research project by us
Intellectual property
rights arising out of
the research project
Year
Research partners
2012
Engineering Research Center of
Edible and Medicinal Fungi
of Ministry of Education of
the PRC (食藥用菌教育部工
程研究中心)
•
to jointly establish the Fujian
Academician Expert Work
Station (福建省院士專家工作
站) which conduct the research
and development on strains,
formula, cultivation processes
and deep processing of edible
fungi and other biological
technologies
To be determined according to
agreements for specific
projects
We are entitled to retain all
intellectual property rights
2014
Mr. Li Yu
•
to jointly develop technology in
edible fungi industry
N/A
Intellectual property rights to be
determined by separate
agreements to be entered into
by the parties
As a result of our research and development efforts, we have successfully developed new processed
mushroom products such as spicy king trumpet mushroom snack (辣味杏鮑菇) and preserved mushroom
with vegetarian abalone flavor (素鮑鮮菌菜). Our preserved mushroom with vegetarian abalone favor
was awarded the Specialty Product of the Year (年度特色產品獎) in 2014 by China Canned Food Industry
Association (中國罐頭工業協會). We also developed small size of king trumpet mushroom which is
suitable for household consumption in the PRC by our proprietary bottle-cultivation techniques (杏鮑菇
瓶栽技術). We intend to commence the massive commercial cultivation of such small size of king
trumpet mushroom in 2015. Furthermore, we have invested in the research for the trial cultivation of other
kinds of edible fungi such as oyster mushroom (秀珍菇) and brown beech mushroom (茶樹菇) as our
preparation of potential product offerings in the future.
We aim to continually innovate and improve our products to cater to changing consumer
preferences, focusing particularly on product tastes, textures and packaging, while maintaining our cost
of production at acceptable levels. Our product innovation efforts have led to the introduction of new type
of king trumpet mushroom to our current series.
Our research and development expenses amounted to RMB1.3 million, RMB1.2 million and
RMB0.4 million, representing approximately 0.3%, 0.3% and 0.1% of our revenues of continuing
operations for the three years ended 31 December 2012, 2013 and 2014, respectively.
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AWARDS
We have been granted a number of awards and certificates in recognition of our business
development, details of which are set forth as follows:
Year of grant
Award/Accreditation
Awarding Body
September 2014
National Agricultural Industrialisation
Key Leading Enterprise
(農業產業化國家重點龍頭企業)
Ministry of Agriculture,
National Development and Reform
Commission, Ministry of Finance,
Ministry of Commerce, PBOC,
SAT, CSRC
and All China Federation of Supply
and Marketing Cooperatives
(中華人民共和國國家農業部、
國家發展和改革委員會、
財政部、商務部、中國人民銀行、
國家稅務總局、
中國證券監督管理委員會及
中華全國供銷合作總社)
July 2014
Fujian Provincial Intellectual Property
Outstanding Enterprise of 2014
(2014年度福建省知識產權優勢企業)
Fujian Intellectual Property Office
(福建省知識產權局)
May 2014
Specialty Product of the Year
(年度特色產品獎)
China Canned Food Industry
Association
(中國罐頭工業協會)
June 2014
Top Ten Agricultural Industrialisation
Leading Enterprise of 2013
(2013年度農業產業化十強龍頭企業)
Zhangzhou Municipal Government of
the PRC
(漳州市人民政府)
February 2014
Award for Contribution to
Longhai Economic
Development for 2013
(2013年龍海經濟建設貢獻獎)
Longhai Municipal Committee of
Communist Party and
Longhai Municipal Government of
the PRC
(中共龍海市委、龍海市人民政府)
December 2013
Famous Brand in Fujian Province
(福建省著名商標)
Administration for Industry and
Commerce of Fujian
(福建省工商行政管理局)
December 2013
Member of the Zhangzhou Municipal
Intellectual Property Association
(漳州市知識產權協辦會會員單位)
Zhangzhou Municipal Intellectual
Property Association
(漳州市知識產權協會)
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BUSINESS
Year of grant
Award/Accreditation
Awarding Body
September 2013
National Top Ten Edible Fungi
Industrial Production Enterprise
(全國食用菌產業化建設十強企業)
China Edible Fungi Association
(中國食用菌協會)
August 2013
Fujian Provincial Scientific and
Technological Enterprise
(福建省科技型企業)
Fijian Provincial Department of
Science and Technology
(福建省科學技術廳)
May 2013
China Top Ten Innovative Product of
China Canned Food
Canned Food of 2013
Industry Association
(2013年度中國罐頭食品十大創新產品) (中國罐頭工業協會)
April 2013
Superior Taxpayer of Zhangzhou
for 2012
(2012年度漳州市納稅大戶)
the PRC
January 2013
AA Credit Rating Enterprise of
Good Industrial and
Commercial Credit
(工商信用良好企業（AA級）)
Longhai Municipal Administration for
Industry and Commerce
(龍海市工商行政管理局)
December 2012
Unit of Observing Contract and
Valuing Credit for 2011
(2011年度守合同重信用單位)
Longhai Municipal Government of
the PRC
(龍海市人民政府)
December 2012
Fujian Provincial Famous Brand for
Agricultural Products
(福建省名牌農產品)
Fujian Provincial
Agricultural Department
(福建省農業廳)
December 2012
Famous Brand in Fujian Province
(福建省著名商標)
Commerce of Fujian
December 2012
Fujian Provincial Famous Enterprise
(福建省知名企業)
Commerce of Fujian
December 2012
Well-known Trademark in China
(中國馳名商標)
SAIC
(中華人民共和國
國家工商行政管理總局)
December 2012
Fujian Edible Fungi Industrial
Cultivation and Fine Processing
Enterprise Engineering Technology
Research Centre
(福建省食用菌工廠化栽培及
精加工企業工程技術研究中心)
Fijian Provincial Department of
– 192 –
BUSINESS
Year of grant
July 2012
June 2012
Award/Accreditation
Property Test Point Unit
(漳州市智慧財產權試點單位)
Fujian Academician
Expert Work Station
（福建省院士專家工作站）
Awarding Body
Property Office
(漳州市知識產權局)
Fujian Provincial Party Committee
Organisation of the Communist Party,
the Public Servant Bureau of Fujian
Province, the Office of Human
Resources Department of Fujian
Province and Fujian Association for
(中共福建省委組織部，福建省公務員
局，福建省人力資源開發辦公室及
福建省科學技術協會)
January 2012
Outstanding Unit for Economic
Construction for 2011
(2011年度經濟建設功臣)
Longhai Municipal Party Chief of
the Communist Party and Longhai
Municipal Government of the PRC
(中共龍海市委、龍海市人民政府)
December 2011
National Agricultural Industrialisation
Key Leading Enterprise
(農業產業化國家重點龍頭企業)
Ministry of Agriculture,
National Development and Reform
Commission, Ministry of Finance,
Ministry of Commerce, PBOC,
SAT, CSRC
and All China Federation of Supply
and Marketing Cooperatives
(中華人民共和國國家農業部、
國家發展和改革委員會、
財政部、商務部、中國人民銀行、
國家稅務總局、
中國證券監督管理委員會及
中華全國供銷合作總社)
May 2011
Top Ten Chinese Canned Food
Enterprise for Exports of 2011
(2011年度中國罐頭（出口）十強企業)
China Canned Food
Industry Association
(中國罐頭工業協會)
January 2011
Leading Enterprise for Agricultural
Industrialisation of 2011-2012
(2011-2012年度農業產業化龍頭企業)
the PRC
– 193 –
BUSINESS
INTELLECTUAL PROPERTY RIGHTS
Our intellectual properties are crucial to us as we rely on consumers’ recognition of our brands and
products.
As at the Latest Practicable Date, we had 32 registered trademarks, 33 pending trademark
is one of our key
applications, 20 registered patents and five pending patent applications in the PRC.
registered trademarks and was designated as a “Well-Known Trademark in China” (中國馳名商標) by the
SAIC in 2012. As at the Latest Practicable Date, we had one registered trademark application in Hong
Kong. As at the Latest Practicable Date, we had registered eight domain names. Please see the section
entitled “Statutory and General Information – B. Further Information about our Business – 2. Intellectual
Property of the Group” in Appendix V to this prospectus.
Over the years, we have accumulated knowledge and experience in relation to the cultivation
method, process and formula of cultivation materials of edible fungi which is part of our proprietary
technical know-how. Thus, effective protection of proprietary information and technical know-how in our
business operations is critical to our business. As certain of our proprietary information and know-how
are not patented, we are vulnerable to unauthorised disclosure of such proprietary information to our
competitors, which may adversely affect our business.
We rely on intellectual property laws in the PRC to protect our intellectual property rights. We also
rely on a combination of trade secrets, confidentiality procedures and contractual provisions to protect
our intellectual property rights. Our employees are generally required to enter into confidentiality
agreements with us, pursuant to which our employees undertake to keep our trade secrets confidential
during and after the termination of their employment with us.
Mr. Li Minpei (李閩培), an employee of the Group, together with certain of Mr. Li Minpei’s friends
established Shanghai Junwei Network Technology Company Limited (上海菌緯網絡科技有限公司) (the
“Website Operator”), an Independent Third Party, which owns and operates the website “蘑購城
MOGOUCITY” (http://mogou.junbaike.com/) (the “Website”). To the best knowledge of the Directors,
the Website focuses on the provision of industry information of edible fungi, and is currently at its trial
stage and hence has not yet received any fee from its users. Save that the Website, as a marketing platform
for edible fungi, previously published certain publicly available information of the Group and our brands
and products, the businesses of the Website and the Website Operator are not related to us. We have no
business relationship with nor have we paid any fee to the Website or the Website Operator. There were no
sales of the Group made through or to the Website, the Website Operator or Mr. Li Minpei during the
Track Record Period and the subsequent period up to the Latest Practicable Date. In order to avoid any
confusion in the future, the Website Operator had agreed to remove the relevant web pages and all other
information in relation to the Group from the Website as at the Latest Practicable Date.
For the purpose of brand diversification for product promotion, the Group had designed the
trademark of “蘑購城 MOGOUCITY” (the “Trademark”) and decided to apply for its registration in
April 2014 and subsequently submitted its registration application for the Trademark in June 2014. At the
material time, Mr. Li Minpei who came into knowledge of the Group’s registration application for the
Trademark and proposed promotional plans, discussed with the Group for the use of the logo “蘑購城
MOGOUCITY” which is the same as the Trademark, as well as publication of other information of the
– 194 –
BUSINESS
Group and its products in the Website. In this connection, upon the request of the Group, the Website
Operator had issued a written confirmation letter confirming that the Trademark is designed and owned
by the Group and upon registration of the Trademark, it will obtain written authorisation from the Group
for the use of the Trademark or cease to use the same at the Group’s direction. Taking into account the
confirmation letter given by the Website Operator, as well as the promotional benefits to the Group and its
brands and products, the Group had no objection to the Website Operator to use the logo “蘑購城
MOGOUCITY” in the Website. We are not currently using the Trademark for commercial purpose.
Before our Group obtains the registration certificate of the trademark “蘑購城MOGOUCITY”, any third
party may use the logo being identical with or similar to the design of the trademark “蘑購城
MOGOUCITY”, which may cause confusion to or mislead the public. As advised by our PRC legal
adviser, once our Group obtains the registration certificate of such trademark, without the prior consent
of our Group, no party is entitled to use the design, word or symbol identical with or similar to the
trademark “蘑購城MOGOUCITY” on the categories of goods or services being identical with or similar
to those of our Group, for which the trademark has been registered. However, we may be unable to
identify all unauthorised use of our trademarks. If we are unable to protect our trademark in a timely or
effective way, our Group’s business operations may be adversely affected.
During the Track Record Period and up to the Latest Practicable Date, we did not experience any
infringement of our intellectual property rights having a material adverse effect on our business. Please
refer to the section headed “Risk Factors – Risk Relating to Our Business – We are exposed to possible
infringements of our intellectual property rights, which may materially and adversely affect our sales,
reputation, business operations and financial performance”.
EMPLOYEES
We had 990 employees as at the Latest Practicable Date. None of them was hired through
employment agencies. All of our employees during the Track Record Period were located in the PRC. The
following table sets forth a breakdown of our employees by function as at the Latest Practicable Date:
Function
Production . . . . . . . . . . . . . . . . . .
Sales and marketing. . . . . . . . . . . .
Quality control . . . . . . . . . . . . . . .
Inventory management and logistics
Research and development . . . . . . .
Procurement . . . . . . . . . . . . . . . . .
Finance and accounting . . . . . . . . .
Internal audit . . . . . . . . . . . . . . . .
Management and administration . . .
Number of employees
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
740
26
29
52
12
18
35
2
76
74.8%
2.6%
2.9%
5.3%
1.2%
1.8%
3.5%
0.2%
7.7%
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
990
100.0%
– 195 –
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Percentage of
total employees
BUSINESS
When we make hiring decisions, we take into account factors such as our business strategies, our
development plans, industry trends and the competitive environment. We recruit our employees based on
a number of factors such as their work experience, educational background and vacancy needs. All of our
employees are paid a fixed salary and may be granted other allowances and commissions based on their
position and performance. We utilise a periodic employee evaluation program whereby our employees
receive feedback on their performance. During the three years ended 31 December 2012, 2013 and 2014,
our labour costs were approximately RMB40.7 million, RMB40.4 million and RMB54.2 million,
respectively.
We provide continuing education and training programs to our employees on a regular basis to
enhance their skills and knowledge in various areas, including sales and marketing, product knowledge,
sanitary requirements, production safety and quality management. We also provide induction programs
and team-building training. These training programs are either delivered internally or by external
trainers.
We believe that our working environment and the support and benefits provided to our employees
have contributed to maintaining good working relationships with our employees. During the Track
Record Period and up to the Latest Practicable Date, we did not experience any strikes or labour disputes
with our employees which have had a material effect on our business.
Social insurance contribution
As required under the applicable PRC laws and regulations, we are obliged to provide our
employees with a social welfare schemes covering pension insurance, medical insurance, unemployment
insurance, work injury insurance, maternity insurance and unemployment insurance. For more details,
please see the section headed “Business – Non-compliance” in this prospectus.
Housing providence fund
We are also required under the applicable PRC laws and regulations to provide our employees in the
PRC with the social welfare schemes covering housing provident funds and housing benefits. Please refer
to details in the section headed “Business – Non-compliance” in this prospectus for further details.
COMPETITION
The edible fungi market in the PRC is a fragmented market with a large number of players. While
there were more than 500 industrial producers of king trumpet mushroom in the PRC as at the end of
2013, according to Euromonitor, the top five king trumpet mushroom producers in the PRC, in aggregate,
accounted for approximately 9.7% of the total market share in the PRC in terms of production volume in
2013. The market concentration of button mushroom is also quite low mainly due to the massive
independent growers in the PRC. According to Euromonitor, by the end of 2013, there were less than 40
large-scale industrial button mushroom producers in the PRC and the top five of them combined
2013. According to Euromonitor, we were the largest producer of king trumpet mushroom and the seventh
largest producer of button mushroom in the PRC in terms of production volume in 2013 with a market
share of 2.5% and 0.6% in 2013, respectively.
– 196 –
BUSINESS
According to Euromonitor, the PRC edible fungi market demonstrates high growth potential in fungi
consumption per capita. In the future, major mushroom-producing regions are expected to continue the
commitment to building modern warehousing and logistics facilities, cold chains, agro-commodities
wholesale markets and distribution centres. In addition, large size edible fungi companies will attempt to
expand to both upstream and downstream industries such as mushroom processing, food service and
agricultural by-product to make full use of the resources of mushroom growing, to increase profitability
and expand their distribution networks.
Entry barriers and the competitiveness of king trumpet mushroom market largely lie in product
quality, brand name, research and development, manufacturing equipment as well as the capital. Our
Directors believe that we are able to compete by leveraging our strengths of vertically integrated business
model, established brand name and extensive distribution network. We will also further penetrate the
edible fungi market in the PRC through enhanced research and development and improvement of product
quality.
According to Euromonitor, production volume of canned vegetables and fruit increased from 1.7
million tonnes in 2009 to 2.1 million tonnes in 2013, representing a CAGR of 4.6%. Canned vegetables
and fruit is a typical export-oriented industry. According to comtrade.un.org sources, total export volume
of canned vegetables and fruit continued to grow, with an increase from approximately 1.7 million tonnes
in 2009 to nearly 2.0 million tonnes in 2013. According to Euromonitor, the canned vegetables and fruit
market is primarily driven by favourable environment in the PRC domestic market, alternative
distribution channels and emerging overseas markets such as Russia, Southeastern Asia and Latin
America. According to Euromonitor, the canned vegetables and fruit market faces the threats and
challenges in quality control and international trade barriers and intensified competition. Our Directors
believe that we are also able to compete in the canned vegetables and fruit market on the basis of our
strong reputation and recognition among customers.
Please see the section headed “Industry Overview – Competitive Landscape and Nature of
Competition” in this prospectus for further details.
ENVIRONMENTAL PROTECTION
We recognise the importance of environmental protection and therefore have controlled our
pollutant emissions and ensured compliance with the PRC environmental laws and regulations during the
course of production. Our operations are subject to national, provincial and local environmental laws,
rules and regulations which, among other things, require manufacturers to conduct an environmental
impact assessment before engaging in new construction projects, pay fees in connection with activities
that discharge waste materials, properly manage and dispose of hazardous substances, and impose fines
and other penalties on activities that threaten the environment. For further information on the
environmental laws, rules and regulations governing our operations, please refer to the section headed
“Laws and Regulations of the Industry – Laws and Regulations relating to Environmental Protection” in
this prospectus.
The primary waste generated from our production process is waste water, which are treated in
compliance with all applicable environmental laws, regulations and rules. We have implemented a set of
waste water treatment procedures in our manufacturing facilities. For example, we have installed waste
water disposal devices in our processed food production facilities. We have been accredited with
GB/T24001-2004/ISO14001:2004 (environmental management system) certification issued by China
Southeast Certification Center.
– 197 –
BUSINESS
We have received the respective confirmation letters issued by the competent environmental
administrative authorities in the PRC, stating that we have not been subject to any punishment as a result
of any breach of the applicable PRC environmental laws and regulations. We have not incurred material
environmental compliance cost during the Track Record Period. We expect our annual cost of compliance
with applicable PRC environmental laws, regulations and policies will not experience significant change
from that of the Track Record Period for the year ending 31 December 2015.
During the Track Record Period and up to the Latest Practicable Date, we had not received any
notifications or warnings, nor had we been subject to any fines or penalties in relation to any breach of
any such environmental laws or regulations which had materially and adversely affected our production.
OCCUPATIONAL HEALTH AND SAFETY
Our operations are subject to a number of PRC laws and regulations with respect to employee health
and safety. Based on such regulations, we have implemented employee occupational health and safety
management system in relation to safety control procedures and standards, including procedures for
handling safety issues, accident investigation procedures, protective and remedial measures, accident
reporting procedures, and procedures for arranging health examination and establishing occupational
health records for our employees. We require all of our employees to strictly comply with such
guidelines. We carry out regular safety checks on our production equipment to ensure that such
equipment is thoroughly tested and safe for use. We also require operators of our production equipment to
attend training sessions on the required safety standards. Furthermore, all of our employees are provided
with work place safety trainings. Our occupational health and safety management system has been
accredited with GB/T28001-2011 (occupational health and safety management system) certification
issued by Fujian Southeast Certification Center.
Our PRC legal adviser has confirmed that during the Track Record Period and up to the Latest
Practicable Date, we had complied with all material applicable PRC laws and regulations in relation to
employee health and safety. During the Track Record Period and up to the Latest Practicable Date, we had
not had any incidents, claims or complaints which had materially and adversely affected our operations.
INSURANCE
We have purchased insurance for our motor vehicles. We have not maintained insurance for our
cultivation and manufacturing facilities and other properties or fixed assets. Our insurance coverage may
not adequately protect us against certain operating risks and other hazards, which may result in adverse
effects on our business. Please see the section headed “Risk Factors – Risks relating to our Business – Our
insurance may not sufficiently cover, or may not cover at all, losses and liabilities we may encounter” in
this prospectus.
PROPERTIES
Pursuant to Chapter 5 of the Listing Rules and section 6(2) of the Companies Ordinance (Exemption
of Companies and Prospectuses from Compliance with Provisions) Notice, save and except the disclosure
set out in the appendix to this prospectus headed “Appendix III – Property Valuation,” this prospectus is
exempted from compliance with the requirements of section 342(1)(b) of the Companies Ordinance
(Miscellaneous Provisions) in relation to paragraph 34(2) of the Third Schedule to the Companies
Ordinance (Miscellaneous Provisions) which requires a valuation report with respect to all our Group’s
interests in land or buildings.
– 198 –
BUSINESS
According to our Group’s consolidated statements of financial position set out in Appendix I to this
prospectus, the carrying amount of total assets as at 31 December 2014 was approximately RMB813.3
million and the carrying amount of the prepaid land leasehold payment and building as at 31 December
2014 was approximately RMB114.6 million. As such and pursuant to Rule 5.01B(2) of the Listing Rules,
our Directors confirm that:
•
our Group does not have any property interest that forms part of property activities as at 31
December 2014; and
•
save and except the disclosure set out in Appendix III to this prospectus headed “Property
Valuation” in relation to six parcels of land, 14 buildings and various structures together with
four buildings under construction located at Fengshan Industry Park, Jiaomei Town,
Zhangzhou, Fujian province, no single property interest that forms part of non-property
activities has a carrying amount of 15% or more of our Group’s total assets as at 31 December
2014.
Owned properties
As at the Latest Practicable Date, we owned the state-owned land use rights to six parcels of land
and the collectively-owned land use rights to two parcels of land for our cultivation and production
facilities in Zhangzhou, Fujian province with an aggregate area of approximately 225,075 sq.m. and
sixteen buildings or units in Zhangzhou, Fujian province with an aggregate gross floor area of
approximately 43,069 sq.m., which were used as cultivation and production facilities, office buildings,
staff dormitory, warehousing and ancillary purposes.
As at the Latest Practicable Date, we had four buildings or units that are under construction, with a
total planned gross floor area of approximately 24,751 sq.m. We intend to use these buildings mainly for
production and dormitory. Our PRC legal adviser has confirmed that we have obtained the land use rights
certificate and relevant planning and construction certificates for such buildings under construction.
Except for disclosed under our properties with defective titles, we are in the course of applying for
completion inspection and acceptance documents for such buildings under construction.
As advised by our PRC legal adviser, in respect of the collectively-owned land acquired by our
Group, according to the relevant PRC laws and regulations, an entity may not directly acquire the
collectively-owned land from the owner of the collectively-owned land (i.e. peasants collectives) which
has not first been converted into state-owned land through the land expropriation process. The
acquisitions by our Group of the collectively-owned land had not been through the land expropriation
process of the local government. Please refer to the section headed “Laws and Regulations of the
Industry–Laws and Regulations relating to the Use, Acquisition and Lease of Collectively-owned Land”
for the proper steps that should have been taken by the Group to acquire the collectively-owned land.
Therefore, our PRC legal adviser is of the view that our Group's acquisition of the
collectively-owned land are not in compliance with the relevant PRC laws and regulations and are not
legal, valid and binding on the parties under the relevant PRC laws and regulations. Based on the view of
the PRC legal adviser, our Group and the Sole Sponsor are of the view that the acquisitions of the
collectively-owned land were not legal, valid and binding on the parties under the relevant PRC laws and
regulations.
– 199 –
BUSINESS
As at the Latest Practicable Date, such parcels of land had been approved by the People’s
Government of Fujian Province to be expropriated and converted from collectively-owned land into
state-owned construction land for non-agricultural use. Based on the confirmation letter issued by the
Department of Land and Resources of Fujian Province (福建省國土資源廳), on 5 February 2015, such
parcel of land has been approved by the People’s Government of Fujian Province to be expropriated and
the Longhai Municipal Land Resources Bureau (龍海市國土資源局) is in the process of converting the
land from collectively-owned land into state-owned construction land for non-agricultural use. As
advised by our PRC legal adviser, based on the relevant PRC law, the Longhai Municipal Land Resources
Bureau is the competent authority to formulate a plan for bidding, auction and listing of state-owned land
and implement the procedures of bidding, auction and listing in the jurisdiction of Longhai City and the
Department of Land and Resources of Fujian Province is the competent provincial authority for issuing
such confirmation letter.
The Longhai Municipal Land Resources Bureau (龍海市國土資源局) issued a written confirmation
on 19 November 2014 confirming that Fujian Greenfresh Foods has the right to occupy and use such
parcels of lands for non-agricultural purposes within the period prescribed in the collectively-owned land
use right certificate held by Fujian Greenfresh Foods. Furthermore, the staff member of the Land Reserve
Centre (收儲中心科員) at the Longhai Municipal Land Resources Bureau (龍海市國土資源局), who, to
the best knowledge of the Directors, is one of the officials handling the bidding, auction and listing
procedure of such parcels of land, orally confirmed on 13 February 2015 that:
(i)
the Longhai Municipal Land Resources Bureau (龍海市國土資源局) will not impose any
penalties on Fujian Greenfresh Foods for its occupation and use of such land for
non-agricultural purposes; and
(ii) the bidding, auction and listing procedure for such land will be proceeded with.
As advised by our PRC legal adviser, the Land Reserve Centre of Longhai Municipal Land
Resources is in charge of the bidding, auction and listing procedure of the state-owned land within the
jurisdiction of Longhai city. Therefore, our PRC legal adviser is of the view that the relevant official has
the authority to provide such oral confirmation to the Group.
On 8 May 2015, Fujian Greenfresh Foods executed the transaction confirmation letter (成交確認書)
with the Longhai Municipal Land Resources Bureau (龍海市國土資源局) regarding the purchase of the
land use right attached to such parcel of land, which is a combination of the two parcels of land in
question. In light of the transaction confirmation letter, Fujian Greenfresh Foods has won the bidding of
such parcel of land at a price of RMB2.28 million, and it shall enter into a land use right grant contract
with the Longhai Municipal Land Resources Bureau before 8 May 2016. Accordingly, our PRC legal
adviser is of the view that there is no legal impediment for our Group to enter into the land use right grant
contract with the relevant authority before the specified time. Our Directors estimate that the bidding,
auction and listing procedure for such land, including our Group entering into the land use right grant
contract with the Longhai Municipal Land Resources Bureau and obtaining the land use right certificate,
will be completed by September 2015.
Based on the foregoing, our PRC legal adviser is of the view that the likelihood that the relevant
authority will impose penalties on Fujian Greenfresh Foods or require Fujian Greenfresh Foods to vacate
from or demolish the buildings and ancillary facilities on such land with defective titles is relatively
remote. Please refer to the table below for further details on the defective titles on the collectively-owned
land acquired by our Group.
– 200 –
(1) Fujian Fujian
Greenfresh Greenfresh
Foods
Foods acquired
a parcel of
collectivelyowned land with
a total site area
of
approximately
3,570 sq.m.
from Qiaoshan
Villagers’
Committee of
Yan Cuo,
Longhai,
Zhangzhou,
Fujian province,
and obtained the
collectivelyowned land use
right certificate
of Long Ji Yong
(2012) No.
JD0009.
However, the
acquisition had
not been
through the land
expropriation
process of the
local
government and
the collectivelyowned land use
rights
Company
involved
Details of
properties and
nature of
the title defect
The
non-compliance
is mainly
caused by (i)
our local
management at
the relevant
time being not
familiar with
the relevant
regulatory
requirements;
(ii)
inconsistent
implementation
or
interpretation
by local
authorities in
the PRC of the
relevant
regulations;
and (iii) the
absence of any
investigation,
penalty or
request for
remedial action
from the local
authorities,
which was
considered by
our local
management as
being an
Reasons for
non-compliance
Maximum penalty
and potential
legal impact
According to
the relevant
applicable laws
and
regulations,
Fujian
Greenfresh
Foods may be
required to
vacate from or
demolish the
buildings and
ancillary
facilities on the
Such parcel of land. Fujian
land, together Greenfresh
with a certain Foods, as a
parcel of
transferee, will
collectivelynot be subject
owned land
to any
with a total site monetary
area of
penalties.
approximately
6,406 sq.m.
referred to
below in this
table,
attributed for
12.1% of the
total revenue
of the Group as
at 31
December
2014.
Fujian
Greenfresh
Foods
currently uses
such parcel of
land for the
production of
our processed
food products,
warehousing,
office and
ancillary
purposes.
Primary use of
the property and
percentage of
total revenue
attributable to
the property
Our PRC legal adviser is of
the view that the likelihood
that the relevant authority
will impose penalties on
Fujian Greenfresh Foods or
require Fujian Greenfresh
Foods to vacate from or
demolish the buildings and
ancillary facilities on such
land with defective titles is
relatively remote on the
basis that (i) Longhai Yan
Cuo Land Bureau (龍海市
顏厝鎮土地管理局), the
Municipal Government of
Yan Cuo, Longhai (龍海市
顏厝鎮人民政府), and the
Longhai Municipal Land
Resources Bureau (龍海市
國土資源局), recognised
acquisition of the
collectively-owned land by
Fujian Greenfresh Foods;
(ii) such parcel of land has
been approved by the
People’s Government of
Fujian Province to be
expropriated and converted
from collectively-owned
land to state-owned
construction land for
non-agricultural use; (iii)
the Longhai Municipal
Land Resources Bureau (龍
海市國土資源局), being
Views of our PRC legal adviser
– 201 –
The bidding, auction and listing
procedure for such land was started on 7
April 2015 and it is estimated that the
process will be completed by September
2015. Our Directors confirm that our
Group has duly participated in the
bidding, auction and listing procedure
for such land and on 10 April 2015 a
deposit of RMB450,000 was paid by
Based on the confirmation letter issued
by the Department of Land and
Resources of Fujian Province (福建省國
土資源廳), on 5 February 2015, such
parcel of land has been approved by the
People’s Government of Fujian Province
to be expropriated and the Longhai
Municipal Land Resources Bureau (龍海
市國土資源局) is in the process of
converting the land from
collectively-owned land into
state-owned construction land for
non-agricultural use. As advised by our
PRC legal adviser, based on the relevant
PRC law, the Longhai Municipal Land
Resources Bureau is the competent
authority to formulate a plan for
bidding, auction and listing of
state-owned land and implement the
procedures of bidding, auction and
listing in the jurisdiction of Longhai
City and the Department of Land and
Resources of Fujian Province is the
competent provincial authority for
issuing such confirmation letter.
Remedial actions taken or to be taken and
enhanced internal control measures
The table below summarises our properties with defective titles during the Track Record Period and as at the Latest Practicable Date:
BUSINESS
Company
involved
Reasons for
non-compliance
For the same
reason, Fujian
Greenfresh
Foods’
ownership to
certain
buildings with
an aggregate
gross floor area
of
approximately
1,832 sq.m.
constructed on
such parcel of
land is defective
even though
Fujian
Greenfresh
Foods obtained
the building
ownership
certificate of
Long Fang
Quan Zheng Zi
Di No.
20131392.
thereunder were implied
used for
consent to use
non-agricultural such land.
purposes which
is prohibited by
the relevant
applicable laws
and regulations
in the PRC.
Details of
properties and
nature of
the title defect
Primary use of
the property and
percentage of
total revenue
attributable to
the property
Maximum penalty
and potential
legal impact
the competent authority for
supervising and
administering the use of
land in the jurisdiction of
Longhai City, as advised by
our PRC legal adviser,
issued a written
confirmation on 19
November 2014 that Fujian
Greenfresh Foods has the
right to occupy and use
such parcels of lands for
non-agricultural purposes
within the period
prescribed in the granted
collectively-owned land use
right certificate. Despite
our Company’s
communication with the
Department of Land and
Resources of Fujian
Province (福建省國土資源
廳), which is the upper
level department to the
國土資源局), we have not
been able to obtain the
same confirmation from
such authority, as the
official in the Department
of Land and Resources of
Fujian Province believes
that the Longhai Municipal
Land Resources Bureau
instead of the Department
– 202 –
We are currently in the process of
construction of new production facilities
of processed food products in
Zhangzhou, Fujian province with an
estimated annual designed production
capacity of 33,660 tonnes to replace our
current production facilities for
processed food products, including the
production facilities on such parcel of
Fujian Greenfresh Foods. The price
offered by the government is RMB2.2
million. It is estimated that the total cost
will be approximately RMB3.0 million.
On 8 May 2015, Fujian Greenfresh
Foods executed a transaction
confirmation letter (成交確認書) with
the Longhai Municipal Land Resources
Bureau (龍海市國土資源局), indicating
that Fujian Greenfresh Foods has won
the bidding at a price of RMB2.28
million and it shall enter into a land use
right grant contract with the Longhai
Municipal Land Resources Bureau
before 8 May 2016. Our PRC legal
adviser is of the view that there is no
legal impediment for our Group to enter
into the land use right grant contract
with the relevant authority before the
specified time. In any event, our
Directors confirm that from January
2016, our Group will cease the
operations carried on such property and
lease the property to suitable lessees
under the condition that the lessees will
enter into a deed of non-competition
with our Group.
BUSINESS
Company
involved
Details of
properties and
nature of
the title defect
Reasons for
non-compliance
Primary use of
the property and
percentage of
total revenue
attributable to
the property
Maximum penalty
and potential
legal impact
land together with a certain parcel of
land with a total site area of
approximately 6,406 sq.m. referred to
below in this table, with a combined
designed production capacity of 14,490
tonnes for the year ended 31 December
2014. We expect to commence
commercial production in January 2016.
In the event that the relevant authority
requires us to vacate from or demolish
the buildings and ancillary facilities on
the land before January 2016, our
Directors envisage that any loss in
profits as a result of business
interruption can be mitigated by
sub-contracting our sales orders to third
party subcontractors, due to the number
of readily available third party
contractors for processed food
production available in Zhangzhou. Our
estimated net profit loss as a result of
business interruption on the operations
on such parcel of land, together with a
certain parcel of land with a total site
area of approximately 6,406 sq.m.
referred to below in this table, through
party subcontractors is approximately
RMB2.0 million, based on and with
reference to the historical net profit
contributed by such two parcels of
collectively-owned land for the financial
year ended 31 December 2014 and the
difference in net profit margins between
production by our Group and
subcontracting to third party
Fujian Province is the
competent authority to
provide such confirmation
on such issue in Longhai
City where the
collectively-owned land in
question is located; and (iv)
the staff member of the
Land Reserve Centre (收儲
中心科員) at the Longhai
Municipal Land Resources
Bureau, who, to the best
knowledge of the Directors,
is one of the officials
handling the bidding,
auction and listing
procedure of such parcels
of land, orally confirmed
on 13 February 2015 that
(i) the Longhai Municipal
will not impose any
penalties on Fujian
Greenfresh Foods for its
occupation and use of such
land for non-agricultural
purposes; and (ii) the
bidding, auction and listing
procedure for such land
will be proceeded with. As
advised by our PRC legal
adviser, the Land Reserve
Centre of Longhai
is in charge of the bidding,
auction and listing
BUSINESS
– 203 –
Company
involved
Details of
properties and
nature of
the title defect
Reasons for
non-compliance
Primary use of
the property and
percentage of
total revenue
attributable to
the property
Maximum penalty
and potential
legal impact
subcontractors. Our estimated costs of
demolishing the buildings and ancillary
facilities on such parcel of land,
together with a certain parcel of land
with a total site area of approximately
6,406 sq.m. referred to below in this
table, is approximately RMB1.0 million.
Based on the foregoing, our Directors
do not foresee any material impairment
to our Group’s business and financial
Our PRC legal adviser is of position in the event of such request
the view that the likelihood bythe relevant authority.
Furthermore, our Controlling
Fujian Greenfresh Foods or Shareholders have provided an
require Fujian Greenfresh indemnity against all claims, actions,
demands, proceedings, judgments,
demolish the buildings and losses, liabilities, damages, costs,
ancillary facilities on such charges, fees, expenses and fines
buildings with defective
suffered or incurred by us due to the
titles is relatively remote
title defects of our properties.
on the basis that (i) the
Construction Bureau of
As the non-compliance will not be
Longhai (龍海市建設局),
rectified before Listing, our Group will
being the competent
include relevant disclosures in our
construction works
interim and annual reports upon Listing.
planning and construction
authority, issued a written We have formalised the procedures for
confirmation on 10 March obtaining the requisite permits, licenses
2015 that Fujian
and approvals relating to land,
Greenfresh Foods had
designated an administration supervisor
completed the approval and to be responsible for the application of
registration procedures of the requisite permits and licenses, and
construction
following up with the relevant
authorities on the application status. The
designated administration supervisor has
obtained an associate degree in law and
procedure of the
state-owned land within the
jurisdiction of Longhai
city. Therefore, our PRC
legal adviser is of the view
that the relevant official
has the authority to provide
such oral confirmation to
the Group.
BUSINESS
– 204 –
Company
involved
Details of
properties and
nature of
the title defect
Reasons for
non-compliance
Primary use of
the property and
percentage of
total revenue
attributable to
the property
Maximum penalty
and potential
legal impact
works planning,
commencement of
construction works and
completion of construction;
(ii) the Municipal Housing
Security and Housing
Administration Bureau of
Longhai (龍海市住房保障
與房地產管理局), being
issuance of building
ownership certificates,
issued a written
confirmation on 13 March
2015 that the building
ownership certificate
received by Fujian
Greenfresh Foods was
valid, Fujian Greenfresh
Foods had the rights to
occupy, use and dispose the
buildings referred to
thereunder, and as at the
date of the confirmation,
there had not been disputes
regarding the ownership of
the buildings concerned;
and (iii) the Longhai
Bureau (龍海市國土資源
局) has confirmed that
has the right to occupy and
use the land within the
period prescribed in the
land use right certificate.
has experience in the application of the
requisite permits and licenses for
approximately four years, and she is
familiar with the application procedures
and the relevant required approval
documents. Also, we have prepared a
list of land used by our Group
containing the details of the relevant
pieces of land (including but not limited
to registration number of the Right to
the Use of the Land, the nature of the
land, the expiry date of the land use
rights, etc.) and which list will be
updated from time to time, designated
the in-house legal adviser to be
responsible for reviewing the
application documents for compliance
with the applicable laws and
regulations, and providing legal advice
in relation to the application matters,
and ensuring compliance of the land
use, and designated the administration
supervisor to be responsible for record
keeping (including those documents
relating to the obtaining of the requisite
permits, licenses and approval) which is
reviewed by the in-house legal adviser.
BUSINESS
– 205 –
Reasons for
non-compliance
(2) Fujian Fujian
The
Fujian
Greenfresh Greenfresh
non-compliance Greenfresh
Foods
Foods acquired is mainly
Foods
a parcel of
caused by (i)
currently uses
collectivelyour local
such parcel of
owned land
management at land for the
with a total site the relevant
production of
area of
time being not processed food
approximately familiar with
products,
6,406 sq.m.
the relevant
warehousing,
from
regulatory
office and
transferors
requirements; ancillary
including
(ii)
purposes.
among others inconsistent
Minhui
implementation Such parcel of
Trading, and
or interpretation land, together
obtained the
by local
with a certain
collectivelyauthorities in
parcel of
owned land use the PRC of the collectivelyright certificate relevant
owned land
of Long Ji
regulations;
with a total site
Yong (2012)
and (iii) the
area of
No. JD0010.
absence of any approximately
However, the
investigation, 3,570 sq.m.
acquisition had penalty or
referred to
not been
request for
above in this
through land
remedial action table,
expropriation from the local attributed for
process of the authorities,
12.1% of the
local
which was
total revenue
government
considered by of the Group as
and the
our local
at 31
collectivelymanagement as December
owned land use being an
2014.
rights
implied
thereunder
consent to use
were used for such land.
non-agricultural
Company
involved
Details of
properties and
nature of
the title defect
Primary use of
the property and
percentage of
total revenue
attributable to
the property
According to
the relevant
applicable laws
and
regulations,
Fujian
Greenfresh
Foods may be
required to
vacate from or
demolish the
buildings and
ancillary
facilities on the
land. Fujian
Greenfresh
Foods, as a
transferee, will
not be subject
to any
monetary
penalties.
Maximum penalty
and potential
legal impact
and Minhui Trading or
require Fujian Greenfresh
Foods or Minhui Trading to
vacate from or demolish
the buildings and ancillary
facilities on such land with
defective titles is relatively
remote on the basis that (i)
the land transfer to Fujian
granted consent by
Qiaoshan Villagers’
Committee of Yan Cuo,
Longhai, Zhangzhou,
Fujian province and the
Resources Bureau Yan Cuo
Land Office (龍海市國土資
源局顏厝國土資源所); (ii)
such parcel of land has
been approved by the
People’s Government of
Fujian Province to be
expropriated and converted
from collectively-owned
land to state-owned
construction land for
non-agricultural use; (iii)
the Longhai Municipal
Land Resources Bureau (龍
海市國土資源局), being
– 206 –
The bidding, auction and listing
procedure for such land was started on 7
April 2015 and it is estimated that the
process will be completed by September
2015. Our Directors confirm that our
Group has duly participated in the
bidding, auction and listing procedure
for such land and on 10 April 2015 a
deposit of RMB450,000 was paid by
Fujian Greenfresh Foods. The price
offered by the government is RMB2.2
Based on the confirmation letter issued
by the Department of Land and
Resources of Fujian Province (福建省國
土資源廳), being the competent
authority for issuing the confirmation
letter, on 5 February 2015, such parcel
of land has been approved by the
People’s Government of Fujian Province
to be expropriated and the Longhai
Municipal Land Resources Bureau is in
the process of converting the land from
collectively-owned land state-owned
construction land for non-agricultural
use. As advised by our PRC legal
adviser, based on the relevant PRC law,
Bureau is the competent authority to
formulate a plan for bidding, auction
and listing of state-owned land and
implement the procedures of bidding,
auction and listing in the jurisdiction of
Longhai City and the Department of
Land and Resources of Fujian Province
is the competent provincial authority for
issuing such confirmation letter.
BUSINESS
Company
involved
For the same
reason, Fujian
Greenfresh
Foods’
ownership to
certain
buildings with
an aggregate
gross floor
area of
approximately
4,082 sq.m.
constructed on
such parcel of
land is
defective even
though Fujian
Greenfresh
Foods obtained
the building
ownership
certificates of
Long Fang
Quan Zheng Zi
Di No.
20131391.
purpose, which
is prohibited
by the relevant
applicable laws
and regulations
in the PRC.
Details of
properties and
nature of
the title defect
Reasons for
non-compliance
Primary use of
the property and
percentage of
total revenue
attributable to
the property
Maximum penalty
and potential
legal impact
supervising and
administering the use of
land in the jurisdiction of
Longhai City, as advised by
our PRC legal adviser,
issued a written
confirmation on 19
November 2014 that Fujian
Greenfresh Foods has the
right to occupy and use
such parcels of lands for
non-agricultural purposes
within the period
prescribed in the granted
collectively-owned land use
right certificate. Despite
our Company’s
communication with the
Department of Land and
Resources of Fujian
Province (福建省國土資源
廳), which is the upper
level department to the
國土資源局), we have not
been able to obtain the
same confirmation from
such authority, as the
official in the Department
Fujian Province believes
that the Longhai Municipal
instead of the Department
Fujian Province is the
– 207 –
We are currently in the process of
construction of new production facilities
of processed food products in
Zhangzhou, Fujian province with an
estimated annual designed production
capacity of 33,660 tonnes to replace our
current production facilities for
processed food products, including the
production facilities on such parcel of
land together with a certain parcel of
land with a total site area of
million. It is estimated that the total cost
will be approximately RMB3.0 million.
On 8 May 2015, Fujian Greenfresh
Foods executed a transaction
confirmation letter (成交確認書) with
Bureau (龍海市國土資源局), indicating
that Fujian Greenfresh Foods has won
the bidding at a price of RMB2.28
million and it shall enter into a land use
right grant contract with the Longhai
Municipal Land Resources Bureau
before 8 May 2016. Our PRC legal
adviser is of the view that there is no
legal impediment for our Group to enter
into the land use right grant contract
with the relevant authority before the
specified time. In any event, our
Directors confirm that from January
2016, our Group will cease to use the
operations carried on such property and
lease the property to lessees under the
condition that the lessees will enter into
a deed of non-competition with our
Group.
BUSINESS
Company
involved
Details of
properties and
nature of
the title defect
Reasons for
non-compliance
Primary use of
the property and
percentage of
total revenue
attributable to
the property
Maximum penalty
and potential
legal impact
approximately 3,507 sq.m. referred to
below in this table, with a combined
designed production capacity of 14,490
tonnes for the year ended 31 December
2014. We expect to commence
commercial production in January 2016.
In the event that the relevant authority
requires us to vacate from or demolish
the buildings and ancillary facilities on
the land before January 2016, our
Directors envisage that any loss in net
profits as a result of business
interruption can be mitigated by
party subcontractors, due to the number
of readily available third party
contractors for processed food
production available in Zhangzhou. Our
estimated net profit loss as a result of
business interruption on the operations
on such parcel of land, together with a
certain parcel of land with a total site
area of approximately 3,570 sq.m.
referred to above in this table, through
party subcontractors is approximately
RMB2.0 million, based on and with
reference to the historical net profit
contributed by such two parcels of
collectively-owned land for the financial
year ended 31 December 2014 and the
difference in net profit margins between
production by our Group and
subcontracting to third party
subcontractors. Our estimated costs of
demolishing the buildings and ancillary
facilities on such parcel of land,
competent authority to
provide such confirmation
on such issue in Longhai
City where the
collectively-owned land in
question is located; and (iv)
the staff member of the
Land Reserve Centre (收儲
中心科員) at the Longhai
Bureau, who, to the best
knowledge of the Directors,
is one of the officials
handling the bidding,
auction and listing
procedure of such parcels
of land, orally confirmed
on 13 February 2015 that
(i) the Longhai Municipal
will not impose any
penalties on Fujian
Greenfresh Foods for its
occupation and use of such
land for non-agricultural
purposes; and (ii) the
bidding, auction and listing
procedure for such land
will be proceeded with. As
advised by our PRC legal
adviser, the Land Reserve
Centre of Longhai
is in charge of the bidding,
auction and listing
procedure of the
state-owned land within the
BUSINESS
– 208 –
Company
involved
Details of
properties and
nature of
the title defect
Reasons for
non-compliance
Primary use of
the property and
percentage of
total revenue
attributable to
the property
Maximum penalty
and potential
legal impact
together with a certain parcel of land
with a total site area of approximately
3,570 sq.m. referred to above in this
table, is approximately RMB1.0 million.
Based on the foregoing, our Directors
do not foresee any material impairment
to our Group’s business and financial
position in the event of such request by
Our PRC legal adviser is of the relevant authority.
that the relevant authority Furthermore, our Controlling
Shareholders have provided an
Fujian Greenfresh Foods or indemnity against all claims, actions,
require Fujian Greenfresh demands, proceedings, judgments,
losses, liabilities, damages, costs,
demolish the buildings and charges, fees, expenses and fines
ancillary facilities on such suffered or incurred by us due to the
buildings with defective
title defects of our properties.
titles is relatively remote
on the basis that (i) the
As the non-compliance will not be
Construction Bureau of
rectified before Listing, our Group will
Longhai (龍海市建設局),
include relevant disclosures in our
being the construction
interim and annual reports upon Listing.
works planning and
construction authority,
issued a written
2015 that Fujian
Greenfresh Foods had
completed the approval and
registration procedures of
construction works
planning, commencement
of construction works and
completion of construction;
(ii) the Municipal Housing
Security and Housing
jurisdiction of Longhai
city. Therefore, our PRC
legal adviser is of the view
that the relevant official
has the authority to provide
such oral confirmation to
the Group.
BUSINESS
– 209 –
Company
involved
Details of
properties and
nature of
the title defect
Reasons for
non-compliance
Primary use of
the property and
percentage of
total revenue
attributable to
the property
Maximum penalty
and potential
legal impact
Administration Bureau of
Longhai (龍海市住房保障
與房地產管理局), being
issuance of building
ownership certificates,
issued a written
2015 that the building
ownership certificate
received by Fujian
obtained validly, Fujian
Greenfresh Foods had the
rights to occupy, use and
dispose the buildings
referred to thereunder, and
as at the date of the
confirmation, there had not
been disputes regarding the
ownership of the buildings
concerned; and (iii) the
國土資源局) has confirmed
that Fujian Greenfresh
Foods has the right to
occupy and use the land
within the period
prescribed in the land use
right certificate.
We have formalised the procedures for
obtaining the requisite permits, licenses
and approvals relating to land,
designated an administration supervisor
to be responsible for the application of
the requisite permits and licenses, and
following up with the relevant
authorities on the application status. The
designated administration supervisor has
obtained an associate degree in law and
has experience in the application of the
requisite permits and licenses for
approximately four years, and she is
familiar with the application procedures
and the relevant required approval
documents. Also, we have prepared a
list of land used by our Group
containing the details of the relevant
pieces of land (including but not limited
to registration number of the Right to
the Use of the Land, the nature of the
land, the expiry date of the land use
rights, etc.) and which list will be
updated from time to time, designated
the in-house legal adviser to be
responsible for reviewing the
application documents for compliance
with the applicable laws and
regulations, and providing legal advice
in relation to the application matters,
and ensuring compliance of the land
use, and designated the administration
supervisor to be responsible for record
keeping (including those documents
relating to the obtaining of the requisite
permits, licenses and approval) which is
reviewed by the in-house legal adviser.
BUSINESS
– 210 –
(3)
During the
Zhangzhou Track Record
Greenfresh Period,
Zhangzhou
Greenfresh had
not obtained
the
construction
works planning
permit and the
construction
works
commencement
permit for
certain
buildings with
an aggregate
gross floor
area of
approximately
6,642 sq.m.
Company
involved
Details of
properties and
nature of
the title defect
The
non-compliance
is mainly
caused by (i)
our local
management at
the relevant
time being not
familiar with
the relevant
regulatory
requirements;
(ii) inconsistent
implementation
or
interpretation
by local
authorities in
the PRC of the
relevant
regulations;
and (iii) the
absence of any
investigation,
penalty or
request for
remedial action
from the local
authorities,
which was
considered by
our local
management as
being an
implied
consent to use
such buildings.
Reasons for
non-compliance
Zhangzhou Greenfresh for
such buildings constructed
without the construction
works planning permit and
construction works
commencement permit is
relatively low on the basis
that Taiwanese Investment
Zone, Zhangzhou
Construction Bureau (漳州市
台商投資區建設局) and the
Municipal Urban-rural
Development Bureau of
Zhangzhou (漳州市城鄉規
劃局台商投資區分局)
issued confirmations on 8
December 2014 and 10
December 2014, respectively,
that there was, and will not
Pursuant to the be, penalties imposed on
Administrative Zhangzhou Greenfresh due to
Measures on
its constructions conducted
the Construction without the relevant permits
Works
and Zhangzhou Greenfresh’s
Commencement applications for the
Permit,
construction works planning
Zhangzhou
permit and the construction
Greenfresh is
works commencement permit
subject to a
had been accepted, and we
maximum
had obtained both of the
penalty of
construction works planning
RMB100,000, permit and the construction
representing
works commencement permit
as at January 2015.
Maximum penalty
and potential
legal impact
Pursuant to the
Urban and
Rural Planning
Law of the
PRC,
Zhangzhou
Greenfresh is
Such buildings subject to a
currently do
maximum
not contribute penalty of
to the total
RMB542,000,
revenue of the representing
Group.
10% of the
construction
costs of the
relevant
buildings, due
to the failure to
obtain the
construction
works planning
permit.
The
construction of
the buildings
concerned is
currently in
progress.
Primary use of
the property and
percentage of
total revenue
attributable to
the property
We have formalised the procedures for
obtaining the construction works planning
permits and commencement permits,
established a construction works policy
containing details of the construction
works planning permits and
commencement permits that need to be
obtained, designated the administrative
supervisor to be responsible for obtaining
the construction works planning permits
and commencement permits, and record
keeping, including those documents
relating to the obtaining of the construction
works planning permits and
commencement permits.
Based on the view of our PRC legal adviser
and the remote risks of such title defects on
our business operations, we consider that
no remedial action is necessary.
BUSINESS
– 211 –
Company
involved
Details of
properties and
nature of
the title defect
Reasons for
non-compliance
Primary use of
the property and
percentage of
total revenue
attributable to
the property
2% of the
construction
contract price
of the relevant
buildings, due
to the failure to
obtain the
construction
works
commencement
permit.
Maximum penalty
and potential
legal impact
BUSINESS
– 212 –
BUSINESS
Our PRC legal adviser has confirmed that, as at the Latest Practicable Date, other than disclosed
above, we had obtained all necessary land use rights certificates and building ownership certificates for
our properties. As advised by our PRC legal adviser, according to the PRC Property Law, our right as
owner or occupant of the properties with defective titles may be adversely affected due to the absence of
approval and title certificates, such as our rights to transfer or lease the land and buildings and/or subject
the building structures to mortgage loans. Our PRC legal adviser also advises that the buildings with
defective titles (except for the buildings under construction) are in conformity with the relevant safety
requirements in all material aspects during the Track Record Period. Based on the above, our Directors
confirm that the safety condition of the buildings with defective titles (except for the buildings under
construction) is in compliance with the relevant safety requirements in all material aspects during the
Track Record Period.
In September 2014, we engaged RSM Nelson Wheeler Consulting Limited (“RSMIC”), an
independent internal control consultant, to perform reviews on an agreed set of our Group’s internal
control procedures, systems and controls to assess the adequacy and effectiveness of our internal control
systems, identify whether there are material internal control weaknesses and suggest recommendations to
us for rectification. RSMIC, established in 1986, is a firm of professional consultants that mainly engages
in providing consulting and advisory services to listed companies and companies preparing for a listing in
Hong Kong. The key team members of RSMIC engaged by us possess the relevant experience and
professional qualifications for the services rendered to their clients. Professional qualifications include
Certified Public Accountants (CPA), Certified Internal Auditors (CIA) and Certified Information Systems
Auditors (CISA).
Based on the internal control review report issued by RSMIC, RSMIC and the Sole Sponsor are
satisfied that there is no material internal control deficiency identified. RSMIC has conducted a
follow-up review on the status of the implementation of the enhanced internal control measures in
February to March 2015. Based on such review, RSMIC has confirmed that our Group has satisfactorily
implemented the enhanced internal control measures in mid-March 2015, and that the measures are
adequate and effective in enhancing our internal control system and to prevent future recurrences of
non-compliances of our Group. After reviewing the findings provided by RSMIC regarding our Group's
internal control system, nothing has come to the Sole Sponsor's attention that our Company's enhanced
internal measures are inadequate or ineffective.
Leased properties
As at the Latest Practicable Date, we had leased ten parcels of land used for industrial purposes in
Fujian province and Liaoning province, among which, seven parcels are state-owned land, three parcels
are collectively-owned land.
Leased properties on state-owned land
(1)
Properties without the construction works planning permit and construction works commencement
permit in Dandong, Liaoning province
Among the seven parcels of leased state-owned land, two factory buildings located in Dandong,
Liaoning province with the gross floor area of 19,290 sq.m. leased by Greenfresh Biological Technology
for king trumpet mushroom cultivation are constructed without obtaining the construction works
planning permit and construction works commencement permit. According to the relevant PRC laws, the
competent governmental authorities may order that such buildings be dismantled and impose penalties on
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the person who constructed the building. In this regard, our occupation and use of the buildings will be
materially adversely affected if the competent governmental authorities order the building to be
dismantled. Such buildings attributed for 4.2% of the total revenue of the Group as at 31 December 2014.
The non-compliance is mainly caused by (i) our local management at the relevant time being not familiar
with the relevant regulatory requirements; (ii) inconsistent implementation or interpretation by local
authorities in the PRC of the relevant regulations; and (iii) the absence of any investigation, penalty or
request for remedial action from the local authorities, which was considered by our local management as
being an implied consent to use such land.
Our PRC legal adviser advised that, according to the Urban and Rural Planning Law of the People’s
Republic of China (中華人民共和國城鄉規劃法) and the Construction Law of the People’s Republic of
China (2011 Amendment) (中華人民共和國建築法（2011修正）), the construction entity (建設單位)
which obtained approval to use the land for construction works is responsible for applying for the
construction work planning permit and construction works commencement permit. Therefore, our PRC
legal adviser is of the view that the lessor who owns the title of the leased land use right is responsible for
applying for the construction work planning permit and construction works commencement permit
instead of Greenfresh Biological Technology.
Based on the undertaking letter provided by the lessor on 3 December 2014, the lessor undertook to
Greenfresh Biological Technology that it will not request Greenfresh Biological Technology to cease
using the leased buildings for the reason that such leased buildings have no construction works planning
permit or construction works commencement permit and it will indemnify Greenfresh Biological
Technology against any losses and damages caused by the failure of obtaining the construction works
planning permit and construction works commencement permit issued by competent planning and
construction authorities.
Based on the confirmation letter provided by the lessor to Greenfresh Biological Technology on 9
March 2015, by the date of such confirmation letter, the lessor had not been punished by the competent
authorities due to its failure in obtaining the construction works planning permit and construction works
commencement permit, and the Housing and Urban and Rural Construction Bureau of Kuandian
Mandarin Autonomous County (寬甸滿族自治縣住房和城鄉建設局) (“Kuandian Construction
Bureau”) had accepted the lessor’s application for the issuance of the construction works planning
permit and construction works commencement permit. The lessor estimates that the relevant construction
works planning permit and construction works commencement permit will be obtained by the lessor by
December 2015. On 27 April 2015, Kuandian Construction Bureau, which is, as advised by our PRC legal
adviser, the competent authority to issue the construction works planning permit and construction works
commencement permit, issued a confirmation letter, confirming that Kuandian Construction Bureau had
accepted the lessor’s application for the issuance of construction works planning permit and construction
works commencement permit, and there would be no legal impediments for the lessor to obtain such
permits. In view of the above, our PRC legal adviser is of the view that Greenfresh Biological Technology
has the right to use such land and the relevant buildings on such land, and the risk for Greenfresh
Biological Technology being imposed penalties by the relevant authorities due to its usage of such
buildings or required to vacate from such buildings is remote. In the event that Greenfresh Biological
Technology is required to vacate from the aforesaid buildings by Kuandian Construction Bureau, our
Group will cease our king trumpet mushroom cultivation in such buildings. In the event that we cease our
operations in such buildings, our Directors do not foresee any material impairment to our Group’s
business and financial position.
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Based on the view of our PRC legal adviser and the remote risks of the impact on our business
operations, we consider that it is unlikely that we would be required to relocate the business carried
thereabove. In accordance with an undertaking letter issued by the lessor on 3 December 2014, if we are
required to relocate our operations carried under such leased buildings due to the failure of obtaining the
construction works planning permit and construction works commencement permit issued by competent
planning and construction authorities, we are entitled to request the lessor to indemnify us against any
losses and damages caused by the failure of obtaining the construction works planning permit and
construction works commencement permit issued by competent planning and construction authorities.
For the buildings without obtaining construction works planning permit and the construction works
commencement permit, the landlord did not conduct any independent safety appraisal. However, our
dedicated personnel of management and administration department, which oversaw the construction of
our other facilities and have the relevant experience to make general assessments regarding building
safety, conducted safety review procedures for such buildings and consulted with Fujian Bo Hai
Engineering Technology Co., Ltd (福建博海工程技術有限公司) (the “Testing Co”). The Testing Co
obtained the Construction Engineering Quality Test Organisation Qualification Certificate from the
Department of Housing and Urban-Rural Development of Fujian Province and the Metrology
Accreditation Certificate issued by the Administration of Quality and Technology Supervision of Fujian
Province, respectively. Based on such safety review procedures and our consultation with the Testing Co,
our Directors are of the view that such buildings are in conformity of the relevant safety requirements in
material respects under the applicable PRC laws and regulations and can be used safely under the
applicable PRC laws and regulations.
(2)
Properties without the construction works planning permit and construction works commencement
permit in Zhangzhou, Fujian province
Among the seven parcels of leased state-owned land, Zhangzhou Greenfresh funded the
construction of buildings with a gross floor area of 4,426 sq.m. for the production of canned food on a
parcel of leased land without obtaining the construction works planning permit and the construction
works commencement permit prior to the commencement of construction. Such buildings attributed for
10.7% of the total revenue of the Group as at 31 December 2014. The non-compliance is mainly caused by
(i) our local management at the relevant time being not familiar with the relevant regulatory
requirements; (ii) inconsistent implementation or interpretation by local authorities in the PRC of the
relevant regulations; and (iii) the absence of any investigation, penalty or request for remedial action
from the local authorities, which was considered by our local management as being an implied consent to
use such land.
As advised by our PRC legal adviser, according to the Administration Law of Urban Real Estate of
the People’s Republic of China 《
( 中華人民共和國城市房地產管理法（2007修正）》) and the Property
Law of the People’s Republic of China 《
( 中華人民共和國物權法》), the ownership of the buildings
constructed on a parcel of land shall be registered in consistence with the ownership of the land use right;
and the buildings on a parcel of construction land shall be transferred concurrently when such
construction land is transferred. Therefore, our PRC legal adviser is of the view that the lessor who owns
the title of the land use right of the leased land is entitled to the title of the building ownership. Our PRC
legal adviser also advised that, according to the Urban and Rural Planning Law of the People’s Republic
of China 《
( 中華人民共和國城鄉規劃法》) and the Construction Law of the People’s Republic of China
(2011 Amendment) 《
( 中華人民共和國建築法（2011修正）》), the construction entity (建設單位) which
obtained approval to use the land for construction works is responsible for applying for the construction
work planning permit and construction works commencement permit. Therefore, our PRC legal adviser is
of the view that the lessor who owns the title of the leased land use right shall be responsible for applying
for the construction work planning permit and construction works commencement permit.
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On 10 March 2015, the Construction Bureau of Longhai (龍海市建設局), being the competent
authority, issued a written confirmation that it had not, and would not, impose penalties on the lessor or
Zhangzhou Greenfresh due to the failure to obtain the relevant permits. In addition, the lessor has
undertaken that she will apply for the relevant permits in due course and that Zhangzhou Greenfresh will
not be requested to vacate from the buildings due to the aforementioned reason. As such, our PRC legal
adviser is of the view that Zhangzhou Greenfresh has the right to occupy and use the land and the
likelihood that Zhangzhou Greenfresh may be imposed penalties by relevant authorities due to its usage
of such buildings is relatively low. In any event, our Directors confirm that from January 2016, our Group
will cease to lease such parcels of state-owned land and cease operations carried on such properties. We
are currently in the process of construction of new production facilities of processed food products in
Zhangzhou, Fujian province with an estimated annual designed production capacity of 33,660 tonnes to
replace our current production facilities for processed food products, including the production facilities
for processed food products on such parcels of state-owned land which has a combined designed
production capacity of 11,730 tonnes for the year ended 31 December 2014. We expect to commence
commercial production in January 2016. As the non-compliance will not be rectified before Listing, our
Group will include relevant disclosures in our interim and annual reports upon Listing.
For the buildings without obtaining the construction works planning permit and the construction
works commencement permit, we engaged a third party inspection institution, Fujian Bo Hai Engineering
Technology Co., Ltd (福建博海工程技術有限公司) (the “Testing Co”), to examine the structure,
including cement foundation, walls, steel roof truss, steel girder and steel column, of such buildings. The
Testing Co obtained the Construction Engineering Quality Test Organisation Qualification Certificate
from Department of Housing and Urban-Rural Development of Fujian Province and the Metrology
Accreditation Certificate issued by the Administration of Quality and Technology Supervision of Fujian
Province. As advised by our PRC legal adviser, the Testing Co is a qualified and competent institution to
issue such report to the Group. According to the report issued by the Testing Co on 24 April 2015, the
Testing Co is of the view that the structure of such buildings are in conformity of the relevant safety
requirements in material respects under the applicable PRC laws and regulations and can be used safely
under the applicable PRC laws and regulations.
Leased collectively-owned land
(1)
Leased collectively-owned land for non-agricultural purposes
In terms of the three parcels of leased collectively-owned land used for non-agricultural purposes,
Fujian Greenfresh Foods leased two parcels of land from Qiaoshan Villagers’ Committees of Yan Cuo,
Longhai, Zhangzhou, Fujian province and Zhangzhou Greenfresh leased one parcel of land from
Qiaoshan Villagers’ Committee of Yan Cuo, Longhai, Zhangzhou, Fujian province, for an aggregate site
area of 7,691 sq.m. for warehousing and ancillary purpose.
According to the applicable laws of the PRC, any collectively-owned land shall not be sold,
transferred or leased for non-agricultural purpose. As the buildings constructed on the aforesaid three
parcels of collectively-owned land leased from the relevant Villagers’ Committees are primarily used for
non-agricultural purpose such as warehouse, ancillary facilities and office, the relevant Villagers’
Committee did not have the authority to lease to our Group such three parcels of collectively-owned land
used for non-agricultural purpose. Our PRC legal adviser is of the view that such lease is not in
compliance with the relevant PRC laws and regulations. Based on the view of our PRC legal adviser, our
Group and the Sole Sponsor are of the view that such leases are not in compliance with the relevant PRC
laws and regulations. The non-compliance is mainly caused by (i) our local management at the relevant
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time being not familiar with the relevant regulatory requirements; (ii) inconsistent implementation or
interpretation by local authorities in the PRC of the relevant regulations; and (iii) the absence of any
investigation, penalty or request for remedial action from the local authorities, which was considered by
our local management as being an implied consent to use such land.
In this connection, as advised by our PRC legal adviser, the competent land authority may order that
such non-compliance should be rectified by the lessors, impose penalties on the lessors, and confiscate
the illegal income derived from such lease. As advised by our PRC legal adviser, our Group, as a lessee of
the leases of the collectively-owned land used for non-agricultural purposes, will not be subject to any
monetary penalties. In the event that the lessors are ordered to rectify the non-compliance, we may be
required to rectify our operations carried thereunder, our occupation and use of the land and buildings
thereupon will be materially adversely affected. As advised by our PRC legal adviser, the Longhai
Municipal Land Resources Bureau (龍海市國土資源局) is the competent authority for supervising and
administering the use of land in the jurisdiction of Longhai City and it issued a written confirmation dated
5 December 2014 confirming that:
(i)
Qiaoshan Villagers’ Committee of Yan Cuo, Longhai, Zhangzhou, Fujian province has
obtained the collectively-owned land use right certificate for such leased land; and
(ii) Qiaoshan Villagers’ Committee of Yan Cuo, Longhai, Zhangzhou, Fujian province could
occupy, use, lease and dispose of such land for non-agricultural purposes within the time limit
prescribed on the land use right certificate.
Based on the foregoing confirmation, our PRC legal adviser is of the view that the likelihood that
Qiaoshan Villagers’ Committee of Yan Cuo, Longhai, Zhangzhou, Fujian province is ordered to rectify
such non-compliance, including demolishing the buildings on such land or requiring us to vacate from
such buildings which may cause us to cease our operations carried on such leased land is relatively
remote. Despite our Company’s communication with the Department of Land and Resources of Fujian
Province (福建省國土資源廳), which is the upper level department to the Longhai Municipal Land
Resources Bureau (龍海市國土資源局), we have not been able to obtain the same confirmation from such
authority, as the official in the Department of Land and Resources of Fujian Province believes that the
Longhai Municipal Land Resources Bureau instead of the Department of Land and Resources of Fujian
Province is the competent authority to provide such confirmation on such issue in Longhai City where the
collectively-owned land in question is located. In any event, our Directors confirm that from January
2016, our Group will cease to lease such parcels of collectively-owned land and cease operations carried
on such properties. As the non-compliance will not be rectified before Listing, our Group will include
relevant disclosures in our interim and annual reports upon Listing.
Such leased land is currently used for ancillary purposes required for the production of processed
food products on our two parcels of collectively-owned land with total site areas of approximately 6,406
sq.m. and 3,570 sq.m., respectively, amongst other purposes. We are currently in the process of
construction of new production facilities of processed food products in Zhangzhou, Fujian province to
replace our current production facilities for processed food products. We expect to commence
commercial production in January 2016. In the event that the relevant authority orders the lessors to
rectify the non-compliance and we are required to vacate from such land before January 2016, the
operations carried on our two parcels of collectively-owned land with total site areas of approximately
6,406 sq.m. and 3,570 sq.m., respectively, will be affected. Our Directors envisage that any loss in profits
as a result of business interruption on our two parcels of collectively-owned land with total site areas of
approximately 6,406 sq.m. and 3,570 sq.m., respectively, can be mitigated by sub-contracting our sales
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orders to third party subcontractors, due to the number of readily available third party contractors for
processed food production available in Zhangzhou. Our estimated net profit lost as a result of business
interruption on the operations on two parcels of collectively-owned land with total site areas of
approximately 6,406 sq.m. and 3,570 sq.m., respectively, through sub-contracting our sales orders to
third party subcontractors is approximately RMB2.0 million, based on and with reference to the historical
net profit contributed by such two parcels of collectively-owned land for the financial year ended 31
December 2014 and the difference in net profit margins between production by our Group and
subcontracting to third party subcontractors. Based on the foregoing, our Directors do not foresee any
material impairment to our Group’s business and financial position in the event of such request by the
relevant authority. Furthermore, our Controlling Shareholders have provided an indemnity against all
claims, actions, demands, proceedings, judgments, losses, liabilities, damages, costs, charges, fees,
expenses and fines suffered or incurred by us due to any non-compliance in respect of our leased
properties.
As at the Latest Practicable Date, we had strengthened our internal control in relation to leased
properties, including conducting due diligence on the proposed leased properties by the administration
supervisor and the general manager by conducting site visits and obtaining the lessor’s background
information such as business certificate, tax certificate, premises permit and certificate of land ownership
to verify the lessor’s identity and the land information, designating the in-house internal auditor who is a
Certified Public Accountant to be responsible for reviewing the background information of the lessors to
ensure proper execution of the due diligence, designating the in-house legal adviser to be responsible for
ensuring the legality of the leased properties and compliance with the relevant land use and construction
requirements, and designating the administration supervisor for record keeping.
(2)
Leased collectively-owned land for agricultural purposes
We had leased eighteen parcels of farmland, which are all collectively-owned land, used for the
cultivation of edible fungi in Fujian province, Jiangsu province and Sichuan province as at the Latest
Practicable Date. We have constructed agricultural and ancillary facilities for cultivation of king trumpet
mushroom on nine parcels of such farmland in Fujian province and Jiangsu province. The other nine
parcels of farmland are used for the traditional cultivation of button mushroom in Fujian province and
Sichuan province.
In respect of collectively-owned land leased by our Group which are used for agricultural purposes,
according to the relevant PRC laws and regulations, as advised by our PRC legal adviser, members (i.e.
the farmer-households) of a collective economic organisation in rural areas have the right to contract (承
包) the rural land awarded by their collective economic organisation. The contractors (承包人) acquiring
the contracted management right of rural land may entrust the contract-letting party (發包人) or
intermediary organisation to further circulate the contracted management right of rural land to other
entities and individuals.
In the case of such leased collectively-owned land for agricultural purposes by our Group, our
Group entered into (1) thirteen lease agreements with the relevant Villagers’ Committees who had been
authorised by the relevant farmer-households to circulate the contracted management right of rural land
to our Group, and such lease agreements were filed with the competent authorities of the relevant village
or town; (2) two lease agreements with individual lessors who had already leased the collectively-owned
land from the relevant Villagers’ Committees, which had been authorised by relevant farmer-households
to circulate the contracted management right of farm land and had approved the individuals’ subletting of
the collectively-owned land to our Group. Subsequently, the aforesaid lease agreements were filed with
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the competent authorities of the relevant village or town; (3) three lease agreements with three entities
other than Villagers’ Committees who had already leased the farmland from contract-letting parties and
obtained the consent from the contract-letting parties to sublet the farmland to our Group. Subsequently,
such lease agreements were filed with the competent authorities of the relevant village or town.
The following flow chart illustrates the respective steps taken by our Group to lease the
collectively-owned land for agricultural use under the above-mentioned three different situations:
(1)
(2)
(3)
Farmer-households authorised
Villagers’ Committees
to circulate the land
Farmer-households authorised
to circulate the land
Entities obtained the consent
from the land use right user or
contract-letting parties
to lease the land
Our Group entered into
lease agreements with
Individual lessors
leased from relevant
these entities
Filed the lease agreements
with authorities of
the relevant village or town
individual lessors
with authorities of
with authorities of
As advised by our PRC legal adviser, under the applicable PRC laws and regulations, only if an
entity or an individual who is not a member of the collective economic organisation, intends to contract
the collectively-owned land, such entity or individual shall obtain the consent of at least two-thirds of the
members of the villagers’ conference or of the representatives of villagers. Therefore, the
farmer-households of a collective economic organisation are not required to obtain the consent of at least
two-thirds of the members of the villagers’ conference or of the representatives of villagers with respect
to its contracting of the rural land awarded by their collective economic organisation and circulation (流
轉) of their contracted management right of rural land. They may determine by themselves to entrust the
contract-letting party (i.e. the Villagers’ Committee) to further circulate (流轉) the contracted
management right of rural land to other entities or individuals.
With respect to the collectively-owned land leased by our Group from various Villagers’
Committees, the relevant farmer-households have signed or put their thumb prints on resolution
documents showing that they have severally agreed and entrusted the relevant Villagers’ Committees to
circulate their contracted management right of collectively-owned land. As such, our PRC legal adviser is
of the view that the relevant Villagers’ Committees had the authority to act on behalf of such
farmer-households of collectively-owned land.
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With respect to the land leased by our Group from individuals and entities, the relevant
farmer-households that have acquired the contracted management right of rural land have agreed and
entrusted the relevant Villagers’ Committees to circulate their respective contracted management right of
collectively-owned land. Subsequently, the entrusted Villagers’ Committees leased such land to the
individuals and the entities involved and such individuals and the entities involved subsequently
sub-leased the land to our Group. As the individuals and entities sub-leased the land from the Villagers’
Committees, and had not directly acquired the contracted management right of the land from relevant
farmer-households, such individuals and entities are not required to obtain at least two-thirds of the
members of the villagers’ conference or of the representatives of villagers. Further, our Group is not
required to obtain at least two-thirds of the members of the villagers’ conference or of the representatives
of villagers for sub-leasing the land from such individuals and villagers.
In terms of the collectively-owned land used for agricultural purposes leased or subleased by our
Group from the Villagers’ Committees, our PRC legal adviser is of the view that the relevant Villagers’
Committees had the authority to act on behalf of such farmer-households of collectively-owned land.
Based on the view of our PRC legal adviser, our Group and the Sole Sponsor consider that the relevant
Villagers’ Committees had the authority to act on behalf of such farmer-households of
collectively-owned land. As advised by our PRC legal adviser, the lease agreements with respect to the
leases of the collectively-owned land for agricultural purposes have been filed with the competent
authorities of the village or town.
Save as otherwise disclosed in this prospectus, as advised by our PRC legal adviser, each of the
leases of the collectively-owned land for agricultural purposes, which was leased by the entities or
individuals as lessors that lawfully had such right to lease the land and had filed the lease agreements with
the competent rural land contracting authorities was legal, valid and binding on the parties under the
relevant PRC laws and regulations and the usage of such land parcels complies with the relevant PRC
laws and regulations.
Considering that the revenue generated from the operations carried out on our owned and leased
properties with defective titles in aggregate accounted for approximately 27% of our total revenue for the
year ended 31 December 2014, our Directors are of the view that our properties with defective titles are,
individually and collectively, crucial to our business operation. Our Directors confirm that there is no
difference in land or rental cost which we would otherwise have to pay if the properties with defective
titles disclosed above did not have the said title defects.
However, based on the view of our PRC legal adviser, we believe that the title defects on our owned
and leased properties will not cause any material adverse effect on our Group. We are currently in the
process of construction of new production facilities of processed food products in Zhangzhou, Fujian
province with an estimated annual designed production capacity of 33,660 tonnes to replace our current
production facilities for processed food products, including our facilities on two parcels of
collectively-owned land with total site areas of approximately 6,406 sq.m. and 3,570 sq.m., respectively,
with a combined designed production capacity of 14,490 tonnes for the year ended 31 December 2014.
We expect to commence commercial production in January 2016. For more information about such
expansion plan, please refer to the section headed “Business – Expansion Plans, Site Selection and
Development – Recent Expansion” in this prospectus. In the event that the relevant authority orders
rectification of the non-compliance of our owned or leased properties before January 2016, the operations
carried on our two parcels of collectively-owned land with total site areas of approximately 6,406 sq.m.
and 3,570 sq.m., respectively, will be affected. Our Directors envisage that any loss in profits as a result
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of business interruption on our two parcels of collectively-owned land with total site areas of
approximately 6,406 sq.m. and 3,570 sq.m., respectively, can be mitigated by sub-contracting our sales
orders to third party subcontractors, due to the number of readily available third party contractors for
processed food production available in Zhangzhou. Our estimated net profit lost as a result of business
interruption on the operations on two parcels of collectively-owned land with total site areas of
approximately 6,406 sq.m. and 3,570 sq.m., respectively, through sub-contracting our sales orders to
third party subcontractors is approximately RMB2.0 million, based on and with reference to the historical
net profit contributed by such two parcels of collectively-owned land for the financial year ended 31
December 2014 and the difference in net profit margins between production by our Group and
subcontracting to third party subcontractors. Our estimated costs of demolishing the buildings and
ancillary facilities on the two parcels of collectively-owned land with total site areas of approximately
6,406 sq.m. and 3,570 sq.m., respectively, is approximately RMB1.0 million. Based on the foregoing, our
Directors do not foresee any material impairment to our Group’s business and financial position in the
event of such request by the relevant authority. Furthermore, our Controlling Shareholders have provided
an indemnity against all claims, actions, demands, proceedings, judgments, losses, liabilities, damages,
costs, charges, fees, expenses and fines suffered or incurred by us due to any non-compliance in respect
of our leased properties.
LICENSES, PERMITS AND CERTIFICATES
We are subject to laws, regulations and supervision by different levels of regulatory authorities and
are required to maintain various licenses, permits and approvals in order to operate our facilities and
conduct our business. A summary of such relevant PRC laws and regulations which our business
operations are subject to is set out in the section headed “Laws and Regulations of the Industry” in this
prospectus. Our PRC legal adviser has confirmed that we had obtained all necessary licenses, permits and
certificates for our business operations in the PRC and such licenses, permits and certificates are valid
and remain in effect as at the Latest Practicable Date. The following table sets forth details of our material
licenses and permits for our operation:
Licence and permit
Issuing authority
Date of issue
Date of expiry
Recipient
National Industrial Goods Production
Permit (Dried edible fungi) (全國工業
產品生產許可證（乾食用菌）)
Zhangzhou Food and Drug
Administration
(漳州市食品藥品監督管理局)
15 January 2015
14 January 2018
Shengtai Agricultural
Development
Food Exports Production Enterprise
Certificate (Dried edible fungi)
(出口食品生產企業備案證明
（乾食用菌）)
Xiamen Entry-Exit Inspection and
Quarantine Bureau
(廈門市檢驗檢疫局)
10 December 2014
10 December 2018
Shengtai Agricultural
Development
Edible Fungi Strains Production and
Operation Permit
(食用菌菌種生產經營許可證)
Fujian Provincial Department of
Agriculture
26 January 2014
25 January 2017
Pollution Emission Permit
(排放污染物許可證)
Longhai Environmental
Protection Bureau
(龍海市環境保護局)
4 November 2013
5 November 2016
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Licence and permit
Issuing authority
Date of issue
Date of expiry
Recipient
Certificate of Member of the Chinese
Commercial Goods Barcode System
(中國商品條碼系統成員證書)
GS1 China
(中國物品編碼中心)
11 October 2013
11 October 2015
Permit (Canned food)
(全國工業產品生產許可證（罐頭）)
Fujian Provincial Bureau of
Quality and Technical
Supervision
(福建省質量技術監督局)
9 October 2013
13 September 2017
Certificate of the Customs of
the People’s Republic of China
Registration of Consignees and
Consigners of Imports and
Exports for Customs Declaration
(中華人民共和國海關進出口貨物
收貨人報關註冊登記證書)
Zhangzhou Municipal Customs
(漳州市海關)
18 September 2013
18 September 2016
Fujian Provincial Scientific and
Technological Enterprise Certificate
(福建省科技型企業證書)
Fujian Provincial Department of
1 August 2013
1 August 2016
Permit (Canned food)
(全國工業產品生產許可證（罐頭）)
Supervision
20 May 2013
19 May 2016
Water Obtainment Permit
(取水許可證)
Longhai Municipal Water
Resources Bureau
(龍海市水利局)
31 December 2012
31 December 2017
Plantation Base Inspection and
Quarantine Record Filing and
Registration Certificate for
Botanical Food Raw Materials Exports
(出口植物源性食品原料種植基地
檢驗檢疫備案證書)
Quarantine Bureau
(廈門市出入境檢驗檢疫局)
5 December 2012
5 December 2015
Certificate of Green Food
(綠色食品證書)
China Green Food
Development Centre
(中國綠色食品發展中心)
14 November 2012
November 2015
Self-reporting Unit Record
Registration Certificate
(自理報檢單位備案登記證明書)
Quarantine Bureau
30 October 2012
NIL
– 222 –
BUSINESS
Licence and permit
Issuing authority
Date of issue
Date of expiry
Recipient
Food Exports Production
Enterprise Certificate
(Fresh edible fungi produce)
(出口食品生產企業備案證明
（鮮食用菌）)
Quarantine Bureau
29 August 2012
29 August 2016
Permit (Preserved vegetables and
edible fungi products)
(全國工業產品生產許可證
（醬醃菜食用菌製品）)
Supervision
2 July 2012
24 September 2015
Record Certificate (Canned food)
(出口食品生產企業備案證明（罐頭）)
Quarantine Bureau
17 April 2012
17 April 2016
Record Certificate (Canned food)
(出口食品生產企業備案證明（罐頭）)
Quarantine Bureau
12 March 2012
11 March 2016
Standardised Drainage Outlet Symbol
(規範化排污口標誌登記證)
Longhai Environmental
Protection Bureau
(龍海市環境保護局)
12 March 2012
11 March 2016
Certificate of Pollutant-free
(無公害農產品證書)
Agricultural Products Quality
Safety Centre of
the Ministry of Agriculture
(農業部農產品質量安全中心)
December 2011
December 2014 (1)
Certificate of Origin of Pollutant-free
(無公害農業品產地認定證書)
Fujian Provincial
Agricultural Department
12 August 2011
August 2014 (1)
Record Filing and Registration Form
for Foreign Trade Operators
(對外貿易經營者備案登記表)
Zhangzhou Municipal Foreign
Trade and Economic
Cooperation Bureau
(漳州市對外貿易經濟合作局)
30 December 2010
NIL
Self-reporting Unit Record
(自理報檢單位備案登記證明書)
Quarantine Bureau
30 July 2008
NIL
Note:
(1)
We have applied for the renewal of the Certificate of Pollutant-free Agricultural Products and the Certificate of Origin of
Pollutant-free Agricultural Products and expect to obtain the renewed certificates by the second quarter of 2015. Our PRC
legal adviser has confirmed that such certificates are not the necessary permit and licenses for the Group to conduct its
business or operations pursuant to the relevant PRC laws and regulations.
– 223 –
Reasons for
non-compliance
The non-compliance
was mainly caused
by (i) our local
management at the
relevant time being
not familiar with
the relevant
regulatory
requirements; (ii)
different levels of
acceptance of the
social insurance
scheme by our
employees; and
(iii) inconsistent
implementation or
interpretation by
local authorities in
the PRC of the
relevant
regulations.
Historical
non-compliance
(1) During the
Track Record
Period, six of
our PRC
subsidiaries
had not been
making
contributions
in full to the
social welfare
schemes for
our employees.
According to Social Insurance Law of
the PRC (中華人民共和國社會保險
法), the relevant PRC authorities may
demand us to pay the difference in
social welfare scheme contribution
based on the actual wages of employees
within a stipulated deadline and (i) in
respect of total amount of difference
that accumulated prior to 1 July 2011,
where payment is not made prior to
such deadline, we may be liable to a
penalty equal to 0.2% of the
outstanding amount calculated daily
from the date the relevant insurance
welfare scheme became payable; and
(ii) in respect of the difference that
accumulated after 1 July 2011, we may
be liable to a penalty equal to 0.05% of
the difference calculated daily from the
date the relevant insurance welfare
scheme funds became payable and, if
we fail to make such payments in
arrears, we may be subject to a fine of
one to three times of the total amount
of the difference.
Legal consequences and
potential maximum and
other financial liabilities
Enhanced internal
control measures
As an annual compliance measure
following the Listing, we will
continue to communicate with our
employees with regard to the
employee social welfare schemes
and contribute to the employee
social welfare schemes for our
We are advised by our PRC legal
employees in line with the
adviser that the relevant local
standards stipulated under the
social welfare scheme authorities applicable PRC laws and
from which we have obtained the
regulations or the standards set by
confirmations are competent to
the social welfare schemes
give such confirmations and it is
authorities. We will make relevant
unlikely that such confirmations
disclosure in the annual reports
will be challenged or revoked by
after the Listing. Furthermore, in
higher level authorities.
the event that the local authorities
require us to pay the difference in
Furthermore, as at the Latest
social insurance contribution, our
Practicable Date, we had not
Controlling Shareholders have also
received any notification from the provided an indemnity against all
relevant PRC authorities alleging
claims, actions, demands,
that we had not fully contributed to proceedings, judgments, losses,
the social insurance and demanding liabilities, damages, costs, charges,
payment of the same before a
fees, expenses and fines suffered or
stipulated deadline, nor were we
incurred by us due to our
aware of any employees’
non-compliance with the social
complaints or demands for
insurance contribution regulations.
payment of social insurance
contributions, nor had we received
any legal documentation from the
labour arbitration tribunals or the
PRC court regarding disputes of
social insurance contributions.
We have obtained confirmations
from the relevant local social
welfare scheme authorities for all
of our subsidiaries stating that no
administrative penalty has been
imposed.
Rectification actions taken,
provisioning and latest status
Except as disclosed below, we complied with the laws and regulations applicable to us in all material aspects during the Track Record Period and
up to the Latest Practicable Date. The table below sets out summaries of certain incidents of historical non-compliance with applicable regulations
during the Track Record Period. Our Directors believe that these incidents of non-compliance, whether individually or collectively, will not have a
material operational or financial impact on us.
NON-COMPLIANCE
BUSINESS
– 224 –
Historical
non-compliance
Reasons for
non-compliance
The maximum amount of late charges
which may potentially be imposed on
our Group as a result of
non-compliance with the requirements
of social insurance contributions is
estimated to be RMB41,000,
RMB71,000 and RMB125,000 for the
three years ended 31 December 2012,
2013 and 2014, respectively.
For the three years ended 31
December 2012, 2013 and 2014, the
total outstanding amount payable by
us in relation to social welfare
schemes was RMB318,000,
RMB420,000 and RMB733,000,
respectively. We believe that such
amount of social welfare scheme
contribution will not have material
adverse impacts on our Group’s
business and operations.
Based on the above reasons, our
PRC legal adviser is of the view
that as corresponding provision has
been made, such non-compliance
will not materially adversely affect
Nevertheless, in the event that we
receive requests from the relevant
authorities, we intend to
immediately pay the difference in
social welfare scheme funds
accordingly.
We had strengthened our internal
control in relation to social
insurance and housing provident
funds, including formalising the
procedures for preparing,
reviewing and making payment of
social insurance and housing
provident funds and designating
the human resources manager to be
responsible for complying with the
relevant registration requirements.
Enhanced internal
control measures
BUSINESS
– 225 –
(2) As at the
Latest
Practicable
Date, some of
our PRC
subsidiaries
did not register
with the
relevant
housing
provident fund
authority and
make housing
provident fund
contributions
for all the
employees of
such PRC
subsidiaries. In
addition, two
of our PRC
subsidiaries
had not been
making
contributions
in full to
housing fund
to our
employees.
Historical
non-compliance
The
non-compliance is
mainly caused by
(i) our local
management at the
relevant time being
not familiar with
the relevant
regulatory
requirements; (ii)
different levels of
acceptance of the
housing provident
fund by our
employees; (iii)
and inconsistent
implementation or
interpretation by
local authorities in
the PRC of the
relevant
regulations.
Reasons for
non-compliance
According to the Regulation on the
Administration of Housing Provident
Fund (住房公積金管理條例), the
relevant housing provident fund
authorities may order our relevant PRC
subsidiaries to register and establish an
account for housing providence fund for
its employees within a prescribed time
period. If our PRC subsidiaries fail to do
so, a fine in the range of RMB10,000 to
RMB50,000 will be imposed. The
authorities may also order our relevant
PRC subsidiaries to pay the outstanding
amounts of the housing provident fund
within the prescribed time period. If our
PRC subsidiaries fail to do so, the
authorities may apply to the relevant
PRC court for the enforcement of the
unpaid amounts. Other than the
outstanding amounts of the housing
provident fund, there are no additional
late charges as provided in the
Regulation on the Administration of
Housing Provident Fund (住房公積金管
理條例).
Furthermore, as at the Latest
Practicable Date, we had not received
any notification from the relevant
PRC authorities alleging that we had
not fully contributed to the housing
provident fund and demanding
payment of the same before a
stipulated deadline. We were also not
aware of any employee’s complaints
or demands for payment of housing
fund contributions, nor had we
received any legal documentation
from the labour arbitration tribunals
or the PRC courts regarding disputes
of housing fund contributions.
We are advised by our PRC legal
adviser that the relevant local housing
provident fund contribution
authorities from which we have
obtained the confirmations are
competent to give such confirmations
and it is unlikely that such
confirmations will be challenged or
revoked by higher level authorities.
We have obtained the confirmations
from the relevant local housing
provident fund authorities for all of
our subsidiaries that no administrative
penalty has been imposed.
As an annual compliance measure
following the Listing, we will
continue to communicate with our
employees with regard to the housing
provident fund schemes and
contribute to the housing provident
fund schemes for our employees in
line with the standards stipulated
under the applicable PRC laws and
regulations or the standards set by the
housing provident fund schemes
authorities. We will make relevant
disclosure in the annual reports after
the Listing. Furthermore, in the event
that the local authorities require us to
pay the difference in housing
provident fund contribution, our
Controlling Shareholders have also
provided an indemnity against all
claims, actions, demands,
proceedings, judgments, losses,
liabilities, damages, costs, charges,
fees, expenses and fines suffered or
incurred by us due to our
non-compliance with the housing
provident fund contribution
regulations.
Enhanced internal
control measures
BUSINESS
– 226 –
Historical
non-compliance
Reasons for
non-compliance
For the three years ended 31
December 2012, 2013 and 2014, the
total outstanding amount of housing
provident fund payable by us was
RMB467,000, RMB646,000 and
RMB706,000, respectively. We believe
that the outstanding housing provident
fund contribution will not have
material adverse impacts on our
Group’s business and operations.
Based on the above reasons, our
PRC legal adviser is of the view
that as corresponding provision has
been made, such non-compliance
will not materially adversely affect
Nevertheless, in the event that we
receive requests from the relevant
authorities, we intend to
immediately pay the outstanding
housing provident funds
accordingly.
We had strengthened our internal
control in relation to social
insurance and housing provident
funds, including formalising the
procedures for preparing,
reviewing and making payment of
social insurance and housing
provident funds and designating
the human resources manager to be
responsible for complying with the
relevant registration requirements.
Enhanced internal
control measures
BUSINESS
– 227 –
BUSINESS
For the non-compliance incidents in connection with our properties with defective titles during the
Track Record Period and our corresponding reasons for non-compliance, legal consequences,
rectification taken or to be taken and enhanced internal control measures, please refer to the section
headed “Business – Properties” in this section of this prospectus.
Mr. Zheng Songhui, our chairman, chief executive officer and executive Director, is responsible for
actions taken or to be taken to implement the enhanced internal control measures in response to our
non-compliance incidents during the Track Record Period, and to monitor and ensure our future
compliance with the relevant laws and regulations.
Having considered the facts and circumstances leading to the non-compliance incidents disclosed
herein, the advices given by our PRC legal adviser, the relevant rectification and on-going compliance
measures mentioned above, our Directors are of the view that our Group has adequate internal control
procedures in place and that these past non-compliance incidents do not affect the suitability of our
Directors to act as directors of a listed issuer under Rules 3.08 and 3.09 of the Listing Rules, and the
suitability for listing of our Company under Rule 8.04 of the Listing Rules. The Sole Sponsor concurred
with such view of our Directors on the same basis as described above.
LEGAL PROCEEDINGS
We may from time to time be involved in disputes or legal proceedings arising from the ordinary
course of our business. As at the Latest Practicable Date, there were no litigation or arbitration
proceedings pending or threatened against us or any of our Directors which could have a material adverse
effect on our business, financial condition or results of operations.
– 228 –
DIRECTORS AND SENIOR MANAGEMENT
BOARD OF DIRECTORS
The Board currently consists of seven Directors comprising three executive Directors, one
non-executive Director and three independent non-executive Directors. The functions and duties of the
Board include, but are not limited to, convening the general meetings, reporting on the performance of the
Board at the general meeting, implementing the resolutions passed at the general meetings, formulating
business plans and investment plans, preparing the annual budget and final accounts, preparing proposals
on profit distribution and increasing or decreasing the registered capital, as well as performing the other
authorities, functions and responsibilities in accordance with the Articles of Association.
The following table sets forth the information regarding the members of the Board:
Directors
Name
Age
Zheng
Songhui
(鄭松輝)
51
Position
Chairman, Chief
Executive Officer
and Executive
Director
Roles and
Responsibilities
Chairman of
nomination
committee and
member of
remuneration
committee
Date of
Date of
Joining Appointment
Our Group as Director
Relationship
with other
Directors and
senior
management
November
1995
28 March
2011
None
November
1995
4 February None
2013
Responsible for
the overall
operations and
development
strategy and
overseeing internal
control of
our Group
Zheng
Tianming
(鄭天明)
45
Executive Director
Responsible for
the production
and operations of
our Group
– 229 –
Position
Roles and
Responsibilities
Date of
Date of
Joining Appointment
Relationship
with other
Directors and
senior
management
Name
Age
Zheng Ruyan
(鄭如燕)
40
Executive Director,
Responsible for
Vice President,
management of
Chief Financial
finance and legal
Officer and Joint
affairs and
Company Secretary
investors’
relationship of
our Group
February
2012
4 February None
2013
Zhang Lin
(張琳)
45
Non-executive
Director
Responsible for
overseeing
the overall
management and
strategic planning
of our Group
February
2013
4 February None
2013
Mak Hing
Keung,
Thomas
(麥興強)
52
Independent
Non-executive
Director
Chairman of audit
committee and
member of
remuneration
committee
May
2015
27 May
2015
None
May
2015
27 May
2015
None
Responsible for
supervising and
providing
independent
judgement to
the Board
Lou Robert
Hsiu-sung
(樓秀嵩)
41
Independent
Non-executive
Director
Member of audit
committee and
nomination
committee
Responsible for
supervising and
providing
independent
judgement to
the Board
– 230 –
Name
Age
Cheng
Hiu Yung
(鄭曉勇)
37
Position
Independent
Non-executive
Director
Roles and
Responsibilities
Chairman of
remuneration
committee and
member of audit
committee and
nomination
committee
Date of
Date of
Joining Appointment
May
2015
27 May
2015
Relationship
with other
Directors and
senior
management
None
Responsible for
supervising and
providing
independent
judgement to
the Board
DIRECTORS
Executive Directors
Mr. Zheng Songhui (鄭松輝), aged 51, is the founder of our Group. Mr. Zheng is the chairman of
our Board, the chief executive officer of our Group and an executive Director. Mr. Zheng was appointed
as a Director on 28 March 2011. Mr. Zheng also currently holds directorship in each of the subsidiaries of
the Company. Mr. Zheng is the chairman of the nomination committee and a member of the remuneration
committee of the Company. Mr. Zheng is in charge of the overall operations and development strategy and
overseeing internal control of our Group. Mr. Zheng founded our Group in November 1995 when he
established our first operating subsidiary, Fujian Greenfresh Foods. Mr. Zheng has around 20 years of
experience in fresh and processed food industry and was recognised as an intermediate engineer of food
processing by the Office of Human Resources Development of Fujian Province (福建省人力資源開發辦
公室) and the Public Servant Bureau of Fujian Province (福建省公務員局) in July 2011. Mr. Zheng
graduated with a bachelor degree in earth study from Fujian Agriculture and Forestry University (福建農
林大學) (formerly known as Fujian Agriculture Institute (福建農學院)) in July 1984. Mr. Zheng was
admitted to a program of executive master of business administration at Xiamen University in July 2007.
Mr. Zheng Songhui was elected as the vice chairperson of Industrial Sub-committee of China Edible
Fungi Association (中國食用菌協會工廠化專業委員會) in 2013. Moreover, Mr. Zheng Songhui was
awarded Outstand Talent (優秀人才) by the government of Zhangzhou (漳州市人民政府) in 2012,
Outstanding Entrepreneur in the PRC (中國傑出企業家) by China Economy And Trade Promotion
Association (中國經濟貿易促進會) in January 2011, China Outstanding Innovation Entrepreneur (中國
優秀創新企業家) jointly by China Private Entrepreneur Association (中國民營企業家協會) and China
Academy of Science Information Consulting Center (中國科學院信息咨詢中心) in August 2010 and
Asia Top 10 Innovation Personality (亞洲品牌十大創新人物) by Asia Brand Ceremony (亞洲品牌盛典)
in September 2009. In October 2014, Mr. Zheng Songhui was appointed as the leading talent of
technology entrepreneurship of Fujian province (福建省科技創業領軍人才) by the talent working
committee of Fujian Provincial Committee of Communist Party of the PRC (中共福建省委人才工組領導
小組).
– 231 –
Mr. Zheng Tianming (鄭天明), aged 45, is an executive Director of the Company. Mr. Zheng was
appointed as a Director on 4 February 2013. Mr. Zheng has joined our Group since our inception in
November 1995 and has since then been assisting Mr. Zheng Songhui in the development of our Group by
taking an active part in the production and operation of our Group. Mr. Zheng graduated from the Open
University of China (中央廣播電視大學) in July 2013 with a certificate in Business Administration
(majoring in sales and marketing).
Ms. Zheng Ruyan (鄭如燕), aged 40, is an executive Director and the vice president, chief financial
officer and joint company secretary of our Group. Ms. Zheng is also the chief financial officer, joint
company secretary and vice president of the Company. Ms. Zheng was appointed as a Director on 4
February 2013. Ms. Zheng is responsible for our Group’s management of finance and legal affairs and
investors’ relation. Ms. Zheng obtained a master degree in accounting from Xiamen University (廈門大
學) in December 2011. She obtained the certificate of Certified Internal Auditor issued by China Institute
of Internal Auditors (中國內部審計師協會) in November 2004. Ms. Zheng has over 19 years of
experience in auditing, accounting consultancy and financial management. From December 1995 to
November 2006, she was responsible for the internal auditing management of the internal units of
Huadian Fujian Power Generation Company Limited (now known as Huadian Fuxin Energy Corporation
Limited (a company listed on the Stock Exchange: stock code 816)). From December 2006 to December
2011, Ms. Zheng had been the vice president of Changfeng Axle (China) Company Limited (a company
listed on the Stock Exchange: stock code 1039) responsible for financial management, corporate
management, human resources administration and management.
Non-executive Director
Ms. Zhang Lin (張琳), aged 45, is a non-executive Director. Ms. Zhang was appointed as a Director
on 4 February 2013 pursuant to the nomination rights granted to COFCO Fund under the COFCO
Subscription Agreement and the COFCO Shareholders’ Agreement, details of which are set out in the
section headed “History and Corporate Structure – Pre-IPO Investments – Investments of COFCO Fund”
of this prospectus. Upon Listing, Ms. Zhang will be subject to re-election procedures as provided in the
Articles of Association (and subject to the requirements of the Listing Rules) at the annual general
meeting of our Company. Ms. Zhang is currently the assistant of general manager of financial business
department general management department of China National Cereals, Oils and Foodstuffs Corporation
(“COFCO”) and the secretary of the board and the general legal counsel of COFCO Agricultural
Industrial Investment Fund Management Co., Ltd.. She has been working in COFCO and its affiliated
companies for more than 20 years since April 1994. Ms. Zhang graduated from Shanghai Maritime
University (上海海事大學) with a bachelor degree and a master degree, both of international economics
law, in July 1991 and April 1994 respectively.
Independent Non-executive Directors
Mr. Mak Hing Keung, Thomas (麥興強), aged 52, is an independent non-executive Director
appointed on 27 May 2015. Mr. Mak obtained a bachelor degree of commerce from Queen’s University,
Canada in May 1989. Mr. Mak is a member of the Canadian Institute of Chartered Accountants and a
fellow member of the Hong Kong Institute of Certified Public Accountants. Mr. Mak is currently the chief
operations officer of HF Financial Group Limited, an executive director of Millennium Pacific Group
Holdings Limited (stock code: 8147) and an independent non-executive director of Harmony Asset
Limited (stock code: 428). Mr. Mak was the chief financial officer and the company secretary of Heritage
International Holdings Limited (stock code: 412) from October 2014 to May 2015. Mr. Mak has been an
independent non-executive director of Tao Heung Holdings Limited (stock code: 573) since June
– 232 –
2007. Mr. Mak has extensive experience and expertise in accounting and financial management. From
May 2010 to April 2014, Mr. Mak worked as the chief financial officer of South China Media Group.
From October 2007 to April 2010, Mr. Mak worked as the chief financial officer of Redgate Media (Hong
Kong) Limited, a wholly owned subsidiary of Redgate Media Group. From February 2006 to October
2007, Mr. Mak worked as the chief financial officer of Minmetals Resources Limited (stock code: 1208).
From June 2001 to January 2006, Mr. Mak worked as the chief financial officer of RoadShow Holdings
Limited (stock code: 0888). From June 2000 to June 2001, Mr. Mak worked as senior manager in
corporate finance department in Vickers Ballas. From October 1997 to May 2000, Mr. Mak worked as a
manager in the listing division of Stock Exchange. Mr. Mak had also worked in Ernst & Young for about
7 years.
Mr. Lou Robert Hsiu-sung (樓秀嵩), aged 41, is an independent non-executive Director appointed
by our Company on 27 May 2015. Mr. Lou is qualified as a solicitor in Hong Kong in December 2002 and
has over 12 years of experience in legal field. Mr. Lou is the chief legal officer of TransAsia Airways
Corporation (復興航空運輸股份有限公司) since December 2013. From August 2012 to November 2013,
Mr. Lou was the legal manager of Acer Incorporated (宏碁股份有限公司). Mr. Lou obtained a bachelor
degree in foreign languages and literature in National Taiwan University (台灣大學) in June 1995 and a
bachelor of arts in jun’s prudence in Oxford University in August 2000. Mr. Lou obtained a Postgraduate
Certificate in Laws in the City University of Hong Kong in July 2000 and a master of laws (LLM) with the
Northwest University (西北大學) in June 2004. Mr. Lou is a member of the audit committee and
nomination committee of our Company.
Mr. Cheng Hiu Yung (鄭曉勇), aged 37, is an independent non-executive Director appointed by our
Company on 27 May 2015. Mr. Cheng is currently a production manager of Hong Kong Rainigrace
Agricultural Science Group Holding Company Limited (香港澤雨農科集團控股有限公司) which he has
joined since November 2014. He worked as production manager in Epicurean and Company (Hong Kong)
Limited from April 2013 to October 2014, production manager of City Super Limited from September
2009 to March 2013, assistant production manager in Original Taste Workshop Ltd (原味家作有限公司)
from February 2007 to June 2009. From April 2004 to November 2006, Mr. Cheng worked in the Hung
Fook Tong (China) Development Limited, which was a subsidiary company of Hung Fook Tong Holdings
Ltd (鴻福堂集團). Mr. Cheng has over 10 years of experience in food testing and quality control industry.
Mr. Cheng obtained a bachelor degree of science majoring in applied chemistry from Hong Kong Baptist
University in December 2000. Mr. Cheng obtained basic food hygiene certificate for hygiene managers
by School of Continuing and Professional Education, City University of Hong Kong in October 2008, and
was awarded “level 2 award in food safety in catering” by Chartered Institute of Environmental Health in
September 2008. Mr. Cheng completed food safety management systems auditor – lead auditor training
course in April 2008. Mr. Cheng is the chairman of the remuneration committee and a member of the audit
committee and nomination committee of our Company.
Please refer to the subsection headed “Statutory and General Information – C. Further Information
about Our Directors and Substantial Shareholders” in Appendix V to this prospectus for details of our
Directors’ interests in our Shares (within the meaning of Part XV of the SFO), particulars of our
Directors’ service contracts and Directors’ remuneration.
There is no family relationship between each of the Directors. Save as disclosed in this prospectus,
each of our Directors has confirmed that there are no other matters relating to his/her appointment as a
Director that need to be brought to the attention of our Shareholders and there is no other information in
relation to his/her appointment which is required to be disclosed pursuant to Rule 13.51(2) of the Listing
Rules.
– 233 –
SENIOR MANAGEMENT
Mr. Chen Wei (陳偉), aged 49, is the vice president of our Company. Mr. Chen joined our Group in
January 2006 and is responsible for our Group’s research and development, production and operations.
Mr. Chen has around 19 years of experience in food processing industry. Before joining our Group, Mr.
Chen was the deputy general manager of Fujian Zhangzhou Gangchang Canned Foods Co., Ltd. (褔建省
漳州巿港昌罐頭食品有限公司) responsible for the management of operation, production and technology
from January 1995 to December 2005. Mr. Chen obtained diploma (專科) in quality management from the
Fujian Economic Management College (福建經濟管理學院) in July 1990 and graduated with a bachelor
degree of economic management from the Open College of the Central Communist Party School (中共中
央黨校函授學院) in December 1996.
JOINT COMPANY SECRETARIES
Ms. Ng Wing Shan (吳詠珊), aged 38, was appointed as the joint company secretary of our
Company on 28 November 2014. Ms. Ng is an assistant vice president of SW Corporate Services Group
Limited and is responsible for assisting listed companies in professional company secretarial work. She
has over 10 years of professional experience in the company secretarial field. Ms. Ng is an associate
member of the Hong Kong Institute of Chartered Secretaries and the Institute of Chartered Secretaries
and Administrators in the United Kingdom.
Ms. Zheng Ruyan (鄭如燕), was appointed as the joint company secretary of our Company on 28
November 2014. Ms. Zheng is also an executive Director and our chief financial officer. For further
details of Ms. Zheng’s biography, please refer to “Directors – Executive Directors” above.
BOARD COMMITTEE
Audit Committee
An audit committee was established by our Company pursuant to a resolution of the Board on 27
May 2015 with written terms of reference in compliance with the Code on Corporate Governance
Practices as set out in Appendix 14 to the Listing Rules. The primary duties of the audit committee are to
review and approve our Group’s financial reporting process and internal control system. The members of
the audit committee are Mr. Mak Hing Keung Thomas, Mr. Cheng Hiu Yung and Mr. Lou Robert
Hsiu-sung, all of whom are independent non-executive Directors. Mr. Mak Hing Keung Thomas is the
chairman of the audit committee.
Remuneration Committee
A remuneration committee was established by our Company pursuant to a resolution of the Board on
27 May 2015 with written terms of reference in compliance with the Code on Corporate Governance
Practices as set out in Appendix 14 to the Listing Rules. The primary duties of the remuneration
committee are to review and determine the terms of remuneration packages, bonuses and other
compensation payable to Directors and senior management of our Group. The members of the
remuneration committee are Mr. Cheng Hiu Yung, Mr. Mak Hing Keung Thomas and Mr. Zheng Songhui.
Mr. Cheng Hiu Yung is the chairman of the remuneration committee.
– 234 –
Nomination Committee
A nomination committee was established by our Company pursuant to a resolution of the Board on
27 May 2015 with written terms of reference. The primary duties of the nomination committee are to
make recommendations to the Board on appointment of Directors and the management of the Board
succession. The members of the nomination committee are Mr. Zheng Songhui, Mr. Cheng Hiu Yung and
Mr. Lou Robert Hsiu-sung. Mr. Zheng Songhui is the chairman of the nomination committee.
CORPORATE GOVERNANCE CODE
Pursuant to code provision A.2.1 of the Corporate Governance Code as set out in Appendix 14 to the
Listing Rules, companies listed on the Stock Exchange are expected to comply with, but may choose to
deviate from the requirement that the responsibilities between the chairman and the chief executive
officer should be segregated and should not be performed by the same individual. We do not have a
separate chairman and chief executive officer and Mr. Zheng Songhui currently performs these two roles
concurrently. Our Board believes that vesting the roles of both the chairman and chief executive officer in
the same person has the benefit of ensuring consistent leadership within our Group for more effective and
efficient overall strategic planning for our Group. Our Board considers that the balance of power and
authority within our Group will not be impaired by the present arrangement and the current structure will
enable our Company to make and implement decisions more promptly and effectively. Our Board will
from time to time review and consider splitting the roles of chairman of our Board and the chief executive
officer of our Company to ensure appropriate and timely arrangements are in place to meet changing
circumstances.
COMPENSATION OF THE DIRECTORS AND SENIOR MANAGEMENT
Our Directors and senior management receive compensation in the form of salaries, benefits in kind
and discretionary bonuses related to the performance of our Company. We also reimburse them for
expenses which are necessarily and reasonably incurred for providing services to us or executing their
functions in relation to our operations.
The compensation paid to our Directors for the three years ended 31 December 2012, 2013 and 2014
(including Mr. Li Yu who was appointed on 4 February 2013 and resigned on 26 November 2014) were
approximately RMB156,000, RMB456,000 and RMB477,000 respectively.
The compensation paid to the five highest paid individuals, excluding our Directors for the three
years ended 31 December 2012, 2013 and 2014 were approximately RMB741,000, RMB644,000 and
RMB807,000 respectively.
No remuneration was paid by our Group to the Directors or the five highest paid individuals as an
inducement to join or upon joining our Group or as a compensation for loss of office during the Track
Record Period.
Under the arrangement currently in force, the aggregate remuneration of our Directors for the year
ending 31 December 2015 is estimated to be approximately RMB762,000.
– 235 –
THE PRE-IPO SHARE OPTION SCHEME AND THE SHARE OPTION SCHEME
We have conditionally adopted the Pre-IPO Share Option Scheme and the Share Option Scheme.
Under the Pre-IPO Share Option Scheme, certain persons were conditionally granted options
immediately prior to the Listing Date to subscribe for Shares. The principal terms of the Pre-IPO Share
Option Scheme and the Share Option Scheme are summarised in the sections headed “Statutory and
General Information – E. Share Option Scheme” and “Statutory and General Information – D. Pre-IPO
Share Option Scheme” in Appendix V to this prospectus.
COMPLIANCE ADVISOR
Pursuant to Rule 3A.19 of the Listing Rules, our Company has appointed Essence Corporate
Finance (Hong Kong) Limited as our compliance adviser. The compliance adviser will advise us on the
following matters pursuant to Rule 3A.23 of the Listing Rules:
(i)
the publication of any regulatory announcement, circular or financial report;
(ii) where a transaction, which might be a notifiable or connected transaction, is contemplated
including share issues and share repurchases;
(iii) where our Company proposes to use the proceeds of the Global Offering in a manner different
from that detailed in this prospectus or where our business activities, developments or results
deviate from any forecast, estimate or other information of this prospectus; and
(iv) where the Stock Exchange makes an inquiry of our Company regarding unusual movements in
the price or trading volume of our Shares the possible development of a false market in its
securities, or any other matters.
The term of this appointment will commence on the Listing Date and is expected to end on the date
on which we comply with Rule 13.45 of the Listing Rules on the distribution of our annual report in
respect of the financial results of the first full financial year commencing after the Listing Date.
– 236 –
RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS
OUR CONTROLLING SHAREHOLDERS
Immediately after completion of the Capitalisation Issue and the Global Offering, Song Rising,
Grand Ample and Absolute Bright will be legally and beneficially interested in an aggregate of
approximately 56.66% of the Shares in issue (assuming the Over-allotment Option is not exercised and
without taking into account any options granted under the Pre-IPO Share Option Scheme and may be
granted under the Share Option Scheme). Song Rising and Grand Ample are directly and wholly owned
by Mr. Zheng Songhui while Absolute Bright is directly and wholly owned by Ms. Zheng Yangyu, the
daughter of Mr. Zheng Songhui. Accordingly, Mr. Zheng Songhui, Song Rising, Grand Ample, Ms. Zheng
Yangyu and Absolute Bright will together be considered as our Controlling Shareholders upon Listing.
Save as disclosed in this prospectus and except for their respective interests in our Company, each of the
Controlling Shareholders confirms that he/she/it does not hold or conduct any business which competes,
or is likely to compete, either directly or indirectly, with our Group’s business upon Listing.
INDEPENDENCE FROM OUR CONTROLLING SHAREHOLDERS
The Directors believe that our Group is capable of carrying on our business independently from the
Controlling Shareholders and/or their respective close associates after the Listing, having taken into
consideration the following factors:
Management independence
Our Company aims at establishing and maintaining a strong and independent Board to oversee our
Group’s business. The Board’s main function includes the approval of the overall business plans and
strategies of our Group, monitoring the implementation of these policies and strategies and the
management of our Company. We have an independent management team which is led by our executive
Directors and a team of senior management with experience and expertise in our business to implement
our policies and strategies.
The Board consists of seven Directors, comprising three executive Directors, one non-executive
Director and three independent non-executive Directors. Other than Mr. Zheng Songhui, who is the sole
director of Grand Ample, none of our other Directors holds any directorship in Song Rising, Grand Ample
or Absolute Bright, being our corporate Controlling Shareholders. Each of the Directors is aware of
his/her fiduciary duties as a Director which require, among other things, that he/she acts for the benefit
and in the best interests of our Company and does not allow any conflict between his/her duties as a
Director and his/her personal interest. In the event that there is a potential conflict of interest arising out
of any transaction to be entered into between our Group and the Directors or their respective close
associates, the interested Director(s) shall abstain from voting at the relevant board meetings of our
Company in respect of such transactions and shall not be counted in the quorum. The provisions of the
Articles also ensure that matters involving a conflict of interests which may arise from time to time will
be managed in line with accepted corporate governance practice.
Our Company has also appointed three independent non-executive Directors to ensure that there is a
strong independent element on the Board and with a view to promote the best interests of our Company
and Shareholders taken as a whole. The independent non-executive Directors have diversified skills and
experience in their respective fields of expertise and the Directors believe that the Board will benefit from
their independent advice.
– 237 –
In light of the above, the Directors are satisfied that they are able to perform their roles in our
Company independently, and the Directors are of the view that our Company is capable of managing its
business independently from the Controlling Shareholders after the Listing.
Operational independence
Our Group has established our own organisational structure comprising individual departments,
each with specific areas of responsibilities. Our Group has independent access to customers and
suppliers. Save as disclosed in the section headed “Connected Transactions” in this prospectus, none of
our Controlling Shareholders and/or their close associates has been our major supplier or customer which
provided any critical services or materials for our operation during the Track Record Period. We have
established a set of internal controls to facilitate the effective operation of our business. Our Group is
therefore able to operate independently from the Controlling Shareholders after the Listing.
Financial independence
We have an independent financial accounting system and make financial decisions according to our
own business needs. All of outstanding balances with the Controlling Shareholders will be settled and all
personal guarantees from our Controlling Shareholders will be released before Listing. We have
sufficient capital to operate our business independently, and have adequate internal resources, including
proceeds from the Global Offering, to support our daily operations. We are therefore financially
independent from our Controlling Shareholders.
Therefore, in view of the above fact, our Group is considered independent in all material aspects
including finance, management and operations of the Controlling Shareholders.
COMPETING BUSINESS
The Controlling Shareholders and our Directors do not have any interest in a business apart from our
Group’s business which competes or is likely to compete, directly or indirectly, with our Group’s
business, and would require disclosure pursuant to Rule 8.10 of the Listing Rules.
DEED OF NON-COMPETITION
For the purpose of the Listing, our Controlling Shareholders have entered into the Deed of
Non-Competition with our Company, pursuant to which each of the Controlling Shareholders has
unconditionally and irrevocably undertaken to our Company (for itself and for the benefits of members of
our Group) that it/he/she would not, and would procure that its/his/her close associates (other than any
members of our Group) would not, directly or indirectly, either on its/his/her own account or in
conjunction with or on behalf of any person, firm or company, among other things, carry on, participate
or be interested or engaged in or acquire or hold (in each case whether as a shareholder, director, partner,
agent, employee, or otherwise, and whether for profit, reward or otherwise) any activity or business
which is or may be in competition, directly or indirectly, with the business carried on or contemplated to
be carried on by any member of our Group from time to time (“Restricted Activity”).
– 238 –
Further, each of our Controlling Shareholders has unconditionally and irrevocably undertaken to our
Company that in the event that it/he/she or its/his/her close associate(s) is given/identifies any
opportunities which directly or indirectly competes, or may lead to competition with the Restricted
Activity, it/he/she will and will procure its/his/her close associate(s) to, as soon as practicable inform our
Group of such opportunity in writing, provide such information as is available to it/him/her in respect of
such opportunity to our Group, refer such opportunity to our Group, and use all reasonable endeavours to
procure the person who communicated the opportunity to the Controlling Shareholders or their respective
close associates to contact our Group directly regarding the opportunity upon becoming aware of it, and
that it/he/she could engage in the Restricted Activity only upon the Company, after consideration by (i)
all the independent non-executive Directors (where the case requires, by referring to the independent
advice or opinion given by the independent financial advisor); and (ii) the Board (provided that the
Directors attending or voting on the relevant meeting shall not have any interest in the Restricted Activity
or the opportunity connected thereto), resolving not to carry out or otherwise engage in the Restricted
Activity.
Each of our Controlling Shareholders has represented and warranted that, as at the date of the Deed
of Non-Competition, neither it/he/she nor any of its/his/her close associates was interested, involved or
engaged, directly or indirectly, in (whether as a shareholder, partner, agent or otherwise and whether for
profit, reward or otherwise) the Restricted Activity otherwise than through our Group or was otherwise
engaged in any business which is in competition or potential competition to those of our Group.
Each of the Controlling Shareholders has also undertaken to our Company the following:
(a)
to provide all information requested by our Company which is necessary for the annual review
by our independent non-executive Directors of its/his/her compliance with the terms of the
Deed of Non-Competition and the enforcement of the Deed of Non-Competition;
(b)
to procure our Company to disclose decisions on matters reviewed by our independent
non-executive Directors relating to the compliance and enforcement of its/his/her
non-competition undertakings under the Deed of Non-Competition either through our annual
report, or by way of announcements to the public; and
(c)
to make an annual declaration on compliance with his/her/its undertaking under the Deed of
Non-Competition in the annual reports of our Company as the independent non-executive
Directors think fit and ensure that the disclosure of details of its/his/her compliance with and
the enforcement of the non-competition undertakings under the Deed of Non-Competition is
consistent with the relevant requirements under the Listing Rules.
The Deed of Non-Competition does not apply to:
(a)
the holding of or interests in the shares of any member of our Group; or
(b)
the holding of or interests in shares or other securities in any company other than our Group
which conducts or is engaged in any Restricted Activity, provided that, in the case of such
shares, they are listed on a recognised stock exchange and either:
(i)
the relevant Restricted Activity (and assets relating thereto) accounts for less than 5% of
that relevant company’s consolidated turnover or consolidated assets, as shown in that
company’s latest audited accounts; or
– 239 –
(ii) the total number of the shares held by our Controlling Shareholders and/or their
respective close associates or in which they are together interested does not amount to
more than 5% of the issued shares of that class of the company in question, provided that
our Controlling Shareholders and/or their respective close associates, whether acting
singly or jointly, are not entitled to appoint a majority of the directors of that company or
otherwise participate in or be involved in the management of that company and that at all
times there should exist at least another shareholder of that company (together, where
appropriate, with its close associates) whose shareholdings in that company should be
more than the total number of shares held by our Controlling Shareholders and/or their
respective close associates together hold.
The obligation of our Controlling Shareholders under the Deed of Non-Competition will cease to
have any effect whatsoever on:
(a)
the date on which our Shares cease to be listed on the Stock Exchange; or
(b)
in respect of a Controlling Shareholder, the date on which that Controlling Shareholder and/or
its/his/her close associates, jointly and severally, ceases to be entitled to exercise or control the
exercise of not less than 30% in aggregate of the voting power at general meetings of our
Company,
whichever occurs first.
CORPORATE GOVERNANCE MEASURES
Our Company will further adopt the following measures to manage the conflict of interest arising
from the possible competing business of our Controlling Shareholders and to safeguard the interests of
our independent Shareholders:
(i)
in preparation for the Listing, our Company has amended our Articles to comply with the
Listing Rules. In particular, our Articles provide that, except for certain exceptions permitted
under the Listing Rules or the Stock Exchange, a Director shall not vote on any board
resolution approving any contract in relation to which he has a material interest, nor shall such
Director be counted in the quorum present at the meeting;
(ii) we have appointed Essence Corporate Finance (Hong Kong) Limited as our compliance
adviser, which will provide advice and guidance to us with respect to compliance with the
applicable laws and the Listing Rules, including but not limited to various requirements
relating to Directors’ duties and internal controls;
(iii) our independent non-executive Directors will review, at least on an annual basis, the
compliance with the Deed of Non-Competition by our Controlling Shareholders;
– 240 –
(iv) each of our Controlling Shareholders has undertaken to provide all information necessary for
the annual review by our independent non-executive Directors of its/his/her compliance with
the terms of the Deed of Non-Competition and the enforcement of the Deed of
Non-Competition;
(v)
we will disclose decisions on matters reviewed by our independent non-executive Directors
relating to compliance and enforcement of the Deed of Non-Competition either through our
annual report, or by way of announcements to the public;
(vi) each of our Controlling Shareholders will make an annual declaration of compliance with the
Deed of Non-Competition in the annual reports of our Company;
(vii) the management structure of our Group includes an audit committee, a remuneration
committee, and a nomination committee, the terms of reference of each of which will require
them to be alert to prospective conflict of interest and to formulate their proposals accordingly;
and
(viii) pursuant to the Corporate Governance Code in Appendix 14 of the Listing Rules, our Directors,
including our independent non-executive Directors, will be able to seek independent
professional advice from external parties in appropriate circumstances at our Company’s costs.
Our Directors consider that the above corporate governance measure are sufficient to manage any
potential conflict of interests between our Controlling Shareholders and their respective close associates
and our Group and to protect the interests of our Shareholders, in particular, our minority Shareholders.
– 241 –
CONNECTED TRANSACTIONS
CONTINUING CONNECTED TRANSACTIONS WHICH ARE EXEMPTED FROM THE
REPORTING, ANNOUNCEMENT AND INDEPENDENT SHAREHOLDERS’ APPROVAL
REQUIREMENTS
Ms. Zheng Ying, is daughter of Mr. Zheng Songhui, our chairman, chief executive officer, executive
Director and one of our Controlling Shareholders. Therefore, Ms. Zheng Ying will become our connected
person upon the Listing by virtue of Rule 14A.07(4) of the Listing Rules.
On 18 November 2014, we entered into the following lease agreements (the “Lease Agreements”)
with Ms. Zheng Ying with respect to the land and properties (the “Properties”) located at Longhai
Yancuo Town Qiaoshan Village Jin Pu (龍海巿顏厝鎮巧山村錦浦):
Lease Agreements
Lessor
Lessee
Term
Annual Rental
Description of Leased
Properties
Property A Lease
Agreement
Ms. Zheng Ying
Zhangzhou
Greenfresh
Commencing from
18 November
2014 and expiring
on 17 November
2017
RMB22,824
payable in arrear
annually
Land parcel of site
area of 5,282 sq.m.
(“Property A”)
Property B Lease
Agreement
Ms. Zheng Ying
Fujian Greenfresh
Foods
Commencing from
18 November
2014 and expiring
on 17 November
2017
RMB100,452
payable in arrear
annually
Buildings of total
gross floor area of
1,287.88 sq.m. used
for production base,
warehouse and
office purpose
(“Property B”)
Property C Lease
Agreement
Ms. Zheng Ying
Fujian Greenfresh
Foods
Commencing from
18 November
2014 and expiring
on 17 November
2017
RMB163,680
payable in arrear
annually
Buildings of total
gross floor area of
1,363.98 sq.m. used
for office purpose
(“Property C”)
We are entitled to terminate each of the Lease Agreements by giving a 30-day prior notice. Upon its
expiration, we will have the priority in leasing the Properties under each of the Lease Agreements from
Ms. Zheng Ying upon negotiation of the rentals and signing of the renewed lease agreements.
The Properties were originally leased by us from Fujian Minhui Packaging Group Company Limited
(福建閩輝包裝集團有限公司) (“Minhui Packaging”), an Independent Third Party. Our lease
agreements with Minhui Packaging were terminated upon Ms. Zheng Ying acquired the Properties from
Minhui Packaging in November 2014.
Our Directors confirm that the terms of the Lease Agreements are on normal commercial terms and
are determined by our Group and Ms. Zheng Ying on arm’s length basis with reference to and the
historical annual rentals paid to Minhui Packaging for leasing of the Properties.
– 242 –
Historical figures
Set out below is a summary of the historical figures during the Track Record Period of the rentals
paid by us for leasing of the Properties:
For the year ended 31 December
Properties
2012
2013
2014
Property A . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property B . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property C . . . . . . . . . . . . . . . . . . . . . . . . . . . .
RMB22,824
RMB100,452
RMB163,680
RMB22,824
RMB100,452
RMB163,680
RMB22,824
RMB100,452
RMB163,680
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
RMB286,956
RMB286,956
RMB286,956
Listing Rules implications
In view of the fact that Ms. Zheng Ying is a connected person of our Company, the transactions
under the Lease Agreements constitute continuing connected transactions of our Company (“Lease
Transactions”) under Chapter 14A of the Listing Rules. Pursuant to Rule 14A.81 of the Listing Rules,
the considerations payable under each of the Lease Agreements are considered on an aggregate basis for
the purpose of classification of the continuing connected transactions.
For each of the three years ending 31 December 2015, 2016 and 2017, the annual rental payable by
our Group in respect of the Properties will be as follows:
For the year ending 31 December
Lease Agreements
2015
2016
2017
Property A Lease Agreement . . . . . . . . . . . . . . .
Property B Lease Agreement . . . . . . . . . . . . . . .
Property C Lease Agreement . . . . . . . . . . . . . . .
RMB22,824
RMB100,452
RMB163,680
RMB22,824
RMB100,452
RMB163,680
RMB22,824
RMB100,452
RMB163,680
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
RMB286,956
RMB286,956
RMB286,956
Based on the above annual cap for each of the three years ending 31 December 2015, 2016 and 2017,
each of the applicable percentage ratios under the Listing Rules will be less than 5.0% and less than
HK$3,000,000. Given that each of the Lease Agreements is on normal commercial terms, according to
Rule 14A.76(1)(c) of the Listing Rules, the Lease Transactions will be exempt from the reporting,
announcement and the independent shareholders’ approval requirements under the Listing Rules.
– 243 –
Confirmation from our Directors
Our Directors (including our independent non-executive Directors) confirm that (i) the Lease
Transactions have been and are entered into in the ordinary and usual course of business and on normal
commercial terms that are fair and reasonable to our Group and in the interests of our Shareholders and
our Group as a whole; and (ii) the proposed annual cap amount set out above are fair and reasonable and
in the interests of our Shareholders taken as a whole.
RELATED PARTY TRANSACTIONS
Our Group had certain transactions with our related parties during the Track Record Period. For
further information, please refer to the sections headed “Financial Information – Related Party
Transactions” and note 38 to the Accountants’ Report in Appendix I to this prospectus.
– 244 –
SUBSTANTIAL SHAREHOLDERS
So far as our Directors are aware, immediately following completion of the Global Offering and the
Capitalisation Issue (without taking into account any Shares which may be issued under the
Over-allotment Option or the exercise of any options which are granted under the Pre-IPO Share Option
Scheme and may be granted under the Share Option Scheme), the following persons will have or be
deemed or taken to have beneficial interests and/or short position in the Shares or the underlying Shares
which would be required to be disclosed to our Company under the provisions of Divisions 2 and 3 of Part
XV of the SFO or be directly or indirectly interested in 10% or more of the nominal value of any class of
share capital carrying rights to vote in all circumstances at general meetings of any of our Group:
Number of
Shares
held/interested
as at
22 December
2014(5)
Percentage of
shareholding
as at
22 December
2014(5)
Approximate
Number of
percentage of
Shares
interest in
held/Interested
our Company
immediately after immediately after
the Global
the Global
Offering and
Offering and
the Capitalisation the Capitalisation
Issue
Issue
Name
Nature of interest
Song Rising(1)(4)
Beneficial owner
3,825,000
66.55%
249,547,661 (L)(2)
49.91%
Grand Ample(1)(4)
Beneficial owner
342,500
5.95%
22,345,117 (L)(2)
4.47%
Mr. Zheng Songhui(1)(4)
Interest in
controlled
corporation
4,167,500
72.50%
271,892,778 (L)(2)
54.38%
Absolute Bright(3)(4)
Beneficial owner
175,000
3.04%
11,417,213 (L)(2)
2.28%
Ms. Zheng Yangyu(3)(4)
Interest in
controlled
corporation
175,000
3.04%
11,417,213 (L)(2)
2.28%
Notes:
(1)
Song Rising is directly and wholly owned by Mr. Zheng Songhui, who is therefore deemed to be interested in all the
shares of the Company held by Song Rising. Mr. Zheng Songhui also directly wholly owns Grand Ample, which is
legal and beneficial owner of 342,500 Shares (or approximately 5.95% of issued share capital of our Company) as at
22 December 2014, being the date of filing of the application proof of the prospectus, or 22,345,117 Shares (or
approximately 4.47% of the issued share capital of our Company) after the Global Offering and the Capitalisation
Issue. Mr. Zheng Songhui is therefore also deemed to be interested in all the Shares held by Grand Ample.
(2)
The letter “L” denotes the person’s long position in the Shares.
(3)
Absolute Bright is directly and wholly owned by Ms. Zheng Yangyu, who is therefore deemed to be interested in all the
shares of the Company held by Absolute Bright.
(4)
Mr. Zheng Songhui, Song Rising, Grand Ample, Ms. Zheng Yangyu and Absolute Bright are directly or indirectly
interested in 10% or more of the share capital of the Company and are taken as a group of connected persons of the
Company and Substantial Shareholders.
(5)
The date of filing of the application proof of the prospectus.
– 245 –
SUBSTANTIAL SHAREHOLDERS
Save as disclosed above, our Directors are not aware of any other person who will, immediately
following the completion of the Global Offering and the Capitalisation Issue (without taking into account
any Shares that may be issued under the Over-allotment Option or the exercise of any options which are
granted under the Pre-IPO Share Option Scheme and may be granted under the Share Option Scheme),
have beneficial interests or short positions in any of our Shares or underlying Shares, which would be
required to be disclosed to us under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who is,
directly or indirectly interested in 10% or more of the nominal value of any class of share capital carrying
rights to vote in the circumstances at general meetings of any member of our Group. Our Directors are not
aware of any arrangement which may at a subsequent date result in a change of control of our Company.
– 246 –
SHARE CAPITAL
AUTHORISED AND ISSUED SHARE CAPITAL
The authorised and issued share capital of our Company is as follows:
Number of Shares comprised in the authorised share capital
US$
2,000,000,000
Shares
20,000,000
Assuming that the Over-allotment Option is not exercised, the share capital of our Company
immediately following the Global Offering and the Capitalisation Issue will be as follows:
US$
5,747,900
125,000,000
369,252,100
Shares in issue as at the date of this prospectus
Shares to be issued under the Global Offering
Shares to be issued under the Capitalisation Issue
57,479
1,250,000
3,692,521
500,000,000
Shares
5,000,000
Assuming that the Over-allotment Option is exercised, the share capital of our Company
immediately following the Global Offering and the Capitalisation Issue will be as follows:
US$
5,747,900
125,000,000
369,252,100
22,500,000
522,500,000
Shares in issue as at the date of this prospectus
Shares to be issued under the Global Offering
Shares to be issued under the Capitalisation Issue
Shares to be issued upon exercise of
the Over-allotment Option in full
57,479
1,250,000
3,692,521
Shares
5,225,000
225,000
ASSUMPTIONS
The above table assumes that the Global Offering has become unconditional and the Shares are
issued pursuant to the Global Offering. It takes no account of any Shares, which may be allotted and
issued pursuant to the exercise of the options which are granted under the Pre-IPO Share Option Scheme
and may be granted under the Share Option Scheme or which may be allotted and issued or repurchased
by our Company under the general mandates of any Shares referred to below.
– 247 –
SHARE CAPITAL
RANKING
The Offer Shares will rank pari passu with all Shares in issue or to be issued as mentioned in this
prospectus and will qualify for all dividends or other distributions declared, made or paid after the date of
this prospectus save for the entitlement under the Capitalisation Issue.
THE PRE-IPO SHARE OPTION SCHEME AND THE SHARE OPTION SCHEME
We have conditionally adopted the Pre-IPO Share Option Scheme and the Share Option Scheme.
Under the Pre-IPO Share Option Scheme, certain persons were conditionally granted options
immediately prior to the Listing Date to subscribe for Shares. The principal terms of the Pre-IPO Share
Option Scheme and the Share Option Scheme are summarised in the sections headed “Statutory and
General Information – E. Share Option Scheme” and “Statutory and General Information – D. Pre-IPO
Share Option Scheme” in Appendix V to this prospectus.
GENERAL MANDATE TO ISSUE NEW SHARES
Subject to the Global Offering becoming unconditional, the Directors have been granted a general
unconditional mandate to allot or issue and deal with unissued Shares with an aggregate nominal value of
not more than:
(a)
20% of the total nominal amount of Shares in issue immediately following completion of the
Global Offering and the Capitalisation Issue; and
(b)
the total nominal amount of Shares repurchased by our Company pursuant to the mandate
referred to in the paragraph headed “General mandate to repurchase Shares” below.
This mandate will expire:
•
at the conclusion of the next annual general meeting of our Company; or
•
at the expiration of the period within which our Company required by the Articles of
Association or any applicable laws of the Cayman Islands to hold its next annual general
meeting; or
•
when varied or revoked by an ordinary resolution of the Shareholders in general meeting,
whichever is the earliest.
Particulars of this general mandate are set out in the section headed “Statutory and General
Information – A. Further Information about our Company – 3. Written Resolutions of the Shareholders”
in Appendix V to this prospectus.
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SHARE CAPITAL
GENERAL MANDATE TO REPURCHASE SHARES
Subject to the Global Offering becoming unconditional, the Directors have been granted a general
mandate to exercise all the powers of our Company to repurchase Shares with a total nominal value of not
more than 10% of the total nominal amount of the Shares in issue immediately following completion of
the Global Offering and the Capitalisation Issue (excluding Shares that may be allotted and issued
pursuant to exercise of the Over-allotment Option or options granted under the Pre-IPO Share Option
Scheme and may be granted under the Share Option Scheme).
This mandate only relates to repurchases made on the Main Board, or on any other stock exchange
on which the Shares are listed (and which are recognised by the SFC and the Stock Exchange for this
purpose), and which are in accordance with the Listing Rules.
This mandate will expire:
•
at the conclusion of the next annual general meeting of our Company; or
•
at the expiration of the period within which our Company is required by its Articles of
Association or any applicable laws of the Cayman Islands to hold its next annual general
meeting; or
•
when varied or revoked by an ordinary resolution of the Shareholders in general meeting,
whichever is the earliest.
Particulars of this general mandate are set out in the section headed “Statutory and General
Information – A. Further Information about our Company – 3. Written Resolutions of the Shareholders”
in Appendix V to this prospectus.
– 249 –
FINANCIAL INFORMATION
You should read the following discussion and analysis in conjunction with our consolidated
financial information, including the accompanying notes thereto, included in Accountants’ Report set
forth in Appendix I to this prospectus. Our consolidated financial information has been prepared in
accordance with IFRS, which may differ in certain material respects from generally accepted
accounting principles in other jurisdictions. These statements are based on assumptions and analysis
made by us in light of our experience and perception of historical trends, current conditions and
expected future developments, as well as other factors we believe are appropriate under the
circumstances. However, whether actual outcomes and developments will meet our expectations and
predictions depend on a number of risks and uncertainties over which we do not have control. Please
also see the sections headed “Risk Factors” and “Forward-looking Statements” in this prospectus.
OVERVIEW
We are a leading integrated supplier of edible fungi products in the PRC. According to Euromonitor,
we were the largest producer of king trumpet mushroom and the seventh largest producer of button
mushroom in the PRC in terms of production volume in 2013 with a market share of 2.5% and 0.6% in
2013, respectively. Our business operations are vertically integrated, covering the cultivation and sales of
fresh edible fungi produce as well as the manufacturing and sales of various processed edible fungi
products. Such integrated business model distinguishes us from other fresh and processed edible fungi
suppliers in the PRC, most of which are mainly engaged in part or parts of the value chain of cultivation,
processing and sales of edible fungi. We are also a manufacturer of processed food products such as
canned food and other processed food products in the PRC. In addition, we are engaged in canned food
trading business through Greenfresh HK.
and
, which are mainly
Our products are primarily marketed under our core brands
categorised into two major series, namely (i) fresh edible fungi produce consisting of king trumpet
food such as canned edible fungi, canned vegetables, canned fruit, and other processed food products
such as brined mushroom, preserved vegetables, snacks and dried mushroom.
We sell our fresh edible fungi produce primarily to distributors in the PRC, which then on-sell our
fresh edible fungi produce to sub-distributors and retailers. To a lesser extent, we also sell some of our
fresh edible fungi produce directly to processed mushroom manufacturers in the PRC which manufacture
canned edible fungi. We sell our canned food to trading companies in the PRC, which then on-sell our
products to overseas distributors in more than 50 countries and jurisdictions in Europe, North America,
South America, Asia and Africa. We sell our other processed food products to distributors in the PRC,
which then on-sell our products to sub-distributors and processed mushroom manufacturers. To facilitate
our nationwide sales, we have established eight edible fungi cultivation facilities in Fujian province,
Jiangsu province, Liaoning province and Sichuan province and two processed food production facilities
in Fujian province.
We have achieved a solid track record of consistent growth in revenue and net profit. For the three
years ended 31 December 2012, 2013 and 2014, we recorded a total revenue from our continuing
operations of approximately RMB425.4 million, RMB471.5 million and RMB545.7 million, respectively,
while our net profit from our continuing operations for the three years ended 31 December 2012, 2013
and 2014 were approximately RMB91.2 million, RMB147.8 million and RMB175.1 million,
respectively.
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BASIS OF PRESENTATION
Our Company was incorporated in the Cayman Islands with limited liability on 28 March 2011. In
preparation for the Global Offering, we underwent the Reorganisation, as detailed in the section entitled
“History and Corporate Structure”. Following the Reorganisation, our Company became the holding
company of all the companies now comprising our Group. Our financial information has been prepared on
the basis as if our Company had always been the holding company of our Group using the pooling of
interest method.
For more information on the basis of preparation of the financial information included herein,
please see note 2 to the financial information included in Appendix I to this prospectus.
DISCONTINUED OPERATION AND ITS PRESENTATION IN THE CONSOLIDATED
FINANCIAL STATEMENTS
During the Track Record Period, we terminated our trading operation in the PRC through our
disposal of the relevant subsidiary in connection with our Reorganisation, which were accounted for as
our discontinued operation under our consolidated statements of profit or loss and other comprehensive
income according to IFRS 5. See note 15 to the financial information included in Appendix I to this
prospectus for details.
Discontinued Trading Operation
We terminated our discontinued trading operation in the PRC through the disposal of Minhui
Trading in 2012 by Fujian Greenfresh Foods. During the Track Record Period, Minhui Trading had been
one entity of our Group until our disposal of it on 25 June 2012. The financial information of Minhui
Trading was consolidated into our consolidated financial statements during the Track Record Period.
Prior to the Reorganisation commenced in 2011, Fujian Greenfresh Foods held 100% of the equity
interest of Minhui Trading. Minhui Trading was our subsidiary engaged in trading business in the PRC. In
June 2012, Fujian Greenfresh Foods disposed of all equity interest that it held in Minhui Trading. For
details regarding the disposal of our discontinued trading operation, please see the section entitled
“History and Corporate Structure”. As a result, trading operation in the PRC conducted through this
disposed subsidiary became our discontinued trading operation.
Presentation of Discontinued Operation in the Consolidated Financial Statements
Results of discontinued operation were accounted for as a separate line item as “profit for the year
from discontinued operation” in the consolidated statements of profit or loss. Assets and liabilities of
continuing and discontinued operations are presented in the consolidated statements of financial position
on a consolidated basis. Cash flows of continuing and discontinued operations are presented in the
consolidated statements of cash flows on a consolidated basis.
– 251 –
FACTORS AFFECTING OUR RESULTS OF OPERATIONS
Our results of operations are affected by a number of factors, many of which may be beyond our
control, including those factors set forth in the section entitled “Risk Factors” and those set forth below.
Consumer demand for our fresh edible fungi produce in the PRC
Consumer demand for our fresh edible fungi produce in the PRC is one of the key drivers of our
revenue and it depends on the economic growth, urbanisation and rising individual income in the PRC,
changing consumer demand and favorable government policies in the PRC. Improved living standards
and higher disposable incomes have allowed Chinese consumers to increase their food expenditures,
while scientific dietary habits and the concept of balanced nutrition intake took root in their lifestyle
choices. Edible fungi, with their high nutritional value, green sources, freshness, eco-friendly and
pollution-free features, are ideal food ingredients for today’s healthy living. Consumption of major
mushroom species has been growing steadily, while more mushroom-based processed products are
constantly coming on to the market, diversifying the end-products and the consumption of edible fungi.
According to Euromonitor, the PRC edible fungi market in terms of production volume grew by 55.0%
from 20.2 million tonnes in 2009 to 31.3 million tonnes in 2013, and is expected to grow by 41.3% from
34.6 million tonnes in 2014 to 48.9 million tonnes in 2018. The rising demand for edible fungi may
positively affect our results of operations.
Cost of raw materials
Our cost of sales primarily consists of cost of raw materials. The key raw materials required by the
cultivation of our edible fungi are cultivation materials such as strains, bran, dregs of beans, corncob,
sawdust, straw and cow dung. The key raw materials for the production of our processed food products
include fresh produce of vegetables and fruit. For the three years ended 31 December 2012, 2013 and
2014, the costs of raw materials represented 56.9%, 48.8% and 43.7% of our cost of sales, respectively.
The price of raw materials, including packaging materials, are determined principally by market supply
and demand and changes in governmental policies, as well as our bargaining power with our suppliers.
Over the Track Record Period, costs of our major raw materials, such as fresh produce of vegetables and
fruit, cultivation materials and packaging materials experienced fluctuation.
We monitor supply and cost trends of these raw materials and take appropriate actions to obtain the
raw materials we need for production. To manage fluctuation of raw material prices, we have introduced
a number of measures, such as optimisation of cultivation and production procedures and change of
formula of raw materials for cultivation of king trumpet mushroom and button mushroom in order to
reduce the cost of raw materials and to monitor the use of raw materials by leveraging our research and
development capabilities. While these measures can mitigate the effect of rises in the prices of raw
materials on our cost of sales, we expect fluctuations in the cost of raw materials to continue to affect our
profit margins. All of the raw materials we procure are purchased from a number of suppliers to ensure
adequate supply and efficient delivery to our cultivation and production facilities.
– 252 –
Our ability to maintain our competitive advantages that differentiate us from our competitors
We compete on a product by product basis with other large PRC manufacturers of edible fungi. We
also face competition when we expand into other markets, and from new entrants entering into our
existing markets. The edible fungi industry in the PRC is also impacted by various other factors including
economic and market conditions, demographic trends and regulatory developments.
The edible fungi market in the PRC is a fragmented market with a large number of players. While
there were more than 500 industrial producers of king trumpet mushroom in the PRC by the end of 2013,
according to Euromonitor, the top five king trumpet mushroom producers in the PRC, in aggregate,
2013. The market concentration of button mushroom is also quite low mainly due to the massive
independent growers in the PRC. According to Euromonitor, by the end of 2013, there were less than 40
large-scale industrial button mushroom producers in the PRC and the top five of them combined
2013. According to Euromonitor, over the forecast period of 2014 to 2018, market shares of leading
manufacturers producing king trumpet mushroom and button mushroom in the PRC will consolidate
following rising entry barriers in terms of product quality, technology and techniques for fermentation
and sterilisation, large capital expenditures for machinery and facilities and brand awareness from
consumers. The development of small edible fungi manufacturers in the PRC will be impeded by the
increasing level of barriers of entry. We believe, however, that we have a competitive advantage over our
competitors in the edible fungi industry in the PRC through our widely recognised brand of, extensive
distribution network, well-established and scalable cultivation platform, strong research and
development capability, and diverse product offerings.
Distribution network
Our sales volume is and will continue to be affected by the size of our distribution network. We sell
our fresh edible fungi produce primarily to distributors in the PRC, which then on-sell our fresh edible
fungi produce to sub-distributors and retailers. As at 31 December 2012, 2013 and 2014, we had 56, 63
and 56 distributors of our fresh edible fungi produce, respectively. To a lesser extent, we also sell some of
our fresh edible fungi produce directly to processed mushroom manufacturers which manufacture canned
edible fungi in the PRC. As at 31 December 2012, 2013 and 2014, we had sales to 8, 11 and 9 processed
mushroom manufacturers, respectively. We sell our canned food to trading companies in the PRC, which
then on-sell our products to sub-distributors and retailers overseas in more than 50 countries and regions
in Europe, North America, South America, Asia and Africa. As at 31 December 2012, 2013 and 2014, we
had sales to 45, 37 and 47 trading companies, respectively. We sell our other processed food products to
distributors, which then on-sell our products to sub-distributors and processed mushroom manufacturers.
As at 31 December 2012, 2013 and 2014, we had 64, 55 and 22 distributors for our other processed food
products, respectively. Our extensive distribution network allows us to distribute our products at all
levels, from cities and urban centers to counties and towns across the PRC and overseas. Our extensive
nationwide distribution channel is supported by our strong sales and marketing team. As at the Latest
Practicable Date, our sales and marketing department consisted of 26 employees. For the three years
ended 31 December 2012, 2013 and 2014, the increase in our revenue from the sales of our products was
in part due to our expanded distribution network.
– 253 –
Building on our strong presence in our more mature markets in the eastern, southern and north
eastern regions in the PRC, we intend to further expand our distribution network with an aim to increase
the market penetration of our current product offerings and promote our newly introduced products to
these mature markets. For our less mature markets, we intend to continue to support our distributors, in
particular, distributors who have strong track records, to expand their distribution channels in these
markets. For our relatively new markets, we aim to provide more support to our distributors who have
greater potential to strengthen their distribution channels in these markets.
PRC taxation and preferential tax treatment
The profit attributable to our Shareholders is affected by the amount of income tax that we pay and
the level of preferential tax treatments to which we are entitled. The rate of income tax chargeable on our
Group depends on the availability of preferential tax treatments. Termination or revision of preferential
tax treatments that our Group currently enjoys will have a negative impact on the results of operations and
financial condition of our Group.
The rate of income tax chargeable on companies in the PRC may vary depending on the availability
of preferential tax treatments or subsidies based on their industry or location. The current maximum PRC
EIT rate chargeable on companies in the PRC is 25%. As enterprises engaging in primary processing of
agricultural produce, after satisfying the requisite requirements, the relevant taxation authorities have
granted waivers to certain of our PRC subsidiaries, namely Greenfresh Ecological Agriculture,
Greenfresh Biological Technology, Shengtai Agricultural Development and Jingxiang Foods under the
PRC EIT Law, its implementation regulations, and the Notice Issued by Ministry of Finance and State
Administration of Taxation in Relation to the Scope of Corporate Income Tax Preferential Treatment
Policy Applicable to Agricultural Products Which Have Undergone Primary Processing (Trial)《財政部
國家稅務總局關於發佈享受企業所得稅優惠政策的農產品初加工範圍（試行）的通知》waiving its
payment of the PRC EIT during the Track Record Period. If we fail to satisfy the requisite requirements
for entitlement to the waiver of the PRC EIT tax in the future or if there is any change in the existing PRC
policy relating to preferential tax treatments applicable to us, we may no longer be entitled to the
preferential tax treatments currently enjoyed by us. There is no assurance that we will continue to receive
the preferential tax treatments currently enjoyed by us in the future. Any loss or substantial reduction of
the tax benefits enjoyed by us would adversely affect our financial condition and performance.
Changes in the fair value of biological assets
Our results have been, and we expect will continue to be, affected by changes in the fair value of our
biological assets. For the three years ended 31 December 2012, 2013 and 2014, our results of operations
were positively affected by gains arising from changes in fair value less costs to sell of biological assets
of RMB97.9 million, RMB146.7 million and RMB211.1 million, respectively. Changes in fair value less
costs to sell of biological assets represent fair value gains/losses on our biological assets and gains/losses
from the sale of edible fungi less the costs of selling.
The fair value of edible fungi is determined based on market approach and cost approach. Market
and cost approaches are adopted to value the agricultural produce of edible fungi as at the end of
respective years. During the growing period, cost approach is adopted. The costs of direct raw material,
direct labour, labour contracting service and related expense have been considered in the calculation of
the fair values for the growing period. During the harvesting period, market approach is adopted.
Therefore, the fair values of the biological assets as at the end of respective years are calculated to be the
– 254 –
product of market price and estimated the agricultural produce edible fungi by deducting the reasonable
cost related to selling. In applying these valuation methods, the independent valuer has relied on a
number of assumptions, related to, among other things, classification of cultivation method into
industrial and traditional methods, sales volume of edible fungi, market price of edible fungi and cost to
sell. The fair value of our edible fungi could be affected by, among other things, the accuracy of these
assumptions. Any changes in the estimates may affect the fair value of the edible fungi significantly. The
independent qualified professional valuer and our management review the assumptions and estimates
periodically to identify any significant changes in fair value of edible fungi. We expect that our results
will continue to be affected by changes in the fair value of our edible fungi. For more information about
the valuation methods applied in valuing our edible fungi, see the section headed “Financial Information
– Valuation of Biological Assets” in this prospectus.
Product offerings
While we currently offer two main series of products, our revenue and our overall gross profit
margin was largely affected by the sales of our king trumpet mushroom and button mushroom and straw
mushroom which in aggregate accounted for 45.4%, 62.0% and 68.7% of our revenue from our
continuing operations for the three years ended 31 December 2012, 2013 and 2014, respectively. Going
forward, we will continue to modify our product portfolio from time to time to focus on products with
higher demand from consumers and higher gross profit margins and divert from those with lower growth
rates or lower gross profit margins.
Seasonality
During the Track Record Period, we experienced the seasonality fluctuations in our production and
sales due to our customers’ purchase patterns and weather conditions for traditional cultivation.
According to our experience, industrial cultivation is not affected by weather cycles (such as hot summers
and cold winters) so the production of king trumpet mushroom are all year round as all of our king
trumpet mushroom are under industrial cultivation. Our price of king trumpet mushroom tend to increase
around the Christmas and Chinese New Year holiday period (usually during December, January and
February of each year) and therefore our revenue from sales of king trumpet mushroom tends to be higher
accordingly in those periods. Our production volume of button mushroom and straw mushroom is
affected by weather cycles as the majority of our button mushroom and straw mushroom are under
traditional cultivation. Due to the habit of button mushroom and straw mushroom, the peak season of
production of button mushroom is from October to May of the following year and the peak season of
production of straw mushroom is June and September. As such, the sales of button mushroom and straw
mushroom will be generated only during such periods.
vegetables and fruit for the production of processed food products in accordance with the respective
seasonal availability of the various raw materials. We purchase fresh produce of vegetables and fruit from
local suppliers in Fujian province which source these vegetables and fruit in Fujian province, Guangdong
province and Guangxi Zhuang Autonomous Region. We manufacture the processed food products during
the harvesting season of the various vegetables and fruit and deliver the products according to the
schedules set forth in the relevant sales contracts entered into with trading companies.
– 255 –
SIGNIFICANT ACCOUNTING POLICIES, JUDGEMENTS AND ESTIMATES
The preparation of our financial statements requires us to make judgements in selecting the
appropriate estimates and assumptions that affect the amounts reported in our financial statements.
Actual results may differ from these estimates under different assumptions and conditions. The selection
of critical accounting policies, the judgements and other uncertainties affecting application of those
policies and the sensitivity of reported results to changes in conditions and assumptions are factors to be
considered when reviewing our combined financial information. By their nature, these judgements are
subject to an inherent degree of uncertainty. These judgements are based on, among other things, our
experience, our observance of trends in the industry, and information available from outside sources, as
appropriate. There can be no assurance that our judgements will prove correct or that actual results
reported in future periods will not differ from our expectations reflected in our accounting treatment of
certain items. Our significant accounting policies and critical accounting estimates and judgements are
set forth in detail in notes 4 and 5 to financial information included in Accountants’ Report in Appendix
I to this prospectus.
We believe the following accounting policies involve the more significant judgements and estimates
used in the preparation of our financial statements.
Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable and is recognised
when it is probable that the economic benefits will flow to our Group and the amount of revenue can be
measured reliably.
Revenues from the sales of goods are recognised on the transfer of significant risks and rewards of
ownership, which generally coincides with the time when the goods are delivered and the title has passed
to the customers.
Interest income is recognised on a time-proportion basis using the effective interest method.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and impairment
losses.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as
appropriate, only when it is probable that future economic benefits associated with the item will flow to
our Group and the cost of the item can be measured reliably. All other repairs and maintenance are
recognised in profit or loss during the period in which they are incurred.
– 256 –
Depreciation of property, plant and equipment is calculated at rates sufficient to write off their cost
less their residual values over the estimated useful lives on a straight-line basis. The principal useful lives
are as follows:
Buildings
20 years
Plant and machinery
10 years
Leasehold improvements
5 years
Motor vehicles
2 to 5 years
Office equipment and others
5 years
The residual values, useful lives and depreciation method are reviewed and adjusted, if appropriate,
at the end of each reporting period.
Construction in progress represents buildings under construction and plant and machinery pending
installation, and is stated at cost less impairment losses. Depreciation begins when the relevant assets are
available for use.
The gain or loss on disposal of property, plant and equipment is the difference between the net sales
proceeds and the carrying amount of the relevant asset, and is recognised in profit or loss.
Our Group determines the estimated useful lives, residual values and related depreciation charges
for our Group’s property, plant and equipment. This estimate is based on the historical experience of the
actual useful lives and residual values of property, plant and equipment of similar nature and functions.
Our Group will revise the depreciation charge where useful lives and residual values are different to those
previously estimated, or it will write-off or write-down technically obsolete or non-strategic assets that
have been abandoned or sold.
Impairment of assets
At the end of each reporting period, our Group reviews the carrying amounts of its tangible and
other intangible assets except inventories, biological assets and receivables to determine whether there is
any indication that those assets have suffered an impairment loss. If any such indication exists, the
recoverable amount of the asset is estimated in order to determine the extent of any impairment loss.
Where it is not possible to estimate the recoverable amount of an individual asset, our Group estimates
the recoverable amount of the cash-generating unit to which the asset belongs.
Recoverable amount is the higher of fair value less costs of disposal and value in use. In assessing
value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount
rate that reflects current market assessments of the time value of money and the risks specific to the asset.
If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying
amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount. An
impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a
revalued amount, in which case the impairment loss is treated as a revaluation decrease.
– 257 –
Where an impairment loss subsequently reverses, the carrying amount of the asset or
cash-generating unit is increased to the revised estimate of its recoverable amount, but so that the
increased carrying amount does not exceed the carrying amount that would have been determined (net of
amortisation or depreciation) had no impairment loss been recognised for the asset or cash-generating
unit in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the
relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated
as a revaluation increase.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is determined using the
weighted average basis. The cost of finished goods and work in progress comprises raw materials, direct
labour and an appropriate proportion of all production overheads expenditure, and where appropriate,
subcontracting charges. Net realisable value is the estimated selling price in the ordinary course of
business, less the estimated costs of completion and the estimated costs necessary to make the sale.
Allowance for slow-moving inventories is made based on the ageing and estimated net realisable
value of inventories. The assessment of the allowance amount involves judgement and estimates. Where
the actual outcome in future is different from the original estimate, such difference will impact the
carrying value of inventories and allowance charge/write-back in the period in which such estimate has
been changed.
Trade and other receivables
Trade and other receivables are non-derivative financial assets with fixed or determinable payments
that are not quoted in an active market and are recognised initially at fair value and subsequently
measured at amortised cost using the effective interest method, less allowance for impairment. An
allowance for impairment of trade and other receivables is established when there is objective evidence
that our Group will not be able to collect all amounts due according to the original terms of receivables.
The amount of the allowance is the difference between the receivables’ carrying amount and the present
value of estimated future cash flows, discounted at the effective interest rate computed at initial
recognition. The amount of the allowance is recognised in profit or loss.
Impairment losses are reversed in subsequent periods and recognised in profit or loss when an
increase in the receivables’ recoverable amount can be related objectively to an event occurring after the
impairment was recognised, subject to the restriction that the carrying amount of the receivables at the
date the impairment is reversed shall not exceed what the amortised cost would have been had the
impairment not been recognised.
Our Group makes impairment loss for bad and doubtful debts based on assessments of the
recoverability of the trade and other receivables, including the current creditworthiness and the past
collection history of each debtor. Impairments arise where events or changes in circumstances indicate
that the balances may not be collectible. The identification of bad and doubtful debts requires the use of
judgement and estimates. Where the actual result is different from the original estimate, such difference
will impact the carrying value of the trade and other receivables and doubtful debt expenses in the year in
which such estimate has been changed.
– 258 –
Biological assets
Our Group is involved in the agricultural activities of the transformation of biological assets into
agricultural produce. The mushrooms are measured at fair value less costs to sell at initial recognition and
at the end of each reporting period. Gain or loss on initial recognition and from subsequent changes in fair
value less costs to sell is included in profit or loss for the period in which it arises.
The mushrooms are initially measured at their fair value less costs to sell at the time of harvest. The
fair value of the mushrooms is determined based on market prices in the local area. Gain on initial
recognition at fair value less costs to sell is included in profit or loss for the period in which it arises.
The fair value less costs to sell at the time of harvest of the mushrooms becomes their cost for the
measurement of mushroom. Such mushroom are subsequently stated at the lower of cost and net
realisable value. Net realisable value is the estimated selling price in the ordinary course of business less
the estimated costs necessary to make the sale.
Our Group appointed an independent professional valuer to assess the fair values of the biological
assets. In determining the fair values, the valuer has utilised a method of valuation which involves certain
estimates. The Directors have exercised their judgement and are satisfied that the method of valuation and
input used are reflective of the current market conditions.
Government grants
A government grant is recognised when there is reasonable assurance that our Group will comply
with the conditions attaching to it and that the grant will be received.
Government grants relating to income are deferred and recognised in profit or loss over the period to
match them with the costs they are intended to compensate.
Government grants that become receivable as compensation for expenses or losses already incurred
or for the purpose of giving immediate financial support to our Group with no future related costs are
recognised in profit or loss in the period in which they become receivable.
Taxation
Income tax represents the sum of the current tax and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit
recognised in profit or loss because it excludes items of income or expense that are taxable or deductible
in other years and it further excludes items that are never taxable or deductible. Our liability for current
tax is calculated using tax rates that have been enacted or substantively enacted by the end of the
reporting period.
– 259 –
Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in
the financial statements and the corresponding tax bases used in the computation of taxable profit.
Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax
assets are recognised to the extent that it is probable that taxable profits will be available against which
deductible temporary differences, unused tax losses or unused tax credits can be utilised. Such assets and
liabilities are not recognised if the temporary difference arises from goodwill or from the initial
recognition (other than in a business combination) of other assets and liabilities in a transaction that
affects neither the taxable profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in
subsidiaries, except where we are able to control the reversal of the temporary difference and it is
probable that the temporary difference will not reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and
reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow
all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability
is settled or the asset is realised, based on tax rates that have been enacted or substantively enacted by the
end of the reporting period. Deferred tax is recognised in profit or loss, except when it relates to items
recognised in other comprehensive income or directly in equity, in which case the deferred tax is also
recognised in other comprehensive income or directly in equity.
The measurement of deferred tax assets and liabilities reflects the tax consequences that would
follow from the manner in which we expect, at the end of the reporting period, to recover or settle the
carrying amount of its assets and liabilities.
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 they relate to income taxes levied by the same
taxation authority and we intend to settle its current tax assets and liabilities on a net basis.
– 260 –
RESULTS OF OPERATIONS
The following table sets forth selected items of our consolidated statements of profit or loss for the
years indicated:
2012
% of
revenue
from
continuing
operations
RMB’000
Revenue . . . . . . . . . . . . . . . . .
Changes in fair value of biological assets
less cost to sell . . . . . . . . . . . . .
Cost of goods sold . . . . . . . . . . . .
Business tax and
auxiliary charges . . . . . . . . . . . .
2013
2014
% of
revenue
from
continuing
operations
RMB’000
% of
revenue
from
continuing
operations
RMB’000
. .
425,428
100.0%
471,490
100.0%
545,665
100.0%
. .
. .
97,883
(399,685)
22.9%
(93.9%)
146,667
(442,022)
31.1%
(93.7%)
211,122
(550,393)
38.8%
(100.9%)
. .
(1,807)
(0.4%)
(920)
(0.2%)
(924)
(0.2%)
Gross profit . . . . . . . . . . . . . . . . .
121,819
28.6%
175,215
37.2%
205,470
37.7%
Other income . . . . . . . . . . . . . . . . .
Selling expenses . . . . . . . . . . . . . . .
Administrative expenses . . . . . . . . . . .
5,808
(5,897)
(18,235)
1.4%
(1.4%)
(4.3%)
6,849
(6,914)
(17,582)
1.4%
(1.5%)
(3.7%)
9,947
(6,083)
(30,800)
1.8%
(1.1%)
(5.7%)
Profit from operations . . . . . . . . . . . .
103,495
24.3%
157,568
33.4%
178,534
32.7%
Finance costs . . . . . . . . . . . . . . . . .
(1,678)
(0.4%)
(3,735)
(0.8%)
(1,194)
(0.2%)
Profit before tax . . . . . . . . . . . . . . .
101,817
23.9%
153,833
32.6%
177,340
32.5%
Income tax expense . . . . . . . . . . . . . .
(10,610)
(2.5%)
(6,047)
(1.3%)
(2,252)
(0.4%)
Profit for the year
from continuing operations . . . . . . . .
91,207
21.4%
147,786
31.3%
175,088
32.1%
Profit for the year from
discontinued operation . . . . . . . . . . .
9,850
2.3%
–
–
–
–
Profit for the year . . . . . . . . . . . . . . .
101,057
23.7%
147,786
31.3%
175,088
32.1%
– 261 –
DESCRIPTION OF SELECTED STATEMENTS OF PROFIT OR LOSS ITEMS
Revenue
During the Track Record Period, we primarily derived our revenue of continuing operations from
the cultivation, manufacturing and sale of (i) fresh edible fungi produce consisting of king trumpet
such as brined mushroom, preserved vegetables, snacks and dried mushroom. We also derived revenue
through Minhui Trading which was engaged mainly in furniture trading operation in the PRC for the
years ended 31 December 2012. We disposed of Minhui Trading on 25 June 2012 as we decided to focus
on our main business. In addition, we generated revenue from the canned food trading operation through
Greenfresh HK for the year ended 31 December 2014.
The following tables set forth our revenue by product category for the years indicated:
2012
RMB’000
King trumpet mushroom. . . . . . .
Button mushroom and
straw mushroom . . . . . . . . . . .
Canned food . . . . . . . . . . . . . . .
products. . . . . . . . . . . . . . . . .
2013
% of total
revenue
RMB’000
2014
% of total
revenue
RMB’000
% of total
revenue
135,640
26.4%
196,306
41.6%
199,272
36.5%
57,644
11.2%
96,117
20.4%
175,860
32.2%
166,483
32.5%
129,208
27.4%
124,690
22.9%
65,661
12.8%
49,859
10.6%
45,843
8.4%
425,428
82.9%
471,490
100.0%
545,665
100%
DISCONTINUED
OPERATION
Trading . . . . . . . . . . . . . . . . . . .
87,868
17.1%
–
–
–
–
Total . . . . . . . . . . . . . . . . . . . .
513,296
100.0%
471,490
100.0%
545,665
100.0%
– 262 –
The following table sets forth our sales volume and average selling price by product category of our
continuing operations for the periods indicated:
2012
2013
2014
Average
Average
Average
Sales volume selling price Sales volume selling price Sales volume selling price
kilogram
King trumpet mushroom. . . .
Button mushroom and
straw mushroom . . . . . . .
Canned food . . . . . . . . . .
RMB
kilogram
RMB
kilogram
RMB
. . . . . . 14,489,404
9.4 23,578,925
8.3 26,627,647
7.5
......
9,487,268
6.1 12,963,630
7.4 22,545,685
7.8
. . . . . . 20,414,666
. . . . . . 4,801,521
8.2 17,235,682
13.7 3,241,680
7.5 16,406,498
15.3 4,094,680
7.6
11.2
Total/Overall. . . . . . . . . . . . . . . . 49,192,859
8.6 57,019,917
8.3 69,674,510
7.8
Our revenue from continuing operations increased from RMB425.4 million for the year ended 31
December 2012 to RMB471.5 million for the year ended 31 December 2013, and increased further to
RMB545.7 million for the year ended 31 December 2014, representing a CAGR of 13.3% over the period.
The increase in our revenue during the Track Record Period was primarily due to the increase in sales of
our king trumpet mushroom, button mushroom and straw mushroom as a result of our continued
expansion of cultivation capacity of cultivation facilities.
The revenue contributed by the sales of our king trumpet mushroom amounted to 31.9%, 41.6% and
36.5% of our revenue from continuing operations for the three years ended 31 December 2012, 2013 and
2014, respectively. The sales volume of our king trumpet mushroom increased from 14.5 million
kilograms for the year ended 31 December 2012 to 23.6 million kilograms for the year ended 31
December 2013, and increased further to 26.6 million kilograms for the year ended 31 December 2014,
representing a CAGR of 35.6% over the period. The average selling price of our king trumpet mushroom
decreased from RMB9.4 per kilogram for the year ended 31 December 2012 to RMB8.3 per kilogram for
the year ended 31 December 2013, and decreased further to RMB7.5 per kilogram for the year ended 31
December 2014. The general decrease of average selling prices of king trumpet mushroom during the
Track Record Period was primarily due to the increased overall cultivation capacity and supply of king
trumpet mushroom in the PRC as king trumpet mushroom became increasingly popular and accepted in
the PRC. The average selling price of king trumpet mushroom was higher in the period from 2009 to 2011
than the average selling price during the Track Record Period as the consumption of king trumpet
mushroom as a type of high end food product started emerging in 2009 in the PRC. The relative high
average selling price of king trumpet mushroom stimulated increased number of suppliers to cultivate and
supply king trumpet mushroom in the PRC which drove down the average selling price of king trumpet
mushroom during the Track Record Period.
– 263 –
The revenue contributed by the sales of our button mushroom and straw mushroom amounted to
13.5%, 20.4% and 32.2% of our revenue from continuing operations for the three years ended 31
December 2012, 2013 and 2014, respectively. The sales volume of our button mushroom and straw
mushroom increased from 9.5 million kilograms for the year ended 31 December 2012 to 13.0 million
kilograms for the year ended 31 December 2013, and increased further to 22.5 million kilograms for the
year ended 31 December 2014, representing a CAGR of 54.2% over the period. The average selling prices
of our button mushroom and straw mushroom increased from RMB6.1 per kilogram for the year ended 31
December 2012 to RMB7.4 per kilogram for the year ended 31 December 2013, and increased further to
RMB7.8 per kilogram for the year ended 31 December 2014.
The revenue contributed by the sales of our canned food amounted to 39.1%, 27.4% and 22.9% of
our revenue from continuing operations for the three years ended 31 December 2012, 2013 and 2014,
respectively. The sales volume of our canned food decreased from 20.4 million kilograms for the year
ended 31 December 2012 to 17.2 million kilograms for the year ended 31 December 2013 and was 16.4
million kilograms for the year ended 31 December 2014. The average selling prices of our canned food
decreased from RMB8.2 per kilogram for the year ended 31 December 2012 to RMB7.5 per kilogram for
the year ended 31 December 2013, and increased to RMB7.6 per kilogram for the year ended 31
December 2014.
The revenue contributed by the sales of our other processed food products amounted to 15.4%,
10.6% and 8.4% of our revenue from continuing operations for the three years ended 31 December 2012,
2013 and 2014, respectively. The sales volume of our other processed food products decreased from 4.8
million kilograms for the year ended 31 December 2012 to 3.2 million kilograms for the year ended 31
December 2013, and increased to 4.1 million kilograms for the year ended 31 December 2014. The
average selling prices of our other processed food products increased from RMB13.7 per kilogram for the
year ended 31 December 2012 to RMB15.3 per kilogram for the year ended 31 December 2013, and
decreased to RMB11.2 per kilogram for the year ended 31 December 2014.
– 264 –
We sell our fresh edible fungi produce primarily to distributors in the PRC, which then on-sell our
fresh edible fungi produce to sub-distributors and retailers. To a lesser extent, we also sell some of our
fresh edible fungi produce directly to processed mushroom manufacturers. We sell our canned food to
trading companies in the PRC, which then on-sell our products to overseas distributors. We sell our other
and processed mushroom manufacturers. The following table sets forth our revenue generated by sales
channel of our continuing operations for the years indicated:
2012
% of
total
revenue
RMB’000
Sales to distributors of our
fresh edible fungi
produce
King trumpet mushroom . . . . .
Button mushroom . . . . . . . . .
Sales to processed mushroom
manufacturers
Button mushroom . . . . . . . . . .
Straw mushroom . . . . . . . . . .
Canned food . . . . . . . . . . . . .
Sales to distributors of our
other processed
food products
Other processed products . . . .
2013
RMB’000
2014
% of
total
revenue
RMB’000
% of
total
revenue
.
.
135,640
7,333
31.9%
1.7%
196,306
25,233
41.6%
5.3%
199,272
70,161
36.5%
12.8%
.
.
45,986
4,325
10.8%
1.0%
65,384
5,500
13.9%
1.2%
95,440
10,259
17.5%
1.9%
.
166,483
39.1%
129,208
27.4%
124,690
22.9%
.
65,661
15.5%
49,859
10.6%
45,843
8.4%
Total . . . . . . . . . . . . . . . . . . . .
425,428
100.0%
471,490
100.0%
545,665
100.0%
Changes in fair value of biological assets less cost to sell
Changes in fair value of biological assets less cost to sell represent fair value changes of the
biological assets (i.e. edible fungi) due to the changes in physical attributes and market determined prices
of biological assets. During the Track Record Period, our biological assets were revalued at each
reporting date by JLL with any resultant gain recognised in profit or loss for the year in which it arose.
For more information about the valuation method adopted by JLL, please refer to the section headed
“Financial Information – Valuation of Biological Assets – Valuation Method” in this prospectus.
The fair value of biological assets less cost to sell is determined using the cost and market
approaches with respect to the valuation of edible fungi during the growing period and harvesting period,
respectively. During the growing period, cost approach is adopted. The cost of raw material, direct labour,
labour contracting service and rental expenses have been considered in the calculation of the fair values
for the growing period. During the harvesting period, market approach is adopted. There is an active
market for the edible fungi and market prices are available for domestic edible fungi. Therefore, the fair
values of the biological assets as at the valuation dates are calculated to be the product of market price
and estimated the agricultural produce edible fungi by deducting the reasonable cost related to selling.
– 265 –
We recognised gain arising from changes in fair value of biological assets less costs to sell of
RMB97.9 million, RMB146.7 million and RMB211.1 million for the three years ended 31 December
2012, 2013 and 2014 respectively. Moreover, as at 31 December 2012, 2013 and 2014, our Group’s
biological assets amounted to RMB47.7 million, RMB91.9 million and RMB93.7 million respectively.
Our biological assets as a percentage to our net asset value as at the end of each reporting period during
the Track Record Period were approximately 15.6%, 17.9% and 12.3% respectively.
Cost of sales
Our cost of sales primarily consists of raw materials, direct labour, cultivation overheads and
manufacturing overheads. Raw materials primarily include (i) cultivation materials such as strains,
sawdust, bran, dregs of beans, corncob, straw and cow dung for the cultivation of our fresh edible fungi
produce, (ii) fresh produce of vegetables and fruit and (iii) packaging materials such as tin plate, glass
jars, foam boxes and cartons. Direct labour comprises salaries and benefits for employee involved in
cultivation and production activities including the payment of labour contracting fees to the individual
farmers in connection with cultivation of button mushroom and straw mushroom. Cultivation overheads
primarily represent transportation expenses, depreciation charges on farm equipment and fixtures,
amortisation charges on land use rights, utility charges, consumables and other cultivation related costs.
Manufacturing overheads primarily represent depreciation of plant and machinery, utilities, processing
fee and other miscellaneous production costs.
The following table sets forth a breakdown of our cost of sales of continuing operations for the years
indicated:
2012
% of cost
of sales
RMB’000
Raw materials . . . . . . . . . .
– Cultivation materials . .
– Fresh fruit and vegetables
– Packaging materials . . .
Direct labour . . . . . . . . . . .
Cultivation overheads . . . .
Manufacturing overheads . .
Change in fair value of
biological assets . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
2013
RMB’000
2014
% of cost
of sales
RMB’000
% of cost
of sales
.
.
.
.
.
.
.
227,589
65,279
116,968
45,342
40,685
24,909
10,596
56.9%
16.3%
29.3%
11.3%
10.2%
6.2%
2.7%
215,810
94,761
83,294
37,755
40,397
32,331
8,975
48.8%
21.4%
18.9%
8.5%
9.2%
7.3%
2.0%
240,650
109,009
96,347
35,294
54,169
45,718
7,248
43.7%
19.8%
17.5%
6.4%
9.9%
8.3%
1.3%
...
95,906
24.0%
144,509
32.7%
202,608
36.8%
Total . . . . . . . . . . . . . . . . . . .
399,685
100.0%
442,022
100.0%
550,393
100.0%
For the three years ended 31 December 2012, 2013 and 2014, our cost of sales of continuing
operations, including change in fair value of biological assets, were RMB399.7 million, RMB442.0
million and RMB550.4 million, representing 93.9%, 93.7% and 100.9%, respectively, of our revenue
from continuing operations for the same periods.
– 266 –
For the three years ended 31 December 2012, 2013 and 2014, our cost of sales of continuing
operations, excluding change in fair value of biological assets, were RMB303.8 million, RMB297.5
million and RMB347.8 million, representing 71.4%, 63.1% and 63.7%, respectively, of our revenue from
continuing operations for the same periods.
The cost of raw materials was the largest component of our cost of sales and accounted for 56.9%,
48.8% and 43.7% of the total cost of sales for the three years ended 31 December 2012, 2013 and 2014,
respectively. The decrease in the cost of raw materials from 2012 to 2013 was primarily due to a decrease
in cost of fresh fruit and vegetables and packaging materials as a result of a decrease in the production
and sales volume of our processed food products for the year ended 31 December 2013. The increase in
the cost of raw materials from 2013 to 2014 was primarily due to an increase in cost of cultivation
materials and fresh fruit and vegetables as a result of an increase in the cultivation and sales volume of
our fresh edible fungi produce and an increase in the price of button mushroom we purchased to produce
canned button mushroom. During the Track Record Period, cultivation materials and fresh fruit and
vegetables were two largest components of our cost of raw materials. For the three years ended 31
December 2012, 2013 and 2014, fresh fruit and vegetables accounted for 29.3%, 18.9% and 17.5% of our
total cost of sales. For the three years ended 31 December 2012, 2013 and 2014, cultivation materials
accounted for 16.3%, 21.4% and 19.8% of our total cost of sales. The cost of direct labour was the second
largest component of our cost of sales and accounted for 10.2%, 9.2% and 9.9% of the total cost of sales
for the three years ended 31 December 2012, 2013 and 2014, respectively.
The following table sets forth our cost of sales by product category of our continuing operations
after fair value adjustment of biological assets for the years indicated:
2012
% of cost
of sales
RMB’000
King trumpet mushroom . . . .
Button mushroom and
straw mushroom . . . . . . . .
Canned food . . . . . . . . . . . .
2013
RMB’000
2014
% of cost
of sales
RMB’000
% of cost
of sales
..
140,289
35.1%
195,709
44.3%
206,367
37.5%
..
78,575
19.6%
110,383
25.0%
200,242
36.4%
..
..
136,559
44,262
34.2%
11.1%
102,660
33,270
23.2%
7.5%
102,468
41,316
18.6%
7.5%
Total . . . . . . . . . . . . . . . . . . . .
399,685
100.0%
442,022
100.0%
550,393
100.0%
– 267 –
The following table sets forth our cost of sales by product category of our continuing operations
before fair value adjustment of biological assets for the years indicated:
2012
2013
% of cost
of sales
RMB’000
RMB’000
2014
% of cost
of sales
RMB’000
% of cost
of sales
King trumpet mushroom . . . . . .
Button mushroom and straw
mushroom . . . . . . . . . . . . . .
84,163
27.7%
112,446
37.8%
119,488
34.3%
38,795
12.8%
49,137
16.5%
84,514
24.3%
Canned food . . . . . . . . . . . . . .
136,559
44,262
45.0%
14.5%
102,660
33,270
34.5%
11.2%
102,468
41,316
29.5%
11.9%
Total . . . . . . . . . . . . . . . . . . . .
303,779
100.0%
297,513
100.0%
347,786
100.0
The following table sets forth the sensitivity analysis on the impact of hypothetical fluctuations in
the average unit purchase price of our major raw materials, fresh fruit and vegetables, cultivation
materials and packaging materials on our net profit for the Track Record Period, assuming all other
factors affecting our profit margin remain unchanged:
(a)
Hypothetical fluctuation on average unit purchase price of fresh fruit and vegetables
Increase/decrease
by 10%
Increase/decrease
by 15%
Increase/decrease
by 20%
8,773
6,247
7,226
13,159
9,371
10,839
17,545
12,494
14,452
Change in net profit (RMB’000)
Year ended 31 December 2012 . . . . . . . . .
(b)
Hypothetical fluctuation on average unit purchase price of packaging materials
Increase/decrease
by 10%
Increase/decrease
by 15%
Increase/decrease
by 20%
3,401
2,832
2,647
5,101
4,247
3,971
6,801
5,663
5,294
– 268 –
(c)
Hypothetical fluctuation on average unit purchase price of cultivation materials
Increase/decrease
by 10%
Increase/decrease
by 15%
Increase/decrease
by 20%
6,528
9,476
10,901
9,792
14,214
16,351
13,056
18,952
21,802
Business tax and auxiliary charges
Business tax and auxiliary charges primarily consist of urban construction tax, education surcharge
and business tax in relation to our production and sales of processed food products. Our cultivation and
sales of fresh edible fungi produce does not subject to business tax and auxiliary charges in the PRC.
Business tax and auxiliary charges decreased from RMB1.8 million for the year ended 31 December 2012
to RMB0.9 million for the year ended 31 December 2013 primarily attributable to the decrease in revenue
generated from sales of our processed food products for the year ended 31 December 2013. Our business
tax and auxiliary charges maintained stable being RMB0.9 million for the year ended 31 December 2014.
The following table sets forth the gross profit and gross profit margin by product category of our
continuing operations after and before fair value adjustment of biological assets for the years indicated:
2012
after fair value
adjustment
King trumpet mushroom .
Button mushroom and
straw mushroom . . .
Canned food . . . . . .
products . . . . . . .
2013
before fair value
adjustment
after fair value
adjustment
2014
before fair value
adjustment
after fair value
adjustment
before fair value
adjustment
Gross
profit
Gross
profit
margin
Gross
profit
Gross
profit
margin
Gross
profit
Gross
profit
margin
Gross
profit
Gross
profit
margin
Gross
profit
Gross
profit
margin
Gross
profit
Gross
profit
margin
RMB’000
%
RMB’000
%
RMB’000
%
RMB’000
%
RMB’000
%
RMB’000
%
.
52,783
38.9%
51,477
38.0%
82,936
42.2%
83,860
42.7%
84,003
42.2%
79,784
40.0%
.
.
19,520
29,924
33.9%
18.0%
18,849
29,924
32.7%
18.0%
50,062
26,548
52.1%
20.5%
46,980
26,548
48.9%
20.5%
95,642
22,222
54.4%
17.8%
91,346
22,222
51.9%
17.8%
.
21,399
32.6%
21,399
32.6%
16,589
33.3%
16,589
33.3%
4,527
9.9%
4,527
9.9%
123,626
29.1%
121,649
28.6%
176,135
37.4%
173,977
36.9%
206,394
37.8%
197,879
36.3%
Business tax and
auxiliary charges . . . .
(1,807)
N/A
(1,807)
N/A
(920)
N/A
(920)
N/A
(924)
N/A
(924)
N/A
Total/Overall . . . . . .
121,819
28.6%
119,842
28.2%
175,215
37.2%
173,057
36.7%
205,470
37.7%
196,955
36.1%
– 269 –
Our gross profit increased from RMB121.8 million for the year ended 31 December 2012 to
RMB175.2 million for the year ended 31 December 2013 and further to RMB205.5 million for the year
ended 31 December 2014, representing a CAGR of 29.9% over the period. Such increases were primarily
the result of an increase in the revenue generated from the sales of our king trumpet mushroom, button
mushroom and straw mushroom during the Track Record Period. For the three years ended 31 December
2012, 2013 and 2014, our gross profit margin were 28.6%, 37.2% and 37.7%, respectively.
We recorded our gross profit after fair value adjustment of our biological assets, i.e. king trumpet
mushroom, button mushroom and straw mushroom. The gross profit of the biological assets after fair
value adjustment include the realised gain of the biological assets sold during the respective financial
year plus the unrealised gain/(loss) of the biological assets as at the end of the respective financial year
while the gross profit of the biological assets before fair value adjustment represented the realised gain of
the biological assets sold during the respective financial year, which led to the differences of gross profit
and gross profit margin after and before the fair value adjustment of biological assets.
For the three years ended 31 December 2012, 2013 and 2014, our gross profit margin for our king
trumpet mushroom were 38.9%, 42.2% and 42.2%, respectively. The gross profit margin for our king
trumpet mushroom increased from 38.9% for the year ended 31 December 2012 to 42.2% for the year
ended 31 December 2013, primarily due to a decrease in average cost of king trumpet mushroom (before
fair value adjustment of biological assets) by 17.2% from RMB5.8 per kilogram for the year ended 31
December 2012 to RMB4.8 per kilogram for the year ended 31 December 2013. The decrease in average
cost of king trumpet mushroom (before fair value adjustment of biological assets) was mainly attributable
to (i) the adjustment of formula of cultivation materials of king trumpet mushroom in July 2012 by
increasing volume of sawdust and decreasing volume of dregs of beans, corncob and corn powder which
resulted in a decrease in average cost of king trumpet mushroom (before fair value adjustment of
biological assets) of 5.9% per kilogram; (ii) a decrease in the purchase prices of main cultivation
materials such as corncob, bagasse, and corn powder for the year ended 31 December 2013 which resulted
in a decrease in average cost of king trumpet mushroom (before fair value adjustment of biological
assets) of 2.2% per kilogram; and (iii) an increase in average yield of king trumpet mushroom from 0.39
kilogram per bag for the year ended 31 December 2012 to 0.42 kilogram per bag for the year ended 31
December 2013 which resulted in a decrease in average cost of king trumpet mushroom (before fair value
adjustment of biological assets) per kilogram as a result of our improvement of productivity and
efficiency of the cultivation process by leveraging our research and development capabilities. The gross
profit margin for our king trumpet mushroom remained stable for the year ended 31 December 2014 being
42.2%, primarily as a result of the combination of (i) a decrease in the average selling price of our king
trumpet mushroom from RMB8.3 per kilogram for the year ended 31 December 2013 to RMB7.5 per
kilogram for the year ended 31 December 2014 and (ii) a decrease in average cost of king trumpet
mushroom (before fair value adjustment of biological assets) by 6.3% from RMB4.8 per kilogram for the
year ended 31 December 2013 to RMB4.5 per kilogram for the year ended 31 December 2014, primarily
attributable to an increase in average yield of king trumpet mushroom from 0.42 kilogram per bag for the
year ended 31 December 2013 to 0.43 kilogram per bag for the year ended 31 December 2014 which
resulted in a decrease in average cost of king trumpet mushroom (before fair value adjustment of
biological assets) per kilogram as a result of our improvement of productivity and efficiency of the
cultivation process by leveraging our research and development capabilities.
– 270 –
For the three years ended 31 December 2012, 2013 and 2014, our gross profit margin for our button
mushroom and straw mushroom were 33.9%, 52.1% and 54.4%, respectively. The gross profit margin of
our button mushroom and straw mushroom increased from 33.9% for the year ended 31 December 2012 to
52.1% for the year ended 31 December 2013, primarily due to (i) an increase in average selling price of
button mushroom and straw mushroom from RMB6.1 per kilogram for the year ended 31 December 2012
to RMB7.4 per kilogram for the year ended 31 December 2013 and (ii) a decrease in average cost of
button mushroom (before fair value adjustment of biological assets) by 7.3% from RMB4.1 per kilogram
for the year ended 31 December 2012 to RMB3.8 per kilogram for the year ended 31 December 2013
mainly as a result of the adjustment of formula of cultivation materials of button mushroom in July 2013
by increasing volume of cultivation waste of our king trumpet mushroom and decreasing volume of straw
which resulted in a decrease in average cost of button mushroom of 6.0% per kilogram. The gross profit
margin for our button mushroom and straw mushroom increased to 54.4% for the year ended 31
December 2014, primarily due to an increase in the average selling price of button mushroom from
RMB7.4 per kilogram for the year ended 31 December 2013 to RMB7.8 per kilogram for the year ended
31 December 2014.
For the three years ended 31 December 2012, 2013 and 2014, our gross profit margin for our canned
food were 18.0%, 20.5% and 17.8%, respectively. The gross profit margin for our canned food increased
to 20.5% for the year ended 31 December 2013, primarily due to a decrease in average cost of canned
food by 10.4% from RMB6.7 per kilogram for the year ended 31 December 2012 to RMB6.0 per kilogram
for the year ended 31 December 2013. The decrease in average cost of canned food was mainly
attributable to a decrease in the cost of vegetable and fruit of 22.9% from RMB4.8 per kilogram for the
year ended 31 December 2012 to RMB3.7 per kilogram for the year ended 31 December 2013. The gross
profit margin for our canned food decreased to 17.8% for the year ended 31 December 2014, primarily
due to an increase in average cost of canned food by 3.3% from RMB6.0 per kilogram for the year ended
31 December 2013 to RMB6.2 per kilogram for the year ended 31 December 2014. The increase in
average cost of canned food was mainly attributable to an increase in the cost of button mushroom
purchased to produce canned button mushroom of 15.3% from RMB5.9 per kilogram for the year ended
31 December 2013 to RMB6.8 per kilogram for the year ended 31 December 2014.
For the three years ended 31 December 2012, 2013 and 2014, our gross profit margin for our other
processed food products were 32.6%, 33.3% and 9.9%, respectively. The gross profit margin of our other
processed food products increased from 32.6% for the year ended 31 December 2012 to 33.3% for the
year ended 31 December 2013, primarily due to an increase in the portion of sales volume of our snacks
which entailed a higher gross profit margin from 27.4% to 35.7% of the total sales volume of our other
processed food products as a result of the increase in production volume and marketing efforts. The gross
profit margin of our other processed food products significantly decreased to 9.9% for the year ended 31
December 2014, primarily due to (i) an increase in the cost of button mushroom we purchased to produce
brined mushroom of 15.3% from RMB5.9 per kilogram for the year ended 31 December 2013 to RMB6.8
per kilogram for the year ended 31 December 2014 and (ii) a decrease in the portion of sales volume of
our snacks which entailed a higher gross profit margin as a result of the cessation of production of our
snacks in November 2013 because the return on snacks (taking the advertising and promotion expenses
into account) did not meet our expectation and considering the required investment of resources in the
marketing efforts to establish our brand of snack. Therefore we decided to focus on our main business of
the cultivation and sales of fresh edible fungi produce.
– 271 –
Other income
Other income primarily consists of input value-added tax deduction, government subsidies and
awards, interest income on bank deposits, interest income from a Director, scrap sales, rental income,
compensation received and other income. The following table sets forth our other income for the years
indicated:
Compensation received . . . . . . . .
Government subsidies and awards
Input value-added tax deduction. .
Bank interest income . . . . . . . . . .
Interest income from a Director . .
Rental income. . . . . . . . . . . . . . .
Scrap sales . . . . . . . . . . . . . . . . .
Others . . . . . . . . . . . . . . . . . . . .
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2012
2013
2014
RMB’000
RMB’000
RMB’000
300
603
2,920
374
1,055
79
502
17
–
2,226
1,786
2,392
–
107
330
8
–
3,170
4,705
1,818
–
82
170
2
5,850
6,849
9,947
Representing:
Continuing operations . . . . . . . . . . . . . . . . . .
Discontinued operation . . . . . . . . . . . . . . . . .
5,808
42
6,849
–
9,947
–
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,850
6,849
9,947
Input value-added tax deduction represents the value-added tax deduction as a result of intra-group
purchase of fresh edible fungi produce for manufacturing processed food products.
Government subsidies and awards primarily consisted of (i) a subsidy of RMB0.6 million received
by Fujian Greenfresh Foods for a research and development project and a subsidy of RMB2.5 million
received by Greenfresh Ecological Agriculture for a recycling utilisation project in 2014; (ii) a monetary
award of RMB0.7 million received by Fujian Greenfresh Foods from the local government of Longhai,
Fujian province for our obtaining the Well-known Trademark in China in 2013; (iii) a subsidy of RMB0.6
million received by Fujian Greenfresh Foods from Ministry of Agriculture for an agricultural
industrialisation project in 2013; and (iv) a subsidy of RMB0.5 million received by Fujian Greenfresh
Foods from the local government of Zhangzhou, Fujian province for the development of local specialised
small and medium enterprise in 2012. The monetary awards and subsidies are non-recurring in nature and
the amounts are subject to the government’s discretion. There are no unfulfilled conditions or other
contingencies attached to the grants.
Interest income from a Director represents the interest income on the advance we granted to Mr.
Zheng Songhui.
Scrap sales represent the cultivation waste of our king trumpet mushroom and button mushroom
sold to individual farmers and enterprises as fertilizer and fuel, respectively.
– 272 –
Rental income represents the rental income generated from the leases of certain space in our
production facilities in Zhangzhou, Fujian province to our packaging materials suppliers for
manufacturing packaging materials for our processed food products.
Compensation received represents liquidated damages paid by the landlord to us as a result of the
early termination of the lease of our certain office space in Xiamen, Fujian province.
Selling expenses
Selling expenses primarily consist of salaries and employee benefit expenses for employees
engaging in the sales and marketing activities, transportation and related expenses for the delivery of our
processed food products, travelling and entertainment and related expenses, advertising and promotion
expenses and other sales-related expenses.
The following table sets forth a breakdown of our selling expenses of our continuing operations for
the years indicated:
2012
RMB’000
Salaries and
employee benefits . .
Transportation and
related expenses . . .
Travelling and
entertainment
expenses . . . . . . . .
Advertising and
promotion expenses
Others . . . . . . . . . . . .
2013
% of
selling
expense
RMB’000
2014
% of
selling
expense
RMB’000
% of
selling
expense
...
2,432
41.2%
2,493
36.1%
2,733
44.9%
...
1,551
26.3%
1,507
21.8%
1,232
20.3%
...
695
11.8%
1,100
15.9%
549
9.0%
...
...
1,068
151
18.1%
2.6%
846
968
12.2%
14.0%
1,466
103
24.1%
1.7%
Total. . . . . . . . . . . . . . . .
5,897
100.0%
6,914
100.0%
6,083
100.0%
For the three years ended 31 December 2012, 2013 and 2014, our selling expenses amounted to
RMB5.9 million, RMB6.9 million and RMB6.1 million, respectively. Salaries and employee benefit
expenses were the largest component of our selling expenses during the Track Record Period, which
represents salaries, social welfare scheme and housing provident fund contributions, bonus and other
employee benefits.
During the same periods, as a percentage of our revenue of continuing operations, our selling
expenses were 1.4%, 1.5% and 1.1%, respectively. We managed to largely maintain the proportion of our
selling expenses to our revenue during the Track Record Period as a result of our efforts in maintaining
our control over salaries and employee benefit expenses.
– 273 –
Administrative expenses
Administrative expenses primarily consist of salaries and employee benefit expenses for employees
engaging in administrative activities, rental expenses, depreciation and amortisation of property, plant
and equipment, legal and professional fees, office expenses, motor car expenses, entertainment expenses,
research and development expenses and other administration-related expenses.
The following table sets forth a breakdown of our administrative expenses of our continuing
operations for the years indicated:
Salaries and employee
benefits . . . . . . . . . . . . .
Rental expenses. . . . . . . . .
Depreciation and
amortisation. . . . . . . . . .
Legal and professional
fees . . . . . . . . . . . . . . . .
Entertainment . . . . . . . . . .
Motor car expenses . . . . . .
Office expenses . . . . . . . . .
Research and development .
Others . . . . . . . . . . . . . . .
2012
2013
2014
% of total
administrative
RMB’000
expenses
% of total
administrative
RMB’000
expenses
% of total
administrative
RMB’000
expenses
..
..
6,484
1,848
35.6%
10.1%
7,221
1,024
41.1%
5.8%
6,711
958
21.8%
3.1%
..
1,231
6.7%
1,549
8.8%
1,776
5.7%
.
.
.
.
.
.
.
.
.
.
.
.
1,819
551
559
927
1,313
3,503
10.0%
3.0%
3.1%
5.1%
7.2%
19.2%
1,007
641
703
995
1,212
3,230
5.7%
3.6%
4.0%
5.7%
6.9%
18.4%
14,862
730
613
1,226
422
3,502
48.3%
2.4%
2.0%
4.0%
1.3%
11.4%
Total . . . . . . . . . . . . . . . . . .
18,235
100.0%
17,582
100.0%
30,800
100.0%
– 274 –
For the three years ended 31 December 2012, 2013 and 2014, our administrative expenses were
RMB18.2 million, RMB17.6 million and RMB30.8 million, respectively. During the same periods, as a
percentage of our revenue of continuing operations, our administrative expenses were 4.3%, 3.7% and
5.7%, respectively. Salaries and employee benefits were a major component of our administrative
expenses, and accounted for 35.6%, 41.1% and 21.8% of our administrative expenses for the same
periods. The increase in salaries and employee benefits was primarily the result of the general level of
salaries and employee benefits for, and the number of, employees engaged in the administrative activities.
Another major component of our administrative expenses during the Track Record Period was legal
and professional fees incurred for the services rendered by different professional parties for our equity
financings and the Listing. For the three years ended 31 December 2012, 2013 and 2014, such
professional service fees amounted to RMB1.8 million, RMB1.0 million and RMB14.9 million,
representing 10.0%, 5.7% and 48.3% of our administrative expenses for the same periods, respectively.
Finance costs
Our finance costs of our continuing operations represent interest on bank borrowings which are
wholly repayable within one year. For the three years ended 31 December 2012, 2013 and 2014, our
finance costs of our continuing operations were RMB1.7 million, RMB3.7 million and RMB1.2 million,
respectively.
Income tax expense
Under the Cayman Islands and the BVI law, we are not subject to any income tax in the Cayman
Islands and the BVI. Hong Kong profits tax is calculated at 16.5% of the estimated assessable profit
during the Track Record Period. No provision for Hong Kong profits tax has been made as we have no
assessable profit arises or derived from Hong Kong during the Track Record Period.
Our income tax expense consists of enterprise income tax we paid/payable in the PRC. Pursuant to
relevant income tax rules and regulations of the PRC, the applicable PRC enterprise income tax rates
during the Track Record Period are 25.0%. Certain of our PRC subsidiaries which are recognised as
primary processing of agricultural produce, namely Greenfresh Ecological Agriculture, Greenfresh
Biological Technology, Shengtai Agricultural Development and Jingxiang Foods were exempted from the
enterprise income tax in the PRC under the PRC EIT Law during the Track Record Period. For other
subsidiaries, under the PRC EIT Law and its implementation regulations, the standard tax rate of the PRC
entities was 25% during the Track Record Period.
Our income tax expenses for the three years ended 31 December 2012, 2013 and 2014 were
RMB10.6 million, RMB6.0 million and RMB2.3 million, respectively. Our effective tax rate was 10.4%,
3.9% and 1.3% during the same periods, respectively.
– 275 –
The reconciliation between the income tax expense and the product of profit before tax multiplied
by the PRC enterprise income tax rate is as follows:
Profit before tax . . . . . . . . . . . . . . . . . . . . . . .
Tax at the domestic income tax rate . . . .
Tax effect of income that is not taxable .
Tax effect of expenses that are
not deductible . . . . . . . . . . . . . . . . . .
Tax effect of temporary difference
not recognised . . . . . . . . . . . . . . . . . .
Tax effect of tax concession . . . . . . . . . .
Tax effect of tax loss not recognised. . . .
Tax effect of utilisation of tax losses not
previously recognised . . . . . . . . . . . .
Overprovision of current year . . . . . . . .
2012
2013
2014
RMB’000
RMB’000
RMB’000
101,817
.....
.....
25,454
(671)
.....
3,639
.....
.....
.....
–
(17,812)
–
153,833
38,458
(585)
391
–
(32,217)
–
.....
.....
–
–
–
–
Income tax expense . . . . . . . . . . . . . . . . . . . . .
10,610
6,047
177,340
44,335
(568)
3,422
633
(45,771)
74
(8)
135
2,252
Our Directors confirm that, during the Track Record Period and up to the Latest Practicable Date,
we had fulfilled all our tax obligations and did not have any unresolved tax disputes with the applicable
tax authorities.
Discontinued operation
Prior to the Reorganisation, Fujian Greenfresh Foods held 100.0% of the equity interest of Minhui
Trading. Minhui Trading is our subsidiary engaged in trading business in the PRC. In June 2012, Fujian
Greenfresh Foods disposed of all equity interest that it held in Minhui Trading. As a result, trading
operation conducted through this disposed subsidiary became our discontinued trading operation. Please
see the sections entitled “Financial Information – Discontinued Operation and its Presentation in the
Consolidated Financial Statements” and “History and the Corporate Structure”.
– 276 –
The results of the discontinued trading operation in 2012, which have been included in the
consolidated statements of profit or loss and other comprehensive income, were as follows:
Period from
1 January 2012 to
25 June 2012
RMB’000
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Business tax and auxiliary charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross Profit . . . . . . . . .
Other income . . . . . . . . .
Selling expenses . . . . . .
Administrative expenses .
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87,868
(75,778)
(4)
.
.
.
.
12,086
42
(267)
(301)
Profit from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,560
(533)
Profit before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,027
–
Profit for the year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,027
RESULTS OF CONTINUING OPERATIONS
Year ended 31 December 2014 compared to year ended 31 December 2013
Revenue
Our revenue increased by 15.7%, from RMB471.5 million for the year ended 31 December 2013 to
RMB545.7 million for the year ended 31 December 2014, as a result of increased sales of our button
mushroom and straw mushroom and king trumpet mushroom and offset by the decreased sales of canned
food and other processed food products. Our increased sales was largely driven by the growth of sales of
our button mushroom and straw mushroom of 83.0% from RMB96.1 million for the year ended 31
December 2013 to RMB175.9 million for the year ended 31 December 2014, which was primarily driven
by an increase in sales volume of our button mushroom and straw mushroom of 73.9% from 13.0 million
kilograms for the year ended 31 December 2013 to 22.5 million kilograms for the year ended 31
December 2014, accompanied by an increase in average selling price of our button mushroom and straw
mushroom by 5.4% from RMB7.4 per kilogram to RMB7.8 per kilogram. The increase in average selling
price of button mushroom and straw mushroom was primarily due to an increase in the cultivation volume
of high grade button mushroom from 2,004 tonnes for the year ended 31 December 2013 to 3,860 tonnes
for the year ended 31 December 2014 cultivated at our industrial cultivation facilities in Chengdu,
Sichuan province which entailed a higher average selling price. The increase in the cultivation volume of
high grade button mushroom was in line with the increased cultivation capacity of button mushroom at
our button mushroom industrial cultivation facilities in Chengdu, Sichuan province from 3,024 tonnes for
the year ended 31 December 2013 to 4,838 tonnes for the year ended 31 December 2014.
– 277 –
The increase in sales volume of our button mushroom and straw mushroom was primarily the result
of (i) an increase in cultivation volume of our button mushroom and straw mushroom from 14,430 tonnes
for the year ended 31 December 2013 to 28,134 tonnes for the year ended 31 December 2014 as a result
of the significant expansion of cultivation capacity of button mushroom and straw mushroom at our
cultivation facilities in Zhangzhou, Fujian province in June 2013 and cultivation capacity of button
mushroom at our industrial cultivation facilities in Chengdu, Sichuan province in July 2013, primarily
due to an increase in the cultivation area to 892,191 sq.m. for the year ended 31 December 2013 at our
cultivation facilities in Zhangzhou, Fujian province and an increase in the cultivation area from 21,600
sq.m. for the year ended 31 December 2013 to 28,800 sq.m. for the year ended 31 December 2014 at our
industrial cultivation facilities in Chengdu, Sichuan province; and (ii) the increase in sales in eastern,
central and southwestern regions of the PRC. The increased sales in eastern region were primarily due to
the increased average sales per processed mushroom manufacturer as a result of the expansion of
cultivation capacity of button mushroom and straw mushroom at our cultivation facilities in Zhangzhou,
Fujian province though the number of processed mushroom manufacturers decreased from ten for the
year ended 31 December 2013 to eight for the year ended 31 December 2014. The increased sales in
central region were due to the expansion of cultivation capacity of button mushroom and straw mushroom
at our cultivation facilities in Zhangzhou, Fujian province while the number of the distributors remained
same being two distributors for the year ended 31 December 2014. The increased sales in southwestern
region were primarily due to the increase in the number of distributors from five for the year ended 31
December 2013 to seven for the year ended 31 December 2014 as a result of the expansion of cultivation
capacity of button mushroom at our industrial cultivation facilities in Chengdu, Sichuan province.
The increase in sales volume of our button mushroom and straw mushroom was also contributed by
(i) the increase in overall market demand for button mushroom and straw mushroom in the PRC driven by
improved living standards, higher disposable incomes and improved health awareness to increase food
expenditures in edible fungi; and (ii) increased recognition of our brand as a result of our marketing and
promotional activities such as liaising with selected distributors in all regions where we sold button
mushroom and straw mushroom by telephone calls to collect market intelligence including market
demand and market prices of button mushroom and straw mushroom and assisting such distributors to
improve sales capabilities and sales performance by providing such distributors with sales guidance and
other market information, as well as participating in domestic and international trade shows and food
exhibitions.
Our increased revenue was also driven by the growth of sales of our king trumpet mushroom of 1.5%
from RMB196.3 million for the year ended 31 December 2013 to RMB199.3 million for the year ended
31 December 2014, which was primarily driven by an increase in sales volume of our king trumpet
mushroom of 12.9% from 23.6 million kilograms for the year ended 31 December 2013 to 26.6 million
kilograms for the year ended 31 December 2014, partially offset by a decrease in average selling price per
kilogram of 9.6% from RMB8.3 to RMB7.5 primarily due to the increased overall cultivation capacity
and supply in the PRC which drove down the average selling price as king trumpet mushroom became
increasingly popular and accepted in the PRC.
– 278 –
The increase in sales volume of our king trumpet mushroom was primarily the result of (i) an
increase in cultivation volume of our king trumpet mushroom from 16,828 tonnes for the year ended 31
December 2013 to 18,334 tonnes for the year ended 31 December 2014 as a result of the expansion of
cultivation capacity of king trumpet mushroom at our cultivation facilities of Zhangpu (No. 3 facility) in
Zhangzhou, Fujian province and Changzhou, Jiangsu province in May 2013, from 1,134 tonnes and 1,304
tonnes for the year ended 31 December 2013 to 2,016 tonnes and 2,016 tonnes for the year ended 31
December 2014, respectively; and (ii) the increase in sales to our distributors in southern, northern,
central and southwestern regions of the PRC. The increased sales in southern and central regions were in
line with the increase in the number of distributors in southern and central regions from six and three for
the year ended 31 December 2013 to seven and four for the year ended 31 December 2014, respectively.
The increased sales in northern region were due to the increased demand from the distributor in such
region for the year ended 31 December 2014 while the number of distributor remained same being one
distributor for the year ended 31 December 2014. The increased sales in southwestern region were due to
the increased average sales per distributor for the year ended 31 December 2014 though the number of
distributors in southwestern region decreased from five for the year ended 31 December 2013 to two for
the year ended 31 December 2014. The distributors we terminated in southwestern region in 2014 were
small-scale distributors with minimal purchase amount, one-off distributors and/or distributors with
unsatisfactory business operation capabilities.
The increase in sales volume of our king trumpet mushroom was also contributed by (i) the increase
in overall market demand for king trumpet mushroom in the PRC driven by improved living standards,
higher disposable incomes and improved health awareness to increase food expenditures in edible fungi;
and (ii) increased recognition of our brand as a result of our marketing and promotional activities such as
liaising with selected distributors in all regions where we sold king trumpet mushroom by telephone calls
to collect market intelligence including market demand and market prices of king trumpet mushroom and
assisting such distributors to improve sales capabilities and sales performance by providing such
distributors with sales guidance and other market information, as well as participating in domestic and
international trade shows and food exhibitions.
The revenue generated from the sales of our canned food decreased by 3.5% from RMB129.2
million for the year ended 31 December 2013 to RMB124.7 million for the year ended 31 December
2014, primarily attributable to a decrease in revenue generated from the sales of our canned food such as
canned bamboo shoots, canned sweet corn and canned mixed mushroom from RMB7.7 million, RMB2.3
million and RMB5.6 million for the year ended 31 December 2013 to RMB2.7 million, RMB0.7 million
and RMB1.0 million for the year ended 31 December 2014, respectively, as a result of a decrease of
orders of such products from trading companies. The decrease in revenue was partially offset by an
increase in average selling price of canned food by 1.3% from RMB7.5 per kilogram to RMB7.6 per
kilogram primarily due to an increase in the average selling price of canned baby corn and canned mix
vegetables by 8.9% and 30.0% from RMB7.9 per kilogram and RMB5.0 per kilogram for the year ended
31 December 2013 to RMB8.6 per kilogram and RMB6.5 per kilogram for the year ended 31 December
2014, respectively.
The revenue generated from the sales of other processed food products decreased by 8.1% from
RMB49.9 million for the year ended 31 December 2013 to RMB45.8 million for the year ended 31
December 2014, primarily attributable to a decrease in sales volume of our snacks as a result of the
cessation of production of snacks in November 2013, because the return on snacks (taking the advertising
and promotion expenses into account) did not meet our expectation and considering the required
investment of resources in the marketing efforts to establish our brand of snack. Therefore we decided to
focus on our main business of the cultivation and sales of fresh edible fungi produce.
– 279 –
Our gain arising from changes in fair value of biological assets less cost to sell increased by 43.9%,
31 December 2014, primarily attributable to an increase in the cultivation volume of our fresh edible
fungi produce as a result of the expansion of cultivation capacity of button mushroom at our cultivation
facilities in Zhangzhou, Fujian province in June 2013 and our industrial cultivation facilities in Chengdu,
Sichuan province in July 2013.
Cost of sales
Our cost of sales increased by 24.5% from RMB442.0 million for the year ended 31 December 2013
to RMB550.4 million for the year ended 31 December 2014.
The increase in our cost of sales was primarily the result of an increase of our cost of raw materials
by 11.5% from RMB215.8 million for the year ended 31 December 2013 to RMB240.7 million for the
year ended 31 December 2014, mainly as a result of an increase in cultivation and production volume of
our fresh edible fungi produce in response to increased demand and sales.
The increase in our cost of sales was also attributable to an increase in the direct labour cost of
34.1% from RMB40.4 million for the year ended 31 December 2013 to RMB54.2 million for the year
ended 31 December 2014 as a result of an increase in the labour contracting fees paid to the individual
farmers for the cultivation services rendered as a result of the expansion of cultivation capacity of our
button mushroom and straw mushroom at our cultivation facilities in Zhangzhou, Fujian province in June
2013.
The increase in our cost of sales can also be attributable to an increase in the cost of cultivation
overheads of 41.4% from RMB32.3 million for the year ended 31 December 2013 to RMB45.7 million for
the year ended 31 December 2014 as a result of the expansion of cultivation capacity of our button
mushroom and straw mushroom at our cultivation facilities in Zhangzhou, Fujian province in June 2013
and cultivation capacity of button mushroom at our industrial cultivation facilities in Chengdu, Sichuan
province in July 2013.
Our business tax and auxiliary charges was RMB0.9 million for the year ended 31 December 2014
which remained stable compared to RMB0.9 million for the year ended 31 December 2013.
Our gross profit increased by 17.3% from RMB175.2 million for the year ended 31 December 2013
to RMB205.5 million for the year ended 31 December 2014, primarily as a result of an increase in the
sales of our button mushroom and straw mushroom and an increase in the average selling price of button
mushroom and straw mushroom. Our overall gross profit margin increased from 37.2% for the year ended
31 December 2013 to 37.7% for the year ended 31 December 2014.
– 280 –
Gross profit generated from the sales of our button mushroom and straw mushroom increased by
ended 31 December 2014, mainly attributable to the increased cultivation and sales of button mushroom
and straw mushroom as a result of the expansion of cultivation capacity of our button mushroom and
straw mushroom at our cultivation facilities in Zhangzhou, Fujian province in June 2013 and cultivation
capacity of button mushroom at our industrial cultivation facilities in Chengdu, Sichuan province in July
2013. The gross profit margin of button mushroom and straw mushroom increased from 52.1% for the
year ended 31 December 2013 to 54.4% for the year ended 31 December 2014, primarily due to an
increase in average selling price of button mushroom and straw mushroom.
Gross profit generated from the sales of our king trumpet mushroom increased by 1.3% from
December 2014, mainly attributable to the increased cultivation and sales of king trumpet mushroom as a
result of the expansion of cultivation capacity of our king trumpet mushroom at our cultivation facilities
in Zhangpu (No.3 facility) in Zhangzhou, Fujian province and Changzhou, Jiangsu province,
respectively, in May 2013. The gross profit margin of king trumpet mushroom remained stable being
42.2% for the year ended 31 December 2014 compared to the gross profit margin of king trumpet
mushroom of 42.2% for the year ended 31 December 2013, primarily as a result of the combination of a
decrease in the average selling price of our king trumpet mushroom and a decrease in average cost of king
trumpet mushroom per kilogram.
Gross profit generated from the sales of our canned food decreased by 16.3% from RMB26.5 million
for the year ended 31 December 2013 to RMB22.2 million for the year ended 31 December 2014, mainly
attributable to the decreased sales volume of our canned food such as canned bamboo shoots, canned
sweet corn and canned mixed mushroom as a result of a decrease of orders of such products from trading
companies. The gross profit margin of canned food decreased from 20.5% for the year ended 31
December 2013 to 17.8% for the year ended 31 December 2014, primarily due to an increase in average
cost of canned food per kilogram.
Gross profit generated from the sales of our other processed food products decreased by 72.7% from
December 2014, mainly attributable to a decrease in the sales volume of our snacks as a result of the
cessation of production of snacks in November 2013. The gross profit margin of other processed food
products decreased from 33.3% for the year ended 31 December 2013 to 9.9% for the year ended 31
December 2014, primarily due to (i) an increase in the cost of button mushroom we purchased to produce
brined mushroom; and (ii) a decrease in sales volume of our snacks which entailed a higher gross profit
margin as a result of the cessation of production of our snacks in November 2013, because the return on
snacks (taking the advertising and promotion expenses into account) did not meet our expectation and
considering the required investment of resources in the marketing efforts to establish our brand of snack.
Therefore we decided to focus on our main business of the cultivation and sales of fresh edible fungi
produce.
– 281 –
Other income
Our other income increased by 45.2% from RMB6.8 million for the year ended 31 December 2013 to
RMB9.9 million for the year ended 31 December 2014, primarily attributable to (i) an increase in input
value-added tax deduction from RMB1.8 million to RMB4.7 million as a result of the increased
intra-group purchase of fresh edible fungi produce for the purpose of manufacturing canned edible fungi
and brined mushroom for the year ended 31 December 2014 and (ii) an increase in government subsidies
and awards from RMB2.2 million for the year ended 31 December 2013 to RMB3.2 million for the year
ended 31 December 2014 as a result of a subsidy of RMB2.5 million received by Greenfresh Ecological
Agriculture for a recycling utilisation project.
Selling expenses
Our selling expenses decreased by 12.0% from RMB6.9 million for the year ended 31 December
2013 to RMB6.1 million for the year ended 31 December 2014, primarily as a result of a decrease in
travelling and entertainment expenses of 50.1% from RMB1.1 million for the year ended 31 December
2013 to RMB0.5 million for the year ended 31 December 2014, which is mainly due to our enhanced
effort to stringently control the travelling and entertainment expenses. The decrease in our selling
expenses was also attributable to a decrease in our other expenses by 89.4%, from RMB1.0 million for the
year ended 31 December 2013 to RMB0.1 million for the year ended 31 December 2014, which is mainly
due to a decrease in trademark related expenses for the year ended 31 December 2014. Such decreases
were partially offset by the increase in advertising and promotion expenses of 73.3% as a result of the
consulting fees we paid to a marketing consultant who is an Independent Third Party in connection with
marketing and promotion of our brands of edible fungi products. As a result of the above, our selling
expenses as a percentage of our revenue of continuing operations decreased from 1.5% for the year ended
31 December 2013 to 1.1% for the year ended 31 December 2014.
Administrative expenses increased by 75.2% from RMB17.6 million for the year ended 31
December 2013 to RMB30.8 million for the year ended 31 December 2014, which was primarily due to an
increase in legal and professional fee of 1,375.9% as a result of the preparation for the Listing. For the
same reason, our administrative expenses as a percentage of our revenue increased from 3.7% for the year
ended 31 December 2013 to 5.7% for the year ended 31 December 2014. Such increase was partially
offset by a decrease in research and development expense of 65.2% primarily due to the investment in
certain research and development projects such as the testing for industrial cultivation of button
mushroom at our cultivation facilities in Zhangzhou, Fujian province was incurred in 2013.
Finance costs
Our finance costs decreased by 68.0% from RMB3.7 million for the year ended 31 December 2013
to RMB1.2 million for the year ended 31 December 2014, due to a decrease in interest on bank
borrowings as a result of a decrease in bank borrowings for the year ended 31 December 2014.
– 282 –
Income tax expense
Our income tax expenses decreased by 62.8% from RMB6.0 million for the year ended 31 December
2013 to RMB2.3 million for the year ended 31 December 2014. Our effective tax rate decreased from
3.9% for the year ended 31 December 2013 to 1.3% for the year ended 31 December 2014. The decrease
in income tax expense was mainly due to the decrease in revenue and profit of processed food products.
The decrease in effective tax rate was mainly due to the increased proportion of income contributed by
our PRC subsidiaries that enjoyed preferential tax treatment.
Profit for the year from continuing operations
As a result of the foregoing, our profit for the year from continuing operations increased by 18.5%
31 December 2014.
Year ended 31 December 2013 compared to year ended 31 December 2012
Revenue
Our revenue increased by 10.8%, from RMB425.4 million for the year ended 31 December 2012 to
RMB471.5 million for the year ended 31 December 2013, as a result of increased sales of our king
trumpet mushroom, button mushroom and straw mushroom, partially offset by the decreased sales of
canned food and other processed food products. Our increased sales was largely driven by the growth of
sales of our king trumpet mushroom of 44.7% from RMB135.6 million for the year ended 31 December
2012 to RMB196.3 million for the year ended 31 December 2013, which was primarily driven by an
increase in sales volume of our king trumpet mushroom of 62.7% from 14.5 million kilograms for the
year ended 31 December 2012 to 23.6 million kilograms for the year ended 31 December 2013, partially
offset by a decrease in average selling price of king trumpet mushroom by 11.7% from RMB9.4 per
kilogram to RMB8.3 per kilogram primarily due to the increased overall cultivation capacity and supply
in the PRC which drove down the average selling price as king trumpet mushroom became increasingly
popular in the PRC.
The increase in sales volume of our king trumpet mushroom was primarily the result of (i) an
increase in cultivation volume of our king trumpet mushroom from 12,216 tonnes for the year ended 31
December 2012 to 16,828 tonnes for the year ended 31 December 2013 due to the commencement of
production and expansion of cultivation capacity of king trumpet mushroom at our cultivation facilities of
Zhangpu (No. 3 facility) in Zhangzhou, Fujian province in 2013 with a designed cultivation capacity of
1,134 tonnes, the expansion of cultivation capacity of king trumpet mushroom at our cultivation facilities
in Dandong, Liaoning province in 2013 from 2,457 tonnes for the year ended 31 December 2012 to 5,292
tonnes for the year ended 31 December 2013 and the commencement of production at our cultivation
facilities in Changzhou, Jiangsu province in April 2013 with a designed cultivation capacity of 1,304
tonnes; and (ii) the increase in sales to our distributors in southern, northern, central, northeastern,
southwestern and northwestern regions of the PRC. The increased sales in southern, central,
southwestern and northwestern regions were in line with the increase in the number of distributors from
– 283 –
four, two, two and two for the year ended 31 December 2013 to six, three, five and five for the year ended
31 December 2014, respectively, as a result of the commencement of our cultivation facilities of Zhangpu
(No. 3) facility in Zhangzhou, Fujian province and our cultivation facilities in Changzhou, Jiangsu
province. The increased sales in northern region were due to the increased demand from the distributor in
such region for the year ended 31 December 2013 while the number of distributor remained same being
one distributor for the year ended 31 December 2013. The increased sales in northeastern region were due
to the increased average sales per distributor as a result of the expansion of cultivation capacity at our
cultivation facilities in Dandong, Liaoning province though the number of distributors in northeastern
region decreased from twenty one distributors for the year ended 31 December 2012 to ten distributors for
the year ended 31 December 2013. The distributors we terminated in northeastern region in 2014 were
small-scale distributors with minimal purchase amount, one-off distributors and/or distributors with
unsatisfactory business operation capabilities.
The increase in sales volume of our king trumpet mushroom was also contributed by (i) the increase
in overall market demand for king trumpet mushroom in the PRC driven by improved living standards,
higher disposable incomes and improved health awareness to increase food expenditures in edible fungi;
and (ii) increased recognition of our brand as a result of our marketing and promotional activities such as
liaising with selected distributors in all regions where we sold button mushroom and straw mushroom by
telephone calls to collect market intelligence including market demand and market prices of king trumpet
mushroom and assisting such distributors to improve sales capabilities and sales performance by
providing such distributors with sales guidance and other market information, as well as participating in
domestic and international trade shows and food exhibitions.
Our increased revenue was also driven by the growth of sales of our button mushroom and straw
mushroom of 66.7% from RMB57.6 million for the year ended 31 December 2012 to RMB96.1 million
for the year ended 31 December 2013, which was primarily driven by an increase in sales volume of our
button mushroom and straw mushroom of 36.6% from 9.5 million kilograms for the year ended 31
December 2012 to 13.0 million kilograms for the year ended 31 December 2013, accompanied by an
increase in average selling price of button mushroom and straw mushroom by 21.3% from RMB6.1 per
kilogram to RMB7.4 per kilogram. The increase in average selling price of button mushroom and straw
mushroom was primarily due to an increase in the cultivation volume of high grade button mushroom
from 38 tonnes for the year ended 31 December 2012 to 2,004 tonnes for the year ended 31 December
2013 cultivated at our industrial cultivation facilities in Chengdu, Sichuan province which entailed a
higher average selling price. The increase in the cultivation volume of high grade button mushroom was
in line with increased cultivation capacity at our industrial cultivation facilities in Chengdu, Sichuan
province from 60 tonnes for the year ended 31 December 2012 to 3,024 tonnes for the year ended 31
December 2013.
The increase in sales volume of our button mushroom and straw mushroom was primarily the result
of (i) an increase in cultivation volume of our button mushroom and straw mushroom from 12,588 tonnes
for the year ended 31 December 2012 to 14,430 tonnes for the year ended 31 December 2013 due to the
commencement of production at our button mushroom industrial cultivation facilities in Chengdu,
Sichuan province in October 2012 with a designed cultivation capacity of 60 tonnes for the year ended 31
December 2012 and further increased to 3,024 tonnes for the year ended 31 December 2013, the
expansion of cultivation capacity of button mushroom at our traditional cultivation facilities in Chengdu,
Sichuan province in November 2013 as a result of an increase in the cultivation area in those facilities
from 223,445 sq.m. for the year ended 31 December 2012 to 677,005 sq.m. for the year ended 31
December 2013, and the expansion of cultivation capacity of button mushroom and straw mushroom at
– 284 –
our cultivation facilities in Zhangzhou, Fujian province in May and August 2013 as a result of an increase
in the cultivation area in those facilities from 422,872 sq.m. for the year ended 31 December 2012 to
892,191 sq.m. for the year ended 31 December 2013; and (ii) the increase in sales in eastern and
southwestern regions of the PRC. The increased sales in the eastern region were primarily due to the
increase in the number of processed mushroom manufacturers from seven for the year ended 31
December 2013 to ten for the year ended 31 December 2014 as a result of the expansion of cultivation
capacity of button mushroom and straw mushroom at our cultivation facilities in Zhangzhou, Fujian
province. The increased sales in southwestern region were in line with the increase of the number of
distributors from four for the year ended 31 December 2013 to five for the year ended 31 December 2014
as a result of the expansion of cultivation capacity of button mushroom at our industrial cultivation
facilities in Chengdu, Sichuan province.
The increase in sales volume of our button mushroom and straw mushroom was also contributed by
(i) the increase in overall market demand for button mushroom and straw mushroom in the PRC driven by
improved living standards, higher disposable incomes and improved health awareness to increase food
expenditures in edible fungi; and (ii) increased recognition of our brand as a result of our marketing and
promotional activities such as liaising with selected distributors in all regions where we sold button
mushroom and straw mushroom by telephone calls to collect market intelligence including market
demand and market prices of button mushroom and straw mushroom and assisting such distributors to
improve sales capabilities and sales performance by providing such distributors with sales guidance and
other market information, as well as participating in domestic and international trade shows and food
exhibitions.
The revenue generated from the sales of our canned food decreased by 22.4% from RMB166.5
million for the year ended 31 December 2012 to RMB129.2 million for the year ended 31 December
2013, primarily attributable to a decrease in revenue generated from the sales of our canned food such as
canned edible fungi, canned green bean and canned bamboo shoots from RMB93.2 million, RMB18.0
million and RMB13.3 million for the year ended 31 December 2012 to RMB60.8 million, RMB9.3
million and RMB7.7 million for the year ended 31 December 2013, respectively, as a result of a decrease
of orders of such products from trading companies, accompanied by a decrease in average selling price of
canned food by 8.5% from RMB8.2 per kilogram to RMB7.5 per kilogram primarily due to a decrease in
the average selling price of canned button mushroom, which is a major kind of canned food we produced
and sold, from RMB9.9 per kilogram for the year ended 31 December 2012 to RMB9.6 per kilogram for
the year ended 31 December 2013.
The revenue generated from the sales of other processed food products also decreased by 24.1%
from RMB65.7 million for the year ended 31 December 2012 to RMB49.9 million for the year ended 31
December 2013, primarily attributable to a decrease in sales volume of our brined mushroom as a result
of a decrease of orders of such products and a decrease in sales volume of snacks as we decided to
discontinue the production of snacks.
– 285 –
Our gain arising from changes in fair value of biological assets less cost to sell increased by 49.8%,
December 2013, primarily attributable to an increase in cultivation volume of our fresh edible fungi
produce as a result of (i) the commencement of production and expansion of cultivation capacity of king
trumpet mushroom at our cultivation facilities of Zhangpu (No. 3 facility) in Zhangzhou, Fujian province
in 2013, the expansion of cultivation capacity at our cultivation facilities in Dandong, Liaoning province
in 2013 and the commencement of production at our cultivation facilities in Changzhou, Jiangsu province
in April 2013; and (ii) the commencement of production at our button mushroom industrial cultivation
facilities in Chengdu, Sichuan province in October 2012, the expansion of cultivation capacity of button
mushroom at our traditional cultivation facilities in Chengdu, Sichuan province in November 2013 and
the expansion of cultivation capacity of button mushroom and straw mushroom at our cultivation
facilities in Zhangzhou, Fujian province in May and August 2013.
Cost of sales
Our cost of sales increased by 10.6% from RMB399.7 million for the year ended 31 December 2012
to RMB442.0 million for the year ended 31 December 2013.
The increase in our cost of sales was primarily due to an increase in the cost of cultivation overheads
of 29.8% from RMB24.9 million for the year ended 31 December 2012 to RMB32.3 million for the year
ended 31 December 2013 as a result of (i) the commencement of production and expansion of cultivation
capacity of king trumpet mushroom at our cultivation facilities of Zhangpu (No. 3 facility) in Zhangzhou,
Fujian province in 2013, the expansion of cultivation capacity of king trumpet mushroom at our
cultivation facilities in Dandong, Liaoning province in 2013 and the commencement of production at our
cultivation facilities in Changzhou, Jiangsu province in April 2013; and (ii) the commencement of
production at our button mushroom industrial cultivation facilities in Chengdu, Sichuan province in
October 2012, the expansion of cultivation capacity of button mushroom at our traditional cultivation
facilities in Chengdu, Sichuan province in November 2013 and the expansion of cultivation capacity of
button mushroom and straw mushroom at our cultivation facilities in Zhangzhou, Fujian province in May
and August 2013.
The increase in our cost of sales was partially offset by a decrease in our cost of raw materials by
ended 31 December 2013, mainly as a result of a decrease in fresh fruit and vegetables and packaging
materials due to a decrease in production volume of our canned food and other processed food products
for the year ended 31 December 2013. Furthermore, manufacturing overheads decreased by 15.3% from
December 2013 as a result of a decrease in production volume of our canned food and other processed
food products for the year ended 31 December 2013.
– 286 –
Our business tax and auxiliary charges decreased by 49.1% from RMB1.8 million for the year ended
31 December 2012 to RMB0.9 million for the year ended 31 December 2013, primarily attributable to a
decreased in revenue generated from the sales of processed food products for the year ended 31 December
2013.
Our gross profit increased by 43.8% from RMB121.8 million for the year ended 31 December 2012
to RMB175.2 million for the year ended 31 December 2013, primarily as a result of an increase in the
sales of our king trumpet mushroom, button mushroom and straw mushroom. Our overall gross profit
margin increased from 28.6% for the year ended 31 December 2012 to 37.2% for the year ended 31
December 2013.
Gross profit generated from the sales of our king trumpet mushroom increased by 57.1% from
December 2013, mainly attributable to the increased sales of king trumpet mushroom, button mushroom
and straw mushroom as a result of the commencement of production and expansion of cultivation
capacity of king trumpet mushroom at our cultivation facilities of Zhangpu (No. 3 facility) in Zhangzhou,
Fujian province in 2013, the expansion of cultivation capacity of king trumpet mushroom at our
cultivation facilities in Dandong, Liaoning province in 2013 and the commencement of production at our
cultivation facilities in Changzhou, Jiangsu province in April 2013. The gross profit margin of king
trumpet mushroom increased from 38.9% for the year ended 31 December 2012 to 42.2% for the year
ended 31 December 2013, primarily due to a decrease in average cost of king trumpet mushroom per
kilogram.
Gross profit generated from the sales of our button mushroom and straw mushroom increased by
156.5% from RMB19.5 million for the year ended 31 December 2012 to RMB50.1 million, mainly
attributable to the increased sales of button mushroom and straw mushroom as a result of the
commencement of production at our button mushroom industrial cultivation facilities in Chengdu,
Sichuan province in October 2012, the expansion of cultivation capacity of button mushroom at our
traditional cultivation facilities in Chengdu, Sichuan province in November 2013 and the expansion of
cultivation capacity of button mushroom and straw mushroom at our cultivation facilities in Zhangzhou,
Fujian province in May and August 2013. The gross profit margin of button mushroom and straw
mushroom increased from 33.9% for the year ended 31 December 2012 to 52.1% for the year ended 31
December 2013, primarily due to an increase in average selling price of button mushroom and straw
mushroom and a decrease in average cost of button mushroom and straw mushroom per kilogram.
Gross profit generated from the sales of our canned food decreased by 11.3% from RMB29.9 million
for the year ended 31 December 2012 to RMB26.5 million for the year ended 31 December 2013, mainly
attributable to a decrease in the sales of our canned food such as canned edible fungi, canned green bean
and canned bamboo shoots as a result of a decrease of orders of such products from trading companies.
The gross profit margin of canned food increased from 18.0% for the year ended 31 December 2012 to
20.5% for the year ended 31 December 2013, primarily due to a decrease in average cost of canned food
per kilogram.
– 287 –
Gross profit generated from the sales of our other processed food products decreased by 22.5% from
December 2013, mainly attributable to a decrease in the sales of our brined mushroom as a result of a
decrease of orders of such products and a decrease in the sales of snacks as we decided to discontinue the
production of snacks in 2013. The gross profit margin of other processed food products increased from
32.6% for the year ended 31 December 2012 to 33.3% for the year ended 31 December 2013, primarily
due to an increase in the portion of sales volume of snacks which entailed a higher gross margin in the
sales volume of our other processed food products as a result of the increase in production volume and
marketing efforts.
Other income
Our other income increased by 17.9% from RMB5.8 million for the year ended 31 December 2012 to
RMB6.8 million for the year ended 31 December 2013, primarily attributable to a substantial increase in
the government subsidies from RMB0.6 million to RMB2.2 million as a result of one-off government
monetary awards and subsidies of RMB1.6 million for well-known trademark and an agricultural
industrialisation project in 2013 and an increase in interest income on bank deposits from RMB0.4
million for the year ended 31 December 2012 to RMB2.4 million for the year ended 31 December 2013.
Selling expenses
Our selling expenses increased by 17.2% from RMB5.9 million for the year ended 31 December
2012 to RMB6.9 million for the year ended 31 December 2013, primarily as a result of an increase in
travelling and entertainment expenses of 58.3% from RMB0.7 million for the year ended 31 December
2012 to RMB1.1 million for the year ended 31 December 2013, which is mainly due to the increased
marketing effort for our other processed food products in 2013. Such increase was partially offset by a
decrease in the advertising and promotion expenses of 20.8%, primarily due to the decreased advertising
and promotion expenses for our preserved vegetables and snacks in 2013. Our selling expenses as a
percentage of our revenue of continuing operations remained stable at 1.5% for the year ended 31
December 2013 compared to 1.4% for the year ended 31 December 2012.
Administrative expenses decreased by 3.6% from RMB18.2 million for the year ended 31 December
2012 to RMB17.6 million for the year ended 31 December 2013, which was primarily due to a decrease in
legal and professional fee of 44.6% as a result of decreased legal and professional fee in connection with
our equity financing in 2013 and a decrease in rental expenses of 44.6% as a result of a decrease in the
number of motor vehicles we rented in 2013. Our administrative expenses as a percentage of our revenue
decreased from 4.3% for the year ended 31 December 2012 to 3.7% for the year ended 31 December 2013,
as we continued to improve operating efficiency as a result of economies of scale. Such decrease was
partially offset by the increase in salaries and employee benefits of our employees engaged in
administrative activities of 11.4% as we continued to grow.
Finance costs
Our finance costs increased by 122.6% from RMB1.7 million for the year ended 31 December 2012
to RMB3.7 million for the year ended 31 December 2013, primarily as a result of an increase in interest
on bank borrowings as a result of an increase in bank borrowings for the year ended 31 December 2013.
– 288 –
Income tax expense
Our income tax expense decreased by 43.0% from RMB10.6 million for the year ended 31
December 2012 to RMB6.0 million for the year ended 31 December 2013. Our effective tax rate
decreased from 10.4% for the year ended 31 December 2012 to 3.9% for the year ended 31 December
2013. The decrease in income tax expense was mainly due to the decrease in revenue and profit of
processed food products. The decrease in effective tax rate was mainly due to the increased proportion of
income contributed by our PRC subsidiaries that enjoyed preferential tax treatment.
Profit for the year from continuing operations
As a result of the foregoing, our profit for the year from continuing operations increased by 62.0%
December 2013.
Discontinued operation
Profits from our discontinued trading operation decreased from RMB9.9 million for the year ended
31 December 2012 to nil for the year ended 31 December 2013 as we disposed Minhui Trading in 2012.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow
The following table sets forth a summary of our cash flows information for the years indicated:
Net cash generated from operating activities . . .
Net cash used in investing activities . . . . . . . . .
Net cash (used in)/generated from
financing activities . . . . . . . . . . . . . . . . . . .
2012
2013
2014
RMB’000
RMB’000
RMB’000
93,239
(42,067)
84,898
(51,362)
171,223
(57,582)
(23,115)
14,023
68,031
Net increase in cash and
cash equivalents. . . . . . . . . . . . . . . . . . . . . .
beginning of the year . . . . . . . . . . . . . . . . . .
28,057
47,559
181,672
79,231
107,288
154,847
107,288
154,847
336,519
Cash flows generated from operating activities
We derive our cash inflow from operating activities principally from the receipt of payments for the
sale of our products. Our cash outflow from operating activities is principally for purchases of raw
materials, salaries and employee benefits, cultivation overheads and manufacturing overheads.
– 289 –
For the year ended 31 December 2014, we had net cash generated from operating activities of
RMB171.2 million, which was primarily attributable to operating profit before working capital changes
of RMB397.8 million and an increase in accruals and other payables of RMB8.6 million primarily due to
(i) our increased salaries and employee benefits as a result of the increase in the number of our employees
and general level of salaries and employee benefits for employees and (ii) legal and professional fee
incurred for the purpose of the Listing. These cash inflows were partially offset by (i) an increase in
biological assets of RMB212.9 million, primarily due to our continued increase in our cultivation
capacity at our cultivation facilities; (ii) an increase in trade receivables of RMB12.0 million, primarily
due to our increased sales of fresh edible fungi produce; and (iii) an increase in deposits, prepayments
and other receivables of RMB9.1 million, primarily due to an increase in prepayment for canned food to
be purchased by Greenfresh HK from canned food manufactures in the PRC because we were not granted
credit term as Greenfresh HK commenced operation in 2014 and an increase in the receivables due from
individual farmers related to our purchase of king trumpet mushroom.
RMB84.9 million, which was primarily attributable to operating profit before working capital changes of
RMB311.3 million and an increase in trade payables of RMB6.0 million primarily due to our increased
purchase of raw materials as a result of an increase in volume of cultivation, production and sales of our
products and increased purchase of king trumpet mushroom from individual farmers. These cash inflows
were partially offset by (i) an increase in biological assets of RMB190.9 million, primarily due to our
continued increase in our cultivation capacity at our cultivation facilities; (ii) a decrease in accruals and
other payables of RMB8.5 million, primarily due to the settlement of acquisition price payable related to
the acquisition of 5.0% equity interests in Zhangzhou Greenfresh from Mr. Dai Guanglong and settlement
of prepayment of purchase of our canned food by Minhui Trading in 2012; and (iii) an increase in
inventories of RMB7.2 million, primarily due to the increase in raw materials for the production of
canned food as a result of the increase in the orders from trading companies for our products in 2013.
RMB93.2 million, which was primarily attributable to operating profit before working capital changes of
RMB220.3 million and a decrease in inventories of RMB15.3 million, primarily due to the decrease in
work-in-progress and finished goods as a result of the decrease in the orders from trading companies for
our canned food in the fourth quarter of 2012 and our tightening of control of inventories level in 2012.
These cash inflows were partially offset by (i) an increase in biological assets of RMB97.3 million,
primarily due to our continued increase in our cultivation capacity at our cultivation facilities; (ii) an
increase in deposits, prepayments and other receivables of RMB23.7 million, primarily due to (a) an
increase in rental prepayment of our button mushroom and straw mushroom cultivation facilities in
Zhangzhou, Fujian province and our industrial cultivation facilities in Chengdu, Sichuan province; (b) an
increase in rental deposit payment for the cultivation facilities at Dandong, Liaoning province; and (c) an
increase in the prepayment to individual farmers for the purchase of king trumpet mushroom; and (iii) an
increase in trade receivables of RMB17.1 million, primarily due to the increased sales of our processed
food products in 2012.
Cash flows used in investing activities
Our cash outflow for investing activities primarily consisted of purchases of property, plant and
equipment, purchases of prepaid land lease payments, money paid for acquisition of land use rights and
advance to a Director. Our cash inflow for investing activities primarily consisted of interest received on
bank deposit, repayment of loan from a director and proceeds from disposal of property, plant and
equipment.
– 290 –
For the year ended 31 December 2014, our net cash used in investing activities amounted to
RMB57.6 million, which was primarily due to (i) the purchase of property, plant and equipment of
RMB20.7 million which was mainly related to the construction of king trumpet mushroom
bottle-cultivation facilities and dormitory building at our cultivation facilities of Jiaomei in Zhangzhou,
Fujian province and the construction of production plants and office building at our production facilities
in Zhangzhou, Fujian province and (ii) the prepayment for acquisition of a parcel of land in Zhangzhou,
Fujian province of RMB38.7 million for Zhangzhou Biological Technology Food Industry Park. Such
cash outflow were partially offset by the interest received on bank deposit of RMB1.8 million.
RMB51.4 million, which was primarily due to the purchase of property, plant and equipment of RMB31.6
million which was mainly related to the construction of king trumpet mushroom bottle-cultivation
facilities and dormitory building at our cultivation facilities of Jiaomei in Zhangzhou, Fujian province
and the construction of production plants and office building at our production facilities in Zhangzhou,
Fujian province, and prepayment for acquisition of a piece of land in Hezhou, Guangxi Zhuang
Autonomous Region of RMB43.8 million for the purpose of our expansion of cultivation capacity of king
trumpet mushroom and canned food production capacity in the future. Such cash outflow were offset by
(i) the repayment of a loan from Mr. Zheng Songhui of RMB21.6 million and (ii) the interest received on
bank deposit of RMB2.4 million.
RMB42.1 million, which primarily due to (i) the prepaid land lease payments of RMB20.3 million which
was mainly related to the purchase of land for our king trumpet mushroom cultivation facilities and
production facilities of Jiaomei in Zhangzhou, Fujian province; (ii) the purchase of property, plant and
equipment of RMB22.9 million, which was mainly related to the construction of production plants and
office building at our production facilities in Zhangzhou, Fujian province, the construction of dormitory
building at our cultivation facilities of Jiaomei in Zhangzhou, Fujian province and purchase of equipment
and machinery; and (iii) the advance to a Mr. Zheng Songhui RMB1.3 million for investment purpose.
These cash outflows were partially offset by the interest received on the bank deposit and an advance to
Mr. Zheng Songhui of RMB2.4 million.
Cash flows (used in)/generated from financing activities
Our cash inflow for financing activities primarily consisted of new bank borrowings and capital
injection upon issuance of shares. Our cash outflow for financing activities primarily consisted of
repayments of bank borrowings and acquisition of equity interests of subsidiaries.
For the year ended 31 December 2014, our net cash generated from financing activities amounted to
RMB68.0 million, which was primarily related to the subscription of shares of our Company by Grand
Ample of RMB69.7 million and new bank borrowing raised of RMB18.0 million. These cash inflows
were offset by the repayment of bank borrowings of RMB20.0 million.
For the year ended 31 December 2013, our net cash generated from financing activities amounted to
RMB14.0 million, which was primarily related to the subscription of shares of our Company by COFCO
Fund of RMB59.8 million and new bank borrowing raised of RMB20.0 million. These cash inflows were
offset by the repayment of bank borrowings of RMB65.8 million.
– 291 –
For the year ended 31 December 2012, our net cash used in financing activities amounted to
RMB23.1 million, which was primarily related to the acquisition of 95.0% and 5.0% equity interests in
Fujian Greenfresh Foods from Mr. Zheng Songhui and Mr. Zheng Tianming, respectively by Jingxiang
Foods of RMB69.0 million under Reorganisation and the repayment of bank borrowing of RMB39.9
million. These cash outflows were offset by the new bank borrowings of RMB85.8 million.
Current Assets and Liabilities
The following table sets forth details of our current assets and current liabilities as at the dates
indicated:
As at 31 December
2012
2013
2014
RMB’000
RMB’000
RMB’000
As at
30 April 2015
RMB’000
(Unaudited)
Current assets
Inventories . . . . . . . . .
Biological assets . . . . .
Trade receivables . . . . .
Deposits, prepayments,
and other receivables
Due from a director . . .
Due from shareholders .
Bank and cash balances
..........
..........
..........
19,467
47,691
41,670
26,663
91,949
46,837
23,759
93,707
58,854
63,449
18,991
43,916
.
.
.
.
15,067
21,632
328
107,288
65,257
–
328
154,847
113,039
–
–
336,519
110,012
–
–
416,842
Total current assets . . . . . . . . . . . .
253,143
385,881
625,878
653,210
.
.
.
.
.
10,139
19,744
65,800
–
5,674
16,176
11,254
20,000
2
1,134
16,480
19,844
18,000
–
212
13,502
14,818
10,000
–
160
Total current liabilities. . . . . . . . . .
101,357
48,566
54,536
38,480
Net current assets . . . . . . . . . . . . . .
151,786
337,315
571,432
614,730
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Current liabilities
Trade payables. . . . . . . . . . .
Accruals and other payables .
Bank loans . . . . . . . . . . . . .
Due to a director . . . . . . . . .
Current tax liabilities . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
– 292 –
We had net current assets of RMB151.8 million, RMB337.3 million and RMB571.4 million as at 31
December 2012, 2013 and 2014. We had net current assets of RMB614.7 million as at 30 April 2015,
being the Latest Practicable Date for liquidity purposes.
Our net current assets increased from RMB151.8 million as at 31 December 2012 to RMB337.3
million as at 31 December 2013. The increase was primarily attributable to (i) an increase of deposits,
prepayments and other receivables of RMB50.2 million which was due to the prepaid land lease payment
related to the acquisition of land use right of a parcel of land in Hezhou, Guangxi Zhuang Autonomous
Region for developing our cultivation and production facilities for king trumpet mushroom and canned
food in the future; (ii) an increase of bank and cash balances of RMB47.6 million which was due to the
increased revenue generated from our sales of our products in 2013 and the issuance of shares to COFCO
Fund at a consideration of US$9.5 million; (iii) an increase of biological assets of RMB44.3 million as a
result of an increase in cultivation capacity at our button mushroom and straw mushroom cultivation
facilities in Zhangzhou, Fujian province and the commencement of production at our cultivation facilities
in Changzhou, Jiangsu province, accompanied by an increase in average selling price of button
mushroom and straw mushroom in 2013; and (iv) a decrease of bank loans of RMB45.8 million due to the
repayment of bank loans, partially offset by a decrease of amounts due from a director of RMB21.6
million due to the repayment of the advance by Mr. Zheng Songhui.
Our net current assets increased from RMB337.3 million as at 31 December 2013 to RMB571.4
million as at 31 December 2014. The increase was primarily attributable to an increase in bank and cash
balances of RMB181.7 million which was due to (i) the increased revenue generated from our sales of our
products in 2014, (ii) the issuance of shares to Grand Ample at the consideration of RMB70.9 million in
2014 and (iii) the increase of deposits, prepayment and other receivables of RMB47.8 million mainly as
a result of the prepayment for acquisition of a parcel of land in Zhangzhou, Fujian province of RMB38.7
million for Zhangzhou Biological Technology Food Industry Park, partially offset by an increase in
accruals and other payables of RMB8.6 million as a result of legal and professional fee payable for the
purpose of Listing.
– 293 –
CERTAIN ITEMS OF CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
Inventories
Our inventories primarily consist of raw materials, work-in-progress and finished goods related to
our fresh edible fungi produce and processed food products. The following table sets forth the breakdown
of our inventories as at the dates indicated:
As at 31 December
2012
2013
2014
RMB’000
RMB’000
RMB’000
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . .
Work in progress . . . . . . . . . . . . . . . . . . . . . . .
Finished goods . . . . . . . . . . . . . . . . . . . . . . . .
4,755
11,594
3,118
11,633
10,648
4,382
8,213
14,389
1,157
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19,467
26,663
23,759
Our inventories increased by 37.0% from RMB19.5 million as at 31 December 2012 to RMB26.6
million as at 31 December 2013 which was primarily attributable to an increase in raw materials as a
result of an increase of orders of our canned food from trading companies near the year end of 2013. Our
inventories decreased by 10.9% from RMB26.7 million as at 31 December 2013 to RMB23.8 million as at
31 December 2014 which was primarily attributable to (i) a decrease in the cost of raw materials as a
result of the decreased cost of packaging materials with respect to our canned food in 2014 and the
decreased stock of packaging materials with respect to our canned food in the fourth quarter of 2014 and
(ii) a decrease in finished goods as a result of a decrease of orders of our canned from trading companies
near the year end of 2014.
We value inventories at the lower of cost and net realisable value. Cost is determined on weighted
average basis and, in the case of work in progress and finished goods, comprises direct materials, direct
labour and an appropriate proportion of all production overheads expenditure, and where appropriate,
labour contracting fees. Net realisable value is based on estimated selling prices in the ordinary course of
business, less the estimated costs of completion and the estimated costs necessary to make the sale.
The following table sets forth our average inventory turnover days for the periods indicated:
2012
Average inventory turnover days (1) . . . . . . . . . .
2013
21.8
2014
16.1
15.5
Note:
(1)
Average inventory turnover days is calculated as the average of the beginning and ending inventory balances for the
period, divided by the cost of sales (before biological fair value adjustments) for that period, multiplied by 365 days.
– 294 –
The average inventory turnover days decreased from 21.8 days for the year ended 31 December 2012
to 16.1 days for the year ended 31 December 2013 and remained stable for the year ended 31 December
2014 being 15.5 days, which primarily as a result of our tightening of control of our cost of sales while
our inventories remained stable over the same periods.
As at 30 April 2015, RMB19.1 million, or 80.3% of inventories as at 31 December 2014 were sold or
consumed.
Biological assets
Our biological assets consist of edible fungi and were stated at fair value less costs to sell as at the
valuation dates. The following table sets forth the value of our biological assets as at the dates indicated:
As at 31 December
At the beginning of the year. . .
Increases due to plantation. . . .
Gain from changes in fair value
costs to sell . . . . . . . . . . . . .
Decreases due to harvest . . . . .
....
....
less
....
....
2012
2013
2014
RMB’000
RMB’000
RMB’000
........
........
48,240
135,518
47,691
211,283
91,949
225,134
........
........
97,883
(233,950)
146,667
(313,692)
211,122
(434,498)
47,691
91,949
93,707
At the end of the year . . . . . . . . . . . . . . . . . . .
The following table sets forth the realised and unrealised fair value gains on our biological assets
and net profits from continuing operations excluding unrealised fair value gains during years indicated:
2012
2013
2014
RMB’000
RMB’000
RMB’000
Fair value change of biological assets
– realised . . . . . . . . . . . . . . . . . . . . . . . . . .
– unrealised. . . . . . . . . . . . . . . . . . . . . . . . .
82,419
15,464
125,463
21,204
181,706
29,416
Net profits from continuing operations
excluding unrealised fair value gains. . . . . . .
75,743
126,582
145,672
Gain from changes in fair value less cost to sell included those biological assets sold during the year
(realised) and those biological assets not yet sold as at the respective period end date (unrealised).
Biological assets were mushroom and were stated at fair value less costs to sell as at the reporting dates.
The fair value was determined by JLL with reference to market-determined prices, cultivation areas,
species, growing conditions, cost incurred and expected yield of crops.
– 295 –
Market and cost approaches are adopted to value the agricultural produce of mushroom as at the end
of respective years. During the growing period, cost approach is adopted. The costs of direct raw
material, direct labour, labour service and leasing have been considered in the calculation of the fair
values for the growing period and these costs are approximately to their fair value. During the harvesting
period, market approach is adopted. Therefore, the fair values of the biological assets as at the end of
respective years are calculated to be the product of market price and estimated the agricultural produce
mushroom by deducting the reasonable cost related to selling.
The fair value of our biological assets increased by 92.8% from RMB47.7 million as at 31 December
2012 to RMB91.9 million as at 31 December 2013, primarily due to an increase in cultivation capacity at
our button mushroom and straw mushroom cultivation facilities in Zhangzhou, Fujian province and the
commencement of production at our cultivation facilities in Changzhou, Jiangsu province, accompanied
by an increase in average selling price of button mushroom and straw mushroom in 2013. The fair value
of our biological assets increased by 1.9% from RMB91.9 million as at 31 December 2013 to RMB93.7
million as at 31 December 2014, primarily due to an increase in cultivation capacity at our industrial
cultivation facilities in Chengdu, Sichuan province, accompanied by an increase in average selling price
of button mushroom and straw mushroom in 2014.
Trade receivables
Our trade receivables primarily consist of receivables for products sold to our customers. The
following table sets forth the breakdown of our trade receivables by business segments as at the dates
indicated:
As at 31 December
2012
2013
2014
RMB’000
RMB’000
RMB’000
Continuing operations
King trumpet mushroom, button mushroom
and straw mushroom . . . . . . . . . . . . . . . . . .
Canned food and other processed
food products . . . . . . . . . . . . . . . . . . . . . . .
8,274
27,850
38,377
33,396
18,987
20,477
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
41,670
46,837
58,854
We grant different credit periods, ranging from 0 to 45 days to our customers depending on their
credit history, historical sales performance, estimated future purchases, relationship history with us and
business scale.
– 296 –
Our trade receivables increased by 12.4% from RMB41.7 million as at 31 December 2012 to
RMB46.8 million as at 31 December 2013, primarily attributable to the increased sales of our fresh edible
fungi produce in 2013. Our trade receivables further increased to RMB58.9 million as at 31 December
2014, primarily attributable to the increased sales of our button mushroom in 2014.
The following table sets forth an aging analysis of our trade receivables as at the dates indicated,
based on the invoice date and net of allowance:
As at 31 December
0 to 90 days . . . . . . . . . . . . . . . . . . . . . . . . . .
2012
2013
2014
RMB’000
RMB’000
RMB’000
41,670
46,837
58,854
A majority of our trade receivables as at 31 December 2012, 2013 and 2014 were aged within 90
days, as most of the credit period granted to our customers were within 90 days.
As at 31 December 2012, 2013 and 2014, trade receivables of RMB0.3 million, RMB2.6 million and
nil were past due but not impaired. These relate to a number of independent customers for whom there is
no recent history of default. The following table sets forth an aging analysis of our trade receivables
outstanding which were not impaired as at the dates indicated:
As at 31 December
Up to 3 months . . . . . . . . . . . . . . . . . . . . . . .
2012
2013
2014
RMB’000
RMB’000
RMB’000
266
2,587
–
As at 30 April 2015, RMB58.7 million, or 99.8% of trade receivables outstanding as at 31 December
2014 were subsequently settled.
– 297 –
The following table sets forth our average trade receivables turnover days for the years indicated:
2012
Average trade receivables
turnover days (1) . . . . . . . . . . . . . . . . . . . . . .
Average trade receivables
turnover days
(from continuing operations) (2) . . . . . . . . . . .
2013
2014
34.1
34.3
35.3
33.8
34.3
35.3
Notes:
(1)
Average trade receivables turnover days is calculated as the average of the beginning and ending net trade receivables
balances from continuing operations and discontinued operation for that period, divided by revenue for that period,
multiplied by 365 days.
(2)
Average trade receivables turnover days is calculated as the average of the beginning and ending net trade receivables
balances from continuing operations for that period, divided by revenue of continuing operations for that period,
multiplied by 365 days.
Our average trade receivables turnover days from continuing operations remained stable being 33.8
days for the year ended 31 December 2012 and 34.3 days for the year ended 31 December 2013, primarily
attributable to our continued effort of settlement of trade receivables as our business grows.
Our average trade receivables turnover days from continuing operations remained stable being 34.3
days for the year ended 31 December 2013 and 35.3 days for the year ended 31 December 2014, primarily
attributable to our continued effort of settlement of trade receivables as our business grows.
Deposits, prepayments and other receivables
The deposits, prepayments and other receivables primarily consist of (i) deposit payments related to
the purchase of raw materials, equipment and machinery and construction costs of cultivation and the
production facilities in Zhangzhou, Fujian province; (ii) prepaid land lease payments for acquiring two
parcels of land for our production facilities in Zhangzhou, Fujian province and Hezhou, Guangxi Zhuang
Autonomous Region, respectively; (iii) prepayments for rental expenses for the leases of cultivation
facilities in Zhangzhou, Fujian province and Chengdu, Sichuan province; and (iv) other receivables
which primarily represent the receivables due from individual farmers related to our purchase of king
trumpet mushroom and the rental deposit payment to the landlords at our cultivation facilities in
Chengdu, Sichuan province and Dandong, Liaoning province.
– 298 –
The following table sets forth a summary of our balance of prepayments, deposits and other
receivables as at the dates indicated:
As at 31 December
Deposits . . . . . . . . . . . . . . . . . . .
Money paid for acquisition of land
Prepayments . . . . . . . . . . . . . . . .
Other receivables . . . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
2012
2013
2014
RMB’000
RMB’000
RMB’000
.
.
.
.
742
–
4,936
9,389
152
43,800
8,851
12,454
5,716
82,500
9,464
15,359
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15,067
65,257
113,039
Our deposits decreased from RMB0.7 million as at 31 December 2012 to RMB0.2 million as at 31
December 2013, primarily attributable to a decrease in the deposit payment related to our construction of
our production facilities in Zhangzhou, Fujian province. Our deposits significantly increased from
RMB0.2 million for the year ended 31 December 2013 to RMB5.7 million as at 31 December 2014,
primarily attributable to the deposit payment related to the purchase of canned food by Greenfresh HK
and the deposit payment related to our purchase of equipment and machinery for the bottle-cultivation
king trumpet mushroom at our cultivation facilities of Jiaomei in Zhangzhou, Fujian province.
Our money paid for acquisition of land increased from nil as at 31 December 2012 to RMB43.8
million as at 31 December 2013, primarily attributable to the prepayment of the acquisition price related
to the acquisition of a parcel of land in Hezhou, Guangxi Zhuang Autonomous Region for developing our
cultivation and production facilities for king trumpet mushroom and canned food, in the future. Our
money paid for acquisition of land as at 31 December 2014 related to the prepayment of the acquisition
price of RMB43.8 million and RMB38.7 million related to the acquisition of two parcels of land in
Hezhou, Guangxi Zhuang Autonomous Region and in Zhangzhou, Fuijian province, respectively, for
Industry Park.
– 299 –
Our prepayments increased from RMB4.9 million as at 31 December 2012 to RMB8.9 million as at
31 December 2013, primarily attributable to our increased rental prepayments of our cultivation facilities
as a result of the expansion of our button mushroom and straw mushroom cultivation facilities in
Zhangzhou, Fujian province and our button mushroom facilities in Chengdu, Sichuan province, and the
prepayment of consulting fees paid to market consultant, an Independent Third Party, in connection with
marketing and promotion of our brands of edible fungi products. Our prepayment increased from
RMB8.9 million as at 31 December 2013 to RMB9.5 million as at 31 December 2014, primarily
attributable to an increase in rental payment of our cultivation facilities as a result of the increased rent
rate.
Our other receivables increased from RMB9.4 million as at 31 December 2012 to RMB12.5 million
as at 31 December 2013, primarily attributable to an increase in rental deposit payment to landlords of
our cultivation facilities in Dandong, Liaoning province and Chengdu, Sichuan province. Our other
receivables increased from RMB12.5 million as at 31 December 2013 to RMB15.4 million as at 31
December 2014, primarily attributable to an increase in the receivables due from individual farmers
related to our purchase of king trumpet mushroom.
Trade payables
The following table sets forth our trade payables as at the dates indicated:
As at 31 December
Trade payables . . . . . . . . . . . . . . . . . . . . . . . .
2012
2013
2014
RMB’000
RMB’000
RMB’000
10,139
16,176
16,480
Our trade payables primarily relate to purchase of raw materials from our suppliers, purchase of
king trumpet mushroom from individual farmers and labour contracting fees paid to individual farmers
for cultivation of button mushroom and straw mushroom with general credit terms of 15 to 30 days. We
normally settle such payables by wire transfer. Our trade payables increased from RMB10.1 million as at
31 December 2012 to RMB16.2 million as at 31 December 2013, primarily attributable to our increased
purchase of raw materials as a result of an increase in volume of cultivation, production and sales of our
products and increased purchase of king trumpet mushroom from individual farmers. Our trade payables
increased from RMB16.2 million as at 31 December 2013 to RMB16.5 million as at 31 December 2014
primarily attributable to our increased purchase of raw materials as a result of an increase in volume of
cultivation, production and sales of our fresh edible fungi produce.
– 300 –
The following table sets forth the aging analysis of our trade payables as at the dates indicated:
As at 31 December
2012
2013
2014
RMB’000
RMB’000
RMB’000
0 to 90 days . . . . . . . . . . . . . . . . . . . . . . . . . .
91 to 180 days . . . . . . . . . . . . . . . . . . . . . . . .
Over 1 year. . . . . . . . . . . . . . . . . . . . . . . . . . .
9,862
277
–
16,151
1
24
16,067
20
393
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,139
16,176
16,480
As at 30 April 2015, RMB15.1 million, or 91.3% of trade payables outstanding as at 31 December
2014 were subsequently settled.
The following table sets forth our average trade payables turnover days for the years indicated:
2012
Average trade payables
turnover days (1) . . . . . . . . . . . . . . . . . . . . . .
Average trade payables turnover days
(from continuing operations) (2) . . . . . . . . . . .
2013
2014
18.2
10.9
10.8
8.0
10.9
10.8
Notes:
(1)
Average trade payables turnover days from continuing operations and discontinued operation is calculated as the
average of the beginning and ending net trade payables balances for the period, divided by the cost of sales for that
period, multiplied by 365 days.
(2)
Average trade payables turnover days from continuing operations is calculated as the average of the beginning and
ending net trade payables balances for the period, divided by the cost of sales for that period, multiplied by 365 days.
Our average trade payables turnover days from continuing operations increased from 8.0 days for
the year ended 31 December 2012 to 10.9 days for the year ended 31 December 2013, primarily
attributable to the increased purchase of raw material for our fresh edible fungi produce as a result of
increased cultivation and sales volume of our fresh edible fungi produce.
Our average trade payables turnover days from continuing operations remained stable being 10.8
days for the year ended 31 December 2014.
– 301 –
Accruals and other payables
Our accruals and other payables primarily consist of accrued salaries and employee benefits, other
tax payables, construction cost payables, amount due to a former shareholder of a PRC subsidiary,
deposit received and other payables.
The following table sets forth our accruals and other payables as at the dates indicated:
As at 31 December
Accruals
Salaries and employee benefits . . . . . . . . . . . .
Other payables
Other tax payables . . . . . . . . . . . . .
Construction cost payables . . . . . . .
Amount due to a former shareholder
of a PRC subsidiary . . . . . . . . . . .
Deposit received . . . . . . . . . . . . . . .
Other payables . . . . . . . . . . . . . . . .
2012
2013
2014
RMB’000
RMB’000
RMB’000
7,878
9,441
13,408
........
........
2,396
–
1,570
122
1,470
392
........
........
........
2,100
6,280
1,090
–
–
121
–
–
4,574
11,866
1,813
6,436
19,744
11,254
19,844
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Our accrued salaries and employee benefits amounted to RMB7.9 million, RMB9.4 million and
RMB13.4 million as at 31 December 2012, 2013 and 2014, respectively, which mainly represented
salaries, social welfare scheme contributions, bonus and commission accrued for the month of December
of that year for our employees and the provision made for the social insurance contributions and housing
provident fund contributions. Such general increase in accrued salaries and employee benefits was
mainly due to the general increase in the number of our employees and the general level of salaries and
employee benefits for employees.
Construction cost payables amounted to nil, RMB0.1 million and RMB0.4 million as at 31
December 2012, 2013 and 2014, respectively, which mainly related to the construction cost of cultivation
facilities, production facilities and dormitory building in Zhangzhou, Fujian province.
– 302 –
Amount due to a former shareholder of a PRC subsidiary amounted to RMB2.1 million, nil and nil
as at 31 December 2012, 2013 and 2014, respectively, which mainly represented the acquisition price
payable related to the acquisition of 5.0% equity interests in Zhangzhou Greenfresh by Fujian Greenfresh
Foods from Mr. Dai Guanglong.
Deposit received amounted to RMB6.3 million, nil and nil as at 31 December 2012, 2013 and 2014,
respectively, which mainly represented the prepayment of purchase of our canned food by an Independent
Third Party.
Other payables amounted to RMB1.0 million, RMB0.1 million and RMB4.6 million which
represented (i) the professional and legal fee incurred in connection with the share issuance to COFCO
Fund and (ii) the professional and legal fee incurred for the purpose of the Listing.
RELATED PARTY TRANSACTIONS
As at 31 December 2012, 2013 and 2014, Mr. Zheng Songhui, Mr. Zheng Songhui’s spouse had
provided personal guarantee to our Group for obtaining certain banking facilities from the banks. As at 31
December 2012, 2013 and 2014, total bank loans of RMB65.8 million, RMB20.0 million and RMB18.0
million, respectively were drawn down respectively from these facilities. We received a confirmation
letter dated 8 December 2014 issued by the relevant bank which irrevocably and unconditionally
promised to release the guarantee provided by Mr. Zheng Songhui and his spouse upon the Listing.
As at 31 December 2013, Mr. Zheng Tianming and Mr. Zheng Tianming’s spouse had provided
personal guarantees to our Group for obtaining certain bank loan of RMB20.0 million. Such guarantees
was released when the relevant bank loan was repaid in January 2014.
During the Track Record Period, we had provided advances to Mr. Zheng Songhui for the purpose of
investment. As at 31 December 2012, 2013 and 2014, the outstanding balances of such advances
amounted to RMB21.6 million, nil and nil, respectively. All the advances are unsecured, interest-free and
have no fixed repayment terms. During the Track Record Period, Mr. Zheng Songhui provided advance to
us of RMB2,000 during the year ended 31 December 2012. Such advance was related to the payment of
administrative expense on behalf of Greenfresh HK and was fully settled during the year ended 31
December 2014.
Due from Shareholders represents the consideration for (1) 1 share with a par value of US$1.00
allotted and issued by the Company to Close Subscribers (Cayman) Limited, the initial subscriber, and
was transferred to Song Rising; and (2) 34,999 shares, 7,500 shares, 3,000 shares, 3,000 shares and 1,500
shares with a par value of US$1.00 allotted and issued by the Company to Song Rising, Sunny Foods, Ms.
GUO XUEYAN, Mr. Chan Kin Wa and Riemann Investment when the Company was incorporated on 28
March 2011, which has been settled on 18 December 2014.
– 303 –
The following table sets forth the balances of the amounts due from/(to) related parties as at the
dates indicated:
As at 31 December
Due from/(to) a Director . . . . . . . . . . . . . . . . .
Due from Shareholders . . . . . . . . . . . . . . . . . .
2012
2013
2014
RMB’000
RMB’000
RMB’000
21,632
328
(2)
328
–
–
Our Directors confirm that the related party transactions disclosed herein were conducted on an
arm’s length basis, normal commercial terms and/or terms that are no less favorable than terms available
from Independent Third Parties which are considered fair and reasonable and in the interest of our
Shareholders as a whole and would not distort our results of operations during the Track Record Period or
make the results of operations not reflective of our future performance.
Working Capital
Taking into account the financial resources available to us, including the estimated net proceeds
from the Global Offering and our operating cash inflow, our Directors are of the opinion that we have
sufficient working capital for our present requirements and for at least next 12 months from the date of
this prospectus.
CAPITAL EXPENDITURE
Capital expenditures during the Track Record Period
The following table sets forth our capital expenditures during the years indicated:
2012
2013
2014
RMB’000
RMB’000
RMB’000
Additions to property, plant and equipment . . . .
22,903
31,588
20,723
Prepaid land lease payment . . . . . . . . . . . . . . .
36,347
–
–
Our capital expenditures for the three years ended 31 December 2012, 2013 and 2014 represented
additions of property, plant and equipment made for our cultivation and production facilities in
Zhangzhou, Fujian province for our king trumpet mushroom and canned food and prepaid land lease
payment related to the acquisition of parcels of land in Zhangzhou, Fujian province for our king trumpet
mushroom and canned food during the Track Record Period. We financed our capital expenditures
primarily through our cash generated from our operating activities.
– 304 –
Planned capital expenditures
For the year ending 31 December 2015, we estimate that the capital expenditures will amount to
approximately RMB496.5 million primarily for (i) the construction of new production facilities for our
processed food products in Zhangzhou, Fujian province; (ii) the development of Guangxi Biological
Technology Food Industry Park and Zhangzhou Biological Technology Food Industry Park, (iii)
acquiring two king trumpet mushroom facilities in China, (iv) acquiring laboratory and testing equipment
for our king trumpet mushroom research and development laboratory in Zhangzhou, Fujian province and
(v) the construction of mushroom garden affiliated to our China Edible Fungi Scientific Museum at our
king trumpet mushroom cultivation facility in Zhangzhou, Fujian province.
Our Group’s projected capital expenditures are subject to revision based upon any future changes in
our business plan, market conditions, economic and regulatory environment. Please refer to the section
headed “Future Plans and Use of Proceeds” in this prospectus for further information.
CONTRACTUAL COMMITMENTS
Capital Commitments
The following table sets forth our capital commitments for the periods indicated:
As at 31 December
Prepaid land lease payment and
property, plant and equipment
– Contracted but not
provided for . . . . . . . . . . . . . . .
– Authorised but not
contracted for . . . . . . . . . . . . . .
Acquisition of king trumpet
mushroom facilities
– Authorised but not
contracted for . . . . . . . . . . . . . .
2012
2013
2014
RMB’000
RMB’000
RMB’000
As at
30 April 2015
RMB’000
(unaudited)
32,794
63,768
67,293
65,680
–
–
334,950
334,950
–
–
200,000
200,000
32,794
63,768
602,243
600,630
The capital commitments as at 31 December 2012, 2013 and 2014 were primarily related to (i) the
acquisition of property, plant and equipment for our cultivation and production facilities in Zhangzhou,
Fujian province for our king trumpet mushroom and canned food; (ii) the acquisition of parcels of land in
Hezhou, Guangxi Zhuang Autonomous Region for our Guangxi Biological Technology Food Industry
Park; and (iii) the purchase of equipment and machinery for bottle-cultivation king trumpet mushroom at
our cultivation facilities in Zhangzhou, Fujian province.
– 305 –
Lease and Other Commitments
Operating lease and other payments represent rentals payable by us for our offices, cultivation and
production facilities and the labour contracting fees paid to individual farmers for cultivation of our
button mushroom and straw mushroom. Leases are negotiated for an average term of 1 to 50 years and
rentals are fixed over the lease terms and do not include contingent rentals. Our Group had total future
minimum lease and other payment under non-cancellable operating lease are repayable as follows:
As at 31 December
2012
2013
2014
RMB’000
RMB’000
RMB’000
As at
30 April 2015
RMB’000
(unaudited)
Within one year . . . . . . . . . . . . . . . .
In the second to fifth years,
inclusive . . . . . . . . . . . . . . . . . . .
After five years . . . . . . . . . . . . . . . .
14,008
22,636
21,598
21,349
15,149
10,679
29,422
12,053
24,399
9,842
23,356
9,120
Total. . . . . . . . . . . . . . . . . . . . . . . .
39,836
64,111
55,839
53,825
We expect to fund our contractual commitments and capital expenditures primarily through our cash
generated from our operating activities, bank borrowings and net proceeds of the Global Offering. We
believe that these sources of funding will be sufficient to finance our contractual commitments and
capital expenditures needs for the next 12 months.
INDEBTEDNESS
All our bank loans as at 31 December 2012, 2013 and 2014 were repayable on demand or due within
one year. As at 31 December 2012, 2013 and 2014, our total outstanding balance of bank loans was
RMB65.8 million, RMB20.0 million and RMB18.0 million, respectively.
The following table sets forth a breakdown of our bank loans as at the dates indicated:
As at 31 December
Bank loans repayable on demand or
within one year. . . . . . . . . . . . . . .
2012
2013
2014
RMB’000
RMB’000
RMB’000
65,800
20,000
18,000
As at
30 April 2015
RMB’000
(unaudited)
10,000
During the Track Record Period, we primarily used our bank loans for general working capital. As at
30 April 2015, we did not have any unutilised banking facilities.
– 306 –
Our bank loans decreased from RMB65.8 million as at 31 December 2012 to RMB20.0 million as at
31 December 2013, primarily attributable to the repayment of the majority of our bank loans in 2013. Our
bank loans further decreased to RMB18.0 million as at 31 December 2014, primarily attributable to the
repayment of part of our bank loans in 2014.
As at 31 December 2012, 2013 and 2014, our bank loans of RMB65.8 million, RMB20.0 million and
RMB18.0 million, respectively, were secured by personal guarantees provided by Mr. Zheng Songhui and
Mr. Zheng Tianming and their spouses, former shareholder of a subsidiary and her spouse and a corporate
guarantee provided by Longhuai Industry (Zhangzhou) Co., Ltd. (龍懷工業（漳州）有限公司), being a
company owned by a friend of a director.
Our bank loans are denominated in Renminbi and U.S. dollars. As at 31 December 2012, 2013 and
2014, the average effective interest rates of our bank loans per annum were 6.00% to 6.89%, 6.30% and
6.60%, respectively.
There are no material covenants relating to our outstanding bank loan which would impact or
restrict our ability to undertake additional debt or equity financing. Our Directors have confirmed that our
Group had not had any material default with regard to our trade or other payables or any bank borrowings,
and had not breached any covenants in our bank borrowings during the Track Record Period and up to the
Latest Practicable Date. Our Directors confirm that during the Track Record Period and up to the Latest
Practicable Date, we had not experienced any difficulty in obtaining credit facilities or withdrawal of
facilities, request for early repayment, default in payments or breach of financial covenants of bank
borrowings. Our Directors have confirmed that we did not have any plan to raise material external debt
financing as at the date of this prospectus.
Except as disclosed above, as at 30 April 2015, we did not have any outstanding mortgages, charges,
debentures, loan capital, bank overdrafts, loans, debt securities or other similar indebtedness, finance
leases or hire purchase commitments, liabilities under acceptances or acceptance credits or any
guarantees. We confirm that there had not been any material adverse change in our indebtedness position
since 30 April 2015.
CONTINGENT LIABILITIES
Except as disclosed in this prospectus, our Group had no material contingent liabilities as at 30 April
2015. Our Group is not involved in any current material legal proceedings, nor is our Group aware of any
pending or potential material legal proceedings involving our Group. If our Group was involved in such
material legal proceedings, we would record any loss contingencies when, based on information then
available, it is probable that a loss has been incurred and the amount of the loss can be reasonably
estimated. We confirm that there had not been any material change in the level of our contingent
liabilities since 30 April 2015.
– 307 –
KEY FINANCIAL RATIOS
The following table sets forth certain financial ratios as at the dates or for the years indicated:
As at or for the year ended 31 December
2012
2013
2014
Liquidity ratios
Current ratio (1) . . . . . . . . . . . . . . . . . . . . . . . .
Quick ratio (2) . . . . . . . . . . . . . . . . . . . . . . . . .
2.5
2.3
7.9
7.4
11.5
11.0
Capital adequacy ratios
Gearing ratio (3) . . . . . . . . . . . . . . . . . . . . . . . .
Net debt to equity ratio (4) . . . . . . . . . . . . . . . .
21.5%
Net cash
3.9%
Net cash
2.4%
Net cash
Profitability ratios
Return on equity (5) . . . . . . . . . . . . . . . . . . . . .
Return on assets (6) . . . . . . . . . . . . . . . . . . . . . .
29.8%
22.4%
28.8%
26.3%
23.1%
21.5%
Notes:
(1)
Current ratio represents total current assets divided by current liabilities as at the end of the year.
(2)
Quick ratio represents total current assets less inventories divided by total current liabilities as at the end of the year.
(3)
Gearing ratio represents total borrowings divided by total equity as at the end of the year.
(4)
Net debt to equity ratio represents net debt divided by total equity as at the end of the year. Net debt is calculated as
total borrowings less bank balances and cash.
(5)
Return on equity represents profit for the year from continuing operations divided by total equity as at the end of the
year and multiplied by 100%.
(6)
Return on assets represents profit for the year from continuing operations divided by total assets as at the end of the
year and multiplied by 100%.
– 308 –
Current ratio and quick ratio
Our current ratio and quick ratio increased from 2.5 and 2.3 as at 31 December 2012 to 7.9 and 7.4,
respectively, as at 31 December 2013, primarily attributable to an increase in biological assets as a result
of the continued expansion of our cultivation capacity of our edible fungi at our cultivation facilities, the
increase of deposits, prepayments and other receivables as a result of the prepayment of acquisition price
related to the acquisition of land in Hezhou, Guangxi Zhuang Autonomous Region as our cultivation and
production facilities for our king trumpet mushroom and canned food and an increase in bank and cash
balances as a result of an increase in revenue generated from our sales of our products and the issuance of
shares to COFCO Fund at a consideration of US$9.5 million.
Our current ratio and quick ratio increased from 7.9 and 7.4 as at 31 December 2013 to 11.5 and
11.0, respectively, as at 31 December 2014, primarily attributable to an increase in bank and cash
balances as a result of an increase in revenue generated from the sales of our products and the issuance of
shares to Grand Ample at a consideration of RMB70.9 million.
Gearing ratio
Our gearing ratio decreased from 21.5% as at 31 December 2012 to 3.9% as at 31 December 2013,
primarily attributable to a significant decrease in bank loans in 2013 due to the repayment of a majority
of our bank borrowings in 2013. Our gearing ratio decreased from 3.9% as at 31 December 2013 to 2.4%
as at 31 December 2014, primarily attributable to a decrease in bank loans in 2014 due to the repayment
of part of our bank borrowings in 2014.
Net debt to equity ratio
As at 31 December 2012, 2013 and 2014, we had total borrowings of RMB65.8 million, RMB20.0
million and RMB18.0 million, while our bank balances and cash amounted to RMB107.3 million,
RMB154.8 million and RMB336.5 million, respectively. Accordingly, we were in a net cash position as at
31 December 2012, 2013 and 2014.
Return on equity
Our return on equity slightly decreased from 29.8% for the year ended 31 December 2012 to 28.8%
for the year ended 31 December 2013, primarily as a result of the issuance of shares to COFCO Fund at
a consideration of US$9.5 million which resulted in our total equity increased at a higher percentage than
the increase in our profit from continuing operations. Our return on equity ratio decreased from 28.8% for
the year ended 31 December 2013 to 23.1% for the year ended 31 December 2014, primarily as a result of
the issuance of shares to Grand Ample at a consideration of RMB70.9 million which resulted in our total
equity increased at a higher percentage than the increase in our profit from continuing operations.
– 309 –
Return on assets
Our return on assets ratio increased from 22.4% for the year ended 31 December 2012 to 26.3% for
the year ended 31 December 2013, primarily as a result of the increase in profit from continuing
operations as a result of the increased sales of our products. Our return on assets ratio decreased from
26.3% for the year ended 31 December 2013 to 21.5% for the year ended 31 December 2014, primarily as
a result of issuance of shares to Grand Ample at a consideration of RMB70.9 million which resulted in
our total assets increased at a higher percentage than the increase in our profit from continuing
operations.
OFF-BALANCE SHEET COMMITMENTS AND ARRANGEMENTS
As at the Latest Practicable Date, we had not entered into any off-balance sheet transactions.
QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISKS
We are exposed to various types of market risks in the ordinary course of our business, including
foreign currency risk, credit risk, liquidity risk and interest rate risk. Our risk management program
focuses on the unpredictability of financial markets and seeks to minimise the potential adverse effects of
such risks on our financial performances.
Foreign currency risk
We have minimal exposure to foreign currency risk as most of our business transactions, assets and
liabilities are principally denominated in the functional currencies of our Group, U.S. dollars, Hong Kong
dollars and Renminbi. We currently do not have a foreign currency hedging policy in respect of other
foreign currency transactions, assets and liabilities. We will monitor our foreign currency exposure
closely and will consider hedging significant foreign currency exposure should the need arise.
Credit risk
The carrying amount of the cash and bank balances, trade and other receivables, and amounts due
from a Director and Shareholders included in the statement of financial position represents our Group’s
maximum exposure to credit risk in relation to our financial assets. We has no significant concentrations
of credit risk. We have policies in place to ensure that sales are made to customers with an appropriate
credit history. Amounts due from a Director and Shareholders are closely monitored by the Directors. The
credit risk on cash and bank balances is limited because the counterparties are banks with high
credit-ratings assigned by international credit-rating agencies.
– 310 –
Liquidity Risk
Our Group’s policy is to regularly monitor current and expected liquidity requirements to ensure
that it maintains sufficient reserves of cash to meet its liquidity requirements in the short and longer term.
The following tables set forth maturity analysis of our Group’s financial liabilities as at the dates
indicated:
Less than
1 year
Between
1 and 2 years
Between
2 and 5 years
Over
5 years
HK$’000
HK$’000
HK$’000
HK$’000
As at 31 December 2012
Trade payables. . . . . . . . . . . . . . . . .
Accruals and other payables . . . . . . .
Bank loans . . . . . . . . . . . . . . . . . . .
10,139
19,744
68,196
–
–
–
–
–
–
–
–
–
Total. . . . . . . . . . . . . . . . . . . . . . . .
98,079
–
–
–
Trade payables. . . . . . . . . . .
Accruals and other payables .
Due to director . . . . . . . . . .
Bank loans . . . . . . . . . . . . .
.
.
.
.
16,176
11,254
2
20,021
–
–
–
–
–
–
–
–
–
–
–
–
Total. . . . . . . . . . . . . . . . . . . . . . . .
47,453
–
–
–
Trade payables. . . . . . . . . . . . . . . . .
Accruals and other payables . . . . . . .
Bank loans . . . . . . . . . . . . . . . . . . .
16,840
19,844
18,029
–
–
–
–
–
–
–
–
–
Total. . . . . . . . . . . . . . . . . . . . . . . .
54,353
–
–
–
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
– 311 –
Interest Rate Risk
Our Group’s exposure to interest rate risk arises from our bank deposits. These deposits bear
interests at variable rates varied with the then prevailing market condition. As at 31 December 2012, 2013
and 2014, we estimated that a general increase/decrease of 10 basis points in interest rates, with all other
variables held constant, would have increased/(decreased) our Group’s profit after tax for the years as
indicated:
After-tax profit increase/(decrease)
10 basis points higher . . . . . . . . . . . . . . . . . . .
(10) basis points lower . . . . . . . . . . . . . . . . . .
2012
2013
2014
RMB’000
RMB’000
RMB’000
89
(89)
129
(129)
252
(252)
The sensitivity analysis above indicates the impact on our Group’s profit for the periods and retained
profits that would have arisen assuming that there is an annualised impact on interest income and expense
by a change in interest rates. The analysis has been performed on the same basis through the indicated
periods.
DIVIDEND POLICY
shareholders. The payment and the amount of any dividends, if paid, will depend on the results of
operations, cash flows, financial condition, statutory and regulatory restrictions on the payment of
dividends by us, future prospects and other factors that we may consider relevant. Holders of the Shares
will be entitled to receive such dividends pro rata according to the amounts paid up or credited as paid up
on the Shares. The declaration, payment and amount of dividends will be subject to our discretion.
Dividends may be paid only out of our distributable profits as permitted under the relevant laws. To
the extent profits are distributed as dividends, such portion of profits will not be available to be reinvested
in our operations. There can be no assurance that we will be able to declare or distribute any dividend in
the amount set forth in any plan of the Board or at all. The dividend distribution record in the past may not
be used as a reference or basis to determine the level of dividends that may be declared or paid by us in the
future.
Going forward, we may distribute dividends by way of cash or by other means that our Directors
consider appropriate. A decision to distribute any interim dividend or recommend any final dividend will
be at the discretion of our Board. In addition, any final dividend will be subject to Shareholders’
approval. Our Board will review our Company’s dividend policy from time to time in light of the
following factors in determining whether dividends are to be declared and paid:
•
financial results of our Company;
•
Shareholders’ interests;
– 312 –
•
general business conditions, strategies and future expansion needs;
•
our Company’s capital requirements;
•
the payment by our subsidiaries of cash dividends to our Company;
•
possible effects on liquidity and financial position of our Company; and
•
other factors our Board may deem relevant.
Subject to, among others, the factors described above, our Directors currently intend to recommend
dividends of around 30.0% of our net profit available for distribution to our Shareholders in the
foreseeable future.
DISTRIBUTABLE RESERVES
As at 31 December 2014, our reserves available for distribution to our Shareholders were RMB725.1
million. The Companies Law provides that share premium account of an exempted company incorporated
in the Cayman Islands, such as our Company, may be applied in such manner as it may from time to time
determine, subject to the provisions, if any, of its memorandum and articles of association, provided that
no distribution or dividend may be paid to its members out of the share premium account unless,
immediately following the date on which the distribution or dividend is proposed to be paid, such
company shall be able to pay its debts as they fall due in the ordinary course of business.
LISTING EXPENSES
We incurred listing expenses of RMB11.0 million for the year ended 31 December 2014 which was
recognised as administrative expenses. We expect to incur further listing expenses of approximately
RMB27.0 million including the underwriting commission and other fees in relation to the New Share
(assuming an Offer Price of HK$4.88 per Offer Share, being the mid-point of the Offer Price range), out
of which RMB7.6 million will be recognised as administrative expenses and RMB19.4 million will be
charged against equity upon successful listing under the relevant accounting standards. We do not believe
the remaining expenses will have a material impact on our results of operations.
VALUATION OF BIOLOGICAL ASSETS
The Independent Valuers
We have engaged JLL, a firm of independent qualified professional valuers, to determine the fair
value of our biological assets as at 31 December 2011, 2012, 2013 and 2014, respectively. The key
members of JLL valuers include Mr. Simon M.K. Chan, Mr. Michael Q. Ding and Professor Li Nanyi.
– 313 –
Mr. Simon M.K. Chan, Regional Director at JLL, is a Fellow of the Hong Kong Institute of Certified
Public Accountants (HKICPA) and a Fellow of CPA Australia. He is also a Certified Valuation Analyst
(CVA), a member of The International Association of Consultants, Valuers and Analysts (IACVA), a
member of Canadian Institute of Mining, Metallurgy and Petroleum (CIM), and a member of The
Australasian Institute of Mining and Metallurgy (AusIMM). Simon oversees the business valuation
services of JLL and has over 15 years of accounting, auditing, corporate advisory and valuation
experiences. He has provided a wide range of valuation services to numerous listed and listing companies
of different industries in China, Hong Kong, Singapore and the United States. Simon has also participated
in certain large scale IPOs of State-owned and privately-owned enterprises in China. He oversaw the
valuation of dairy cows of China Modern Dairy Holdings Ltd. (1117.HK) for this company’s initial public
offering and subsequent financial reports. He also led the valuation of biological assets, such as trees,
rabbits, chickens and cows, for Hong Kong listed companies including Chenming Paper (1812.HK),
Kandda Food (834.HK) and Huishan Dairy (6863.HK), as well as numerous private companies for their
IFRS accounting proposes.
Mr. Michael Q. Ding, Director at JLL, has over 8 years of working experience in the field of finance
and investment, and provides services to multinational companies, including with respect to initial public
offerings of various enterprises and has experience in the valuation of biological assets (trees for two
Hong Kong listed companies), equity, financial instruments, intangible assets and current assets and
liabilities. He is a member of the Royal Institution of Chartered Surveyors.
Professor Li Nanyi, an associate professor in the Zhejiang A&F University (浙江農林大學), is a
member of Mycological Society of China. She received her Master of Science in Microbiology from
Henan Agricultural University (河南農業大學). She earned her Doctorate of Agronomy in Plant
Pathology from the College of Agriculture and Biotechnology of the Zhejiang University (浙江大學). She
had working experience in the Zhejiang Academy of Agricultural Postdoctoral Work Station (浙江省農科
院博士後工作站). Her main research focuses include cultivation of edible fungi, new edible fungi species
breeding, identification and examination of sources of edible fungi species, detection of edible fungi
virus and molecular marker-assisted breeding. She has also published various academic articles in
different journals over the years. She was also awarded the third place of the Zhejiang Science and
Technology Progress Award (浙江省科學技術進步三等獎) and the third place of the Liang Xi Forestry
Science and Technology Award (梁希林業科學技術獎三等獎).
Based on market reputation and relevant background research, our Directors and the Sole Sponsor is
satisfied that JLL is independent from us and is competent in conducting a valuation on our biological
assets.
Valuation Method
The market approach considers prices recently paid for similar assets, with adjustments made to
market prices to reflect condition and utility of the appraised assets relative to the market comparative.
Assets for which there is an established used market may be valued by this approach.
The cost approach considers the cost to reproduce or replace in new condition the assets appraised in
accordance with current market prices for similar assets, with allowance for accrued depreciation or
obsolescence present, whether arising from physical, functional or economic causes. The cost approach
generally furnishes the most reliable indication of value for assets without a known used market.
– 314 –
The income approach is the conversion of expected periodic benefits of ownership into an indication
of value. It is based on the principle that an informed buyer would pay no more for the project than an
amount equal to the present worth of anticipated future benefits (income) from the same or a substantially
similar project with a similar risk profile.
The Sole Sponsor held various discussions with JLL in relation to the valuation procedures,
valuation techniques and information required to prepare their valuation report. The Sole Sponsor further
compared the valuation in technique chosen with those used in other similar transactions and market
practice.
In the valuation by JLL, market and cost approaches are adopted to value the agricultural produce of
edible fungi as at the valuation dates. In terms of the biological nature of edible fungi, the whole life cycle
can be classified as growing period and harvesting period. We employed industrial cultivation method for
our king trumpet mushroom. The entire cultivation process of king trumpet mushroom is approximately
60 days. We employed two kinds of cultivation methods for button mushroom, namely industrial
cultivation and traditional cultivation. The length of cultivation process of button mushroom varies under
these two cultivation methods. The following table set forth the growing period and harvesting period of
king trumpet mushroom and button mushroom:
Mushroom Classification
Growing Period
Harvesting Period
0 to 43th day (1)
44th to 60th day (1)
Button mushroom
•
Industrial cultivation: 0 to
38th day and the period
of time of future crops as
at the valuation date (2)
•
Industrial cultivation: the
remaining days of a
certain crop as at the
valuation date (2)
•
Traditional cultivation: the
period of time of future
crops as at the valuation
date (3)
•
Traditional cultivation: the
remaining days of a
certain crop as at the
valuation date (3)
Notes:
(1)
The periods vary due to different planation condition at different locations.
(2)
The entire industrial cultivation process of button mushroom takes approximately 60 days. The period from 0 to 38th
day is the growing period. The sowing is conducted only once at the beginning of the entire industrial cultivation
process. Button mushroom under industrial cultivation could be harvested three times during the period from 39th to
60th day which is divided into three crops. The period of time of such three crops is estimated to be approximately 3
days, 10 days and 10 days, respectively. Each crop is assumed to be harvested with equal quantity of button mushroom.
After harvesting the third crop, a new 60-day cultivation process begins. The valuation scope only considers the button
mushroom under industrial cultivation within 60 days before the valuation date. If button mushroom is within the
period from 0 to 38th day as at the valuation date, it is considered to be in the growing period. If button mushroom is
within the period of a certain crop out of the three crops as at the valuation date, the remaining days of such crop to be
harvested are considered as harvesting period, the past days of such crop are not considered in the valuation scope
because button mushroom in such past days have already been harvested. The period of time of future crops are
considered as the growing period because we assume button mushroom of future crops is in the process of growing and
has not reached maturity for harvesting as at the valuation date.
– 315 –
(3)
The entire traditional cultivation process takes approximately eight to nine months from August to April of the
following year. The sowing is conducted only once at the beginning of the entire traditional cultivation process. Button
mushroom under traditional cultivation could be harvested 11 times from November to April of the following year
which is divided into 11 crops and the length of period of each 11 crops is different subject to the weather and
geographical condition. After harvesting the last crop, a new cultivation process will begin in August. As at the
valuation date, button mushroom under traditional cultivation is within the period of a certain crop out of 11 crops, the
remaining days of such crop to be harvested are considered as harvesting period; the past days of such crop are not
considered in the valuation scope because button mushroom in such past days have already been harvested. The period
of time of future crops are considered as the growing period because we assume button mushroom of future crops is in
the process of growing and has not reached maturity for harvesting as at the valuation date.
During the growing period, cost approach is adopted. The costs of direct raw material, direct labour,
labour service and leasing have been considered in the calculation of the fair values for the growing
period.
During the harvesting period, market approach is adopted. We understand that there is an active
market for the edible fungi and market prices are available for domestic edible fungi. Therefore, the fair
values of the biological assets as at the valuation dates are calculated to be the product of market price
and estimated the agricultural produce edible fungi by deducting the reasonable cost related to selling.
Key Assumptions and Inputs
The key assumptions and inputs include the classification of cultivation methods, historical sales
volume of edible fungi, market price of edible fungi and cost to sell. JLL also assumes that historical
trend and data will be maintained and there will be no material change in the existing political, legal,
technological, fiscal or economic condition which may adversely affect our business. Our Directors
confirmed, and the Sole Sponsor concurred, that the components used by JLL in the valuation process are
consistent with market factors and assumptions used in the measurement.
The key assumptions and inputs for determining the fair value of our biological assets include the
following:
•
Two kinds of cultivation methods have been employed, namely industrial cultivation and
traditional cultivation for edible fungi fresh produce. Industrial cultivation method is applied
to produce king trumpet mushroom and part of button mushroom. Traditional cultivation
method is principally applied to produce button mushroom.
•
The sales volume of edible fungi as at valuation dates was calculated based on historical
harvest and sales records.
•
The weighted average market price of edible fungi is adopted. The weighted average market
price was calculated based on the historical selling prices of king trumpet mushroom and
button mushroom.
•
Costs to sell include direct raw material, direct labour, labour service and leasing which was
calculated based on historical data.
– 316 –
JLL conducted the physical inspection for the health condition, quality and quantity of our
biological assets as at 31 December 2014. The valuation of our biological assets as at 31 December 2011,
31 December 2012 and 31 December 2013 by JLL was performed retrospectively by relying on the
accuracy and reliability of historical data of biological assets such as sales volume, selling prices and
costs to sell provided by us. In particular, JLL has performed the following work with respect to the
valuation of our biological assets:
•
In December 2014, JLL conducted inspection of king trumpet mushroom and button mushroom
cultivation facilities, physically counted the number of the cultivation bags of king trumpet
mushroom and compared with the same of the historical record, checked health condition and
cultivation status of king trumpet mushroom and button mushroom; took king trumpet
mushroom and button mushroom samples to observe their physical appearance;
•
JLL made reasonable enquiries with the Reporting Accountant and Internal Control Consultant
engaged by our Company to confirm that our Company had performed regular stock-take with
no material deviations and had no material deficiency on biological asset management policy
and internal control on the inventory system;
•
JLL obtained and reviewed that our Company has kept proper record by daily log sheet on key
factors affecting the growth of mushroom, such as temperature and humidity, which
demonstrated the health condition and quality of the biological assets; and
•
JLL conducted market research and checked academic materials to ensure the historical selling
prices of king trumpet mushroom and button mushroom sold by us were in line with market
transactions of king trumpet mushroom and button mushroom.
The valuation conducted by JLL is subject to the caveat that JLL relied substantially on the
accuracy, completeness and reasonableness of the various assumptions and other data provided by us in
preparation of the valuation report. While these assumptions as adopted in the valuation process have
been in line with the actual results, there is no assurance that there will be no significant deviation in the
future. Please refer to the section headed “Risk Factors – Our results of operations are subject to
biological asset fair value adjustments, which can be highly volatile and are subject to a number of
assumptions” in this prospectus.
There are significant unobservable inputs which are mainly the expected future cash flow and the
discount rate. The higher the future cash flows or the lower the discount rate, the higher the fair value
determined. For the details of unobservable inputs used to measure our mushroom plantation, please refer
to note 24 of the Accountants’ Report set out in Appendix I to this prospectus.
The Sole Sponsor discussed with JLL in relation to the valuation bases and assumptions and
understands that JLL has conducted the biological asset valuation in accordance with International
Accounting Standard 41 – Agriculture, issued by the International Accounting Standards Board and with
reference to the International Valuation Standards, issued by the International Valuation Standards
Council. The key assumptions, as detailed above, are made based on the historical actual operation
performance of the Company. JLL has obtained and discussed with us and the Reporting Accountants
regarding the historical actual operation data from us, and considered and reviewed whether they are
appropriate and reasonable to be used in the valuation. Our Directors confirm that the assumptions
adopted are consistent with industry practice and in line with the actual figures during the Track Record
Period.
– 317 –
Further, the Reporting Accountants have performed the procedures in accordance with the HKSA
620 Using the Work of an Expert. The Reporting Accountants have made inquiries regarding the source
data used and procedures undertaken by JLL in the valuations and obtained an understanding on the
assumptions and methods used. Based on the procedures undertaken, the Reporting Accountants are
satisfied that the valuation technique chosen and the source data used in the valuation are appropriate and
reasonable. The Sole Sponsor has held various discussions with JLL in relation to the valuation
methodology and assumptions adopted, the valuation techniques and the inputs used in the valuation by
JLL to understand their valuation process and reviewed the qualification and relevant valuation
experience of JLL and its professional valuers. The Sole Sponsor has further compared the valuation
technique chosen, bases and assumptions of the valuation with those used in other similar transactions
and market practice. In addition, the Sponsor has discussed with the Reporting Accountants regarding the
valuation of biological assets by JLL and noted that the Reporting Accountants had performed procedures
in accordance with the relevant auditing standards. Given the above, the Sponsor is satisfied that the
valuation methodology and major inputs used in the valuation of the biological assets of our Company are
appropriate and reasonable.
Sensitivity Analysis
The following tables illustrate the sensitivity of the fair value of our biological assets that would
arise if the weighted average market price of king trumpet mushroom and button mushroom had changed
during the periods indicated, assuming all other variables remained constant. The fair value of our
biological assets increases when the weighted average market price increases, and decreases when the
weighted average market price decreases.
King Trumpet mushroom
Weighted average market price was RMB10.8 per kilogram, RMB8.0 per kilogram and RMB7.1 per
kilogram for the three years ended 31 December 2012, 2013 and 2014, respectively.
Change in weighted average market price . . . . . . .
-30%
-15%
15%
30%
Change in Valuation results
(RMB)
For the year ended 31 December 2012 . . . . . . . . .
– 318 –
(838,401)
(660,553)
(802,110)
(419,201)
(330,277)
(401,055)
419,201
330,277
401,055
838,401
660,553
802,110
Button mushroom
-30%
-15%
15%
30%
Change in Valuation results
(RMB)
For the year ended 31 December 2012 . . . . . . . . . (1,127,571) (563,785) 563,785 1,127,571
For the year ended 31 December 2013 . . . . . . . . . (3,118,896) (1,559,448) 1,559,448 3,118,896
The following tables illustrate the sensitivity of the fair value of our biological assets in each of our
cultivation facilities that would arise if the weighted average market price of king trumpet mushroom and
button mushroom had changed during the periods indicated, assuming all other variables remained
constant. The fair value of our biological assets increases when the weighted average market price
increases, and decreases when the weighted average market price decreases.
King trumpet mushroom in Zhangzhou, Fujian province
-30.0%
-15.0%
15.0%
30.0%
Change in valuation results
(RMB)
– 319 –
(639,674)
(518,396)
(671,254)
(319,837)
(259,198)
(335,627)
319,837
259,198
335,627
639,674
518,396
671,254
King trumpet mushroom in Dandong, Liaoning province
kilogram for the three years ended 31 December 2012, 2013 and 2014, respectively. Our cultivation
facilities in Dandong, Liaoning province commenced operation in 2012.
-30.0%
-15.0%
15.0%
30.0%
(RMB)
(205,645)
(89,757)
(92,616)
(102,823)
(44,879)
(46,308)
102,823
44,879
46,308
205,645
89,757
92,616
King trumpet mushroom in Changzhou, Jiangsu province
Weighted average market price was RMB8.1 per kilogram and RMB7.3 per kilogram for the two
years ended 31 December 2013 and 2014, respectively. Our cultivation facilities in Changzhou, Jiangsu
province commenced operation in 2013.
-30.0%
-15.0%
15.0%
30.0%
(RMB)
(49,427)
(34,819)
(24,714)
(17,409)
24,714
17,409
49,427
34,819
Button mushroom at industrial cultivation facilities in Chengdu, Sichuan province
kilogram for the three years ended 31 December 2012, 2013 and 2014, respectively. Our button
mushroom industrial cultivation facilities in Chengdu, Sichuan province commenced operation in 2012.
-30.0%
-15.0%
15.0%
30.0%
(RMB)
– 320 –
(10,354)
(58,626)
(201,718)
(5,177)
(29,313)
(100,859)
5,177
29,313
100,859
10,354
58,626
201,718
Button mushroom in Zhangzhou, Fujian province
kilogram for the three years ended 31 December 2012, 2013 and 2014.
-30.0%
-15.0%
15.0%
30.0%
(RMB)
For the year ended 31 December 2012 . . . . . . . . . (877,590) (438,795) 438,795
877,590
Button mushroom in Ningdu, Jiangxi province
Weighted average market price was RMB6.7 per kilogram for the year ended 31 December 2012.
Our cultivation facilities in Ningdu, Jiangxi province was closed in 2013.
-30.0%
-15.0%
15.0%
30.0%
(RMB)
(185,351)
(92,675)
92,675
185,351
Button mushroom at traditional cultivation facilities in Chengdu, Sichuan province
-30.0%
-15.0%
15.0%
30.0%
(RMB)
– 321 –
(57,305)
(174,746)
(300,607)
(28,652)
87,373
(150,303)
28,652
87,373
150,303
57,305
174,746
300,607
Stock-take and Internal Control
Stock-take
We perform a full stock-take of king trumpet mushroom twice a year, i.e. on 30 June and 31
December every year and a full stock-take of button mushroom on an annual basis, i.e. on 31 December
every year at our cultivation facilities to ensure the physical existence and monitor the physical condition
of our biological assets. For each full stock-take, we prepare a detailed stock-take plan with instructions.
The team of a full stock-take include three members, namely warehouse staff, non-warehouse staff
(normally staff from the finance department) and external auditor. The result of each full stock-take is
documented on a stock count sheet which is signed by all three members who participated in the
stock-take. The stock count sheet will be submitted to and kept by the finance department. Any variance
between the results of the stock-take and the inventory record shall be reported to the management. The
results of the stock-take will be recorded after the approval of the management. If the variance between
the results of the full stock-take and the inventory record exceed 10.0%, a new full stock-take needs to be
performed. During the Track Record Period, there was no material damage or death of our biological
assets.
Internal Control and Management System
We have maintained a comprehensive policy for biological asset management. Our biological asset
management policy covers, among other things, purchase and inspection of raw materials, monitoring the
cultivation process, accounting records, record keeping and stock-take. To facilitate the implementation
of our biological asset management policy, we employ an electronic information management system
developed by a third-party developer, in collaboration with the accounting system, to keep
comprehensive record of our biological assets.
– 322 –
UNAUDITED PRO FORMA ADJUSTED NET TANGIBLE ASSETS
The following is an unaudited pro forma statement at adjusted consolidated net tangible assets of
our Group with has been prepared on the basis of the notes set out below, to illustrate how the Global
Offering may have affected the net tangible assets attributable to owners of the Company had it occurred
as at 31 December 2014. It has been prepared for illustrative purpose only and, because of its nature, may
not give a true picture of the financial position of our Group.
Based on an Offer Price of
HK$4.58 per Share. . . . . .
Based on an Offer Price of
HK$5.18 per Share. . . . . .
Consolidated
audited net
tangible assets
attributable to
owners of the
Company as at
31 December
2014
Estimated net
proceeds from
the Global
Offering
(Note 1)
Unaudited pro
forma adjusted
net tangible
assets
RMB’000
RMB’000
RMB’000
Unaudited pro forma adjusted net
tangible assets attributable to
owners of the Company per Share
(Note 2)
RMB
HK$
758,776
439,342
1,198,118
2.40
3.00
758,776
497,658
1,256,434
2.51
3.14
Notes:
(1)
The adjustment to the pro forma statement of net tangible assets reflects the estimated proceeds from the Global
Offering to be received by the Company. The estimated proceeds from the Global Offering is based on the Offer Price
of HK$4.58 and HK$5.18, respectively, being the lower and higher end price of the stated Offer Price range, and
125,000,000 Shares, net of underwriting fee and other estimated issue expenses of approximately RMB18.6 million
and RMB20.3 million, respectively.
(2)
The number of Shares is based on a total of 500,000,000 Shares issued, adjusted as if the Global Offering had occurred
at 31 December 2014. Our property interests as at 30 April 2015 have been valued by JLL, an independent property
valuer, and the relevant property valuation report is set out in Appendix III “Property Valuation” to this prospectus.
The above adjustment does not take into account the surplus arising from the revaluation of our property interests
amounting to RMB23.6 million. The revaluation surplus was not incorporated in our financial statements for the year
ended 31 December 2014. If the valuation surplus was recorded in our financial statements, an additional annual
depreciation expense and amortisation charges of prepaid land lease payments would be charged by approximately
RMB511,000.
(3)
The unaudited pro forma adjusted consolidated net tangible assets attributable to owners of the Company and the
amounts per Share are arrived at after the adjustments referred to in the preceding paragraphs and on the basis that
500,000,000 shares are expected to be in issue following the Global Offering (including 125,000,000 shares newly
issued upon the Global Offering) and the respective Offer Prices of HK$4.58 and HK$5.18 per Share.
(4)
The estimated net proceeds from the Global Offering and the unaudited pro forma adjusted consolidated net tangible
assets attributable to owners of the Company per Share are converted from or into Hong Kong dollars at an exchange
rate of RMB0.80 to HK$1.00, the prevailing rate of Hong Kong Association of Banks on 1 June 2015. No
representation is made that the HK$ amounts have been, could have been or may be converted into RMB, or vice versa,
at that rate.
(5)
No adjustment has been made to reflect any trading result or other transactions of our Group entered into subsequent
to 31 December 2014.
– 323 –
PROPERTY INTEREST AND PROPERTY VALUATION
The following table sets forth the reconciliation of the net book value of our Group’s property
interests comprising buildings and construction in progress as at 31 December 2014 to their market
values as stated in the property valuation report as at 30 April 2015 as set out in Appendix III to this
prospectus:
RMB
(’000)
Net book value of property interests of our Group as at 31 December 2014 . . . .
Movements during the four months ended 30 April 2015
Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
131,941
Net book value of property interests of our Group as at 30 April 2015 . . . . . . .
Valuation surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
132,548
23,622
Valuation of our Group’s property interests as at 30 April 2015 . . . . . . . . . . . .
156,170
1,800
(1,193)
NO MATERIAL ADVERSE CHANGE
After performing sufficient due diligence work which our Directors consider appropriate and after
due and careful consideration, our Directors confirm that, up to the date of this prospectus, there has been
no material adverse change in our financial or trading position or prospects since 31 December 2014,
being the date on which our latest audited consolidated financial statements were prepared, and there is
no event since 31 December 2014 which would materially affect the information as set forth in the
Accountants’ Report in Appendix I to this prospectus.
DISCLOSURE REQUIRED UNDER RULES 13.13 TO 13.19 OF THE LISTING RULES
Our Directors confirm that, except as otherwise disclosed in this prospectus, as at the Latest
Practicable Date, there have been no circumstances that would give rise to a disclosure requirement under
Rules 13.13 to 13.19 of the Listing Rules had the Shares listed on the Stock Exchange.
– 324 –
FUTURE PLANS AND USE OF PROCEEDS
FUTURE PLANS
Please refer to the section headed “Business – Our Strategies” in this prospectus for a detailed
description of our future plans.
USE OF PROCEEDS
The table below sets forth the estimated net proceeds of the Global Offering that we will receive
after deduction of underwriting fees and commissions, fees and anticipated expenses payable by us in
connection with the Global Offering:
Assuming an Offer Price of HK$5.18 per Offer Share
(being the high end of the Offer Price range stated
in this prospectus) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
being the mid-point of the Offer Price range stated
(being the low end of the Offer Price range stated
Assuming
the Over-allotment
Option is
not exercised
Assuming
the Over-allotment
Option is
exercised in full
HK$ in million
HK$ in million
603.3
719.9
566.9
676.7
530.4
633.5
We currently intend to apply the net proceeds of approximately HK$566.9 million for the following
purposes assuming the Over-allotment Option is not exercised and assuming an Offer Price of HK$4.88
per Share, being the mid-point of the Offer Price range stated in this prospectus:
•
Approximately 31.1%, or HK$176.3 million will be used for developing the Guangxi
Biological Technology Food Industry Park, which include (i) the land levelling and greening;
(ii) the construction of facilities and acquisition and installation of relevant equipment for the
cultivation of king trumpet mushroom; (iii) the construction of facilities and acquisition and
installation of relevant equipment for the bottle-cultivation king trumpet mushroom; (iv) the
construction of facilities and acquisition and installation of relevant equipment for the canned
food; and (v) the construction of administrative building, staff dormitory and ancillary
facilities. The total investment cost of the Guangxi Biological Technology Food Industry Park
is expected to be RMB246.0 million (equivalent to approximately HK$307.5 million);
•
Approximately 37.7%, or HK$213.7 million will be used for developing the Zhangzhou
Biological Technology Food Industry Park, which include (i) the acquisition of land and land
levelling and greening; (ii) the construction of facilities and acquisition and installation of
relevant equipment for the cultivation of king trumpet mushroom; (iii) the construction of
facilities and acquisition and installation of the relevant equipment for canned food and (iv) the
construction of administrative building, staff dormitory and ancillary facilities. The total
investment cost of the Zhangzhou Biological Technology Food Industry Park is expected to be
approximately RMB201.0 million (equivalent to approximately HK$251.3 million);
– 325 –
FUTURE PLANS AND USE OF PROCEEDS
•
Approximately 25.7%, or HK$145.7 million will be used for acquiring two king trumpet
mushroom cultivation facilities in China;
•
Approximately 1.1%, or HK$6.3 million will be used for acquiring laboratory and testing
equipment for the purpose of expansion of our king trumpet mushroom research and
development laboratory in Zhangzhou, Fujian province; and
•
Approximately 1.1%, or HK$6.3 million will be used for the construction of mushroom garden
as the science education base affiliated to our China Edible Fungi Scientific Museum at our
king trumpet mushroom cultivation facility in Zhangzhou, Fujian province.
•
Approximately 3.3% or HK$18.6 million will be used for working capital and other general
corporate purpose.
The above allocation of the net proceeds will be adjusted on a pro-rata basis in the event that the
Over-allotment Option is not exercised and the Offer Price is fixed at a higher or lower level compared to
the mid-point of the estimated Offer Price range stated in this prospectus.
In the event that the Over-allotment Option is exercised in full, the net proceeds will increase to
approximately HK$676.7 million, assuming an Offer Price of HK$4.88 per Share, being the mid-point of
the Offer Price range stated in this prospectus. In such event, we intend to allocate the net proceeds to the
above purposes on a pro-rata basis. Assuming the Over-allotment Option is exercised in full, the above
allocation of the net proceeds will be further adjusted on a pro-rata basis in the event that the Offer Price
is fixed at a higher or lower level compared to the mid-point of the estimated Offer Price range stated in
this prospectus.
In each of the above circumstances, we expect that the respective portions of the net proceeds from
the Global Offering will be fully utilised during the year ending 31 December 2016 for the above
purposes.
To the extent that the net proceeds are not immediately used for the above purposes, we intend to
deposit the net proceeds into short-term demand deposits, interest-bearing bank accounts with licensed
banks or financial institutions as permitted by the relevant laws and regulations.
We estimate that the net proceeds to the Selling Shareholders from the Sale Shares (after deduction
of proportional underwriting fees and estimated expense payable by our Selling Shareholders in relation
to the Global Offering, assuming the Over-allotment Option is not exercised and assuming an offer price
of HK$4.88 per Offer Share, being the mid-point of the indicative Offer Price range) will be
approximately HK$112.4 million. Our Company will not receive any of the proceeds from the sale of the
Sale Shares. The Selling Shareholders will not receive any of the net proceeds from the exercise of the
Over-allotment Option.
– 326 –
CORNERSTONE INVESTOR
THE CORNERSTONE PLACING
We have entered into cornerstone investment agreement with the following cornerstone investor (the
“Cornerstone Investor”), who has agreed to subscribe for such number of our Offer Shares (rounded
down to the nearest whole board lot of 1,000 Offer Shares) which may be purchased with an aggregate
amount of approximately HK$50.0 million (the “Cornerstone Placing”) at the Offer Price. Assuming an
Offer Price of HK$4.88 (being the mid-point of the Offer Price range set out in this prospectus), the total
number of Offer Shares to be subscribed by the Cornerstone Investor would be 10,245,000 Shares,
representing approximately 6.83% of the Offer Shares initially available under the Global Offering and
approximately 2.05% of the Shares in issue upon completion of the Global Offering and assuming that the
Over-allotment Option is not exercised.
The Cornerstone Placing will form part of the International Placing and the Cornerstone Investor
will not subscribe for any Offer Share under the Global Offering (other than and pursuant to its
cornerstone investment agreement). The Offer Shares to be subscribed for by the Cornerstone Investor
will rank pari passu in all respects with the other fully paid Offer Shares in issue upon completion of the
Global Offering and will be counted towards the public float of our Company. Immediately following the
completion of the Global Offering, the Cornerstone Investor will not have any board representation in our
Company, nor will the Cornerstone Investor become a substantial shareholder of our Company (as
defined under the Listing Rules). The Offer Shares to be subscribed for by the Cornerstone Investor will
not be affected by any reallocation of the Offer Shares between the International Placing and the Hong
Kong Public Offering in the event of over-subscription under the Hong Kong Public Offering as described
in the section headed “Structure of the Global Offering—The Hong Kong Public Offering” in this
prospectus.
To the best knowledge of our Company, the Cornerstone Investor is an Independent Third Party, not
our connected person and not an existing shareholder or close associate of our Group.
Details of the allocation to the Cornerstone Investor will be disclosed in the announcement of results
of allocations in the Hong Kong Public Offering to be published on or around Wednesday, 17 June 2015.
We set forth below a brief description of our Cornerstone Investor:
Shenzhen He Xi Capital Investment Management Partnership (Limited Partnership)
Shenzhen He Xi Capital Investment Management Partnership (Limited Partnership) (“He Xi
Capital”) has agreed to subscribe through an asset manager that is a QDII, or procure such asset manager
to subscribe on its behalf, such number of Shares (rounded down to the nearest whole board lot of 1,000
Shares) which may be purchased with an aggregate amount of HK$50.0 million) at the Offer Price.
Assuming an Offer Price of HK$4.88, being the mid-point of the Offer Price range set out in this
prospectus, the total number of Shares that He Xi Capital would subscribe for would be 10,245,000
Shares, representing approximately 2.05% of the Shares in issue immediately following the completion
of the Global Offering, assuming that the Over-allotment Option is not exercised.
– 327 –
He Xi Capital is a capital investment management partnership registered in Shenzhen, Guangdong
province in July 2013 specialised in capital investment, asset management and corporate advisory
businesses. He Xi Capital is mainly engaged in investment in private equity and endeavours to become a
well-known enterprise by provision of specialised and efficient service in China.
CONDITIONS PRECEDENT
The subscription of the Cornerstone Investor is subject to, among other things, the following
conditions precedent:
(a)
the underwriting agreement for the Hong Kong Public Offering and the underwriting
agreement for the International Placing having been entered into, become effective and having
become unconditional (in accordance with their respective original terms, as subsequently
varied by agreement of the parties thereto or waived, to the extent it may be waived, by the
relevant parties) by no later than the time and date as specified in these underwriting
agreements;
(b)
neither of the aforesaid underwriting agreements having been terminated;
(c)
no laws shall have been enacted or promulgated which prohibit the consummation of the
transactions contemplated under the relevant cornerstone investment agreement and there shall
be no orders or injunctions from a court of competent jurisdiction in effect precluding or
prohibiting consummation of such transactions; and
(d)
the respective representations, warranties and confirmations of the Cornerstone Investor and
our Company under the relevant cornerstone investment agreement are accurate and true and
not misleading and that there is no material breach of the relevant cornerstone investment
agreement on the part of the Cornerstone Investor or our Company.
RESTRICTIONS ON THE CORNERSTONE INVESTOR’S INVESTMENT
The Cornerstone Investor has agreed and undertaken that, without the prior written consent of our
Company and the Sole Global Coordinator, it will not, whether directly or indirectly, at any time during
the period of six months from the Listing Date, dispose of (as defined in the cornerstone investment
agreement) any of the Shares subscribed for by it pursuant to the relevant cornerstone investment
agreement.
– 328 –
UNDERWRITING
HONG KONG UNDERWRITERS
The Sole Global Coordinator
Co-lead Manager
UNDERWRITING ARRANGEMENTS AND EXPENSES
Hong Kong Underwriting Agreement
Pursuant to the Hong Kong Underwriting Agreement, our Company is offering the Hong Kong
Public Offer Shares for subscription, subject to the terms and conditions of this prospectus and the
Application Forms relating thereto, at the Offer Price.
Subject to, among other matters, the Listing Committee of the Stock Exchange granting listing of,
and permission to deal in, the Shares in issue and to be issued as mentioned in this prospectus and the
Offer Price having been determined by the Company and the Sole Global Coordinator at or prior to
Thursday, 11 June 2015 or such other date or time as may be agreed between the Company and the Sole
Global Coordinator (for itself and on behalf of the other Hong Kong Underwriters) but in any event not
later than Saturday, 13 June 2015, the Hong Kong Underwriters have agreed to subscribe for or procure
subscribers to subscribe for, on the terms and conditions of this prospectus and the Application Forms
relating thereto, the Hong Kong Public Offer Shares now being offered for subscription under the Hong
Kong Public Offering and which are not taken up under the Hong Kong Public Offering.
– 329 –
UNDERWRITING
Grounds for termination
The Sole Global Coordinator (for itself and on behalf of the other Hong Kong Underwriters) shall be
entitled, in its sole and absolute discretion, by notice in writing to our Company to terminate the Hong
Kong Underwriting Agreement with immediate effect if, at any time prior to 8:00 a.m. on the Listing
Date:
(i)
there shall develop, occur, exist or come into effect:
(a)
any event, or series of events, beyond the reasonable control of the Hong Kong
Underwriters (including, without limitation, acts of government, strikes, lock-outs, fire,
explosion, flooding, civil commotion, acts of war, acts of God, acts of terrorism, riot,
public disorder, economic sanctions, outbreak of diseases or epidemics including SARS
and avian influenza and such related/mutated forms or interruption or delay in
transportation) in or affecting Hong Kong, the PRC, the United States, the United
Kingdom, the European Union (or any member thereof), the Cayman Islands, the BVI or
any jurisdiction relevant to any member of our Group or the Global Offering (collectively,
the “Relevant Jurisdictions”) which in the reasonable opinion of the Sole Global
Coordinator has or would have the effect of making any part of the Hong Kong
Underwriting Agreement (including underwriting) incapable of performance in
accordance with its terms or which prevents the processing of applications and/or
payments pursuant to the Global Offering or pursuant to the underwriting thereof; or
(b)
any change or development involving a prospective change, or any event or series of
events likely to result in any change or development involving a prospective change in
local, national, international, financial, economic, political, military, industrial, fiscal,
regulatory or market conditions and matters and/or disaster or any monetary or trading
settlement systems (including any moratorium, suspension or material restriction on
trading in securities generally on the Stock Exchange, or a material fluctuation in the
exchange rate of Hong Kong dollars against any foreign currency, or any interruption in
securities settlement or clearance service or procedures in the Relevant Jurisdictions); or
(c)
any new law or change or development involving a prospective change in existing laws or
any change or development involving a prospective change in the interpretation or
application thereof by any court or other competent authority in any of the Relevant
Jurisdictions; or
(d)
the imposition of economic sanctions, in whatever form, directly or indirectly, by, or for
any of the Relevant Jurisdictions; or
(e)
a change or development occurs involving a prospective change in taxation or exchange
control (or the implementation of any exchange control) in any of the Relevant
Jurisdictions; or
(f)
any material change or development involving a prospective change, or a materialisation
of, any of the risks set forth in the section headed “Risk Factors” in this prospectus; or
(g)
any litigation or claim of material importance of any third party being threatened or
instigated against any member of our Group; or
– 330 –
UNDERWRITING
(h)
a valid demand by any creditor for repayment or payment of any indebtedness of any
member of our Group or in respect of which any member of our Group is liable prior to its
stated maturity; or
(i)
any loss or damage sustained by any member of our Group (howsoever caused and
whether or not the subject of any insurance or claim against any person); or
(j)
a petition is presented for the winding up or liquidation of any member of our Group or
any member of our Group makes any composition or arrangement with its creditors or
enters into a scheme of arrangement or any resolution is passed for the winding-up of any
member of our Group or a provisional liquidator, receiver or manager is appointed to take
over all or part of the assets or undertaking of any member of our Group or anything
analogous thereto occurs in respect of any member of our Group; or
(k)
any general moratorium on commercial banking activities in Hong Kong (imposed by the
Financial Secretary of Hong Kong and/or the Hong Kong Monetary Authority or other
competent authority) or any of the Relevant Jurisdictions,
which in the sole reasonable opinion of the Sole Global Coordinator (for itself and on behalf of
the other Hong Kong Underwriters):
(1)
is/are or shall have or could be expected to have a material adverse effect on the business,
financial or other condition or prospect of our Group as a whole or in the case of
sub-paragraph (e) above, to any present or prospective shareholder of the Company in his,
her or its capacity as such; or
(2)
has/have or shall have or could reasonably be expected to have an adverse effect on the
success, marketability or pricing of the Global Offering or the level of applications under
the Hong Kong Public Offering or the level of interest under the International Placing; or
(3)
make(s) it inadvisable, inexpedient or impracticable for the Global Offering to proceed;
or
(ii) there has come to the notice of the Sole Global Coordinator:
(a)
that any statement, reasonably considered by the Sole Global Coordinator to be material,
contained in any of this prospectus, the Application Forms and any documents in
connection with the Global Offering was when the same was issued, or has become,
untrue, incorrect or misleading in any material respect; or
(b)
that any matter has arisen or has been discovered which would, had it arisen or been
discovered immediately before the date of this prospectus, constitute an omission
therefrom reasonably considered by the Sole Global Coordinator to be material to the
Global Offering; or
(c)
any material breach of any of the obligations imposed upon any party to the Hong Kong
Underwriting Agreement or the International Underwriting Agreement (other than on any
of the Hong Kong Underwriters or the International Underwriters); or
– 331 –
UNDERWRITING
(d)
any change or development reasonably considered by the Sole Global Coordinator to have
or could be expected to have a material adverse effect on business affairs, prospects or the
financial or trading position of our Group as a whole; or
(e)
any breach, reasonably considered by the Sole Global Coordinator to be material, of any
of the warranties; or
(f)
any of RSM Nelson Wheeler, JLL, Walkers, Jun He Law Offices, RSMIC or Fujian Bo Hai
Engineering Technology Co., Ltd has withdrawn its respective consent to the issue of this
prospectus with the inclusion of its reports, letters, summaries of valuations and/or legal
opinions (as the case may be) and references to its name included in the form and context
in which it, respectively, appears, or Euromonitor has withdrawn its authorisation to the
publication, issuing to the public and use of its name and data in this prospectus; or
(g)
approval for the listing of and permission to deal in the Offer Shares to be issued or sold
(including any additional Offer Shares that may be issued pursuant to the exercise of the
Over-allotment Option Shares) on the Stock Exchange is refused or not granted, other
than subject to customary conditions, on or before the listing approval date, or if granted,
the approval is subsequently withdrawn, qualified (other than by customary conditions)
or withheld; or
(h)
our Company withdraws the Hong Kong Public Offer Documents (as defined in the Hong
Kong Underwriting Agreement) or the International Placing Documents (as defined in the
Hong Kong Underwriting Agreement) (or any other documents used in connection with
the contemplated subscription and sale of the Offer Shares) or the Global Offering; or
(iii) the International Underwriting Agreement and/or Price Determination Agreement shall not
have been executed at or before 12:00 noon on Thursday, 11 June 2015 (or such other date or
time as may be agreed between our Company (for ourselves and on behalf of the Selling
Shareholders) and the Sole Global Coordinator (for itself and on behalf of the Hong Kong
Underwriters and the International Underwriters) and in any event not later than Saturday, 13
June 2015 due to any reason whatsoever.
Undertakings to the Stock Exchange
Undertakings by our Company
Pursuant to Rule 10.08 of the Listing Rules, the Company has undertaken to the Stock Exchange
that, no further Shares or securities convertible into equity securities (whether or not of a class already
listed) may be issued by the Company or form the subject of any agreement to such issue within six
months from the Listing Date (whether or not such issue of Shares or our securities will be completed
within six months from the Listing Date), except pursuant to the Global Offering or for the circumstances
prescribed by Rule 10.08 of the Listing Rules.
Undertakings by the Controlling Shareholders
Pursuant to Rule 10.07 of the Listing Rules, each of the Controlling Shareholders undertakes to the
Stock Exchange and to our Company that except pursuant to the Global Offering (including the offer for
sale of the Sale Shares by the Selling Shareholders and the Over-allotment Option) and the Stock
Borrowing Agreement, they will not at any time:
– 332 –
UNDERWRITING
(a)
during the period commencing on the date by reference to which disclosure of our interests in
our Company is made in this prospectus and ending on the date falling six months from the
Listing Date (the “First Six-month Period”), he/she/it shall not dispose of, or enter into any
agreement to dispose of or otherwise create any options, rights, interests or encumbrances in
respect of, any of the securities of our Company in respect of which he/she/it is shown by this
prospectus to be the beneficial owners; or
(b)
in the six-month period commencing on the expiry of the First Six-month Period set out in
paragraph (a) above (the “Second Six-month Period”), dispose of, nor enter into any
agreement to dispose of or otherwise create any options, rights, interests or encumbrances in
respect of, any of the securities mentioned in paragraph (a) if, immediately following such
disposal or upon the exercise or enforcement of such options, rights, interests or
encumbrances, he/she/it would cease to be a Controlling Shareholder of our Company.
Pursuant to Note (3) to Rule 10.07(2) of the Listing Rules, each of our Controlling Shareholders has
further undertaken to the Stock Exchange and to our Company that within the period commencing on the
date by reference to which disclosure of his/her/its shareholdings is made in this prospectus and to the
date which is 12 months from the Listing Date, they will:
(a)
when they pledge or charge any securities of our Company or interests therein beneficially
owned by them in favour of any authorised institution pursuant to Note (2) to Rule 10.07(2) of
the Listing Rules, immediately inform our Company of such pledge or charge together with the
number of securities so pledged or charged; and
(b)
when they receive indications, either verbal or written, from the pledgee or chargee that any of
the securities of our Company pledged or charged will be disposed of, immediately inform our
Company of such indications.
The Company will inform the Stock Exchange as soon as it is informed of the above matters by any
of our Controlling Shareholders and disclose such matters in accordance with the publication
requirements under Rule 2.07C of the Listing Rules as soon as possible after being so informed by any of
our Controlling Shareholders.
Undertakings pursuant to the Hong Kong Underwriting Agreement
Undertakings by our Company
Our Company undertakes to each of the Sole Sponsor, the Sole Global Coordinator and the Hong
Kong Underwriters that it shall, and each of the Controlling Shareholders undertakes to each of the Sole
Sponsor, the Sole Global Coordinator and the Hong Kong Underwriters to procure our Company to,
ensure that no further Shares or securities convertible into equity securities of our Company (whether or
not of a class already listed) may be issued by our Company or form the subject of any agreement to such
an issue by our Company within six months from the Listing Date (whether or not such issue of Shares or
securities of our Company will be completed within six months from the commencement of dealings),
except in certain circumstances prescribed by Rule 10.08 of the Listing Rules.
– 333 –
UNDERWRITING
Undertakings by our Controlling Shareholders
Pursuant to the Hong Kong Underwriting Agreement, each of our Controlling Shareholders jointly
and severally agrees and undertakes to each of our Company, the Sole Global Coordinator, the Sole
Sponsor and the Hong Kong Underwriters that except with the prior written consent of the Sole Sponsor
and the Sole Global Coordinator (for itself and on behalf of the other Hong Kong Underwriters) and
unless pursuant to the sale of the Sale Shares by the Selling Shareholder as part of the International
Placing and/or as a result of any exercise of the Over-allotment Option or the stock borrowing
arrangement with the Sole Global Coordinator as contemplated under the Stock Borrowing Agreement
which shall be effected in compliance with the requirements under Rule 10.07(3) of the Listing Rules and
unless in compliance with the requirements of the Listing Rules:
(a)
during the First Six-month Period, the Controlling Shareholders shall not, and shall procure
that the relevant registered holder(s) and their respective close associates and companies
controlled by he/she/it and any nominee or trustee holding in trust for him/her/it shall not,
(i)
offer, pledge, charge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant or agree to grant any option, right or warrant
to purchase or subscribe for, lend or otherwise transfer or dispose of, either directly or
indirectly, any of the Shares or any securities convertible into or exercisable or
exchangeable for, or that represent the right to receive any of the Shares or securities of
our Company disclosed in this prospectus to be beneficially owned by him/her/it or the
relevant company, nominee or trustee (including any interest in any shares in any
company controlled by him/her/it) which is directly or indirectly a beneficial owner of
any of the Shares or securities of our Company as disclosed in this prospectus as aforesaid
(the “Relevant Securities”);
(ii) enter into any swap or other arrangement that transfers to another, in whole or in part,
directly or indirectly, any of the economic consequences of ownership of the Relevant
Securities, whether any of the foregoing transactions is to be settled by delivery of the
Relevant Securities, in cash or otherwise;
(iii) agree (conditionally or unconditionally) to enter into or effect any transaction with the
same economic effect as any of the transactions referred to in paragraphs (i) or (ii) above;
(iv) announce any intention to enter into or effect any of the transactions referred to in
paragraphs (i), (ii) or (iii) above;
(b)
he/she/it shall not, and shall procure that the relevant registered holder(s) and his/her/its close
associates or companies controlled by him/her/it and any nominee or trustee holding in trust
for him/her/it shall not, directly or indirectly in the Second Six-month Period, dispose of, nor
enter into any agreement to dispose of or otherwise create any options, rights, interests or
encumbrances in respect of, any Relevant Securities if, immediately following such disposal or
upon the exercise or enforcement of such options, rights, interests or encumbrances, he/she/it
would cease to be a Controlling Shareholder of our Company for purposes of the Listing Rules;
(c)
in the event of a disposal of any Shares or securities of our Company or any interest therein
within the Second Six-month Period, he/she/it shall take all reasonable steps to ensure that
such a disposal shall not create a disorderly or false market for any Shares or other securities of
our Company;
– 334 –
UNDERWRITING
(d)
he/she/it shall, and shall procure that his/her/its close associates and companies controlled by
him/her/it and nominees or trustees holding in trust for him/her/it shall, comply with all the
restrictions and requirements under the Listing Rules on the sale, transfer or disposal by
him/her/it or by the registered holder controlled by him/her/it of any Shares;
(e)
he/she/it shall comply with all applicable restrictions under the Listing Rules on the disposal
by him/her/it or by the registered holder(s) of any Shares or other securities of our Company in
respect of which he/she/it is disclosed in this prospectus to be interested therein;
(f)
neither he/she/it nor any of his/her/its respective close associates nor any companies controlled
by him/her/it nor any nominee or trustee holding in trust for him/her/it has any present
intention of disposing of any Shares or other securities of our Company in respect of which
he/she/it is disclosed in this prospectus to be interested therein;
(g)
during the 12-month period from the Listing Date, when he/she/it pledges or charges any
securities or interests in the Relevant Securities, he/she/it will immediately inform our
Company and the Sole Global Coordinator in writing of such pledges or charges together with
the number of securities and nature of interest so pledged or charged; and
(h)
during the 12-month period from the Listing Date, when he/she/it receives indications, either
verbal or written, from any pledgee or chargee that any of the pledged or charged securities or
interests in the securities of the Company will be sold, transferred or disposed of, immediately
inform our Company and the Sole Global Coordinator in writing of such indications.
International Underwriting Agreement
In connection with the International Placing, it is expected that the Company, the Controlling
Shareholders and the Selling Shareholders will, on or about Thursday, 11 June 2015, enter into the
International Underwriting Agreement with, among other parties, the Sole Global Coordinator, the Sole
Sponsor and the International Underwriters. Under the International Underwriting Agreement, it is
expected that the International Underwriters would, subject to certain conditions set out therein, agree to
subscribe for or procure subscribers to subscribe for the International Placing Shares.
Under the International Underwriting Agreement, the Company intends to grant to the International
Underwriters the Over-allotment Option, which is exercisable by Sole Global Coordinator (for itself and
on behalf of the other International Underwriters) on or before Saturday, 11 July 2015, being the 30th day
after the last day for the lodging of applications under the Global Offering, to require the Company to
issue up to an aggregate of 22,500,000 additional Shares, representing 15% of the number of Offer Shares
initially available under the Global Offering, at the Offer Price, among other things, to cover
over-allocations in the International Placing, if any.
Commission and expenses
The Underwriters will receive an underwriting commission of 2.8% on the aggregate Offer Price of
all the Offer Shares, out of which any sub-underwriting commission will be paid.
– 335 –
UNDERWRITING
The underwriting commissions, listing fees, Stock Exchange trading fee and transaction levy, legal
and printing and other professional fees and other expenses relating to the Global Offering are payable by
our Company and the Selling Shareholders with reference to the number of New Shares and Sale Shares
under the Global Offering respectively.
The Sole Sponsor will receive financial advisory and documentation fees. The underwriting
commission, financial advisory and documentation fee, Stock Exchange listing fees and trading fee, SFC
transaction levy, legal and other professional fees together with applicable printing and other expenses
relating to the Global Offering are estimated to amount to approximately HK$52.76 million in total
(based on an Offer Price of HK$4.88 per Offer Share, being the mid-point of the indicative Offer Price
range of between HK$4.58 and HK$5.18 per Offer Share, and on the assumption that the Over-allotment
Option is not exercised), and approximately HK$43.12 million will be payable by the Company and
approximately HK$9.64 million will be payable by the Selling Shareholders.
Indemnity
Our Company and the Controlling Shareholders have agreed to indemnify the Hong Kong
Underwriters for certain losses which they may suffer, including losses arising from their performance of
their obligations under the Hong Kong Underwriting Agreement and any breach by any of our Company
and the Controlling Shareholders of the Hong Kong Underwriting Agreement.
Underwriters’ interests in our Company
As at the Latest Practicable Date and save as disclosed in this prospectus and other than pursuant to
the Underwriting Agreements, none of the Hong Kong Underwriters was interested, directly or indirectly,
in any shares or securities in any member of our Group or had any right or option (whether legally
enforceable or not) to subscribe for, or to nominate persons to subscribe for, any shares or securities in
any member of our Group.
Following the completion of the Global Offering, the Hong Kong Underwriters and their affiliated
companies may hold a certain portion of the Shares as a result of fulfilling their obligations under the
Hong Kong Underwriting Agreement and the International Underwriters and their affiliated companies
may hold a certain portion of the Shares as a result of fulfilling their obligations under the International
Underwriting Agreement.
– 336 –
UNDERWRITING
ACTIVITIES BY SYNDICATE MEMBERS
The Underwriters of the Global Offering (the “Syndicate Members”) and their affiliates are
diversified financial institutions with relationships in countries around the world. These entities engage
in a wide range of commercial and investment banking, brokerage, funds management, trading, hedging,
investing and other activities for their own accounts and for the account of others. In relation to our
Shares, other activities could include acting as agent for buyers and sellers of our Shares, entering into
transactions with other buyers and sellers in a principal capacity, proprietary trading in our Shares, and
entering into over-the-counter or listing derivative transactions or listed and unlisted securities
transactions (including issuing securities such as derivative warrants listed on a stock exchange) which
have as their underlying, assets including our Shares. Those activities may require hedging activity by
those entities involving, directly or indirectly, buying and selling our Shares. All such activities could
occur in Hong Kong and elsewhere in the world and may result in the Syndicate Members and their
affiliates holding long and/or short positions in our Shares, in baskets of securities or indices including
our Shares, in units of funds that may purchase our Shares, or in derivatives related to any of the
foregoing.
In relation to issues by Syndicate Members or their affiliates of any listed securities having our
Shares as their underlying, whether on the Stock Exchange or on any other stock exchange, the rules of
the stock exchange may require the issuer of other securities (or one of its affiliates or agents) to act as a
market maker or liquidity provider in the security, and these will also result in hedging activity in our
Shares in most cases.
All these activities may occur both during and after the end of the stabilising period described in the
section headed “Structure of the Global Offering – Over-allotment Option and stabilisation” of this
prospectus. These activities may affect the market price or value of our Shares, the liquidity or trading
volume in our Shares, and the volatility of our Share price, and the extent to which this occurs from day
to day cannot be estimated.
It should be noted that when engaging in any of these activities, the Syndicate Members will be
subject to certain restrictions, including the following:
(a)
the Syndicate Members (other than the Stabilising Manager or any person acting for it) must
not, in connection with the distribution of the Offer Shares, effect any transactions (including
issuing or entering into any option or other derivative transactions relating to the Offer Shares),
whether in the open market or otherwise, with a view to stabilising or maintaining the market
price of any of the Offer Shares at levels other than those which might otherwise prevail in the
open market; and
(b)
the Syndicate Members must comply with all applicable laws and regulations, including the
market misconduct provisions of the SFO, including the provisions prohibiting insider dealing,
false trading, price rigging and stock market manipulation.
– 337 –
THE GLOBAL OFFERING
This prospectus is published in connection with the Hong Kong Public Offering as part of the Global
Offering. The Global Offering comprises:
(a)
the Hong Kong Public Offering of 15,000,000 Shares (subject to reallocation as mentioned
below) for subscription by the public in Hong Kong as described in the paragraph headed “The
Hong Kong Public Offering” of this section; and
(b)
the International Placing of an aggregate of 135,000,000 Shares comprising 110,000,000 New
Shares and 25,000,000 Sale Shares (subject to reallocation and the Over-allotment Option as
mentioned below) outside the United States to professional and institutional investors.
Investors may apply for Offer Shares under the Hong Kong Public Offering or apply for or indicate
an interest for Offer Shares under the International Placing, but may not do both. References in this
prospectus to applications, Application Forms, application monies or the procedure for application relate
solely to the Hong Kong Public Offering.
The Offer Shares will represent 30% of the enlarged issued share capital of our Company
immediately after completion of the Global Offering without taking into account the exercise of the
Over-allotment Option or options which are granted under the Pre-IPO Share Option Scheme and may be
granted under the Share Option Scheme. If the Over-allotment Option is exercised in full, the Offer
Shares will represent approximately 33.01% of the enlarged issued share capital immediately after
completion of the Global Offering and the exercise of the Over-allotment Option as set out in the
paragraphs headed “Over-allotment Option and Stabilisation” in this section.
THE HONG KONG PUBLIC OFFERING
Number of Shares initially offered
We are initially offering 15,000,000 New Shares for subscription by the public in Hong Kong at the
Offer Price, representing 10% of the total number of Shares initially available under the Global Offering.
Subject to the reallocation of Shares between the International Offering and the Hong Kong Public
Offering, the Hong Kong Public Offer Shares will represent 3% of the enlarged issued share capital of our
Company immediately following the completion of the Global Offering (assuming the Over-allotment
Option is not exercised). The Hong Kong Public Offering is open to members of the public in Hong Kong
as well as to institutional and professional investors. Professional investors generally include brokers,
dealers, companies (including fund managers) whose ordinary business involves dealing in shares and
other securities and corporate entities which regularly invest in shares and other securities.
Completion of the Hong Kong Public Offering is subject to the conditions as set out in the paragraph
headed “Conditions of the Hong Kong Public Offering” of this section.
– 338 –
Allocation
Allocation of Shares to investors under the Hong Kong Public Offering will be based solely on the
level of valid applications received under the Hong Kong Public Offering. The basis of allocation may
vary, depending on the number of Hong Kong Public Offer Shares validly applied for by applicants. Such
allocation could, where appropriate, consist of balloting, which would mean that some applicants may
receive a higher allocation than others who have applied for the same number of Hong Kong Public Offer
Shares, and those applicants who are not successful in the ballot may not receive any Hong Kong Public
Offer Shares.
The total number of Offer Shares available under the Hong Kong Public Offering (after taking
account of any reallocation) is to be divided into two pools for allocation purposes: Pool A and Pool B
with any odd board lots being allocated to Pool A.
Accordingly, the maximum number of Hong Kong Public Offer Shares initially in Pool A and Pool
B will be 7,500,000 and 7,500,000, respectively. The Offer Shares in Pool A will be allocated on an
equitable basis to applicants who have applied for Offer Shares with an aggregate price of HK$5 million
(excluding the brokerage, SFC transaction levy and the Stock Exchange trading fee payable) or less. The
Offer Shares in Pool B will be allocated on an equitable basis to applicants who have applied for Offer
Shares with an aggregate price of more than HK$5 million (excluding the brokerage, SFC transaction
levy and the Stock Exchange trading fee payable). Investors should be aware that applications in Pool A
and applications in Pool B may receive different allocation ratios. If Offer Shares in one (but not both) of
the pools are under-subscribed, the surplus Offer Shares will be transferred to the other pool to satisfy
demand in that other pool and be allocated accordingly. For the purpose of this paragraph only, the
“price” for Offer Shares means the price payable on application therefor (without regard to the Offer
Price as finally determined). Applicants can only receive an allocation of Offer Shares from either Pool A
or Pool B but not from both pools. Multiple or suspected multiple applications and any application for
more than 7,500,000 Hong Kong Public Offer Shares (being 50% of the 15,000,000 Hong Kong Public
Offer Shares initially available under the Hong Kong Public Offering) are liable to be rejected.
Reallocation
The allocation of Offer Shares (other than the Sale Shares which are offered for sale by the Selling
Shareholder pursuant to the International Placing) between the Hong Kong Public Offering and the
International Placing is subject to adjustment. The allocation of the Offer Shares between the Hong Kong
Public Offering and the International Placing is subject to the following adjustments:
(a)
if the number of the Offer Shares validly applied for under the Hong Kong Public Offering
represents 15 times or more but less than 50 times the number of the Offer Shares initially
available for subscription under the Hong Kong Public Offering, the number of Offer Shares to
be reallocated to the Hong Kong Public Offering from the International Placing will be
increased so that the total number of the Offer Shares available under the Hong Kong Public
Offering will be 45,000,000 Offer Shares, representing 30% of the Offer Shares initially
available under the Global Offering;
– 339 –
(b)
represents 50 times or more but less than 100 times the number of the Offer Shares initially
available for subscription under the Hong Kong Public Offering, then the number of Offer
Shares to be reallocated to the Hong Kong Public Offering from the International Placing will
be increased, so that the total number of the Offer Shares available under the Hong Kong Public
Offering will be 60,000,000 Offer Shares, representing 40% of the Offer Shares initially
available under the Global Offering; and
(c)
represents 100 times or more the number of the Offer Shares initially available for subscription
under the Hong Kong Public Offering, then the number of Offer Shares to be reallocated to the
Hong Kong Public Offering from the International Placing will be increased, so that the total
number of the Offer Shares available under the Hong Kong Public Offering will be 75,000,000
Offer Shares, representing 50% of the Offer Shares initially available under the Global
Offering.
Any such clawback and reallocation between the International Placing and the Hong Kong Public
Offering will be completed prior to any adjustment of the number of the Offer Shares pursuant to the
exercise of the Over-allotment Option, if any.
In each case, the additional Offer Shares reallocated to the Hong Kong Public Offering will be
allocated between Pool A and Pool B and the number of Offer Shares allocated to the International
Placing will be correspondingly reduced in such manner as the Sole Global Coordinator deems
appropriate. In addition, the Sole Global Coordinator may reallocate Offer Shares from the International
Placing to the Hong Kong Public Offering to satisfy valid applications under the Hong Kong Public
Offering.
If the Hong Kong Public Offering is not fully subscribed, the Sole Global Coordinator has the
authority to reallocate all or any unsubscribed Hong Kong Public Offer Shares to the International
Placing in such proportions as the Sole Global Coordinator deems appropriate. Conversely, the Sole
Global Coordinator may at its sole discretion re-allocate Offer Shares from the International Placing to
the Hong Kong Public Offering to satisfy valid applications under the Hong Kong Public Offering.
Applications
Each applicant under the Hong Kong Public Offering will also be required to give an undertaking
and confirmation in the application submitted by him/her that he/she and any person(s) for whose benefit
he/she is making the application has not applied for or taken up, or indicated an interest for, and will not
apply for or take up, or indicate an interest for, any Offer Shares under the International Placing, and such
applicant’s application is liable to be rejected if the said undertaking and/or confirmation is breached
and/or untrue (as the case may be) or it has been or will be placed or allocated Offer Shares under the
International Placing.
– 340 –
Applicants under the Hong Kong Public Offering are required to pay, on application, the maximum
price of HK$5.18 per Offer Share in addition to the brokerage, SFC transaction levy and Stock Exchange
trading fee payable on each Offer Share. If the Offer Price, as finally determined in the manner described
in the paragraph headed “Pricing of the Global Offering” of this section, is less than the maximum price
of HK$5.18 per Offer Share, appropriate refund payments (including the brokerage, SFC transaction levy
and Stock Exchange trading fee attributable to the surplus application monies) will be made to successful
applicants, without interest. Further details are set out below in the section headed “How to Apply for the
Hong Kong Public Offer Shares” of this prospectus.
THE INTERNATIONAL PLACING
Number of Offer Shares offered
The International Placing will consist of an initial offering of 135,000,000 Offer Shares comprising
110,000,000 New Shares and 25,000,000 Sale Shares, representing 90% of the total number of Offer
Shares initially available under the Global Offering and 27% of our enlarged issued share capital
immediately after completion of the Global Offering, assuming the Over-allotment Option is not
exercised. The International Placing will be offered by us outside of the United States in reliance on
Regulation S under the U.S. Securities Act, including to professional and institutional investors in Hong
Kong.
Allocation
The International Placing will include selective marketing of the International Placing Shares to
institutional and professional investors and other investors anticipated to have a sizeable demand for the
International Placing Shares. Professional investors generally include brokers, dealers, companies
(including fund managers) whose ordinary business involves dealing in shares and other securities and
corporate entities which regularly invest in shares and other securities. Allocation of the International
Placing Shares pursuant to the International Placing will be effected in accordance with the “bookbuilding” process described in the section entitled “Pricing of the Global Offering” below and based on a
number of factors, including the level and timing of demand, the total size of the relevant investor’s
invested assets or equity assets in the relevant sector and whether or not it is expected that the relevant
investor is likely to buy further Offer Shares, and/or hold or sell its Offer Shares, after the listing of the
Offer Shares on the Stock Exchange. Such allocation is intended to result in a distribution of the Offer
Shares on a basis which would lead to the establishment of a solid professional and institutional
shareholder base to the benefit of our Company and the Shareholders as a whole.
The Sole Global Coordinator (for itself and on behalf of the other Underwriters) may require any
investor who has been offered International Placing Shares under the International Placing, and who has
made an application under the Hong Kong Public Offering to provide sufficient information to the Sole
Global Coordinator so as to allow it to identify the relevant applications under the Hong Kong Public
Offering and to ensure that it is excluded from any application of the Hong Kong Public Offer Shares
under the Hong Kong Public Offering.
– 341 –
OVER-ALLOTMENT OPTION AND STABILISATION
In connection with the Global Offering and pursuant to the International Underwriting Agreement,
we expect to grant an Over-allotment Option to the International Underwriters.
The Over-allotment Option
The Over-allotment Option is exercisable by the Sole Global Coordinator (for itself and on behalf of
the other International Underwriters), with the prior written consent of the Company, under the
International Underwriting Agreement. Under the Over-allotment Option, which will be exercisable at
any time for up to 30 days after the last day for lodging applications under the Hong Kong Public
Offering, we may be required to issue at the Offer Price and otherwise on the same terms and conditions
as the Offer Shares that are subject to the Global Offering up to an additional 22,500,000 Shares in
aggregate, representing approximately 15% of the total number of Offer Shares initially available under
the Global Offering. If the Over-allotment Option is exercised in full, the additional Shares made
available under the Over-allotment Option will represent approximately 4.31% of the total Shares in issue
immediately after completion of the Global Offering and the exercise of the Over-allotment Option. In
the event that the Over-allotment Option is exercised, an announcement will be published in South China
Morning Post (in English) and Hong Kong Economic Journal (in Chinese).
In order to facilitate settlement of over-allocations in the International Placing and for the purpose
of stabilising of the market price of the Shares (if any), the Sole Global Coordinator may borrow up to
22,500,000 Shares, equivalent to the maximum number of Shares to be issued on the exercise of the
Over-allotment Option in full, pursuant to the Stock Borrowing Agreement. The loan of Shares by the
Sole Global Coordinator pursuant to the Stock Borrowing Agreement shall not be subject to the
restrictions under Rule 10.07(1)(a) of the Listing Rules which restricts the disposal of Shares by our
Controlling Shareholders subsequent to the date of this prospectus, subject to compliance with the
following requirements in accordance with the provisions of Rule 10.07(3) of the Listing Rules:
(a)
the Stock Borrowing Agreement will be for the sole purpose of covering any short position
prior to the exercise of the Over-allotment Option in connection with the International Placing;
(b)
the maximum number of Shares which may be borrowed from Song Rising must not exceed the
maximum number of Shares which may be issued upon the full exercise of the Over-allotment
Option;
(c)
the same number of Shares so borrowed must be returned to Song Rising or its nominees, as the
case may be, on or before the third business day following the earlier of (i) the last day for
exercising the Over-allotment Option, and (ii) the date on which the Over- allotment Option is
exercised in full;
(d)
the borrowing of Shares pursuant to the Stock Borrowing Agreement will be effected in
compliance with all applicable Listing Rules, laws and other regulatory requirements; and
(e)
no payments will be made to Song Rising by the Stabilising Manager in relation to the Stock
Borrowing Agreement.
– 342 –
Stabilisation
In connection with the Global Offering, the Stabilising Manager, or any person acting for it, on
behalf of the International Underwriters, may over-allocate or effect transactions with a view to
supporting the market price of the Shares at a level higher than that which might otherwise prevail for a
limited period after the Listing Date. Such transactions, if commenced, may be discontinued at any time
but any stabilising activity is required to be brought to an end no later than the 30th day after the last day
for lodging Application Forms under the Hong Kong Public Offering. The Stabilising Manager has been
or will be appointed as stabilising manager for the purposes of the Global Offering in accordance with the
Securities and Futures (Price Stabilising) Rules made under the SFO and, should stabilising transactions
be effected in connection with the Global Offering, this will be at the absolute discretion of the
Stabilising Manager.
Following any over-allocation of Shares in connection with the Global Offering, the Stabilising
Manager or any person acting for it may cover such over-allocation by (among other methods) making
purchases in the secondary market, exercising the Over-allotment Option in full or in part, or by any
combination of purchases and the exercise of the Over-allotment Option. Any such purchases will be
made in compliance with all applicable laws and regulatory requirements including the Securities and
Futures (Price Stabilising) Rules made under the SFO. The number of Shares which can be overallocated will not exceed the number of Shares which are the subject of the Over-allotment Option, being
22,500,000 Shares representing 15% of the Shares initially available under the Global Offering.
Stabilising action permitted in Hong Kong pursuant to the Securities and Futures (Price Stabilising)
Rules, as amended, includes (i) over-allocating for the purpose of preventing or minimising any reduction
in the market price of the Shares, (ii) selling or agreeing to sell the Shares so as to establish a short
position in them for the purpose of preventing or minimising any reduction in the market price of the
Shares, (iii) purchasing or subscribing for, or agreeing to purchase or subscribe for, the Shares pursuant
to the Over-allotment Option in order to close out any position established under (i) or (ii) above, (iv)
purchasing, or agreeing to purchase, any of the Shares for the sole purpose of preventing or minimising
any reduction in the market price of the Shares, (v) selling or agreeing to sell any Shares in order to
liquidate any position established as a result of those purchases and (vi) offering or attempting to do
anything as described in (ii), (iii), (iv) or (v).
Specifically, prospective applicants for and investors in Shares should note that:
•
The Stabilising Manager may, in connection with the stabilising action, maintain a long
position in the Shares;
•
There is no certainty regarding the extent to which and the time period for which the
Stabilising Manager will maintain such a position;
•
Liquidation of any such long position by the Stabilising Manager may have an adverse impact
on the market price of the Shares;
– 343 –
•
No stabilising action will be taken to support the price of the Shares for longer than the
stabilising period which will begin on the Listing Date and is expected to expire at the end of
Saturday, 11 July 2015, being the 30th day after the last day for lodging Application Forms
under the Hong Kong Public Offering. After this date, when no further action may be taken to
support the price of the Shares, demand for the Shares, and therefore the price of the Shares,
could fall;
•
The price of any security (including the Shares) cannot be assured to stay at or above its offer
price by the taking of any stabilising action; and
•
Stabilising bids may be made or transactions effected in the course of the stabilising action at
any price at or below the Offer Price, which means that stabilising bids may be made or
transactions effected at a price below the price paid by applicants for, or investors in, the
Shares.
A public announcement, as required by the Securities and Futures (Price Stabilising) Rules made
under the SFO, will be made within seven days of the expiration of the stabilising period.
All stabilising actions will be taken in accordance with the laws, rules and regulations in place in
Hong Kong on stabilisation.
Pricing of the Global Offering
The International Underwriters will be soliciting from prospective investors indications of interest
in acquiring Offer Shares in the International Placing. Prospective professional and institutional investors
will be required to specify the number of the International Placing Shares under the International Placing
they would be prepared to acquire either at different prices or at a particular price. This process, known as
“book-building,” is expected to continue up to, and to cease on or around, the last day for lodging
applications under the Hong Kong Public Offering.
Pricing for the Offer Shares for the purpose of the various offerings under the Global Offering will
be fixed on the Price Determination Date, which is expected to be on or about Thursday, 11 June 2015,
and in any event on or before Saturday, 13 June 2015, by agreement between the Sole Global Coordinator
(for itself and on behalf of the other Underwriters), and our Company (for ourselves and on behalf of the
Selling Shareholders) and the number of Offer Shares to be allocated or sold under various offerings will
be determined shortly thereafter.
The Offer Price will not be more than HK$5.18 per Offer Share and is expected to be not less than
HK$4.58 per Offer Share unless otherwise announced, as further explained below, not later than the
morning of the last day for lodging applications under the Hong Kong Public Offering. Prospective
investors should be aware that the Offer Price to be determined on the Price Determination Date may be,
but is not expected to be, lower than the indicative offer price range stated in this prospectus.
– 344 –
The Sole Global Coordinator (for itself and on behalf of the other Underwriters) may, where
considered appropriate, based on the level of interest expressed by prospective professional and
institutional investors during the book-building process, and with the consent of our Company, reduce the
number of Offer Shares offered in the Global Offering and/or the indicative offer price range below that
stated in this prospectus at any time on or prior to the morning of the last day for lodging applications
under the Hong Kong Public Offering. In such a case, we will, as soon as practicable following the
decision to make such reduction, and in any event not later than the morning of the day which is the last
day for lodging applications under the Hong Kong Public Offering, cause there to be published in the
South China Morning Post (in English) and Hong Kong Economic Journal (in Chinese), on the website of
our Company (www.china-greenfresh.com) and the website of the Stock Exchange (www.hkexnews.hk)
a notice of the reduction. Upon issue of such a notice, the number of Offer Shares offered in the Global
Offering and/or the revised offer price range will be final and conclusive and the offer price, if agreed
upon by the Sole Global Coordinator (for itself and on behalf of the other Underwriters) and our
Company, will be fixed within such revised offer price range. Before submitting applications for the
Hong Kong Public Offer Shares, applicants should have regard to the possibility that any announcement
of a reduction in the number of Offer Shares being offered under the Global Offering and/or the indicative
offer price range may not be made until the day which is the last day for lodging applications under the
Hong Kong Public Offering. In the event there is a reduction in the Offer Shares and/or indicative Offer
Price range, if the applicants have already submitted an application for the Hong Kong Public Offer
Shares before the last day for lodging applications under the Hong Kong Public Offering, they will be
allowed to subsequently withdraw their applications. In the absence of any such notice so published, the
Offer Price, if agreed upon with our Company and the Sole Global Coordinator, will under no
circumstances be set outside the offer price range as stated in this prospectus.
The net proceeds of the Global Offering accruing to our Company (after deduction of underwriting
fees and estimated expenses payable by our Company in relation to the Global Offering, assuming the
Over-allotment Option is not exercised) are estimated to be approximately HK$566.9 million, assuming
an Offer Price per Share of HK$4.88 (being the mid-point of the stated indicative Offer Price range of
HK$4.58 to HK$5.18 per Offer Share) or if the Over-allotment Option is exercised in full, approximately
HK$676.7 million, assuming an Offer Price per Share of HK$4.88 (being the mid-point of the stated
indicative Offer Price range of HK$4.58 to HK$5.18 per Offer Share).
The final Offer Price, the indications of interest in the Global Offering, the results of applications
and the basis of allotment of the Hong Kong Public Offer Shares available under the Hong Kong Public
Offering, are expected to be announced on Wednesday, 17 June 2015 in the South China Morning Post (in
English) and Hong Kong Economic Journal (in Chinese), on the website of our Company
(www.china-greenfresh.com) and the website of the Stock Exchange (www.hkexnews.hk).
UNDERWRITING AGREEMENTS
The Hong Kong Public Offering is fully underwritten by the Hong Kong Underwriters under the
terms of the Hong Kong Underwriting Agreement and is conditional upon the International Underwriting
Agreement being signed and becoming unconditional.
Our Company, our Controlling Shareholders, the Selling Shareholders, the Sole Sponsor, the Sole
Global Coordinator and the International Underwriters expect to enter into the International
Underwriting Agreement relating to the International Placing on or around the Price Determination Date.
These underwriting arrangements, and the respective Underwriting Agreements, are summarised in the
section headed “Underwriting” of this prospectus.
– 345 –
THE SHARES WILL BE ELIGIBLE FOR CCASS
All necessary arrangements have been made to enable the Shares to be admitted into the CCASS. If
the Stock Exchange grants the listing of, and permission to deal in, the Shares and our Company complies
with the stock admission requirements of HKSCC, the Shares will be accepted as eligible securities by
HKSCC for deposit, clearance and settlement in CCASS with effect from the date of commencement of
dealings in the Shares on the Stock Exchange or any other date HKSCC chooses.
Settlement of transactions between participants of the Stock Exchange is required to take place in
CCASS on the second Business Day after any trading day. All activities under CCASS are subject to the
General Rules of CCASS and CCASS Operational Procedures in effect from time to time.
CONDITIONS OF THE HONG KONG PUBLIC OFFERING
Acceptance of all applications for the Hong Kong Public Offer Shares pursuant to the Hong Kong
Public Offering will be conditional on:
(a)
the Listing Committee of the Stock Exchange granting listing of, and permission to deal in, the
Shares being offered pursuant to the Global Offering (including the additional Offer Shares
which may be made available pursuant to the exercise of the Over-allotment Option) (subject
only to allotment);
(b)
the Offer Price having been fixed on or about the Price Determination Date;
(c)
the execution and delivery of the International Underwriting Agreement on or about the Price
Determination Date; and
(d)
the obligations of the Underwriters under each of the respective Underwriting Agreements
becoming and remaining unconditional and not having been terminated in accordance with the
terms of the respective agreements, in each case on or before the dates and times specified in
the respective Underwriting Agreements (unless and to the extent such conditions are validly
waived on or before such dates and times) and in any event not later than 30 days after the date
of this prospectus.
If, for any reason, the Offer Price is not agreed between our Company (for ourselves and on behalf
of the Selling Shareholders) and the Sole Global Coordinator (for itself and on behalf of the other
Underwriters), or the International Underwriting Agreement is not entered into, the Global Offering will
not proceed.
The consummation of each of the Hong Kong Public Offering and the International Placing is
conditional upon, among other things, the other offering becoming unconditional and not having been
terminated in accordance with its terms.
– 346 –
If the above conditions are not fulfilled or waived prior to the times and dates specified, the Global
Offering will lapse and the Stock Exchange will be notified immediately. Notice of the lapse of the Hong
Kong Public Offering will be published by our Company in the South China Morning Post (in English)
and Hong Kong Economic Journal (in Chinese) on the next day following such lapse. In such eventuality,
all application monies will be returned, without interest, on the terms set out in the section headed “How
to Apply for the Hong Kong Public Offer Shares” of this prospectus. In the meantime, all application
monies will be held in (a) separate bank account(s) with the receiving bank or other licensed bank(s) in
Hong Kong licensed under the Banking Ordinance (Chapter 155 of the Laws of Hong Kong) (as
amended).
Share certificates for the Shares are expected to be issued on Wednesday, 17 June 2015 but will only
become valid certificates of title at 8:00 a.m. on Thursday, 18 June 2015 provided that (i) the Global
Offering has become unconditional in all respects and (ii) the right of termination as described in the
section headed “Underwriting – Underwriting arrangements and expenses – Hong Kong Underwriting
Agreement – Grounds for termination” of this prospectus has not been exercised.
DEALINGS
Assuming that the Hong Kong Public Offering becomes unconditional at or before 8:00 a.m. in
Hong Kong on Thursday, 18 June 2015, it is expected that dealings in the Shares on the Stock Exchange
will commence at 9:00 a.m. on Thursday, 18 June 2015.
The Shares will be traded in board lots of 1,000 Shares each.
– 347 –
HOW TO APPLY FOR THE HONG KONG PUBLIC OFFER SHARES
1.
HOW TO APPLY
If you apply for Hong Kong Public Offer Shares, then you may not apply for or indicate an interest
for International Placing Shares.
To apply for Hong Kong Public Offer Shares, you may:
•
use a WHITE or YELLOW Application Form;
•
apply online via HK eIPO White Form service at www.hkeipo.hk; or
•
electronically cause HKSCC Nominees to apply on your behalf.
None of you or your joint applicant(s) may make more than one application, except where you are a
nominee and provide the required information in your application.
Our Company or the Sole Global Coordinator, HK eIPO White Form Service Provider and their
respective agents may reject or accept any application in full or in part for any reason at their discretion.
2.
WHO CAN APPLY
You can apply for Hong Kong Public Offer Shares on a WHITE or YELLOW Application Form if
you or the person(s) for whose benefit you are applying:
•
are 18 years of age or older;
•
have a Hong Kong address;
•
are outside the United States, and are not a United States Person (as defined in Regulation S
under the U.S. Securities Act); and
•
are not a legal or natural person of the PRC.
If you apply online through the HK eIPO White Form service, in addition to the above, you must
(i) have a valid Hong Kong identity card number and (ii) provide a valid email address and a contact
telephone number.
If you are a firm, the application must be in the individual members’ names. If you are a body
corporate, the application form must be signed by a duly authorised officer, who must state his
representative capacity and stamped with your corporation’s chop.
If an application is made by a person under a power of attorney, the Sole Global Coordinator (or its
agents or nominees) may accept it at their discretion and on any conditions they think fit, including
evidence of the attorney’s authority.
– 348 –
The number of joint applicants may not exceed four for the Hong Kong Public Offer Shares and they
may not apply by means of the HK eIPO White Form service for the Hong Kong Public Offer Shares.
Unless permitted by the Listing Rules, you cannot apply for any Hong Kong Public Offer Shares if
you are:
3.
•
an existing beneficial owner of shares of our Company and/or any of our subsidiaries;
•
a Director or chief executive officer of our Company and/or any of its subsidiaries;
•
an associate (as defined in the Listing Rules) of any of the above;
•
a connected person (as defined in the Listing Rules) of our Company or will become a
connected person of our Company immediately upon completion of the Global Offering; or
•
have been allocated or have applied for or indicated an interest in any International Placing
Shares under the International Placing or otherwise participate in the International Placing.
APPLYING FOR HONG KONG PUBLIC OFFER SHARES
Which application channel to use
For Hong Kong Public Offer Shares to be issued in your own name, use a WHITE Application
Form or apply online through www.hkeipo.hk.
For Hong Kong Public Offer Shares to be issued in the name of HKSCC Nominees and
deposited directly into CCASS to be credited to your or a designated CCASS Participant’s stock
account, use a YELLOW Application Form or electronically instruct HKSCC via CCASS to cause
HKSCC Nominees to apply for you.
Where to collect the Application Forms
You can collect a WHITE Application Form and a prospectus during normal business hours
from 9:00 a.m. on Monday, 8 June 2015 to 12:00 noon on Thursday, 11 June 2015 from:
(i)
the following addresses of the following Hong Kong Underwriters:
Central
Hong Kong
22/F, Li Po Chun Chambers
189 Des Voeux Road Central
Hong Kong
Unit A2, 32/F, United Centre
95 Queensway
Hong Kong
– 349 –
(ii) any of the following branches of Industrial and Commercial Bank of China (Asia)
Limited, the receiving bank for the Hong Kong Public Offering:
Branch name
Hong Kong
Island
Kowloon
New Territories
Branch address
Central Branch
1/F, 9 Queen’s Road Central
Causeway Bay Branch
Shop A on G/F, 1/F,
Hennessy Apartments,
488 & 490 Hennessy Road
North Point Branch
G/F, 436-438 King’s Road,
North Point
Tsimshatsui Branch
Shop 1 & 2, G/F,
No. 35-37 Hankow Road,
Tsimshatsui
Mongkok Branch
G/F, Belgian Bank Building,
721-725 Nathan Road, Mongkok
Kwun Tong Branch
Shop 5 & 6, 1/F, Crocodile Centre,
79 Hoi Yuen Road, Kwun Tong
Shatin Branch
Shop 22J, Level 3, Shatin Centre
Tseung Kwan O Branch
Shop Nos. 2011-2012,
Level 2, Metro City, Plaza II,
8 Yan King Road, Tseung Kwan O
You can collect a YELLOW Application Form and this prospectus during normal business
hours from 9:00 a.m. on Monday, 8 June 2015 until 12:00 noon on Thursday, 11 June 2015 from the
depository counter of HKSCC at 1/F, One & Two Exchange Square, 8 Connaught Place, Central,
Hong Kong or from your stockbroker.
Time for lodging Application Forms
Your completed WHITE or YELLOW Application Form, together with a cheque or a banker’s
cashier order attached and marked payable to “ICBC (ASIA) NOMINEE LIMITED – CHINA
GREENFRESH PUBLIC OFFER” for the payment, should be deposited in the special collection
boxes provided at any of the branches of the receiving bank listed above, at the following times:
Monday, 8
Tuesday, 9
Wednesday, 10
Thursday, 11
June
June
June
June
2015
2015
2015
2015
—
—
—
—
9:00
9:00
9:00
9:00
– 350 –
a.m.
a.m.
a.m.
a.m.
to
to
to
to
5:00 p.m.
5:00 p.m.
5:00 p.m.
12:00 noon
The application lists will be open from 11:45 a.m. to 12:00 noon on Thursday, 11 June 2015,
the last application day or such later time as described in the paragraph headed “– Effect of bad
weather conditions on the opening of the applications lists” of this section.
4.
TERMS AND CONDITIONS OF AN APPLICATION
Follow the detailed instructions in the Application Form carefully; otherwise, your application may
be rejected.
By submitting an Application Form or applying through the HK eIPO White Form service, among
other things, you (and if you are joint applicants, each of you jointly and severally) for yourself or as an
agent or a nominee on behalf of each person for whom you act:
(i)
undertake to execute all relevant documents and instruct and authorise our Company and/or the
Sole Sponsor and/or the Sole Global Coordinator (or their agents or nominees), as agents of
our Company, to execute any documents for you and to do on your behalf all things necessary
to register any Hong Kong Public Offer Shares allocated to you in your name or in the name of
HKSCC Nominees as required by the Articles of Association;
(ii) agree to comply with the Companies Ordinance, Companies Ordinance (Miscellaneous
Provisions) and the Articles of Association;
(iii) confirm that you have read the terms and conditions and application procedures set out in this
prospectus and in the Application Form and agree to be bound by them;
(iv) confirm that you have received and read this prospectus and have only relied on the
information and representations contained in this prospectus in making your application and
will not rely on any other information or representations except those in any supplement to this
prospectus;
(v)
confirm that you are aware of the restrictions on the Global Offering in this prospectus;
(vi) agree that none of our Company, the Sole Sponsor, the Sole Global Coordinator, the
Underwriters, their respective directors, officers, employees, partners, agents, advisers and
any other parties involved in the Global Offering is or will be liable for any information and
representations not in this prospectus (and any supplement to it);
(vii) undertake and confirm that you or the person(s) for whose benefit you have made the
application have not applied for or taken up, or indicated an interest for, and will not apply for
or take up, or indicate an interest for, any International Placing Shares under the International
Placing nor participated in the International Placing;
(viii) agree to disclose to our Company, the Hong Kong Share Registrar, receiving bank, the Sole
Sponsor, Sole Global Coordinator, the Underwriters and/or their respective advisers and agents
any personal data which they may require about you and the person(s) for whose benefit you
have made the application;
– 351 –
(ix) if the laws of any place outside Hong Kong apply to your application, agree and warrant that
you have complied with all such laws and none of our Company, the Sole Sponsor, the Sole
Global Coordinator, the Underwriters nor any of their respective officers or advisers will
breach any law outside Hong Kong as a result of the acceptance of your offer to purchase, or
any action arising from your rights and obligations under the terms and conditions contained in
this prospectus and the Application Form;
(x)
agree that once your application has been accepted, you may not rescind it because of an
innocent misrepresentation;
(xi) agree that your application will be governed by the laws of Hong Kong;
(xii) represent, warrant and undertake that (i) you understand that the Hong Kong Public Offer
Shares have not been and will not be registered under the U.S. Securities Act; and (ii) you and
any person for whose benefit you are applying for the Hong Kong Public Offer Shares are
outside the United States (as defined in Regulation S) or are a person described in paragraph
(h)(3) of Rule 902 of Regulation S;
(xiii) warrant that the information you have provided is true and accurate;
(xiv) agree to accept the Hong Kong Public Offer Shares applied for, or any lesser number allocated
to you under the application;
(xv) authorise our Company to place your name(s) or the name of the HKSCC Nominees, on our
Company’s register of members as the holder(s) of any Hong Kong Public Offer Shares
allocated to you, and our Company and/or its agents to send any share certificate(s) and/or any
e-Auto Refund payment instructions and/or any refund cheque(s) to you or the first-named
applicant for joint application by ordinary post at your own risk to the address stated on the
application, unless you have chosen to collect the share certificate(s) and/or refund cheque(s)
in person;
(xvi) declare and represent that this is the only application made and the only application intended
by you to be made to benefit you or the person for whose benefit you are applying;
(xvii) understand that our Company and the Sole Global Coordinator will rely on your declarations
and representations in deciding whether or not to make any allotment of any of the Hong Kong
Public Offer Shares to you and that you may be prosecuted for making a false declaration;
(xviii) (if the application is made for your own benefit) warrant that no other application has been or
will be made for your benefit on a WHITE or YELLOW Application Form or by giving
electronic application instructions to HKSCC or to the HK eIPO White Form by you or by
any one as your agent or by any other person; and
(xix) (if you are making the application as an agent for the benefit of another person) warrant that
(i) no other application has been or will be made by you as agent for or for the benefit of that
person or by that person or by any other person as agent for that person on a WHITE or
YELLOW Application Form or by giving electronic application instructions to HKSCC; and
(ii) you have due authority to sign the Application Form or give electronic application
instructions on behalf of that other person as their agent.
– 352 –
Additional instructions for YELLOW Application Form
You may refer to the YELLOW Application Form for details.
5.
APPLYING THROUGH HK eIPO WHITE FORM SERVICE
General
Individuals who meet the criteria in “Who can apply” section, may apply through the HK eIPO
White Form service for the Offer Shares to be allotted and registered in their own names through
the designated website www.hkeipo.hk.
Detailed instruction for application through the HK eIPO White Form service are on the
designated website. If you do not follow the instructions, your application may be rejected and may
not be submitted to our Company. If you apply through the designated website, you authorise the
HK eIPO White Form Service Provider to apply on the terms and conditions in this prospectus, as
supplemented and amended by the terms and conditions of the HK eIPO White Form service.
Time for submitting applications under the HK eIPO White Form
You may submit your application to the HK eIPO White Form Service Provider at
www.hkeipo.hk (24 hours daily, except on the last application day) from 9:00 a.m. on Monday, 8
June 2015 until 11:30 a.m. on Thursday, 11 June 2015 and the latest time for completing full
payment of application monies in respect of such application will be 12:00 noon on Thursday, 11
June 2015 or such later time under the paragraph headed “Effect of bad weather conditions on the
opening of the application lists” of this section.
No multiple applications
If you apply by means of HK eIPO White Form, once you complete payment in respect of any
electronic application instruction given by you or for your benefit through the HK eIPO White
Form service to make an application for Hong Kong Public Offer Shares, an actual application shall
be deemed to have been made. For the avoidance of doubt, giving an electronic application
instruction under HK eIPO White Form more than once and obtaining different application
reference numbers without effecting full payment in respect of a particular reference number will
not constitute an actual application.
If you are suspected of submitting more than one application through the HK eIPO White
Form service or by any other means, all of your applications are liable to be rejected.
Section 40 of the Companies Ordinance (Miscellaneous Provisions)
For the avoidance of doubt, our Company and other parties involved in the preparation of this
prospectus acknowledge that each applicant who gives or causes to give electronic application
instructions is a person who may be entitled to compensation under Section 40 of the Companies
Ordinance (Miscellaneous Provisions) (as applied by Section 342E of the Companies Ordinance
(Miscellaneous Provisions)).
– 353 –
Environmental Protection
The advantage of HK eIPO White Form is to minimise the usage of paper via the self-serviced
and electronic application process. The Company and the Sole Sponsor encourage you to utilise this
application channel should you desire the Hong Kong Public Offer Shares to be issued under your
own name.
6.
APPLYING BY GIVING ELECTRONIC APPLICATION INSTRUCTIONS TO HKSCC VIA
CCASS
General
CCASS Participants may give electronic application instructions to apply for the Hong Kong
Public Offer Shares and to arrange payment of the money due on application and payment of refunds
under their participant agreements with HKSCC and the General Rules of CCASS and the CCASS
Operational Procedures.
If you are a CCASS Investor Participant, you may give these electronic application
instructions through the CCASS Phone System by calling 2979 7888 or through the CCASS
Internet System (https://ip.ccass.com) (using the procedures in HKSCC’s “An Operating Guide for
Investor Participants” in effect from time to time).
HKSCC can also input electronic application instructions for you if you go to:
Hong Kong Securities Clearing Company Limited
Customer Service Centre
1/F, One & Two Exchange Square
8 Connaught Place, Central
Hong Kong
and complete an input request form.
You can also collect a prospectus from the above address.
If you are not a CCASS Investor Participant, you may instruct your broker or custodian who is
a CCASS Clearing Participant or a CCASS Custodian Participant to give electronic application
instructions via CCASS terminals to apply for the Hong Kong Public Offer Shares on your behalf.
You will be deemed to have authorised HKSCC and/or HKSCC Nominees to transfer the
details of your application to our Company, the Sole Sponsor, the Sole Global Coordinator and our
Hong Kong Share Registrar.
Giving electronic application instructions to HKSCC via CCASS
Where you have given electronic application instructions to apply for the Hong Kong Public
Offer Shares and a WHITE Application Form is signed by HKSCC Nominees on your behalf:
(i)
HKSCC Nominees will only be acting as a nominee for you and is not liable for any
breach of the terms and conditions of the WHITE Application Form or this prospectus;
(ii) HKSCC Nominees will do the following things on your behalf:
•
agree that the Hong Kong Public Offer Shares to be allotted shall be issued in the
name of HKSCC Nominees and deposited directly into CCASS for the credit of the
CCASS Participant’s stock account on your behalf or your CCASS Investor
Participant’s stock account;
– 354 –
•
agree to accept the Hong Kong Public Offer Shares applied for or any lesser number
allocated;
•
undertake and confirm that you have not applied for or taken up, will not apply for or
take up, or indicate an interest for, any International Placing Shares under the
International Placing;
•
(if the electronic application instructions are given for your benefit) declare that
only one set of electronic application instructions has been given for your benefit;
•
(if you are an agent for another person) declare that you have only given one set of
electronic application instructions for the other person’s benefit and are duly
authorised to give those instructions as their agent;
•
confirm that you understand that our Company, our Directors, the Sole Sponsor and
the Sole Global Coordinator will rely on your declarations and representations in
deciding whether or not to make any allotment of any of the Hong Kong Public Offer
Shares to you and that you may be prosecuted if you make a false declaration;
•
authorise our Company to place HKSCC Nominees’ name on our Company’s
register of members as the holder of the Hong Kong Public Offer Shares allocated to
you and to send share certificate(s) and/or refund monies under the arrangements
separately agreed between us and HKSCC;
•
confirm that you have read the terms and conditions and application procedures set
out in this prospectus and agree to be bound by them;
•
confirm that you have received and/or read a copy of this prospectus and have relied
only on the information and representations in this prospectus in causing the
application to be made, save as set out in any supplement to this prospectus;
•
agree that none of our Company, the Selling Shareholders, the Sole Sponsor, the
Sole Global Coordinator, the Underwriters, their respective directors, officers,
employees, partners, agents, advisers and any other parties involved in the Global
Offering, is or will be liable for any information and representations not contained
in this prospectus (and any supplement to it);
•
agree to disclose your personal data to our Company, the Hong Kong Share
Registrar, receiving bank, the Sole Sponsor and the Sole Global Coordinator and/or
its respective advisers and agents;
•
agree (without prejudice to any other rights which you may have) that once HKSCC
Nominees’ application has been accepted, it cannot be rescinded for innocent
misrepresentation;
– 355 –
•
agree that any application made by HKSCC Nominees on your behalf is irrevocable
before the fifth day after the time of the opening of the application lists (excluding
any day which is Saturday, Sunday or public holiday in Hong Kong), such agreement
to take effect as a collateral contract with us and to become binding when you give
the instructions and such collateral contract to be in consideration of our Company
agreeing that it will not offer any Hong Kong Public Offer Shares to any person
before the fifth day after the time of the opening of the application lists (excluding
any day which is Saturday, Sunday or public holiday in Hong Kong), except by
means of one of the procedures referred to in this prospectus. However, HKSCC
Nominees may revoke the application before the fifth day after the time of the
opening of the application lists (excluding for this purpose any day which is a
Saturday, Sunday or public holiday in Hong Kong) if a person responsible for this
prospectus under Section 40 of the Companies Ordinance (Miscellaneous
Provisions) gives a public notice under that section which excludes or limits that
person’s responsibility for this prospectus;
•
agree that once HKSCC Nominees’ application is accepted, neither that application
nor your electronic application instructions can be revoked, and that acceptance of
that application will be evidenced by our Company’s announcement of the Hong
Kong Public Offering results;
•
agree to the arrangements, undertakings and warranties under the participant
agreement between you and HKSCC, read with the General Rules of CCASS and the
CCASS Operational Procedures, for the giving electronic application instructions
to apply for Hong Kong Public Offer Shares;
•
agree with our Company, for itself and for the benefit of each Shareholder (and so
that our Company will be deemed by its acceptance in whole or in part of the
application by HKSCC Nominees to have agreed, for itself and on behalf of each of
the Shareholders, with each CCASS Participant giving electronic application
instructions) to observe and comply with the Companies Ordinance, Companies
Ordinance (Miscellaneous Provision) and the Articles of Association; and
•
agree that your application, any acceptance of it and the resulting contract will be
governed by the laws of Hong Kong.
Effect of giving electronic application instructions to HKSCC via CCASS
By giving electronic application instructions to HKSCC or instructing your broker or
custodian who is a CCASS Clearing Participant or a CCASS Custodian Participant to give such
instructions to HKSCC, you (and, if you are joint applicants, each of you jointly and severally) are
deemed to have done the following things. Neither HKSCC nor HKSCC Nominees shall be liable to
our Company or any other person in respect of the things mentioned below:
•
instructed and authorised HKSCC to cause HKSCC Nominees (acting as nominee for the
relevant CCASS Participants) to apply for the Hong Kong Public Offer Shares on your
behalf;
– 356 –
•
instructed and authorised HKSCC to arrange payment of the maximum Offer Price,
brokerage, SFC transaction levy and the Stock Exchange trading fee by debiting your
designated bank account and, in the case of a wholly or partially unsuccessful application
and/or if the Offer Price is less than the maximum Offer Price per Offer Share initially
paid on application, refund of the application monies (including brokerage, SFC
transaction levy and the Stock Exchange trading fee) by crediting your designated bank
account; and
•
instructed and authorised HKSCC to cause HKSCC Nominees to do on your behalf all the
things stated in the WHITE Application Form and in this prospectus.
Minimum purchase amount and permitted numbers
You may give or cause your broker or custodian who is a CCASS Clearing Participant or a
CCASS Custodian Participant to give electronic application instructions for a minimum of 1,000
Hong Kong Public Offer Shares. Instructions for more than 1,000 Hong Kong Public Offer Shares
must be in one of the numbers set out in the table in the Application Forms. No application for any
other number of Hong Kong Public Offer Shares will be considered and any such application is
liable to be rejected.
Time for inputting electronic application instructions
CCASS Clearing/Custodian Participants can input electronic application instructions at the
following times on the following dates:
Monday, 8
Tuesday, 9
Wednesday, 10
Thursday, 11
June
June
June
June
2015
2015
2015
2015
—
—
—
—
9:00
8:00
8:00
8:00
a.m. to 8:30 p.m. (1)
a.m. to 8:30 p.m. (1)
a.m. to 8:30 p.m. (1)
a.m. (1) to 12:00 noon
Note:
(1)
These times are subject to change as HKSCC may determine from time to time with prior notification to CCASS
Clearing/Custodian Participants.
CCASS Investor Participants can input electronic application instructions from 9:00 a.m. on
Monday, 8 June 2015 until 12:00 noon on Thursday, 11 June 2015 (24 hours daily, except on the last
application day).
The latest time for inputting your electronic application instructions will be 12:00 noon on
Thursday, 11 June 2015, the last application day or such later time as described in the paragraph
headed “Effect of bad weather conditions on the opening of the application lists” of this section.
No multiple applications
If you are suspected of having made multiple applications or if more than one application is
made for your benefit, the number of Hong Kong Public Offer Shares applied for by HKSCC
Nominees will be automatically reduced by the number of Hong Kong Public Offer Shares for which
you have given such instructions and/or for which such instructions have been given for your
benefit. Any electronic application instructions to make an application for the Hong Kong Public
Offer Shares given by you or for your benefit to HKSCC shall be deemed to be an actual application
for the purposes of considering whether multiple applications have been made.
– 357 –
Section 40 of the Companies Ordinance (Miscellaneous Provisions)
For the avoidance of doubt, our Company and all other parties involved in the preparation of
this prospectus acknowledge that each CCASS Participant who gives or causes to give electronic
application instructions is a person who may be entitled to compensation under Section 40 of the
Companies Ordinance (Miscellaneous Provisions) (as applied by Section 342E of the Companies
Ordinance (Miscellaneous Provisions)).
Personal data
The section of the Application Form headed “Personal Data” applies to any personal data held
by us, the Hong Kong Share Registrar, the receiving bank, the Sole Sponsor, the Sole Global
Coordinator, the Underwriters and any of their respective advisers and agents about you in the same
way as it applies to personal data about applicants other than HKSCC Nominees.
7.
WARNING FOR ELECTRONIC APPLICATIONS
The subscription of the Hong Kong Public Offer Shares by giving electronic application
instructions to HKSCC is only a facility provided to CCASS Participants. Similarly, the application for
Hong Kong Public Offer Shares through the HK eIPO White Form service is also only a facility
provided by the HK eIPO White Form Service Provider to public investors. Such facilities are subject to
capacity limitations and potential service interruptions and you are advised not to wait until the last
application day in making your electronic applications. Our Company, our Directors, the Sole Sponsor,
the Sole Global Coordinator and the Underwriters take no responsibility for such applications and
provide no assurance that any CCASS Participant or person applying through the HK eIPO White Form
service will be allotted any Hong Kong Public Offer Shares.
To ensure that CCASS Investor Participants can give their electronic application instructions, they
are advised not to wait until the last minute to input their instructions to the systems. In the event that
CCASS Investor Participants have problems in the connection to CCASS Phone System/CCASS Internet
System for submission of electronic application instructions, they should either (i) submit a WHITE or
YELLOW Application Form, or (ii) go to HKSCC’s Customer Service Centre to complete an input
request form for electronic application instructions before 12:00 noon on Thursday, 11 June 2015.
8.
HOW MANY APPLICATIONS YOU CAN MAKE
Multiple applications for the Hong Kong Public Offer Shares are not allowed except by nominees. If
you are a nominee, in the box on the Application Form marked “For nominees” you must include:
•
an account number; or
•
some other identification code,
for each beneficial owner or, in the case of joint beneficial owners, for each joint beneficial owner. If you
do not include this information, the application will be treated as being made for your benefit.
– 358 –
All of your applications will be rejected if more than one application on a WHITE or YELLOW
Application Form or by giving electronic application instructions to HKSCC or through the HK eIPO
White Form service, is made for your benefit (including the part of the application made by HKSCC
Nominees acting on electronic application instructions). If an application is made by an unlisted
company and:
•
the principal business of that company is dealing in securities; and
•
you exercise statutory control over that company,
then the application will be treated as being for your benefit.
“Unlisted company” means a company with no equity securities listed on the Stock Exchange.
“Statutory control” means you:
9.
•
control the composition of the board of directors of the company;
•
control more than half of the voting power of the company; or
•
hold more than half of the issued share capital of the company (not counting any part of it
which carries no right to participate beyond a specified amount in a distribution of either
profits or capital).
HOW MUCH ARE THE HONG KONG PUBLIC OFFER SHARES
The WHITE and YELLOW Application Forms have tables showing the exact amount payable for
Shares.
You must pay the maximum Offer Price, brokerage, SFC transaction levy and the Stock Exchange
trading fee in full upon application for Shares under the terms set out in the Application Forms.
You may submit an application using a WHITE and YELLOW Application Form or through the HK
eIPO White Form service in respect of a minimum of 1,000 Hong Kong Public Offer Shares. Each
application or electronic application instruction in respect of more than 1,000 Hong Kong Public Offer
Shares must be in one of the numbers set out in the table in the Application Form, or as otherwise
specified on the designated website www.hkeipo.hk.
If your application is successful, brokerage will be paid to the Exchange Participants (as defined in
the Listing Rules), and the SFC transaction levy and the Stock Exchange trading fee are paid to the Stock
Exchange (in the case of the SFC transaction levy, collected by the Stock Exchange on behalf of the SFC).
For further details on the Offer Price, please refer to the section headed “Structure of the Global
Offering” in this prospectus.
– 359 –
10. EFFECT OF BAD WEATHER CONDITIONS ON THE OPENING OF THE APPLICATION
LISTS
The application lists will not open if there is:
•
a tropical cyclone warning signal number 8 or above; or
•
a “black” rainstorm warning,
in force in Hong Kong at any time between 9:00 a.m. and 12:00 noon on Thursday, 11 June 2015. Instead
they will open between 11:45 a.m. and 12:00 noon on the next Business Day which does not have either
of those warnings in Hong Kong in force at any time between 9:00 a.m. and 12:00 noon.
If the application lists do not open and close on Thursday, 11 June 2015 or if there is a tropical
cyclone warning signal number 8 or above or a “black” rainstorm warning signal in force in Hong Kong
that may affect the dates mentioned in the section headed “Expected timetable” of this prospectus, an
announcement will be made in such event.
11. PUBLICATION OF RESULTS
Our Company expects to announce the final Offer Price, the level of indication of interest in the
International Placing, the level of applications in the Hong Kong Public Offering and the basis of
allocation of the Hong Kong Public Offer Shares on Wednesday, 17 June 2015 in South China Morning
Post (in English) and Hong Kong Economic Journal (in Chinese), on our Company’s website at
www.china-greenfresh.com and the website of the Stock Exchange at www.hkexnews.hk.
The results of allocations and the Hong Kong identity card/passport/Hong Kong business
registration numbers of successful applicants under the Hong Kong Public Offering will be available at
the times and date and in the manner specified below:
•
in the announcement to be posted on our Company’s website at www.china-greenfresh.com
and the Stock Exchange’s website at www.hkexnews.hk by no later than 9:00 a.m. on
Wednesday, 17 June 2015;
•
from the designated results of allocations website at www.tricor.com.hk/ipo/result with a
“search by ID” function on a 24-hour basis from 8:00 a.m. on Wednesday, 17 June 2015 to
midnight on Tuesday, 23 June 2015;
•
by telephone enquiry line by calling 3691 8488 between 9:00 a.m. and 6:00 p.m. from
Wednesday, 17 June 2015 to Monday, 22 June 2015 (excluding Saturday and Sunday);
•
in the special allocation results booklets which will be available for inspection during opening
hours from Wednesday, 17 June 2015 to Friday, 19 June 2015 at all the receiving bank
branches.
– 360 –
If our Company accepts your offer to purchase (in whole or in part), which it may do by announcing
the basis of allocations and/or making available the results of allocations publicly, there will be a binding
contract under which you will be required to purchase the Hong Kong Public Offer Shares if the
conditions of the Global Offering are satisfied and the Global Offering is not otherwise terminated.
Further details are contained in the section headed “Structure of the Global Offering” of this prospectus.
You will not be entitled to exercise any remedy of rescission for innocent misrepresentation at any
time after acceptance of your application. This does not affect any other right you may have.
12. CIRCUMSTANCES IN WHICH YOU WILL NOT BE ALLOTTED HONG KONG PUBLIC
OFFER SHARES
You should note the following situations in which the Hong Kong Public Offer Shares will not be
allotted to you:
(i)
If your application is revoked:
By completing and submitting an Application Form or giving electronic application
instructions to HKSCC or to the HK eIPO White Form Service Provider, you agree that your
application or the application made by HKSCC Nominees on your behalf cannot be revoked on or
before the fifth day after the time of the opening of the application lists (excluding for this purpose
any day which is Saturday, Sunday or public holiday in Hong Kong). This agreement will take effect
as a collateral contract with our Company.
Your application or the application made by HKSCC Nominees on your behalf may only be
revoked on or before such fifth day if a person responsible for this prospectus under Section 40 of
the Companies Ordinance (Miscellaneous Provisions) (as applied by Section 342E of the
Companies Ordinance (Miscellaneous Provisions)) gives a public notice under that section which
excludes or limits that person’s responsibility for this prospectus.
If any supplement to this prospectus is issued, applicants who have already submitted an
application will be notified that they are required to confirm their applications. If applicants have
been so notified but have not confirmed their applications in accordance with the procedure to be
notified, all unconfirmed applications will be deemed revoked.
If your application or the application made by HKSCC Nominees on your behalf has been
accepted, it cannot be revoked. For this purpose, acceptance of applications which are not rejected
will be constituted by notification in the press of the results of allocation, and where such basis of
allocation is subject to certain conditions or provides for allocation by ballot, such acceptance will
be subject to the satisfaction of such conditions or results of the ballot respectively.
(ii) If our Company or its agents exercise their discretion to reject your application:
Our Company, the Sole Sponsor and the Sole Global Coordinator, the HK eIPO White Form
Service Provider and their respective agents and nominees have full discretion to reject or accept
any application, or to accept only part of any application, without giving any reasons.
– 361 –
(iii) If the allotment of Hong Kong Public Offer Shares is void:
The allotment of Hong Kong Public Offer Shares will be void if the Listing Committee of the
Stock Exchange does not grant permission to list the Shares either:
•
within three weeks from the closing date of the application lists; or
•
within a longer period of up to six weeks if the Listing Committee notifies our Company
of that longer period within three weeks of the closing date of the application lists.
(iv) If:
•
you make multiple applications or suspected multiple applications;
•
you or the person for whose benefit you are applying have applied for or taken up, or
indicated an interest for, or have been or will be placed or allocated (including
conditionally and/or provisionally) Hong Kong Public Offer Shares and International
Placing Shares;
•
your Application Form is not completed in accordance with the stated instructions;
•
your electronic application instructions through the HK eIPO White Form service are
not completed in accordance with the instructions, terms and conditions on the designated
website;
•
your payment is not made correctly or the cheque or banker’s cashier order paid by you is
dishonoured upon its first presentation;
•
the Underwriting Agreements do not become unconditional or are terminated;
•
our Company or the Sole Sponsor or the Sole Global Coordinator believe(s) that by
accepting your application, it or they would violate applicable securities or other laws,
rules or regulations; or
•
your application is for more than 50% of the Hong Kong Public Offer Shares initially
offer under the Hong Kong Public Offering.
– 362 –
13. REFUND OF APPLICATION MONIES
If an application is rejected, not accepted or accepted in part only, or if the Offer Price as finally
determined is less than the maximum offer price of HK$5.18 per Offer Share (excluding brokerage, SFC
transaction levy and the Stock Exchange trading fee thereon), or if the conditions of the Hong Kong
Public Offering are not fulfilled in accordance with the section headed “Structure of the Global Offering”
in this prospectus or if any application is revoked, the application monies, or the appropriate portion
thereof, together with the related brokerage, SFC transaction levy and the Stock Exchange trading fee,
will be refunded, without interest or the cheque or banker’s cashier order will not be cleared.
Any refund of your application monies will be made on Wednesday, 17 June 2015.
14. DESPATCH/COLLECTION OF SHARE CERTIFICATES AND REFUND MONIES
You will receive one share certificate for all Hong Kong Public Offer Shares allotted to you under
the Hong Kong Public Offering (except pursuant to applications made on YELLOW Application Forms
or by electronic application instructions to HKSCC via CCASS where the share certificates will be
deposited into CCASS as described below).
No temporary document of title will be issued in respect of the Shares. No receipt will be issued for
sums paid on application. If you apply by WHITE or YELLOW Application Form, subject to personal
collection as mentioned below, the following will be sent to you (or, in the case of joint applicants, to the
first-named applicant) by ordinary post, at your own risk, to the address specified on the Application
Form:
•
share certificate(s) for all the Hong Kong Public Offer Shares allotted to you (for YELLOW
Application Forms, share certificates will be deposited into CCASS as described below); and
•
refund cheque(s) crossed “Account Payee Only” in favour of the applicant (or, in the case of
joint applicants, the first-named applicant) for (i) all or the surplus application monies for the
Hong Kong Public Offer Shares, wholly or partially unsuccessfully applied for; and/or (ii) the
difference between the Offer Price and the maximum Offer Price per Offer Share paid on
application in the event that the Offer Price is less than the maximum Offer Price (including
brokerage, SFC transaction levy and the Stock Exchange trading fee but without interest). Part
of the Hong Kong identity card number/passport number, provided by you or the first-named
applicant (if you are joint applicants), may be printed on your refund cheque, if any. Your
banker may require verification of your Hong Kong identity card number/passport number
before encashment of your refund cheque(s). Inaccurate completion of your Hong Kong
identity card number/passport number may invalidate or delay encashment of your refund
cheque(s).
Subject to arrangement on despatch/collection of share certificates and refund monies as mentioned
below, any refund cheques and share certificates are expected to be posted on or around Wednesday, 17
June 2015. The right is reserved to retain any share certificate(s) and any surplus application monies
pending clearance of cheque(s) or banker’s cashier’s order(s).
– 363 –
Share certificates will only become valid at 8:00 a.m. on Thursday, 18 June 2015 provided that the
Global Offering has become unconditional and the right of termination described in the section headed
“Underwriting” of this prospectus has not been exercised. Investors who trade Shares prior to the receipt
of share certificates or the share certificates becoming valid do so at their own risk.
Personal collection
(i)
If you apply using a WHITE Application Form
If you apply for 1,000,000 or more Hong Kong Public Offer Shares and have provided all
information required by your Application Form, you may collect your refund cheque(s) and/or
share certificate(s) from our Company’s Hong Kong Share Registrar, Tricor Investor Services
Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong, from 9:00 a.m. to
1:00 p.m. on Wednesday, 17 June 2015 or such other date as notified by us in the newspapers.
If you are an individual who is eligible for personal collection, you must not authorise any
other person to collect for you. If you are a corporate applicant which is eligible for personal
collection, your authorised representative must bear a letter of authorisation from your
corporation stamped with your corporation’s chop. Both individuals and authorised
representatives must produce, at the time of collection, evidence of identity acceptable to the
Hong Kong Share Registrar.
If you do not collect your refund cheque(s) and/or share certificate(s) personally within
the time specified for collection, they will be despatched promptly to the address specified in
your Application Form by ordinary post at your own risk.
If you apply for less than 1,000,000 Hong Kong Public Offer Shares, your refund
cheque(s) and/or share certificate(s) will be sent to the address on the relevant Application
Form on Wednesday, 17 June 2015, by ordinary post and at your own risk.
(ii) If you apply using a YELLOW Application Form
If you apply for 1,000,000 Hong Kong Public Offer Shares or more, please follow the
same instructions as described above. If you have applied for less than 1,000,000 Hong Kong
Public Offer Shares, your refund cheque(s) will be sent to the address on the relevant
Application Form on Wednesday, 17 June 2015, by ordinary post and at your own risk.
If you apply by using a YELLOW Application Form and your application is wholly or
partially successful, your share certificate(s) will be issued in the name of HKSCC Nominees
and deposited into CCASS for credit to your or the designated CCASS Participant’s stock
account as stated in your Application Form on Wednesday, 17 June 2015, or upon contingency,
on any other date determined by HKSCC or HKSCC Nominees.
•
If you apply through a designated CCASS Participant (other than a CCASS Investor
Participant)
For Hong Kong Public Offer Shares credited to your designated CCASS Participant’s
stock account (other than CCASS Investor Participant), you can check the number of Hong
Kong Public Offer Shares allotted to you with that CCASS Participant.
– 364 –
•
If you are applying as a CCASS Investor Participant
Our Company will publish the results of CCASS Investor Participants’ applications
together with the results of the Hong Kong Public Offering in the manner described in
“Publication of Results” above. You should check the announcement published by our
Company and report any discrepancies to HKSCC before 5:00 p.m. on Wednesday, 17 June
2015 or any other date as determined by HKSCC or HKSCC Nominees. Immediately after the
credit of the Hong Kong Public Offer Shares to your stock account, you can check your new
account balance via the CCASS Phone System and CCASS Internet System.
(iii) If you apply through the HK eIPO White Form service
If you apply for 1,000,000 Hong Kong Public Offer Shares or more and your application
is wholly or partially successful, you may collect your share certificate(s) from our Company’s
Hong Kong Share Registrar, Tricor Investor Services Limited at Level 22, Hopewell Centre,
183 Queen’s Road East, Hong Kong, from 9:00 a.m. to 1:00 p.m. on Wednesday, 17 June 2015
or such other date as notified by our Company in the newspapers as at the date of
despatch/collection of share certificate(s)/e-Auto Refund payment instructions/refund
cheques.
If you do not collect your share certificate(s) personally within the time specified for
collection, they will be despatched promptly to the address specified in your application
instructions by ordinary post at your own risk.
If you apply for less than 1,000,000 Hong Kong Public Offer Shares, your share
certificate(s) (where application) will be sent to the address specified in your application
instructions on Wednesday, 17 June 2015, by ordinary post and at your own risk.
If you apply and pay the application monies from a single bank account, any refund
monies will be despatched to that bank account in the form of e-Auto Refund payment
instructions. If you apply and pay the application monies from multiple bank accounts, any
refund monies will be despatched to the address as specified in your application instructions in
the form of refund cheque(s) by ordinary post at your own risk.
(iv) If you apply via electronic application instructions to HKSCC
Allocation of Hong Kong Public Offer Shares
For the purposes of allocating Hong Kong Public Offer Shares, HKSCC Nominees
will not be treated as an applicant. Instead, each CCASS Participant who gives electronic
application instructions or each person for whose benefit instructions are given will be
treated as an applicant.
– 365 –
Deposit of share certificates into CCASS and refund of application monies
•
If your application is wholly or partially successful, your share certificate(s) will be
issued in the name of HKSCC Nominees and deposited into CCASS for the credit of
your designated CCASS Participant’s stock account or your CCASS Investor
Participant stock account on Wednesday, 17 June 2015, or, on any other date
determined by HKSCC or HKSCC Nominees.
•
Our Company expects to publish the application results of CCASS Participants (and
where the CCASS Participant is a broker or custodian, our Company will include
information relating to the relevant beneficial owner), your Hong Kong identity card
number/passport number or other identification code (Hong Kong business
registration number for corporations) and the basis of allotment of the Hong Kong
Public Offering in the manner specified in “Publication of results” above on
Wednesday, 17 June 2015. You should check the announcement published by our
Company and report any discrepancies to HKSCC before 5:00 p.m. on Wednesday,
17 June 2015 or such other date as determined by HKSCC or HKSCC Nominees.
•
If you have instructed your broker or custodian to give electronic application
instructions on your behalf, you can also check the number of Hong Kong Public
Offer Shares allotted to you and the amount of refund monies (if any) payable to you
with that broker or custodian.
•
If you have applied as a CCASS Investor Participant, you can also check the number
of Hong Kong Public Offer Shares allotted to you and the amount of refund monies
(if any) payable to you via the CCASS Phone System and the CCASS Internet
System (under the procedures contained in HKSCC’s “An Operating Guide for
Investor Participants” in effect from time to time) on Wednesday, 17 June 2015.
Immediately following the credit of the Hong Kong Public Offer Shares to your
stock account and the credit of refund monies to your bank account, HKSCC will
also make available to you an activity statement showing the number of Hong Kong
Public Offer Shares credited to your CCASS Investor Participant stock account and
the amount of refund monies (if any) credited to your designated bank account.
•
Refund of your application monies (if any) in respect of wholly and partially
unsuccessful applications and/or difference between the Offer Price and the
maximum Offer Price per Offer Share initially paid on application (including
brokerage, SFC transaction levy and the Stock Exchange trading fee but without
interest) will be credited to your designated bank account or the designated bank
account of your broker or custodian on Wednesday, 17 June 2015.
– 366 –
15. ADMISSION OF THE SHARES INTO CCASS
If the Stock Exchange

GLOBAL OFFERING

Transcription

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