THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION
If you are in any doubt about any of the contents of this circular or as to what action to take in relation
to this circular, you should consult appropriate independent advisers to obtain independent professional
advice.
If you have sold or transferred all your shares in IRICO Group New Energy Company Limited*, you
should at once hand this circular to the purchaser or the transferee or to the bank, licensed securities dealer
or other agent through whom the sale or transfer was effected for transmission to the purchaser or the
transferee.
Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no
responsibility for the contents of this circular, make no representation as to its accuracy or completeness
and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon
the whole or any part of the contents of this circular.
彩虹集團新能源股份有限公司
IRICO GROUP NEW ENERGY COMPANY LIMITED *
MAJOR TRANSACTION
IN RELATION TO
THE ACQUISITION OF 30% EQUITY INTEREST IN
JIANGSU YONGNENG
* For identification purpose only
31 May 2017
CONTENTS
Pages
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii
LETTER FROM THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
APPENDIX I
–
FINANCIAL INFORMATION OF THE GROUP . . . . . . . . . . . . . . . . . . I-1
APPENDIX II
–
FINANCIAL INFORMATION OF THE TARGET GROUP . . . . . . . . . . II-1
APPENDIX III
–
MANAGEMENT DISCUSSION AND ANALYSIS OF
JIANGSU YONGNENG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . APPENDIX IV
–
UNAUDITED PRO FORMA FINANCIAL INFORMATION OF
THE ENLARGED GROUP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . APPENDIX V
APPENDIX VI
–
–
III-1
IV-1
SUMMARY OF VALUATION REPORT OF
JIANGSU YONGNENG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V-1
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VI-1
–i–
DEFINITIONS
In this circular, unless the context otherwise requires, the following terms shall have the following
meanings:
“Acquisition”
the proposed acquisition of an aggregate of 30% equity interest in
Jiangsu Yongneng by the Company
“Beijing Pan-China”
Beijing Pan-China Assets Appraisal Co., Ltd.* (北京天健興業資
產評估有限公司), an independent valuer qualified in the PRC
“Board”
the board of directors of the Company
“CEC”
China Electronics Corporation* (中國電子信息產業集團有限
公司), a wholly state-owned company incorporated in the PRC
and the ultimate controlling Shareholder holding approximately
71.74% of the issued share capital of the Company through IRICO
Group as at the Latest Practicable Date
“Company”
IRICO Group New Energy Company Limited* (彩虹集團新能源
股份有限公司), a joint stock company incorporated in the PRC
with limited liability, whose H shares are listed on the Stock
Exchange
“Director(s)”
director(s) of the Company
“Enlarged Group”
the Group as enlarged by the acquisition of Jiangsu Yongneng
upon completion of the Acquisition
“Equity Acquisition Variation
Agreement”
the equity acquisition variation agreement entered into between
the Company, Sunlink Power, Suzhou Huilian, Suzhou Yongjin
and Tiancheng Energy on 22 March 2017 in relation to the
Acquisition
“Group”
the Company and its subsidiaries
“Hong Kong”
the Hong Kong Special Administrative Region of the PRC
“IRICO Group”
IRICO Group Corporation* (彩虹集團公司), a wholly stateowned enterprise and the controlling Shareholder of the Company
directly holding approximately 71.74% of the issued share capital
of the Company as at the Latest Practicable Date
– ii –
DEFINITIONS
“Jiangsu Huachang”
Jiangsu Huachang (Group) Co., Ltd.* (江蘇華昌（集團）有限公
司), a limited liability company incorporated in the PRC
“Jiangsu Yongneng”
Jiangsu Yongneng Photovoltaic Technology Company Limited*
(江蘇永能光伏科技有限公司) , a l i m i t e d l i a b i l i t y c o m p a n y
incorporated in the PRC
“Latest Practicable Date”
23 May 2017, being the latest practicable date for ascertaining
certain information included in this circular before printing of this
circular
“Listing Rules”
the Rules Governing the Listing of Securities on the Stock
Exchange
“Original Share Purchase
Agreement”
the original share purchase agreement entered into between the
Company, Sunlink Power, Suzhou Yongjin, Suzhou Huilian, and
the then other shareholders of Jiangsu Yongneng on 29 September
2011, in relation to the acquisition of an aggregate of 30% equity
interest in Jiangsu Yongneng
“PRC”
the People’s Republic of China (for the purpose of this circular,
excluding Hong Kong, the Macau Special Administrative Region
of the PRC and Taiwan)
“RMB”
Renminbi, the lawful currency of the PRC
“SFO”
the Securities and Futures Ordinance (Chapter 571 of the Laws of
Hong Kong), as amended, supplemented or otherwise modified
from time to time
“Shareholder(s)”
the shareholders of the Company
“Stock Exchange”
The Stock Exchange of Hong Kong Limited
“Sunlink Power”
Sunlink Power Holdings Co., Ltd., a limited liability company
incorporated in British Virgin Island
“Supervisor(s)”
supervisor(s) of the Company
– iii –
DEFINITIONS
“Suzhou Huilian”
Suzhou Huilian Solar Energy Technology Co., Ltd.* (蘇州惠利安
太陽能科技有限公司), a limited liability company incorporated in
the PRC
“Suzhou Yongjin”
Suzhou Yongjin Investment Co., Ltd.* (蘇州永金投資有限公司),
a limited liability company incorporated in the PRC
“Target Group”
Jiangsu Yongneng and its subsidiary
“Tiancheng Energy”
Jiangsu Tiancheng Energy Development Co., Ltd.* (江蘇天成能
源發展有限公司), a limited liability company incorporated in the
PRC
“Zhangjiagang Jincheng”
Zhangjiagang Jincheng Investment Development Co., Ltd.* (張
家港市金城投資發展有限公司), a limited liability company
incorporated in the PRC
“%”
per cent
“EUR”’
Euros, the lawful currency of the European Union
The English names of the PRC entities adopted in this circular marked “*” are translations from their
Chinese names for identification purpose only.
– iv –
LETTER FROM THE BOARD
彩虹集團新能源股份有限公司
IRICO GROUP NEW ENERGY COMPANY LIMITED *
Directors:
Legal address and
Executive Directors
head office in the PRC:
Si Yuncong (Chairman)
No. 1 Caihong Road
Zou Changfu
Xianyang, Shaanxi Province
The People’s Republic of China
Non-executive Directors
Postal code: 712021
Huang Mingyan
Place of business in Hong Kong:
Chen Changqing
6/F, Nexxus Building
Independent non-executive Directors
No. 41 Connaught Road, Central
Feng Bing
Hong Kong
Wang Jialu
Hong Kong share registrar and
Wang Zhicheng
transfer office:
Computershare Hong Kong
Investor Services Limited
Rooms 1712–1716, 17th Floor
Hopewell Centre
183 Queen’s Road East
Hong Kong
31 May 2017
To the Shareholders,
Dear Sir or Madam,
MAJOR TRANSACTION
IN RELATION TO
THE ACQUISITION OF 30% EQUITY INTEREST IN
JIANGSU YONGNENG
–1–
LETTER FROM THE BOARD
I.
INTRODUCTION
Reference is made to the announcements of the Company dated 29 September 2011 and 22 March
2017 in relation to the Acquisition.
On 29 September 2011, the Company, Sunlink Power, Suzhou Yongjin, Suzhou Huilian and the
then other shareholders of Jiangsu Yongneng entered into the Original Share Purchase Agreement
in relation to the previous acquisition of an aggregate of 30% equity interest in Jiangsu Yongneng
for a total cash consideration of RMB105,000,000.
In 2011, as affected by the anti-dumping and anti-subsidy investigations against photovoltaic
products by European, American and other countries, the sharp price slump in silicon-based solar
components in the global market and other factors, the market of photovoltaic modules experienced
drastic fluctuations, which resulted in fiercer competition and significant decline in gross profit
margin of enterprises. The depressed photovoltaic industry resulted in material difference between
the previous consideration and that expectation for such industry when entering into the Original
Share Purchase Agreement. The Board is of the view that the previous consideration was not in the
best interests of the Company and its Shareholders as a whole and intended to postpone the previous
acquisition in a bid to make further research and prediction on the future development trend of
the photovoltaic market. As such, the previous acquisition under the Original Share Purchase
Agreement could not be completed as scheduled.
The Board announced that on 22 March 2017, the Company, Sunlink Power, Suzhou Huilian,
Suzhou Yongjin and Tiancheng Energy entered into the Equity Acquisition Variation Agreement
since all of the parties intended to complete the acquisition of 30% equity interest in Jiangsu
Yongneng as soon as practicable through friendly negotiation. Pursuant to such agreement, the
Company conditionally agreed to acquire, and Sunlink Power, Suzhou Huilian and Tiancheng
Energy conditionally agreed to sell, an aggregate of 30% equity interest in Jiangsu Yongneng for a
total cash consideration of RMB68,000,000.
On 18 April 2017, the Company received the written shareholder’s approval on the Acquisition
from IRICO Group, the controlling Shareholder, pursuant to Rule 14.44 of the Listing Rules.
Closing relating to the Acquisition was completed on 20 April 2017.
Upon completion of the Acquisition, the Company holds 51% equity interest in Jiangsu Yongneng
in aggregate. Jiangsu Yongneng becomes a subsidiary of the Company and its financial results are
consolidated into the financial statements of the Company.
The main purpose of this circular is to provide you with, among other things:
(a)
details of the Acquisition as set out in this circular;
(b)
the financial information of the Group;
–2–
LETTER FROM THE BOARD
II.
(c)
the financial information of the Target Group;
(d)
the management discussion and analysis of Jiangsu Yongneng;
(e)
the unaudited pro forma financial information of the Enlarged Group; and
(f)
the summary of valuation report of Jiangsu Yongneng.
EQUITY ACQUISITION VARIATION AGREEMENT
The main contents of the Equity Acquisition Variation Agreement are summarized as follows:
Date:
22 March 2017
Parties:
(a)
Sunlink Power, as one of the sellers
(b)
Suzhou Huilian, as one of the sellers
(c)
Tiancheng Energy, as one of the sellers
(d)
the Company, as the purchaser
(e)
Suzhou Yongjin, as the existing shareholder
To the best of the Directors’ knowledge, information and belief,
having made all reasonable enquiry, Sunlink Power, Suzhou
Huilian, Tiancheng Energy, Suzhou Yongjin and their respective
ultimate beneficial owners are third parties independent of the
Company and its connected persons.
Aquisition subject:
Pursuant to the Equity Acquisition Variation Agreement, the
Company has agreed to acquire, and Sunlink Power, Suzhou
Huilian and Tiancheng Energy have agreed to sell, an aggregate of
30% equity interest in Jiangsu Yongneng.
–3–
LETTER FROM THE BOARD
The shareholding structure of Jiangsu Yongneng before and after
the completion of the Acquisition is set out as follows:
Shareholders
The Company
Suzhou Yongjin
Zhangjiagang Jincheng
Suzhou Huilian
Jiangsu Huachang
Tiancheng Energy
Sunlink Power
Total
Percentage of equity interest
held in Jiangsu Yongneng
before
after
the Acquisition the Acquisition
21%
25%
9.60%
10.336%
4.80%
6.46%
22.804%
51%
25%
9.60%
6.14%
4.80%
3.46%
0
100%
100%
Note: Each of Suzhou Yongjin, Zhangjiagang Jincheng and Jiangsu
Huachang has waived their respective right of first refusal for
the acquisition of equity interest in Jiangsu Yongneng. Suzhou
Yongjin and Sunlink Power, one of the sellers, are owned
as to 63.824% and 100% by Ms. Yin Meiping, respectively.
Suzhou Yongjin was a party of the Equity Acquisition Variation
Agreement, while Zhangjiagang Jincheng and Jiangsu Huachang
were not parties of such agreement. To the best of the Directors’
knowledge, information and belief, having made all reasonable
enquiry, Suzhou Yongjin, Zhangjiagang Jincheng, Jiangsu
Huachang and their respective ultimate beneficial owners are third
parties independent of the Company and its connected persons.
Consideration:
Pursuant to the Equity Acquisition Variation Agreement, the
consideration of the Acquisition is RMB68,000,000.
–4–
LETTER FROM THE BOARD
The consideration was determined based on friendly and armlength negotiations by the parties with reference to, among other
things, (i) the appraised enterprise value of Jiangsu Yongneng
as at 31 December 2016 with an amount of RMB90,447,800
based on the valuation report prepared by Beijing Pan-China
using the asset based approach, the details of which are set out
in Appendix V to this circular; (ii) the substantial improvement
in the operation of principal business of Jiangsu Yongneng for
the year ended 31 December 2016; for example, the revenue
of Jiangsu Yongneng, which represented revenue arising from
production and sales of photovoltaic components and photovoltaic
solar cells, increased significantly from RMB473,216,000 in
2015 to RMB1,176,335,000 in 2016 by approximately 149%, the
aggregated amounts of selling and distribution costs, administrative
expenses and finance costs decreased from RMB67,999,000 in
2015 to RMB38,367,000 in 2016 by approximately 44%; (iii) the
control premium reflecting the value of the controlling interest
in Jiangsu Yongneng obtained by the Company through the
Acquisition, which enables the Company to hold 51% equity
interest and consolidate the financial results of Jiangsu Yongneng
into its consolidated financial statements, as compared to 21%
equity interest before the Acquisition; by holding the controlling
stake, the Company is able to exert substantial control over the
business of Jiangsu Yongneng and therefore secure and safeguard
its interest in Jiangsu Yongneng; (iv) the intangible value of the
goodwill of Jiangsu Yongneng, e.g., within the industry in the
PRC, Jiangsu Yongneng is the third enterprise to obtain the TUV
certification (Technischer Überwachungs Verein, which is a
certificate provided by a German company and has received global
recognition) and the second to successfully make inroad into the
European market for its products; and (v) the strategic significance
of photovoltaic components in the future development of the
Company, the details of which are set out in the paragraph headed
“Reasons for and benefits of the Acquisition” in this session.
The Directors (including the independent non-executive Directors)
are of the view that the consideration is fair and reasonable and in
the interest of the Company and the Shareholders as a whole.
–5–
LETTER FROM THE BOARD
Payment:
Pursuant to the Equity Acquisition Variation Agreement, the
consideration for the equity transfer shall be payable by the
Company in a lump sum to Sunlink Power, Suzhou Huilian and
Tiancheng Energy within ten business days after the effectiveness
of such agreement.
As at the Latest Practicable Date, the consideration has already
been paid by the Company.
Effectiveness:
The Equity Acquisition Variation Agreement shall be conditional
upon the approval by the Shareholders of the Company.
On 18 April 2017, the Company received the written shareholder’s
approval on the Acquisition from IRICO Group, the controlling
Shareholder, pursuant to Rule 14.44 of the Listing Rules.
Completion:
The Acquisition shall be regarded as being completed upon
completion of the registration procedures in respect of such equity
transfer.
Closing relating to the Acquisition was completed on 20 April
2017.
III.
REASONS FOR AND BENEFITS OF THE ACQUISITION
Upon completion of the Acquisition, the Company becomes the controlling shareholder of Jiangsu
Yongneng, and therefore its financial results are consolidated into the financial statements of
the Company. Its photovoltaic components business will improve the photovoltaic industrial
chain of the Company and facilitate the establishment of the green energy service systems that
cover the entire production, sale and operation process from photovoltaic materials, photovoltaic
glass, photovoltaic solar cells, photovoltaic components to the photovoltaic power plants, thus
strengthening the profitability of the Company and effectively promoting the presence of the
Company in the entire photovoltaic market. Besides, as Jiangsu Yongneng is located in the clustered
area of the photovoltaic industry in China and therefore possesses numerous advantages such as
fully equipped supporting facilities, short-distance transportation, quick and flexible access to a
large quantity of market information, etc., it is of positive strategic significance in the development
of the Company in photovoltaic industry.
–6–
LETTER FROM THE BOARD
On 30 November 2016, Jiangsu Yongneng and Green Forte BV, entered into an agreement, pursuant
to which Jiangsu Yongneng agreed to sell, and Green Forte BV agreed to acquire 70% of equity
interests in SuCo Holding GmbH at a cash consideration of approximately EUR480,000. As a result
of such disposal, Jiangsu Yongneng ceased to have any interest in SuCo Holding GmbH.
Before disposal of its equity interests in SuCo Holding GmbH by Jiangsu Yongneng in 2016, SuCo
Holding GmbH was insolvent, due to the loss arising from sales of the modules purchased from
Jiangsu Yongneng and the fact that the gain from disposal of the self-developed power station did
not meet the expectation. SuCo Holding GmbH has suspended its operation since 2014, and could
not repay the amount due to Jiangsu Yongneng of RMB40,450,000. In order to avoid bringing
continuing loss to Jiangsu Yongneng, and by taking into consideration that the default amount
may be not recoverable and the interests of the shareholders, Jiangsu Yongneng decided to dispose
of SuCo Holding GmbH. Even though the disposal of equity interests in SuCo Holding GmbH
recorded a gain of RMB36,758,000, after deducting the loss from provision of bad debts for the
amount due from SuCo Holding GmbH of RMB40,450,000, the net loss of Jiangsu Yongneng was
approximately RMB3,692,000 due to such disposal.
The disposal of such company enabled Jiangsu Yongneng to cut losses in time. The Directors are
of a view that as the disposal can recover an investment amount of EUR480,000 and avoid the
occurrence of more losses of Jiangsu Yongneng in the future, it has no material adverse effects
on the acquisition of 30% equity interest in Jiangsu Yongneng and the prospective benefits of the
Company.
The Board believes that the Acquisition under the Equity Acquisition Variation Agreement is on
normal commercial terms, which are fair and reasonable and in the interests of the Shareholders of
the Company as a whole.
IV.
INFORMATION OF THE COMPANY AND COUNTERPARTIES
Information of the Company
The Company is principally engaged in the construction and operation of solar power plants; the
research, development, production and sales of solar photovoltaic glass, solar cell modules and
relevant products, upstream materials of lithium battery and materials relevant to flat panel display;
and the processing of quartz sand, an upstream material for photovoltaic glass.
Information of the Counterparties
Sunlink Power is a limited liability company incorporated in British Virgin Island, which is an
investment holding company. The ultimate beneficial owner of Sunlink Power is Ms. Yin Meiping,
who holds 100% equity interest in Sunlink Power.
–7–
LETTER FROM THE BOARD
Suzhou Huilian is a limited liability company incorporated in the PRC, which is principally engaged
in the research and development of complete set of solar energy equipment as well as purchase and
sales of solar products. The ultimate beneficial owners of Suzhou Huilian are Mr. Wang Weimin,
Mr. Wang Tianyi, Ms. Liu Xiaowei, Ms. Zhu Xiaoyun, who hold 81.25%, 6.25%, 6.25% and 6.25%
equity interest in Suzhou Huilian, respectively.
Tiancheng Energy is a limited liability company incorporated in the PRC, which is principally
engaged in development and utilization of new energy technologies. The ultimate beneficial owners
of Tiancheng Energy are Mr. Dai Jianfeng and Mr. Cao Lidong, who hold 80% and 20% equity
interest in Tiancheng Energy, respectively.
Suzhou Yongjin is a limited liability company incorporated in the PRC, which is principally
engaged in investment and management, as well as purchase and sales of solar products. The
ultimate beneficial owners of Suzhou Yongjin are Ms. Yin Meiping, Ms. Yin Meijuan, Mr. Zhou
Jinfeng, who hold 63.824%, 23.256%, and 12.92% equity interest in Suzhou Yongjin, respectively.
V.
INFORMATION OF JIANGSU YONGNENG
Jiangsu Yongneng is a limited liability company incorporated in the PRC, which is principally
engaged in research, development and manufacturing of solar cells, solar modules, research and
development, design, installation, debugging and maintenance of solar photovoltaic systems and
building-integrated photovoltaics, and sales of self-made products.
The following sets out audited financial information of Jiangsu Yongneng prepared in accordance
with Hong Kong Financial Reporting Standards:
As at
31 December 2016
(RMB’000)
Book value of total assets
958,628
Book value of net assets
85,229
For the year ended
For the year ended
31 December 2015
31 December 2016
(RMB’000)
(RMB’000)
(Loss)/profit before tax
(35,001)
28,673
(Loss)/profit after tax
(36,612)
18,465
–8–
LETTER FROM THE BOARD
Note: the substantial improvement in net profit of Jiangsu Yongneng for the year ended 31 December
2016 as compared to the loss making position for the year ended 31 December 2015 was mainly
due to: (i) the significant increase in revenue, which represents revenue arising from production and
sales of photovoltaic components and photovoltaic solar cells, from RMB473,216,000 in 2015 to
RMB1,176,335,000 in 2016 by approximately 149%; (ii) the decrease in aggregated amounts of selling
and distribution costs, administrative expenses and finance costs from RMB67,999,000 in 2015 to
RMB38,367,000 in 2016 by approximately 44%; and (iii) the gain of RMB36,758,000 from the disposal
of equity interests in SuCo Holding GmbH, even though after deducting the loss from provision of
bad debts for the amount due from SuCo Holding GmbH of RMB40,450,000, the net loss of Jiangsu
Yongneng was approximately RMB3,692,000 due to such disposal.
VI.
FINANCIAL EFFECT OF THE ACQUISITION ON THE GROUP
Upon completion of the Acquisition, Jiangsu Yongneng becomes a non-wholly owned subsidiary
of the Company and its financial results are incorporated into the consolidated financial statements
of the Group. For the year ended 31 December 2016, the revenue and profit for the year of Jiangsu
Yongneng were RMB1,176,335,000 and RMB18,465,000, respectively. Upon being incorporated
into the consolidated statements of the Company, Jiangsu Yongneng will help expand the
Company’s sales scale and promote the overall operating performance.
As set out in the financial information of the Target Group in Appendix II to this circular, as at
31 December 2016, the total assets of Jiangsu Yongneng amounted to RMB958,628,000. The
incorporation of Jiangsu Yongneng into the consolidated statement of the Company will increase
the total assets of the Company. In addition, as at 31 December 2016, the total liabilities of Jiangsu
Yongneng was RMB873,399,000 with a gearing ratio of 91.11%. The incorporation of Jiangsu
Yongneng into the consolidated statement of the Company will result in the increase of overall
liabilities and the slight decrease of the gearing ratio of the Company.
Based on the unaudited pro forma statement of assets and liabilities of the Enlarged Group set
out in Appendix IV to this circular, on the basis of the assets and liabilities of the Group as at
31 December 2016 and the assets and liabilities of Jiangsu Yongneng as at 31 December 2016,
assuming that completion of the Acquisition had taken place as at 31 December 2016, before
taking into account non-controlling interests, the Group’s total assets as at 31 December 2016 of
approximately RMB3,638,622,000 would be increased to approximately RMB4,543,237,000 for
the Enlarged Group while the Group’s total liabilities as at 31 December 2016 of approximately
RMB3,486,123,000 would be increased to approximately RMB4,359,522,000 for the Enlarged
Group.
The attention of the Shareholder is drawn to the unaudited pro forma financial information of the
Enlarged Group set out in Appendix IV to this circular.
–9–
LETTER FROM THE BOARD
VII. FINANCIAL AND TRADING PROSPECTS OF THE ENLARGED GROUP
The year of 2017 is a crucial year for the Enlarged Group’s industrial upgrading. The Enlarged
Group will make its best efforts in market expansion by upgrading its production scale in the
industry, optimizing its industry chain and striving for capital appreciation, with a view to achieving
leaps and bound development for the Company and becoming an internationally recognised green
energy service provider.
In 2017, we will focus on the following tasks:
(i)
further consolidate and enhance the advantage of solar photovoltaic industry chain’s vertical
integration and the advantage of large scale production; actively explore the overseas market
and push for upgrade of the new materials industry;
(ii)
improve the building of talents pool by vigorously recruiting talented people;
(iii) strengthen capital operation to facilitate the Company’s business development; and
(iv) make the best effort in major project developments of photovoltaic glass and photovoltaic
power stations and improve corporate business scale and competitiveness.
VIII. IMPLICATIONS UNDER THE LISTING RULES
As the highest applicable percentage ratio in respect of the Acquisition is more than 25% but less
than 100%, the Acquisition constitutes a major transaction of the Company and is subject to the
reporting, announcement and Shareholders’ approval requirements under Chapter 14 of the Listing
Rules.
IRICO Group, which directly holds 1,601,468,000 domestic shares of the Company, representing
approximately 71.74% of the issued share capital of the Company as at the Latest Practicable
Date, does not have any interest or benefit under the Acquisition. No Shareholder of the Company
(including IRICO Group) would be required to abstain from voting at any general meeting of the
Company, if convened, to approve the Acquisition. As such, the Acquisition could be approved
by way of written shareholder’s approval from IRICO Group in lieu of holding a general meeting
pursuant to Rule 14.44 of the Listing Rules, provided that the accountants’ report in respect of
Jiangsu Yongneng contains no qualified opinion by the reporting accountants pursuant to Rule
14.44 and Rule 14.86 of the Listing Rules.
On 18 April 2017, the Company received the written shareholder’s approval on the Acquisition
from IRICO Group. Pursuant to Rule 14.44 of the Listing Rules, no general meeting of the
Company is required to be convened to approve the Acquisition.
– 10 –
LETTER FROM THE BOARD
IX.RECOMMENDATION
The Directors (including the independent non-executive Directors) believe that the terms of the
Equity Acquisition Variation Agreement are on normal commercial terms, which are fair and
reasonable, and the Acquisition is on normal commercial terms or better and in the interests
of the Company and the Shareholders as a whole. The Directors would have recommended the
Shareholders to vote in favor of the resolutions to approve the Acquisition if it had been necessary
to hold a general meeting for such purpose.
X.
ADDITIONAL INFORMATION
Your attention is also drawn to the additional information set out in the appendices to this circular.
By order of the Board
IRICO Group New Energy Company Limited*
Si Yuncong
Chairman
* For identification purpose only
– 11 –
APPENDIX I
1.
FINANCIAL INFORMATION OF THE GROUP
THREE-YEAR FINANCIAL INFORMATION OF THE GROUP
The Company is required to set out in this circular the information for the last three financial years
with respect to the profits and losses, financial record and position, set out as a comparative table
and the latest published audited balance sheet together with the notes on the annual accounts for the
last financial year for the Group.
The audited consolidated financial statements of the Company for the years ended 31 December
2016, 2015 and 2014 together with the relevant notes to the financial statements of the Company
can be found on pages 63 to 163 of the annual report of the Company for the year ended 31
December 2016, pages 57 to 161 of the annual report of the Company for the year ended 31
December 2015 and pages 59 to 185 of the annual report of the Company for the year ended 31
December 2014. Please also see below the hyperlinks to the said annual reports:
2016 annual report: http://www.hkexnews.hk/listedco/listconews/SEHK/2017/0418/LTN201704181314.pdf
2015 annual report: http://www.hkexnews.hk/listedco/listconews/SEHK/2016/0419/LTN20160419534.pdf
2014 annual report: http://www.hkexnews.hk/listedco/listconews/SEHK/2015/0401/LTN20150401644.pdf
2.INDEBTEDNESS
Borrowings
As at 31 March 2017, being the latest practicable date for the purpose of this indebtedness
statement, the Enlarged Group had total outstanding bank borrowings of approximately
RMB835,917,000. RMB428,300,000 of the total bank borrowings are due within one year and
the remaining of approximately RMB407,617,000 falls due within the second to fifth year. As
at 31 March 2017, the Enlarged Group had total outstanding other borrowings of approximately
RMB1,699,070,000. RMB1,117,071,000 of the total other borrowings are due within one year and
the remaining of approximately RMB581,999,000 falls due within the second to fifth year.
The Enlarged Group’s bank borrowings of approximately RMB95,500,000 in aggregate were
secured by certain leasehold land and land use rights, buildings and bank balances approximately
RMB104,525,000 in aggregate. The remaining balance of the Enlarged Group’s bank borrowings
of approximately RMB740,417,000 were unsecured, with which approximately RMB449,800,000
were guaranteed by the immediate holding company.
– I-1 –
APPENDIX I
FINANCIAL INFORMATION OF THE GROUP
The Enlarged Group’s other borrowings of approximately RMB438,688,000 in aggregate
were secured by certain trade receivable and property, plant and equipment approximately
RMB379,067,000 in aggregate. The remaining balance of the Enlarged Group’s other borrowings
of approximately RMB1,260,382,000 were unsecured, with which approximately RMB53,710,000
were guaranteed by the immediate holding company.
Save as disclosed aforesaid, and apart from the intragroup liabilities and normal trade payables,
the Enlarged Group did not have any outstanding mortgages, charges, debentures, loan capital or
overdraft, or other similar indebtedness, finance lease or hire-purchase commitments, liabilities
under acceptances or acceptance credits or any guarantees or other material contingent liabilities as
at 31 March 2017.
3.
WORKING CAPITAL SUFFICIENCY
Taking into account of the completion of the Acquisition and the financial resources available to the
Enlarged Group, including the internally generated funds, the Directors are of the opinion that the
Enlarged Group has sufficient working capital for its present requirements, that is for at least the
next twelve months from the date of this circular.
– I-2 –
APPENDIX II
(1)
FINANCIAL INFORMATION OF THE TARGET GROUP
ACCOUNTANT’S REPORT OF THE TARGET GROUP
The following is the text of a report for the sole purpose of inclusion in this circular, from the independent
reporting accountants, PKF, Certified Public Accountants, Hong Kong.
大信梁學濂（香港）會計師事務所
31 May 2017
The Directors
IRICO Group New Energy Company Limited
Dear Sirs,
We report on the financial information of Jiangsu Yongneng Photovoltaic Technology Company Limited
(the “Target Company”) and its subsidiary (collectively referred to as the “Target Group”) which
comprises the consolidated statements of financial position of the Target Group as at 31 December 2014,
2015 and 2016 and the consolidated statements of profit or loss and other comprehensive income, the
consolidated statements of changes in equity and the consolidated statements of cash flows for each of the
years ended 31 December 2014, 2015 and 2016 (the “Relevant Periods”), and a summary of significant
accounting policies and other explanatory information (the “Financial Information”). The Financial
Information has been prepared on the basis of preparation and presentation set out in Note 2 of Section
II below for inclusion in Appendix II to the circular of IRICO Group New Energy Company Limited
(the “Company”) dated 31 May 2017 (the “Circular”) in connection with the acquisition of 30% equity
interest in the Target Company (the “Acquisition”).
The Target Company was incorporated in the People’s Republic of China (the “PRC”) with limited
liability on 15 September 2009. The Target Company is principally engaged in the research, development
and manufacturing of solar cells and solar modules and research and development, design, installation,
debugging and maintenance of solar photovoltaic systems and building-integrated photovoltaics and sales
of self-made products. Details of the Target Company’s subsidiary are set out in Note 16 of Section II
below.
– II-1 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
The Target Group has adopted 31 December as its financial year end date. The audited financial statements
of the companies comprising the Target Group for which there are statutory audit requirements have
been prepared in accordance with the relevant accounting principles generally accepted in their places of
incorporation. The details of the statutory auditors of these companies are set out in Note 32 of Section II.
below.
For the purpose of this report, the directors of the Target Company (the “Target Company Directors”)
have prepared the consolidated financial statements of the Target Group (the “Underlying Financial
Statements”) in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the
Hong Kong Institute of Certified Public Accountants (“HKICPA”). The Underlying Financial Statements
for each of the Relevant Periods were audited by us in accordance with Hong Kong Standards on Auditing
issued by the HKICPA.
The Financial Information set out in this report has been prepared from the Underlying Financial
Statements with no adjustments made thereon.
DIRECTORS’ RESPONSIBILITY
The directors of the Company are responsible for the preparation of the Financial Information that give a
true and fair view in accordance with HKFRSs and the accounting policies adopted by the Company as set
out on pages 76 to 92 of the annual report of the Company for the year ended 31 December 2016.
REPORTING ACCOUNTANTS’ RESPONSIBILITY
It is our responsibility to express an independent opinion on the Financial Information and to report our
opinion thereon to you.
For the purpose of this report, we have carried out procedures on the Financial Information in accordance
with Auditing Guideline 3.340 Prospectuses and the Reporting Accountant issued by the HKICPA.
OPINION IN RESPECT OF THE FINANCIAL INFORMATION
In our opinion, for the purpose of this report and on the basis of preparation and presentation set out in
Note 2 of Section II below, the Financial Information gives a true and fair view of the financial position of
the Target Group as at 31 December 2014, 2015 and 2016 and its consolidated financial performance and
cash flows for each of the Relevant Periods.
– II-2 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
EMPHASIS OF MATTER
We draw attention to Note 2(c) of Section II below which indicates that as at 31 December 2016, the
Target Group’s current liabilities exceeded its current assets by RMB51,913,000. This condition, along
with other matters as set forth in Note 2(c), indicates that a material uncertainty exists that may cast
significant doubt on the Target Group’s ability to continue as a going concern. Our opinion is not qualified
in respect of this matter.
I.
FINANCIAL INFORMATION OF THE TARGET GROUP
The following is the Financial Information of the Target Group prepared by the directors of the
Company as at 31 December 2014, 2015 and 2016 and for each of the years ended 31 December
2014, 2015 and 2016.
Consolidated statements of profit or loss and other comprehensive income
Year ended 31 December
Revenue
2014
2015
2016
Notes
RMB’000
RMB’000
RMB’000
7
1,399,871
473,216
1,176,335
(1,337,928)
(415,889)
(1,105,120)
Cost of sales
Gross profit
61,943
57,327
71,215
4,522
Other operating income
8
4,409
2,746
Disposal of a subsidiary
29
–
–
Selling and distribution costs
(3,692)
(9,931)
(5,165)
(8,987)
Administrative expenses
(46,579)
(50,151)
(23,052)
Other operating expenses
(4,832)
(7,184)
(670)
(17,944)
(12,683)
(6,328)
(23,592)
(19,891)
(4,335)
(36,526)
(35,001)
28,673
2,154
(1,611)
(10,208)
(34,372)
(36,612)
18,465
Finance costs
9
Impairment loss recognised in respect of
trade and other receivables
(Loss)/profit before tax
Income tax credit/(expense)
10
(Loss)/profit for the year
– II-3 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
Year ended 31 December
2014
2015
2016
RMB’000
RMB’000
RMB’000
(Loss)/profit for the year attributable to:
Owners of the Target Company
Non-controlling interests
(Loss)/profit for the year
(31,744)
(27,520)
19,086
(2,628)
(9,092)
(34,372)
(36,612)
18,465
(34,372)
(36,612)
18,465
(621)
Other comprehensive income/
(loss):
Items that may be subsequently
reclassified to profit or loss:
Exchange differences arising on
translation of a foreign subsidiary
3,424
(287)
(2,154)
Release of exchange reserve upon
disposal of a subsidiary
–
–
(3,074)
Other comprehensive income/(loss)
for the year
3,424
(287)
(5,228)
Total comprehensive (loss)/income
for the year
(30,948)
(36,899)
13,237
(29,084)
(28,201)
14,815
(1,864)
(8,698)
(1,578)
(30,948)
(36,899)
13,237
Total comprehensive (loss)/income
for the year attributable to:
Owners of the Target Company
Non-controlling interests
– II-4 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
Consolidated Statements of Financial Position
Notes
Non-current assets
Property, plant and equipment
Leasehold land and land use rights
Intangible assets
Available-for-sale financial assets
Deferred tax assets
2016
RMB’000
137,907
12,527
32
6,625
6,611
133,539
12,242
26
1,000
6,146
123,190
11,957
21
–
1,974
163,702
152,953
137,142
18
19
192,342
302,099
115,280
284,979
153,888
534,262
20
21
22
44,859
736
19,404
31,597
21,379
39,460
84,710
36,795
11,831
559,440
492,695
821,486
381,213
131,958
1,367
91,000
24,100
299,329
180,468
1,146
84,000
24,100
704,887
52,063
5,349
88,000
23,100
629,638
589,043
873,399
(70,198)
(96,348)
(51,913)
93,504
56,605
85,229
100,832
9,952
(12,169)
100,832
9,271
(39,689)
100,832
5,000
(20,603)
Equity attributable to owners of the
Company
Non-controlling interests
98,615
(5,111)
70,414
(13,809)
85,229
–
Total equity
93,504
56,605
85,229
Current assets
Inventories
Trade and bills receivables
Other receivables, deposits and
prepayments
Restricted bank balances
Bank balances and cash
Current liabilities
Trade and bills payables
Other payables and accruals
Tax payable
Bank borrowings
Dividend payable
13
14
15
17
28
As at 31 December
2014
2015
RMB’000
RMB’000
23
24
25
Net current liabilities
Net assets
Capital and reserves
Paid-up capital
Other reserves
Accumulated losses
26
27
– II-5 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
Consolidated Statements of Changes in Equity
Attributable to owners of the Target Company
Paid-up
capital
RMB’000
Other
reserves
RMB’000
Retained profits
/(accumulated
losses)
RMB’000
100,832
7,292
Loss for the year
Other comprehensive income
Exchange differences arising on translation
of a foreign subsidiary
–
Total comprehensive loss for the year
Total
RMB’000
Noncontrolling
interests
RMB’000
Total equity
RMB’000
19,575
127,699
(3,247)
124,452
–
(31,744)
(31,744)
(2,628)
(34,372)
–
2,660
–
2,660
764
3,424
–
2,660
(31,744)
(29,084)
(1,864)
(30,948)
At 31 December 2014
100,832
9,952
(12,169)
98,615
(5,111)
93,504
At 1 January 2015
100,832
9,952
(12,169)
98,615
(5,111)
93,504
Loss for the year
Other comprehensive loss
Exchange differences arising on translation
of a foreign subsidiary
–
–
(27,520)
(27,520)
(9,092)
(36,612)
–
(681)
–
(681)
394
(287)
Total comprehensive loss for the year
–
(681)
(27,520)
(28,201)
(8,698)
(36,899)
At 31 December 2015
100,832
9,271
(39,689)
70,414
(13,809)
56,605
At 1 January 2016
100,832
9,271
(39,689)
70,414
(13,809)
56,605
Profit for the year
Other comprehensive loss
Exchange differences arising on translation
of a foreign subsidiary
Release of exchange reserve upon
disposal of a subsidiary
–
–
19,086
19,086
(621)
18,465
–
(1,490)
–
(1,490)
(664)
(2,154)
–
(2,781)
–
(2,781)
(293)
(3,074)
Total comprehensive income for the year
–
(4,271)
19,086
14,815
(1,578)
13,237
Disposal of a subsidiary (note 29)
–
–
–
–
15,387
15,387
100,832
5,000
(20,603)
85,229
–
85,229
At 1 January 2014
At 31 December 2016
– II-6 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
Consolidated statement of cash flows
Year ended 31 December
Notes
2014
2015
2016
RMB’000
RMB’000
RMB’000
Operating activities
(Loss)/profit before tax
(36,526)
(35,001)
28,673
23,592
19,891
4,335
296
290
290
16,699
16,864
17,982
17,944
12,683
6,328
–
–
–
3,692
Adjustments for:
Allowance for doubtful debts of trade and
other receivables
Amortisation of leasehold land and land
use rights and intangible assets
Depreciation of property, plant and
equipment
Finance costs
Gain on disposal of property, plant and
equipment
(170)
Disposal of a subsidiary
–
Bank interest income
(618)
(862)
(1,037)
Operating cash flows before changes in
working capital
21,217
13,865
60,263
(141,942)
77,062
(38,608)
96,071
10,491
(398,866)
70,393
(33,374)
379,928
45,739
68,044
2,717
(23,575)
(1,367)
(1,833)
22,164
66,677
Changes in working capital:
Inventories
Trade and bills receivables, other
receivables, deposits and prepayments
Trade and bills payables, other payables
and accruals
Cash generated from operations
Income tax paid
Net cash from operating activities
– II-7 –
884
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
Year ended 31 December
Notes
2014
2015
2016
RMB’000
RMB’000
RMB’000
Investing activities
Purchases of property, plant and equipment
(7,299)
(12,595)
(7,994)
1,991
5,625
1,000
618
862
1,037
185
99
361
–
–
(84)
Proceeds from disposal of available-for-sale
financial assets
Interest received
Proceeds from disposal of property, plant
and equipment
Net cash from disposal of a subsidiary
29
Net cash used in investing activities
(4,505)
(6,009)
(5,680)
Financing activities
Bank borrowings raised
175,169
84,000
98,000
Interest expense paid
(17,944)
(12,683)
(6,328)
Dividend paid
–
Restricted bank balances
–
(1,000)
42,942
(20,643)
(15,416)
(208,449)
(91,000)
(94,000)
(8,282)
(40,326)
(18,744)
9,377
20,342
(23,540)
Cash and cash equivalents at 1 January
6,603
19,404
39,460
Effect of foreign exchange rate changes
3,424
Repayments of bank borrowings
Net cash used in financing activities
Net increase/(decrease) in cash and cash
equivalents
(286)
(4,089)
Cash and cash equivalents at 31 December,
represented by bank balances and cash
– II-8 –
19,404
39,460
11,831
APPENDIX II
II.
FINANCIAL INFORMATION OF THE TARGET GROUP
NOTES TO THE FINANCIAL INFORMATION
1.
General Information
The Target Company is a limited liability company established in the PRC. The address of
its registered office is Nanyuan Road, Zhangjiagang Economic Development Zone, Jiangsu
Province* (江蘇省張家港經濟開發區南園路).
The Target Group is engaged in research and development and manufacturing of solar cells,
solar modules and research and development, design, installation, maintenance and sales of
solar photovoltaic systems and photovoltaic integrated products.
The Financial Information is presented in Renminbi (“RMB”) which is also the functional
currency and presentation currency of the Target Company.
2.
Basis of Preparation
(a)
Compliance with Hong Kong Financial Reporting Standards (“HKFRS”)
The Financial Information has been prepared in accordance with HKFRSs, which
includes all Hong Kong Financial Reporting Standards, Hong Kong Accounting
Standards (“HKAS”) and Interpretations issued by the HKICPA. In addition, the
Financial Information includes applicable disclosures required by the Rules Governing
the Listing of Securities on The Stock Exchange of Hong Kong Limited and by the
Hong Kong Companies Ordinance.
* For identification purpose only
– II-9 –
APPENDIX II
(b)
FINANCIAL INFORMATION OF THE TARGET GROUP
Hong Kong Financial Reporting Standards in issue but not effective
The following HKFRSs in issue at 31 December 2016 have not been applied in the
preparation of the Financial Information since they were not yet effective for the
Relevant Periods.
HKFRS 9 (2014)
Financial Instruments2
HKFRS 15
Revenue from Contracts with Customers2
HKFRS 16
Leases3
Amendments to HKFRS 4
Applying HKFRS 9 Financial instruments with
HKFRS 4 Insurance Contracts2
Amendments to HKAS 7
Disclosure Initiative1
Amendments to HKAS 12
Recognition of Deferred Tax Assets for Unrealized
Losses1
Amendments to HKAS 28 and
Sale or Contribution of Assets between an Investor
HKFRS 10
and its Associate or Joint Venture4
Amendments to HKFRS 2
Classification and Measurement of Share-based
Payment Transactions2
3
4
1
2
Effective
Effective
Effective
Effective
for
for
for
for
annual
annual
annual
annual
periods
periods
periods
periods
beginning
beginning
beginning
beginning
on
on
on
on
or
or
or
or
after
after
after
after
1 January 2017
1 January 2018
1 January 2019
a date to be determined
The Target Group is in the process of making an assessment of what the impact of
these standards and amendments is expected to be in the period of initial application.
So far it has concluded that the adoption of them is unlikely to have a significant
impact on its Financial Information.
(c)
Adoption of going concern basis
The Target Group had net current liabilities of approximately RMB51,913,000 as at
31 December 2016. This condition indicates the existence of a material uncertainty
which may cast significant doubt on the Target Group’s and the Target Company’s
ability to continue as a going concern and therefore it may be unable to realise its assets
and discharge its liabilities in the normal course of business. Nevertheless, the Target
Company Directors are of the opinion that the Target Group and the Target Company
will have sufficient working capital to meet its financial obligations as and when they
fall due for the next twelve months from the end of the reporting period given that:
(i)
The shareholders of the Target Company have sufficient financial capability
and will actively provide financial support to the Target Group and the Target
Company to meet the Target Group’s and the Target Company’s liabilities and
commitments as and when they fall due; and
– II-10 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
(ii)
The Company and its parent company, IRICO Group, have sufficient financial
capability and will actively provide financial support to the Target Group to
meet its liabilities when they fall due after the Acquisition.
Accordingly, the Target Company Directors are of the opinion that it is appropriate
to prepare the Financial Information on a going concern basis. Should the Target
Group and the Target Company be unable to continue to operate as a going concern,
adjustments would have to be made to write down the value of assets to their
recoverable amounts, to provide for further liabilities which might arise and to
reclassify non-current assets as current assets. The effect of these adjustments has not
been reflected in the Financial Information.
3.
Significant Accounting Policies
The Financial Information has been prepared on the historical cost basis. Historical cost
is generally based on the fair value of the consideration given in exchange for goods and
services.
The principal accounting policies are set out below.
Basis of consolidation
The Financial Information incorporates the financial statements of the Target Company and
its subsidiary. Control is achieved when the Target Company:
•
has power over the investee;
•
is exposed, or has rights, to variable returns from its involvement with the investee;
and
•
has the ability to use its power to affect its returns.
When the Target Group has less than a majority of the voting rights of an investee, power
over the investee may be obtained through: (i) a contractual arrangement with other vote
holders; (ii) rights arising from other contractual arrangements; (iii) the Target Group’s
voting rights and potential voting rights; or (iv) a combination of the above, based on all
relevant facts and circumstances.
The Target Group reassesses whether or not it controls an investee if facts and circumstances
indicate that there are changes to one or more of the three elements of control listed above.
– II-11 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
Consolidation of a subsidiary begins when the Target Group obtains control over the
subsidiary and ceases when the Target Group loses control of the subsidiary. Specifically,
income and expenses of a subsidiary acquired or disposed of during the year are included in
the consolidated statement of profit or loss and other comprehensive income from the date
the Target Group gains control until the date when the Target Group ceases to control the
subsidiary.
Profit or loss and each item of other comprehensive income are attributed to the owners
of the Target Company and to the non-controlling interests. Total comprehensive income
of subsidiary is attributed to the owners of the Target Company and to the non-controlling
interests even if this results in the non-controlling interests having a deficit balance.
Where necessary, adjustments are made to the financial statements of subsidiary to bring its
accounting policy into line with the Target Group’s accounting policies.
All intragroup assets and liabilities, equity, income, expenses and cash flows relating to
transactions between members of the Target Group are eliminated in full on consolidation.
Non-controlling interests in subsidiary are presented separately from the Target Group’s
equity therein.
Investment in a subsidiary
In the Target Company’s statement of financial position, investment in a subsidiary is stated
at cost less accumulated impairment loss. The result of the subsidiary is accounted for by the
Target Company on the basis of dividends received and receivable.
Changes in the Target Group’s ownership interests in existing subsidiary
When the Target Group loses control of a subsidiary, a gain or loss is recognised in profit
or loss and is calculated as the difference between (i) the aggregate of the fair value of
the consideration received and the fair value of any retained interest and (ii) the previous
carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any
non-controlling interests. All amounts previously recognised in other comprehensive income
in relation to that subsidiary are accounted for as if the Target Group had directly disposed
of the related assets or liabilities of the subsidiary (i.e. reclassified to profit or loss or
transferred to another category of equity as specified/permitted by applicable HKFRSs). The
fair value of any investment retained in the former subsidiary at the date when control is lost
is regarded as the fair value on initial recognition for subsequent accounting under HKAS 39
Financial Instruments: Recognition and Measurement or, when applicable, the cost on initial
recognition of an investment in an associate or a joint venture.
– II-12 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable and
represents amounts receivable for goods sold in the normal course of business, net of
discounts and sales related taxes.
Revenue from the sale of goods is recognised when the goods are delivered and titles have
passed, at which time all the following conditions are satisfied:
•
the Target Group has transferred to the buyer the significant risks and rewards of
ownership of the goods;
•
the Target Group retains neither continuing managerial involvement to the degree
usually associated with ownership nor effective control over the goods sold;
•
the amount of revenue can be measured reliably;
•
it is probable that the economic benefits associated with the transaction will flow to
the Target Group; and
•
the costs incurred or to be incurred in respect of the transaction can be measured
reliably.
Interest income from a financial asset is recognised when it is probable that the economic
benefits will flow to the Target Group and the amount of income can be measured reliably.
Interest income from a financial asset is accrued on a time basis, by reference to the principal
outstanding and at the effective interest rate applicable, which is the rate that exactly
discounts estimated future cash receipts through the expected life of the financial asset to
that asset’s net carrying amount on initial recognition.
Property, plant and equipment
Property, plant and equipment including buildings held for use in the production or supply
of goods, or for administrative purposes (other than construction in progress) are stated
in the consolidated statements of financial position at cost less subsequent accumulated
depreciation and accumulated impairment losses, if any.
Depreciation is recognised so as to write off the cost of items of property, plant and
equipment (other than construction in progress) less their residual values over their useful
lives, using the straight-line method. The estimated useful lives, residual values and
depreciation method are reviewed at the end of each reporting period, with the effect of any
changes in estimate accounted for on a prospective basis.
– II-13 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
Construction in progress includes property, plant and equipment in the course of construction
for production or for its own use purposes. Construction in progress is carried at cost less
any recognised impairment loss. Costs include professional fees and, for qualifying assets,
borrowing costs capitalised in accordance with the Target Group’s accounting policy. Such
properties are classified to the appropriate category of property, plant and equipment when
completed and ready for intended use. Depreciation of these assets, on the same basis as
other property assets, commences when the assets are ready for their intended use.
An item of property, plant and equipment is derecognised upon disposal or when no future
economic benefits are expected to arise from the continued use of the asset. Any gain or loss
arising on derecognition of the asset (calculated as the difference between the net disposal
proceeds and the carrying amount of the asset) is included in profit or loss in the period in
which the item is derecognised.
Foreign currencies
In preparing the financial statements of each individual group entity, transactions in
currencies other than the functional currency of that entity (foreign currencies) are recorded
in the respective functional currency (i.e. the currency of the primary economic environment
in which the entity operates) at the rates of exchanges prevailing on the dates of the
transactions. At the end of the reporting period, monetary items denominated in foreign
currencies are retranslated at the rates prevailing at that date. Non-monetary items that are
measured in terms of historical cost in a foreign currency are not translated.
Exchange differences arising on the settlement of monetary items, and on the retranslation of
monetary items, are recognised in profit or loss in the period in which they arise.
For the purposes of presenting the Financial Information, the assets and liabilities of the
Target Group’s foreign operations are translated into the presentation currency of the
Target Company (i.e. RMB) at the rate of exchange prevailing at the end of each reporting
period. Income and expenses items are translated at the average exchange rates for the year.
Exchange differences arising, if any, are recognised in other comprehensive income and
accumulated in equity under the heading of exchange reserve (attributed to non-controlling
interests as appropriate).
Government grants
Government grants are not recognised until there is reasonable assurance that the Target
Group will comply with the conditions attaching to them and that the grants will be received.
– II-14 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
Government grants are recognised in profit or loss on a systematic basis over the periods
in which the Target Group recognises as expenses the related costs for which the grants
are intended to compensate. Specifically, government grants whose primary condition is
that the Target Group should purchase, construct or otherwise acquire non-current assets
are recognised as deferred income in the consolidated statements of financial position and
transferred to profit or loss on a systematic and rational basis over the useful life of the
related assets.
Government grants that are receivable as compensation for expenses or losses already
incurred or for the purpose of giving immediate financial support to the Target Group with
no future related costs are recognised in profit or loss in the period in which they become
receivable.
Retirement benefit costs
Payments to defined contribution scheme or state-managed retirement benefit schemes
are charged as an expense when employees have rendered service entitling them to the
contributions.
Pension and housing obligations
The full time employees of the Target Group in the PRC are covered by various governmentsponsored pension plans under which the employees are entitled to a monthly pension based
on certain formulas. These government-sponsored pension plans are responsible for the
pension liability to these retired employees. The Target Group contributes on a monthly
basis to these pension plans. Under these plans, the Target Group has no legal or constructive
obligation for retirement benefits beyond the contributions made. Contributions to these
plans are expensed as incurred. Voluntary payments made to certain former employees and
which were not made pursuant to a formal or informal plan are expensed as paid.
Full time employees are also entitled to participate in various government-sponsored housing
funds. The Target Group contributes on a monthly basis to these funds based on certain
percentages of the salaries of the employees. Contributions to these funds are expensed as
incurred. The Target Group’s liability in respect of these funds is limited to the contributions
payable in each period.
– II-15 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
Taxation
Income tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs
from profit before tax as reported in the consolidated statements of profit or loss and other
comprehensive income because it excludes items of income or expense that are taxable or
deductible in other years and it further excludes items that are never taxable or deductible.
The Target Group’s liability for current tax is calculated using tax rates that have been
enacted or substantively enacted by the end of the reporting period.
Deferred tax is recognised on temporary differences between the carrying amounts of
assets and liabilities in the Financial Information and the corresponding tax base used in
the computation of taxable profit. Deferred tax liabilities are generally recognised for all
taxable temporary differences. Deferred tax assets are generally recognised for all deductible
temporary differences to the extent that it is probable that taxable profits will be available
against which those deductible temporary differences can be utilised.
Deferred tax liabilities are recognised for taxable temporary differences associated with
investment in a subsidiary, except where the Target Group is able to control the reversal of
the temporary difference and it is probable that the temporary difference will not reverse
in the foreseeable future. Deferred tax assets arising from deductible temporary differences
associated with such investments and interests are only recognised to the extent that it is
probable that there will be sufficient taxable profits against which to utilise the benefits of
the temporary differences and they are expected to reverse in the foreseeable future.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in
the period in which the liability is settled or the asset is realised, based on tax rate (and tax
laws) that have been enacted or substantively enacted by the end of the reporting period.
The measurement of deferred tax liabilities and assets reflects the tax consequences that
would follow from the manner in which the Target Group expects, at the end of the reporting
period, to recover or settle the carrying amount of its assets and liabilities.
Current and deferred tax are recognised in profit or loss, except when they relates to items
that are recognised in other comprehensive income or directly in equity, in which case the
current and deferred tax are also recognised in other comprehensive income or directly in
equity respectively.
– II-16 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
Intangible assets
Intangible assets with finite useful lives that are acquired separately are carried at costs
less accumulated amortisation and any accumulated impairment losses. Amortisation for
intangible assets with finite useful lives is recognised on a straight-line basis over their
estimated useful lives. The estimated useful life and amortisation method are reviewed at
the end of each reporting period, with the effect of any changes in estimate being accounted
for on a prospective basis. Intangible assets with indefinite useful lives that are acquired
separately are carried at cost less any subsequent accumulated impairment losses.
Research and development expenditure
Expenditure on research activities is recognised as an expense in the period in which it is
incurred.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is calculated using
the weighted average method. Net realisable value represents the estimated selling price for
inventories less all estimated costs of completion and costs necessary to make the sale.
Cash and cash equivalents
Bank balances and cash in the consolidated statements of financial position comprise cash at
banks and on hand and short-term deposits with a maturity of three months or less. For the
purpose of the consolidated statements of cash flows, cash and cash equivalents consist of
cash and short-term deposits as defined above.
Financial instruments
Financial assets and financial liabilities are recognised in the consolidated statements of
financial position when a group entity becomes a party to the contractual provisions of the
instrument.
Financial assets and financial liabilities are initially measured at fair value. Transaction
costs that are directly attributable to the acquisition or issue of financial assets and financial
liabilities are added to or deducted from the fair value of the financial assets or financial
liabilities, as appropriate, on initial recognition.
– II-17 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
Financial assets
Financial assets of the Target Group are classified into the following specified categories:
loans and receivables and available-for-sale investments. The classification depends on the
nature and purpose of the financial assets and is determined at the time of initial recognition.
All regular way purchases or sales of financial assets are recognised and derecognised on a
trade date basis. Regular way purchases or sales are purchases or sales of financial assets that
require delivery of assets within the time frame established by regulation or convention in
the marketplace.
Effective interest method
The effective interest method is a method of calculating the amortised cost of a debt
instrument and of allocating interest income over the relevant period. The effective interest
rate is the rate that exactly discounts estimated future cash receipts (including all fees and
points paid or received that form an integral part of the effective interest rate, transaction
costs and other premiums or discounts) through the expected life of the debt instrument, or,
where appropriate, a shorter period to the net carrying amount on initial recognition.
Interest income is recognised on an effective interest basis for debt instruments.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable
payments that are not quoted in an active market. Subsequent to initial recognition, loans
and receivables (including trade and bills receivables, other receivables, deposits, restricted
bank balances and bank balances and cash) are carried at amortised cost using the effective
interest method, less any identified impairment losses (see accounting policy on impairment
losses on financial assets below).
Interest income is recognised by applying the effective interest rate, except for short-term
receivables where the recognition of interest would be immaterial.
Available-for-sale investment
Available-for-sale investments are non-derivative that are either designated as available-forsale or are not classified as (a) loans and receivables, (b) held-to-maturity investments or (c)
financial assets at fair value through profit or loss.
– II-18 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
Equity and debt securities held by the Target Group that are classified as available-forsale financial assets and are traded in an active market are measured at fair value at the end
of each reporting period. Changes in the carrying amount of available-for-sale monetary
financial assets relating to changes in foreign currency rates, interest income calculated
using the effective interest method and dividends on available-for-sale equity investments
are recognised in profit or loss. Other changes in the carrying amount of available-for-sale
financial assets are recognised in other comprehensive income and accumulated under the
heading of revaluation reserve. When the investment is disposed of or is determined to be
impaired, the cumulative gain or loss previously accumulated in the investments revaluation
reserve is reclassified to profit or loss (see the accounting policy in respect of impairment
loss on financial assets below).
Dividends on available-for-sale equity investment is recognised in profit or loss when the
Target Group’s right to receive the dividends is established.
Available-for-sale equity investment that does not have a quoted market price in an active
market and whose fair value cannot be reliably measured and derivatives that are linked to
and must be settled by delivery of such unquoted equity instrument, it is measured at cost
less any identified impairment losses at the end of each reporting period (see accounting
policy on impairment losses on financial assets below).
Impairment losses on financial assets
Financial assets are assessed for indicators of impairment at the end of each reporting period.
Financial assets are considered to be impaired when there is objective evidence that, as a
result of one or more events that occurred after the initial recognition of the financial asset,
the estimated future cash flows of the financial assets have been affected.
For an available-for-sale equity investment, a significant or prolonged decline in the fair
value of that investment below its cost is considered to be objective evidence of impairment.
For all other financial assets, objective evidence of impairment could include:
•
significant financial difficulty of the issuer or counterparty; or
•
breach of contract, such as default or delinquency in interest and principal payments;
or
•
it becoming probable that the borrower will enter into bankruptcy or financial reorganisation; or
– II-19 –
APPENDIX II
•
FINANCIAL INFORMATION OF THE TARGET GROUP
disappearance of an active market for that financial asset because of financial
difficulties.
For certain categories of financial asset, such as trade receivables and other receivables, assets
that are assessed not to be impaired individually are, in addition, assessed for impairment
on a collective basis. Objective evidence of impairment for a portfolio of receivables could
include the Target Group’s past experience of collecting payments, and an increase in the
number of delayed payments in the portfolio past the average credit period of 90 days.
For financial assets carried at amortised cost, the amount of impairment loss recognised is
the difference between the asset’s carrying amount and the present value of the estimated
future cash flows discounted at the financial asset’s original effective interest rate.
For financial assets carried at cost, the amount of the impairment loss is measured as the
difference between the asset’s carrying amount and the present value of the estimated future
cash flows discounted at the current market rate of return for a similar financial asset. Such
impairment loss will not be reversed in subsequent periods.
The carrying amount of the financial asset is reduced by the impairment loss directly for all
financial assets with the exception of trade and bills receivables and other receivables, where
the carrying amount is reduced through the use of an allowance account. Changes in the
carrying amount of the allowance account are recognised in profit or loss. When a trade and
bills receivable or other receivable is considered uncollectible, it is written off against the
allowance account. Subsequent recoveries of amounts previously written off are credited to
profit or loss.
When an available-for-sale financial asset is considered to be impaired, cumulative gains or
losses previously recognised in other comprehensive income are reclassified to profit or loss
in the period in which the impairment takes place.
For financial assets measured at amortised cost, if, in a subsequent period, the amount of the
impairment loss decreases and the decrease can be related objectively to an event occurring
after the impairment losses was recognised, the previously recognised impairment loss is
reversed through profit or loss to the extent that the carrying amount of the investment at the
date the impairment is reversed does not exceed what the amortised cost would have been
had the impairment not been recognised.
In respect of available-for-sale equity investments, impairment losses previously recognised
in profit or loss are not reversed through profit or loss.
– II-20 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
Financial liabilities and equity instruments
Classification as debt or equity
Debt and equity instruments issued by a group entity are classified as either financial
liabilities or as equity in accordance with the substance of the contractual arrangements
entered into and the definitions of a financial liability and an equity instrument.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an
entity after deducting all of its liabilities. Equity instruments issued by the Target Company
are recognised at the proceeds received net of direct issue costs.
Other financial liabilities
Other financial liabilities including trade and bills payables, other payables and accruals and
bank borrowings are subsequently measured at amortised cost, using the effective interest
method.
Effective interest method
The effective interest method is a method of calculating the amortised cost of a financial
liability and of allocating interest expense over the relevant period. The effective interest
rate is the rate that exactly discounts estimated future cash payments (including all fees and
points paid or received that form an integral part of the effective interest rate, transaction
costs and other premiums or discounts) through the expected life of the financial liability, or,
where appropriate, a shorter period, to the net carrying amount on initial recognition.
Interest expense is recognised on an effective interest basis.
Derecognition
The Target Group derecognises a financial asset only when the contractual rights to the cash
flows from the asset expire, or when it transfers the financial asset and substantially all the
risks and rewards of ownership of the asset to another entity. If the Target Group retains
substantially all the risks and rewards of ownership of a transferred financial asset, the
Target Group continues to recognise the financial asset and also recognises a collateralised
borrowing for the proceeds received.
– II-21 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
On derecognition of a financial asset in its entirety, the difference between the asset’s
carrying amount and the sum of the consideration received and receivable and the cumulative
gain or loss that had been recognised in other comprehensive income and accumulated in
equity is recognised in profit or loss.
The Target Group derecognises financial liabilities when, and only when, the Target Group’s
obligations are discharged, cancelled or expired. The difference between the carrying amount
of the financial liability derecognised and the consideration paid and payable is recognised in
profit or loss.
Provisions
Provisions are recognised when the Target Group has a present obligation (legal or
constructive) as a result of a past event, it is probable that the Target Group will be required
to settle that obligation, and a reliable estimate can be made of the amount of the obligation.
The amount recognised as a provision is the best estimate of the consideration required to
settle the present obligation at the end of the reporting period, taking into account the risks
and uncertainties surrounding the obligation. When a provision is measured using the cash
flows estimated to settle the present obligation, its carrying amount is the present value of
those cash flows (where the effect of the time value of money is material).
Impairment losses on tangible and intangible assets
At the end of the reporting period, the Target Group reviews the carrying amounts of its
tangible and intangible assets with finite useful lives to determine whether there is any
indication that those assets have suffered an impairment loss. If any such indication exists,
the recoverable amount of the asset is estimated in order to determine the extent of the
impairment loss, if any.
When it is not possible to estimate the recoverable amount of an individual asset, the Target
Group estimates the recoverable amount of the cash-generating unit to which the asset
belongs. Where a reasonable and consistent basis of allocation can be identified, corporate
assets are also allocated to individual cash-generating units, or otherwise they are allocated to
the smallest group of cash-generating units for which a reasonable and consistent allocation
basis can be identified.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing
value in use, the estimated future cash flows are discounted to their present value using a pretax discount rate that reflects current market assessments of the time value of money and the
risks specific to the asset for which the estimates of future cash flows have not been adjusted.
– II-22 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
If the recoverable amount of an asset (or a cash-generating unit) is estimated to be less than
its carrying amount, the carrying amount of the asset (or the cash-generating unit) is reduced
to its recoverable amount. An impairment loss is recognised as an expense immediately in
profit or loss.
When an impairment loss subsequently reverses, the carrying amount of the asset (or the
cash-generating unit) is increased to the revised estimate of its recoverable amount, but so
that the increased carrying amount does not exceed the carrying amount that would have
been determined had no impairment loss been recognised for the asset (or the cash-generating
unit) in prior years. A reversal of an impairment loss is recognised as income immediately.
Fair value measurement
When measuring fair value, the Target Group takes into account the characteristics of the asset
or liability if market participants would take those characteristics into account when pricing
the asset or liability at the measurement date.
A fair value measurement of a non-financial asset takes into account a market participant’s
ability to generate economic benefits by using the asset in its highest and best use or by
selling it to another market participant that would use the asset in its highest and best use.
The Target Group uses valuation techniques that are appropriate in the circumstances and
for which sufficient data are available to measure fair value, maximising the use of relevant
observable inputs and minimising the use of unobservable inputs. Specifically, the Target
Group categorised the fair value measurements into three levels, based on the characteristics
of inputs, as follow:
Level 1
– Quoted (unadjusted) market prices in active markets for identical assets or
liabilities.
Level 2
– Valuation techniques for which the lowest level input that is significant to the
fair value measurement is directly or indirectly observable.
Level 3
– Valuation techniques for which the lowest level input that is significant to the
fair value measurement is unobservable.
At the end of the reporting period, the Target Group determines whether transfer occur
between levels of the fair value hierarchy for assets and liabilities which are measured at fair
value on recurring basis by reviewing their respective fair value measurement.
– II-23 –
APPENDIX II
4.
FINANCIAL INFORMATION OF THE TARGET GROUP
Critical Accounting Judgements and Key Sources of Estimation Uncertainty
In the application of the Target Group’s accounting policies, which are described in note 3,
the Target Company Directors are required to make judgements, estimates and assumptions
about the carrying amounts of assets and liabilities that are not readily apparent from other
sources. The estimates and associated assumptions are based on historical experience and
other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions
to accounting estimates are recognised in the period in which the estimate is revised if the
revision affects only that period, or in the period of the revision and future periods if the
revision affects both current and future periods.
Critical judgements in applying accounting policies
The followings are the critical judgements, apart from those involving estimations (see
below) that the Target Company Directors have made in the process of applying the Target
Group’s accounting policies and that have the most significant effect on the amounts
recognised in the Financial Information.
Going concern consideration
The assessment of the going concern assumption involves making judgments by the
management, at a particular point of time, about the future outcome of events or conditions
which are inherently uncertain. The Target Group Directors considers that the Target Group
and the Target Company have ability to continue as a going concern and the major events or
conditions, which may give rise to business risks, that individually or collectively may cast
significant doubt about the going concern assumptions as set out in Note 2.
Key sources of estimation uncertainty
The following are the key assumptions concerning the future, and other key sources of
estimation uncertainty at the end of the reporting period, that have a significant risk of
causing a material adjustment to the carrying amounts of assets and liabilities within the next
financial year.
– II-24 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
Income tax expense
Determining income tax provisions involves estimation on the future tax treatment of certain
transactions. The Target Group carefully evaluates tax implications of transactions and tax
provisions are set up accordingly. The tax treatment of such transactions is reconsidered
periodically to take into account all changes in tax legislations. Where the final tax outcome
of these transactions is different from the amounts that were initially recorded, such
differences will affect the income tax and deferred tax provisions in the period in which such
determination is made.
Impairment of property, plant and equipment, and leasehold land and land use rights
The Target Group tests at the reporting date whether property, plant and equipment,
and leasehold land and land use rights have suffered any impairment in accordance with
accounting policies stated in Note 3. The recoverable amounts of those assets have been
determined based on the higher of their fair value less costs to dispose and their value-inuse calculations which are prepared on the basis of management’s assumptions and estimates
taking into account the existing business expansion plan going forward, the current sales
orders on hand and other strategic new business development. These calculations require the
use of estimates such as the future revenue and discount rates.
Depreciation of property, plant and equipment
Property, plant and equipment are depreciated on a straight-line basis over their estimated
useful lives, after taking into account their estimated residual values. The determination of
the useful lives and residual values involve management’s estimation. The Target Group
assesses annually the residual value and the useful life of the property, plant and equipment
and if the expectation differs from the original estimate, such a difference may impact the
depreciation in the year and the estimate will be changed in the future period.
Amortisation of leasehold land and land use rights
Leasehold land and land use rights are amortised on a straight-line basis over their estimated
useful lives, after taking into account their estimated residual values. The determination of
the useful lives and residual values involve management’s estimation. The Target Group
assesses annually the residual value and the useful life of the leasehold land and land use
rights and if the expectation differs from the original estimate, such a difference may impact
the amortisation in the year and the estimate will be changed in the future period.
– II-25 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
Allowance for doubtful debts of trade and bills receivables and other receivables
The Target Company Directors regularly review the recoverability and age of the trade
and bills receivables and other receivables. Appropriate impairment for estimated
irrecoverable amounts is recognised in the consolidated statements of profit or loss and other
comprehensive income when there is objective evidence that the asset is impaired.
In determining whether allowance for doubtful debts is required, the Target Group takes
into consideration the current creditworthiness, the past collection history, age status and
likelihood of collection. Specific allowance is only made for receivables that are unlikely
to be collected and is recognised at the difference between the estimated future cash flow
expected to receive discounted using the original effective interest rate and its carrying value.
If the financial conditions of customers of the Target Group were to deteriorate, resulting in
an impairment of their ability to make payments, additional allowance may be required.
5.
Capital Risk Management
The Target Group manages its capital to ensure that entities in the Target Group will be
able to continue as a going concern while maximising the return to shareholders through the
optimisation of the debt and equity balance. The Target Group’s overall strategy remains
unchanged during the Relevant Periods.
The capital structure of the Target Group consists of net debt, which includes the bank
borrowings as disclosed in Note 25, net of cash and cash equivalents and equity attributable
to owners of the Target Company, comprising issued share capital, other reserves and
accumulated losses.
The Target Company Directors review the capital structure on a regular basis and monitor on
the basis of the gearing ratio. As part of this review, the Target Group considers the cost of
capital and the risks associated with each class of capital. Gearing ratio is calculated as the
proportion of total debt to total capital.
The Target Group intends to maintain a suitable ratio of share capital to liabilities, so as to
maintain an effective capital structure from time to time.
– II-26 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
The gearing ratio at the end of the Relevant Period was as follows:
As at 31 December
2014
2015
2016
RMB’000
RMB’000
RMB’000
Total debt (a)
91,000
84,000
88,000
Net debt (b)
71,596
44,540
76,169
Total equity
93,504
56,605
85,229
Total capital (based on total debt) (c)
184,504
140,605
173,229
Net capital (based on net debt) (d)
165,100
101,145
161,398
49.32%
59.74%
50.80%
43.37%
44.04%
47.19%
Gearing ratio (based on total debt and total
capital) (%)
Gearing ratio (based on net debt and net
capital) (%)
Notes:
(a)
Total debt equals to bank borrowings.
(b)
Net debt equals to total debt less bank balances and cash.
(c)
Total capital (based on total debt) equals to total debt plus total equity.
(d)
Net capital (based on net debt) equals to net debt plus total equity.
– II-27 –
APPENDIX II
6.
FINANCIAL INFORMATION OF THE TARGET GROUP
Financial Instruments
(a)
Categories of financial instruments
As at 31 December
2014
2015
2016
RMB’000
RMB’000
RMB’000
Financial assets
Loans and receivables (including cash
and cash equivalents)
Trade and bills receivables
Other receivables
Restricted bank balances
Bank balances and cash
Available-for-sale financial assets
Financial liabilities
Other financial liabilities measured at
amortised cost
Trade and bills payables
Other payables and accruals
Bank borrowings
Dividend payable
(b)
302,099
15,999
736
19,404
284,979
3,161
21,379
39,460
534,262
18,317
36,795
11,831
338,238
348,979
601,205
6,625
1,000
–
381,213
131,958
91,000
24,100
299,329
180,468
84,000
24,100
704,887
52,063
88,000
23,100
628,271
587,897
868,050
Financial risk management objectives and policies
The Target Group’s major financial instruments include trade and bills receivables,
other receivables, restricted bank balances, bank balances and cash, available-for
sale financial assets, trade and bills payables, other payables and accruals and bank
borrowings. Details of the financial instruments are disclosed in respective notes
or below. The risks associated with these financial instruments include market risk
(currency risk, interest rate risk and other price risk), credit risk and liquidity risk.
The policies on how to mitigate these risks are set out below. The Target Company
Directors manage and monitor these exposures to ensure appropriate measures are
implemented on a timely and effective manner.
– II-28 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
Market risk
Currency risk
The Target Group mainly operates in the PRC. Majority of its revenue, operating
costs and cost of sales are denominated in RMB. Certain trade receivables and bank
balances and cash of the Target Group are denominated in the United States Dollars
(“USD”) and Euro (“EUR”). Such USD and EUR denominated trade receivables
and bank balances and cash are exposed to fluctuations in the value of RMB against
USD and EUR in which these trade receivables and bank balances and cash are
denominated. Any significant appreciation/depreciation of RMB against USD and
EUR may result in significant exchange differences which would be recorded in the
consolidated statements of profit or loss and other comprehensive income.
At the end of the reporting period, included in the trade receivables and bank balances
and cash are the following amount denominated in USD and EUR which is other than
the functional currency of the relevant group entities to which it relates.
As at 31 December 2016
USD
EUR
Total
RMB’000
RMB’000
RMB’000
Trade receivables
7,066
13,023
20,089
Bank balances and cash (Note 22)
5,087
480
5,567
12,153
13,503
25,656
As at 31 December 2015
USD
EUR
Total
RMB’000
RMB’000
RMB’000
Trade receivables
8,680
31,137
39,817
Bank balances and cash (Note 22)
5,191
23,948
29,139
13,871
55,085
68,956
– II-29 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
As at 31 December 2014
Trade receivables
Bank balances and cash (Note 22)
USD
EUR
Total
RMB’000
RMB’000
RMB’000
20,070
56,715
76,785
3,443
6,171
9,614
23,513
62,886
86,399
The Target Group currently does not have foreign currency hedging policy. However,
the Target Company Directors closely monitor currency risk and will consider hedging
significant currency risk exposure should the need arise.
Sensitivity analysis
The following details the Target Group’s sensitivity to a 10% increase and decrease in
RMB against USD and EUR. 10% is the sensitivity rate used when reporting foreign
currency risk internally to key management personnel and represents management’s
assessment of the reasonably possible change in foreign exchange rates.
As of 31 December 2014, 2015 and 2016, if RMB had strengthened/weakened 10%
against USD and EUR, with all other variables held constant, the Target Group’s
profit for the year would have been approximately RMB8,640,000, RMB6,896,000
and RMB2,566,000 lower/higher, mainly as a result of foreign exchange losses/gains
on translation of the USD and EUR denominated trade receivables and bank balances
and cash.
Interest rate risk
The Target Group is exposed to fair value interest rate risk in relation to fixed-rate
restricted bank balances (Note 21) and fixed-rate bank borrowings (Note 25). The
Target Group currently does not have an interest rate hedging policy. However, the
Target Company Directors closely monitor interest rate exposure and will consider
other necessary actions when significant interest rate exposure is anticipated.
The Target Group is also exposed to cash flow interest rate risk in relation to variablerate bank balances (Note 22).
The Target Group’s exposure to interest rates on financial liabilities are detailed in the
liquidity risk management section of this note.
The Target Group does not have any significant exposure to variable interest rate risk.
– II-30 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
Credit risk
The Target Group’s maximum exposures to credit risk which will cause a financial
loss to the Target Group due to failure to discharge an obligation by the counterparties
is arising from the carrying amount of the respective recognised financial assets as
stated in the consolidated statements of financial position.
The credit risk on bank balances is limited because the restricted bank balances, bank
balances of the Target Group are maintained with state-owned banks in the PRC and
banks in Germany with high credit ratings assigned by international credit-rating
agencies.
The Target Group has concentration of credit risk as 53.23%, 56.06% and 56.75%
respectively of the total trade and bills receivables as at 31 December 2014, 2015 and
2016 was due from the Target Group’s five largest customers respectively. Sales to the
largest customer represent 29.40%, 32.04% and 46.39% and aggregate sales to the five
largest customers represent 91.51%, 84.08% and 95.84% of the total revenue for the
years ended 31 December 2014, 2015 and 2016 respectively.
Liquidity risk
In the management of the liquidity risk, the Target Group monitors and maintains a
level of cash and cash equivalents deemed adequate by the management to finance the
Target Group’s operations and mitigates the effects of fluctuations in cash flows. The
management monitors the utilisation of bank borrowings and ensures compliance with
loan covenants.
The Target Group is exposed to liquidity risk as at 31 December 2014, 2015 and 2016
as the Target Group had net current liabilities of approximately RMB70,198,000,
RMB96,348,000 and RMB51,913,000 as at those dates. The Target Company
Directors are of the opinion that the Target Group will have sufficient working capital
to meet its financial obligations and the details of which are set out in Note 2.
Prudent liquidity risk management implies maintaining sufficient cash, the availability
of funding through an adequate amount of committed credit facilities and the ability
to close out market positions. Due to the dynamic nature of the underlying businesses,
senior management aims to maintain flexibility in funding by keeping committed
credit lines available.
– II-31 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
The following table details the Target Group’s remaining contractual maturity for
its non-derivative financial liabilities. The table has been drawn up based on the
undiscounted cash flows of financial liabilities based on the earliest date on which the
Target Group can be required to pay.
The table includes both interest and principal cash flows. To the extent that interest
flows are floating rate, the undiscounted amount is derived from interest rate curve at
the end of the reporting period.
On demand
Total
Carrying
or within
undiscounted
amount at
1 year
cash flows
31/12/2016
RMB’000
RMB’000
RMB’000
704,887
704,887
704,887
Other payables and accruals
52,063
52,063
52,063
Bank borrowings
88,000
88,000
88,000
Dividend payable
23,100
23,100
23,100
868,050
868,050
868,050
On demand
Total
Carrying
or within
undiscounted
amount at
1 year
cash flows
31/12/2015
RMB’000
RMB’000
RMB’000
Trade and bills payables
299,329
299,329
299,329
Other payables and accruals
180,468
180,468
180,468
Bank borrowings
84,000
84,000
84,000
Dividend payable
24,100
24,100
24,100
587,897
587,897
587,897
2016
Trade and bills payables
2015
– II-32 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
On demand
Total
or within 1 undiscounted
Carrying
amount at
year
cash flows
31/12/2014
RMB’000
RMB’000
RMB’000
Trade and bills payables
381,213
381,213
381,213
Other payables and accruals
131,958
131,958
131,958
Bank borrowings
91,000
91,000
91,000
Dividend payable
24,100
24,100
24,100
628,271
628,271
628,271
2014
Fair value
The Target Company Directors consider that the carrying amounts of financial assets
and financial liabilities recorded at amortised cost in the Financial Information
approximate their fair values.
7.
Revenue and Segment Information
Revenue represents revenue arising from production and sales of photovoltaic glasses.
The Target Group has only one operating segment and therefore, no segment information is
presented.
8.
Other Operating Income
Year ended 31 December
2014
2015
2016
RMB’000
RMB’000
RMB’000
170
–
–
Government grants received
388
409
412
Compensation from insurance
161
116
208
Interest income
618
862
1,037
–
–
2,706
3,072
1,359
159
4,409
2,746
4,522
Gain on disposal of property, plant and
equipment
Exchange gain, net
Others
– II-33 –
APPENDIX II
9.
FINANCIAL INFORMATION OF THE TARGET GROUP
Finance Costs
Year ended 31 December
10.
2014
2015
2016
RMB’000
RMB’000
RMB’000
Interest on bank borrowings
17,944
12,683
6,328
Total borrowing costs
17,944
12,683
6,328
Income Tax Expense
Year ended 31 December
PRC Enterprise Income Tax Current tax
2014
2015
2016
RMB’000
RMB’000
RMB’000
1,367
1,146
6,036
Deferred tax (Note 28)
(3,521)
465
4,172
Income tax (credit)/expense
(2,154)
1,611
10,208
Under the Law of the PRC on Enterprise Income Tax (the “EIT Law”) and Implementation
Regulation of the EIT Law, the tax rate of the Target Company in the PRC is 15%.
The Target Company is entitled to the preferential tax treatment for High and New
Technology Enterprise (“HNTE Policy”). The applicable reduced preferential EIT rate under
the Policy is 15%. Since 3 November 2012, the operations of the Target Company have met
the requirements under the HNTE Policy, and accordingly, EIT has been provided at 15%.
Under the German Income Tax Law, the tax rate of the Target Company’s subsidiary
in Germany is 15%. No provision of German Income Tax has been provided since the
subsidiary had no assessable profit for the Relevant Period.
– II-34 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
The income tax expense for the year can be reconciled to the profit/(loss) before tax per the
consolidated statements of profit or loss and other comprehensive income as follows:
Year ended 31 December
(Loss)/profit before tax
2014
2015
2016
RMB’000
RMB’000
RMB’000
(36,526)
(35,001)
28,673
(5,479)
(5,250)
4,301
2,899
6,515
5,630
426
346
277
1,611
10,208
Tax calculated at the preferential tax rate of 15%
Tax effect of expenses not deductible for tax
purpose
Tax effect of tax losses not recognised
Income tax (credit)/expense
(2,154)
Details of deferred taxation are disclosed in Note 28.
11.
Profit/(loss) before tax
Profit/(loss) before tax has been arrived at after charging/(crediting):
Year ended 31 December
Cost of inventories recognised as an expense
2014
2015
2016
RMB’000
RMB’000
RMB’000
1,337,109
414,409
1,100,442
16,699
16,864
17,982
285
285
285
11
5
5
6,174
7,244
6,583
38,651
39,241
30,580
1,682
2,070
1,815
40,333
41,311
32,395
16,813
23,004
(2,706)
90
80
Depreciation for property, plant and
equipment
Amortisation of leasehold land and land use
rights
Amortisation of intangible assets
Research and development costs recognised
as an expense
Salaries and allowances
Post-employment benefit expense
– Defined contribution plans
Net foreign exchange loss/(gain)
Auditor’s remuneration
– II-35 –
85
APPENDIX II
12.
FINANCIAL INFORMATION OF THE TARGET GROUP
Directors’ remuneration
No directors’ remuneration was paid or payable for the Relevant Periods.
13.
Property, Plant and Equipment
Solar
Other
Office
photovoltaic
power
Buildings
station
machinery
and others
in progress
Total
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
49,787
–
139,500
5,255
–
194,542
Additions
228
–
1,906
334
4,831
7,299
Disposals
–
–
–
(300)
–
(300)
50,015
–
141,406
5,289
4,831
201,541
328
–
8,318
409
3,540
12,595
4,921
3,450
–
–
(8,371)
–
–
–
(152)
(55)
–
(207)
55,264
3,450
149,572
5,643
–
213,929
Additions
–
–
7,971
23
–
7,994
Disposals
–
–
(1,201)
–
–
(1,201)
55,264
3,450
156,342
5,666
–
220,722
At 1 January 2014
6,204
–
37,455
3,561
–
47,220
Depreciation charged for the year
2,375
–
13,323
1,001
–
16,699
–
–
–
(285)
–
(285)
equipment Construction
Cost
At 1 January 2014
At 31 December 2014 and
1 January 2015
Additions
Reclassification upon completion
Disposals
At 31 December 2015 and
1 January 2016
At 31 December 2016
Depreciation
Eliminated on disposals
– II-36 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
Solar
Other
photovoltaic
power
Buildings
station
machinery
and others
in progress
Total
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
At 31 December 2014 and
1 January 2015
8,579
–
50,778
4,277
–
63,634
Depreciation charged for the year
Eliminated on disposals
2,496
–
27
–
13,926
(101)
415
(7)
–
–
16,864
(108)
11,075
27
64,603
4,685
–
80,390
2,626
–
164
–
14,883
(831)
309
(9)
–
–
17,982
(840)
13,701
191
78,655
4,985
–
97,532
At 31 December 2016
41,563
3,259
77,687
681
–
123,190
At 31 December 2015
44,189
3,423
84,969
958
–
133,539
At 31 December 2014
41,436
–
90,628
1,012
4,831
137,907
At 31 December 2015 and
1 January 2016
Depreciation charged for the year
Eliminated on disposals
At 31 December 2016
Office
equipment Construction
Carrying values
The above items of property, plant and equipment are depreciated on a straight-line basis
over the following estimated useful lives:
Buildings
Solar photovoltaic power station
Other machinery
20 years
20 years
10 years
Office equipment and others
3 to 4 years
As at 31 December 2014, 2015 and 2016, bank borrowings of the Target Group amounting
to approximately RMB21,000,000, RMB14,000,000 and RMB18,000,000 were secured by
the Target Group’s buildings with the carrying value of approximately RMB40,345,000,
RMB38,013,000 and RMB35,681,000 (Note 25(i)).
– II-37 –
APPENDIX II
14.
FINANCIAL INFORMATION OF THE TARGET GROUP
Leasehold Land and Land Use Rights
RMB’000
Cost
At 1 January 2014, 31 December 2014, 1 January 2015, 31 December
2015, 1 January 2016 and 31 December 2016
14,234
Amortisation
At 1 January 2014
1,137
Provided for the year
285
At 31 December 2014 and 1 January 2015
Provided for the year
1,422
285
At 31 December 2015 and 1 January 2016
Provided for the year
1,707
285
At 31 December 2016
1,992
Carrying values
At 31 December 2016
12,242
At 31 December 2015
12,527
At 31 December 2014
12,812
– II-38 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
The Target Group’s leasehold land and land use rights comprise:
As at 31 December
2014
2015
2016
RMB’000
RMB’000
RMB’000
285
285
285
12,527
12,242
11,957
12,812
12,527
12,242
Analysed for reporting purposes as:
– Current asset (included in other
receivables, deposits and prepayments)
– Non-current asset
As at 31 December 2014, 2015 ad 2016, bank borrowings of the Target Group amounting to
approximately RMB21,000,000, RMB14,000,000 and RMB18,000,000 are secured by the
Target Group’s leasehold land and land use rights (Note 25(i)).
The leasehold land and land use rights are located in PRC under medium-term lease.
15.
Intangible Assets
Computer
Patent
software
Total
RMB’000
RMB’000
RMB’000
1 January 2015
46
15
61
Exchange difference
–
(1)
(1)
46
14
60
–
(14)
(14)
46
–
46
10
8
18
5
6
11
Cost
At 1 January 2014, 31 December 2014 and
At 31 December 2015 and 1 January 2016
Disposals
At 31 December 2016
Amortisation
At 1 January 2014
Provided for the year
– II-39 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
Computer
Patent
software
Total
RMB’000
RMB’000
RMB’000
15
14
29
5
–
5
20
14
34
Provided for the year
5
–
5
Eliminated on disposals
–
(14)
(14)
At 31 December 2016
25
–
25
At 31 December 2016
21
–
21
At 31 December 2015
26
–
26
At 31 December 2014
31
1
32
At 31 December 2014 and 1 January 2015
Provided for the year
At 31 December 2015 and 1 January 2016
Carrying values
The above intangible assets have finite useful lives. Such intangible assets are amortised on a
straight-line basis over the following periods:
Patent
10 years
Computer software
5 years
All of the Target Group’s intangible assets were acquired from third parties.
– II-40 –
APPENDIX II
16.
FINANCIAL INFORMATION OF THE TARGET GROUP
Investment in a Subsidiary
As at 31 December
2014
2015
2016
RMB’000
RMB’000
RMB’000
137
137
–
(137)
(137)
–
Investments, at cost:
Unlisted equity interest
Less: Impairment loss on unlisted equity
investments
–
–
–
As at 31 December 2014 and 2015, the Target Company had direct interests in the following
subsidiary, which was established and operated in Germany. The particulars of the subsidiary
are set out below:
Proportion ownership
interest/voting power held by the Target Company
Name
Directly
Directly
Directly
2014
2015
2016
Paid in capital
Principal activities
Production and sales of
SuCo Holding GmbH
EUR25,000
70%
70%
–
photovoltaic glasses
The subsidiary did not issue any debt securities at the end or at any time during the years
ended 31 December 2014, 2015 and 2016.
The table below shows details of the non-controlling interests:
Place of
incorporation and
Name of the
principal place
subsidiary
of business
Proportion ownership
Interest and voting
power held by the non-controlling interests
2014
SuCo Holding GmbH Germany
70%
2015
2016
70%
– II-41 –
–
Loss allocated to non-controlling interests
Accumulated non-controlling interests
2014
2015
2016
2014
2015
2016
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
(2,628)
(9,092)
(621)
(5,111)
(13,809)
–
APPENDIX II
17.
FINANCIAL INFORMATION OF THE TARGET GROUP
Available-for-sale Financial Assets
As at 31 December
Unlisted equity securities, at cost
2014
2015
2016
RMB’000
RMB’000
RMB’000
6,625
1,000
–
The particulars of the available-for-sale financial assets are set out below:
2014
2015
2016
RMB’000
RMB’000
RMB’000
PRC
1,000
–
–
Germany
5,625
1,000
–
6,625
1,000
–
Place of incorporation and principal
place of business
They are measured at cost less impairment at the end of each reporting period because the
range of reasonable fair value estimate is so significant that the Target Company Directors
are of the opinion that their fair values cannot be measured reliably.
18.Inventories
As at 31 December
2014
2015
2016
RMB’000
RMB’000
RMB’000
131,844
53,002
31,303
Work in progress
21,896
5,899
2,337
Finished goods
37,636
55,778
119,628
966
601
620
192,342
115,280
153,888
Raw materials
Consumables
– II-42 –
APPENDIX II
19.
FINANCIAL INFORMATION OF THE TARGET GROUP
Trade and Bills Receivables
As at 31 December
2014
2015
2016
RMB’000
RMB’000
RMB’000
Trade receivables
307,093
288,787
525,040
Less: Allowance for doubtful debts
(44,831)
(42,031)
(12,461)
Trade receivables – net
262,262
246,756
512,579
39,837
38,223
21,683
302,099
284,979
534,262
Trade bills receivables
Third parties
Total trade and bills receivables
The Target Group does not hold any collateral or other credit enhancements over these
balances nor does it have a legal right of offset against any amounts owed by the Target
Group to the counterparty.
The Target Group allows an average credit period of 90 days to its trade customers. The
following is an aged analysis of trade and bills receivables net of allowance for doubtful
debts presented based on the invoice date at the end of the reporting period, which
approximated the respective revenue recognition dates are as follows:
As at 31 December
2014
2015
2016
RMB’000
RMB’000
RMB’000
227,710
239,943
435,897
91 to 180 days
38,173
22,428
87,737
181 to 365 days
2,574
18,393
10,603
Over 365 days
33,642
4,215
25
302,299
284,979
534,262
0 to 90 days
The Target Group’s trade receivables are individually determined to be impaired. The
individually impaired receivables are recognised based on the credit history of its customers,
such as financial difficulties or default in payments, and current market conditions.
– II-43 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
Consequently, specific impairment loss was recognised. The movements in the allowance for
doubtful debts of trade receivables are as follows:
As at 31 December
At 1 January
2014
2015
2016
RMB’000
RMB’000
RMB’000
21,686
44,831
42,031
–
–
23,297
19,979
4,297
(22,779)
(32,427)
42,031
12,461
Disposal of a subsidiary
(1,440)
Impairment losses recognised on trade
receivables
Amounts written off
(152)
At 31 December
44,831
A s a t 31 D e c e m b e r 2014, 2015 a n d 2016, t h e T a r g e t G r o u p h a s a p p r o x i m a t e l y
RMB56,715,000, RMB31,136,000 and RMB13,023,000 of trade receivables denominated in
EUR while the remaining were denominated in RMB.
20.
Other Receivables, Deposits and Prepayments
As at 31 December
2014
2015
2016
RMB’000
RMB’000
RMB’000
12,420
1,075
14,734
4,049
2,468
4,003
–
–
40,450
16,469
3,543
59,187
Other receivables
– Third parties
– Related parties
– Amount due from a former subsidiary
Less: Allowance for doubtful debts
(470)
(382)
(40,870)
15,999
3,161
18,317
285
285
285
28,575
28,151
66,108
44,859
31,597
84,710
Leasehold land and land use rights
(see Note 14)
Deposits and prepayments
– II-44 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
The Target Group’s other receivables are individually determined to be impaired. The
individually impaired receivables are recognised based on the age of balances and credit
history of the counter parties. Consequently, specific impairment loss was recognised.
The Target Group does not hold any collateral over these balances. The movements in the
allowance for doubtful debts of other receivables are as follows:
As at 31 December
2014
2015
RMB’000
RMB’000
At 1 January
Provision/(recovery) for the year
175
295
470
(88)
382
40,488*
At 31 December
470
382
40,870
*
21.
2016
RMB’000
Includes the allowance on amount due from a former subsidiary of RMB40,450,000 (Note 29).
Restricted Bank Balances
All restricted bank balances are denominated in RMB.
Restricted bank balances are held in dedicated bank accounts under the name of the Target
Group for the issuance of bank acceptance notes to suppliers.
As at 31 December 2014, 2015 and 2016, the fixed interest rates on restricted bank balances
with maturities from 3 months to 1 year, are ranging from 0.35% to 0.39%, 0.32% to 0.35%
and 0.32 and 1.05% per annum.
22.
Bank Balances and Cash
The carrying amounts of the Target Group’s bank balances and cash included balance
denominated in the following foreign currencies:
As at 31 December
2014
2015
RMB’000
RMB’000
USD
EUR
2016
RMB’000
3,443
6,171
5,191
23,948
5,087
480
9,614
29,139
5,567
The effective interest rate on bank balances was at 0.29%, 0.31% and 0.32% per annum.
The conversion of these RMB denominated balances into foreign currencies is subject to the
rules and regulations of foreign exchange control promulgated by the PRC government.
– II-45 –
APPENDIX II
23.
FINANCIAL INFORMATION OF THE TARGET GROUP
Trade and Bills Payables
As at 31 December
2014
2015
RMB’000
RMB’000
Trade payables
Trade bills payables
Third parties
Total trade and bills payables
2016
RMB’000
374,468
276,109
659,632
6,745
23,220
45,255
381,213
299,329
704,887
The following is an aged analysis of trade and bills payables presented based on the invoice
date at the end of the reporting period:
As at 31 December
2014
2015
2016
RMB’000
RMB’000
RMB’000
276,772
220,434
339,677
91 to 180 days
32,137
3,051
252,446
181 to 365 days
14,439
3,754
55,164
Over 365 days
57,865
72,090
57,600
381,213
299,329
704,887
0 to 90 days
The average credit period on purchases of goods is 90 days. The Target Group has financial
risk management policies in place to ensure that all payables are settled within the credit
timeframe.
– II-46 –
APPENDIX II
24.
FINANCIAL INFORMATION OF THE TARGET GROUP
Other Payables and Accruals
As at 31 December
2014
2015
RMB’000
RMB’000
Amounts due to related companies
Others
2016
RMB’000
107,302
24,656
50,006
130,462
14,950
37,113
131,958
180,468
52,063
The amounts due to related companies are interest-free, unsecured and repayable on demand.
25.
Bank Borrowings
Notes
Bank loans – secured
Bank loans – unsecured
(i)
(ii)
As at 31 December
2014
2015
RMB’000
RMB’000
2016
RMB’000
21,000
70,000
14,000
70,000
18,000
70,000
91,000
84,000
88,000
Notes:
(i)
The balances are used for general working capital of the Group. As at 31 December 2014, 2015
and 2016, the Group’s secured bank borrowings are secured by certain leasehold land and land
use rights (Note 14) and buildings of the Target Group (Note 13).
(ii)
The balances are used for general working capital of the Group. The unsecured bank loans are
guaranteed by a third party government-owned corporation.
All the Target Group’s borrowings are denominated in RMB and carry fixed interest rates.
– II-47 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
The ranges of effective interest rates on the borrowings are as follows:
As at 31 December
2014
2015
RMB’000
RMB’000
Effective interest rates:
Bank borrowings at fixed rate
26.
7.20%
6.5%–7%
2016
RMB’000
5.66%–6.09%
Paid-up Capital
As at 31 December
2014
2015
2016
RMB’000
RMB’000
RMB’000
100,832
100,832
100,832
Capital
reserve
RMB’000
Exchange
reserve
RMB’000
Total
RMB’000
5,000
2,292
7,292
Exchange difference arising on translation
–
2,660
2,660
At 31 December 2014 and 1 January 2015
5,000
4,952
9,952
Exchange difference arising on translation
–
At 31 December 2015 and 1 January 2016
5,000
Exchange difference arising on translation
Reserve released upon disposal of a
subsidiary
Registered, issued and fully paid:
27.
Other Reserves
At 1 January 2014
At 31 December 2016
(681)
4,271
9,271
–
(2,814)
(2,814)
–
(1,457)
(1,457)
5,000
– II-48 –
(681)
–
5,000
APPENDIX II
28.
FINANCIAL INFORMATION OF THE TARGET GROUP
Deferred Tax Assets
Deferred taxation is calculated in full on temporary differences under the liability method
using principal taxation rate of 15%.
The following are the deferred tax assets recognised and movements thereof during the
Relevant Periods:
Provisions
RMB’000
At 1 January 2014
Credit for the year
3,090
3,521
At 31 December 2014 and 1 January 2015
Charge for the year
6,611
(465)
At 31 December 2015 and 1 January 2016
Charge for the year
6,146
(4,172)
At 31 December 2016
1,974
Deferred tax assets consist of temporary differences relating to allowance for doubtful debts .
As at 31 December 2014, 2015 and 2016, the Target Group has unused tax losses of
approximately RMB13,863,000, RMB15,501,000 and RMB nil. No deferred tax asset has
been recognised in respect of these tax losses due to the unpredictability of future profit
streams.
29.
Disposal of a Subsidiary
For the year ended 31 December 2016
On 30 November 2016, the Target Company and Green Forte BV, an independent third
party, entered into the agreement, pursuant to which the Target Company agreed to sell,
and Green Forte BV agreed to acquire 70% of equity interests in SuCo Holding GmbH at a
cash consideration of approximately EUR480,000. As a result of such disposal, the Target
Company ceased to have any interest in SuCo Holding GmbH.
– II-49 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
The net assets and liabilities of SuCo Holding GmbH at the date of disposal as at 30
November 2016 were as follows:
Total
RMB’000
Analysis of assets and liabilities disposed of:
Trade and bills receivables
Other receivables
Bank balances and cash
Trade and bills payables
Other payables
Release of exchange reserve
4,259
50,938
84
(47,986)
(52,854)
(3,074)
(48,633)
Disposal of a subsidiary:
Consideration to be received
Net liabilities disposed of and release of exchange reserve
Non-controlling interests
3,512
48,633
(15,387)
Impairment on amount due from SuCo Holding GmbH
36,758
(40,450)
(3,692)
Net cash outflow arising on disposal:
Cash and cash equivalents disposed of
(84)
During the period from 1 January 2016 to 30 November 2016, SuCo Holding GmbH
contributed a loss and net cash outflow of approximately RMB2,068,000 (2015:
RMB30,307,000) and RMB162,000 (2015: RMB1,194,000) to the Target Group’s (loss)/
profit and net cash flows respectively.
– II-50 –
APPENDIX II
30.
FINANCIAL INFORMATION OF THE TARGET GROUP
Related Party Transactions
Other than transactions and balances disclosed elsewhere in the Financial Information, the
Target Group had the following material transactions with its related parties during the
Relevant Periods:
Year ended 31 December
2014
2015
2016
RMB’000
RMB’000
RMB’000
Sales
Sunlink PV (Hong Kong) Limited#
–
–
74
152,799
63
51,786
–
152,873
51,849
–
116,670
242
235,081
20
184,847
116,670
235,323
184,867
Zhangjiagang Wulihu Trading Company Limited ##
Purchase of inventories
Sunlink PV (Hong Kong) Limited#
Zhangjiagang Wulihu Trading Company Limited ##
#
##
Ms. Yin Meiping, the director of the Target Company, has controlling interest.
Zhangjiagang Wulihu Trading Company Limited is under the control of the Target Company’s
shareholder, Suzhou Yongjin Investment Co., Ltd.
The above-mentioned related party transactions have been terminated in 2017. The Company will
perform its disclosure obligations in respect of future connected transactions, if any, in accordance
with the requirements under Chapter 14A of the Rules Governing the Listing of Securities on the Stock
Exchange (“Listing Rules”).
31.
Information about the Statement of Financial Position of the Target Company
Notes
Non-current assets
Property, plant and equipment
Leasehold land and land use rights
Intangible assets
Available-for-sale financial assets
Deferred tax assets
Investment in a subsidiary
Amount due from a subsidiary
16
– II-51 –
2014
RMB’000
2015
RMB’000
2016
RMB’000
137,907
12,527
30
1,000
13,007
–
29,397
133,539
12,242
26
1,000
12,234
–
10,357
123,190
11,957
21
–
1,974
–
–
193,868
169,398
137,142
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
Notes
Current assets
Inventories
Trade and bills receivables
Other receivables, deposits and
prepayments
Restricted bank balances
Bank balances and cash
Current liabilities
Trade and bills payables
Other payables and accruals
Tax payables
Bank and other borrowings
– due within one year
Dividend payable
Net current liabilities
Net assets
Capital and reserves
Paid-up capital
Other reserves
Accumulated losses
26
Total equity
– II-52 –
2014
RMB’000
2015
RMB’000
2016
RMB’000
192,342
256,402
115,280
273,671
153,888
534,262
36,002
736
16,450
31,547
21,379
39,189
84,710
36,795
11,831
501,932
481,066
821,486
380,294
128,244
1,367
297,728
177,253
1,146
704,887
52,063
5,349
91,000
24,100
84,000
24,100
88,000
23,100
625,005
584,227
873,399
(123,073)
(103,161)
(51,913)
70,795
66,237
85,229
100,832
5,000
(35,037)
100,832
5,000
(39,595)
100,832
5,000
(20,603)
70,795
66,237
85,229
APPENDIX II
32.
FINANCIAL INFORMATION OF THE TARGET GROUP
Details of companies comprising the Target Group
The Target Group has two legal entities and particulars of which are set out below:
Place of
incorporation
Legal form
Name of company
and operation
of entity
Jiangsu Yongneng
PRC
Limited liability
Issued
Effective interest
capital/member
held during the
contribution
Relevant Periods
RMB73,500,000
N/A
Principal activity
Research and development and
Photovoltaic
manufacturing of solar cells,
Technology Company
solar modules and research
Limited (the “Target
and development, design,
Company”)
installation, maintenance and
sales of solar photovoltaic
systems and photovoltaic
integrated products
SuCo Holding GmbH
Germany
Limited Liability
EUR25,000
70%
Production and sales of
photovoltaic glasses
The Target Company has statutory audited financial statements during the Relevant Periods
and the name of the auditors are as follows:
Financial years ended
Name of statutory auditor
31 December 2014
Tianheng Certified Public Accountants LLP*
31 December 2015
Tianheng Certified Public Accountants LLP*
31 December 2016
Yancheng Tianfang Certified Public Accountants*
SuCo Holding GmbH is not subject to statutory audit requirements under the relevant rules
and regulation in its jurisdiction of incorporation.
33.
Non-Adjusting Events After The Reporting Period
There is no material subsequent event undertaken by the Target Group after 31 December
2016.
* For identification purpose only
– II-53 –
APPENDIX II
III.
FINANCIAL INFORMATION OF THE TARGET GROUP
SUBSEQUENT FINANCIAL STATEMENTS
No audited financial statements have been prepared by the Target Group in respect of any period
subsequent to 31 December 2016 up to the date of this report. No dividend or distribution has been
declared or made by the Target Group in respect of any period subsequent to 31 December 2016.
PKF
Certified Public Accountants
Hong Kong
– II-54 –
APPENDIX III
MANAGEMENT DISCUSSION AND ANALYSIS OF JIANGSU YONGNENG
The management discussion and analysis of Jiangsu Yongneng for the three years ended 31 December
2014, 2015 and 2016 were set out below.
BUSINESS AND FINANCIAL REVIEW
Jiangsu Yongneng was incorporated in the PRC on 15 September 2009 as a company with limited liability.
Currently, it is principally engaged in research, development and manufacturing of solar cells, solar
modules, research and development, design, installation, debugging and maintenance of solar photovoltaic
systems and building-integrated photovoltaics, and sales of self-made products.
For the three years ended 31 December 2014, 2015 and 2016, Jiangsu Yongneng recorded revenue of
RMB1,399,871,000, RMB473,216,000 and RMB1,176,335,000, respectively. The fluctuation in revenue
was mainly due to (i) respective decrease of 62%, 22% and 79% in revenue from solar modules, solar cells
and other businesses in 2015 as compared with 2014 owing to the impact of market conditions; and (ii)
respective increase of 185% and 91% in revenue from solar modules and solar cells in 2016 as compared
to 2015 as a result of the increase of domestic power station projects and demands for solar modules in
2016, partially offset by a year-on-year decrease of 87% in revenue from other businesses.
For the three years ended 31 December 2014, 2015 and 2016, the gross profit of Jiangsu Yongneng
amounted to RMB61,943,000, RMB57,327,000 and RMB71,215,000, respectively, and the gross profit
margin was approximately 4.42%, 12.11% and 6.05%, respectively. The fluctuation in gross profit
and gross profit margin was mainly due to (i) the change of the production mode for solar modules to
consigned processing which has a higher gross profit margin, leading to an increase of 7.69 percentage
points for 2015 as compared to 2014; and (ii) the decline in the price of solar cells resulting in a decrease
of 6.06 percentage points in gross profit margin for 2016 as compared to 2015.
For the three years ended 31 December 2014, 2015 and 2016, the selling and distribution costs of Jiangsu
Yongneng amounted to RMB9,931,000, RMB5,165,000 and RMB8,987,000, respectively, mainly due
to the changes in transportation costs which constituted a substantial portion of and had a significant
impact on selling and distribution costs. In particular, the transportation costs decreased in 2015 due to the
decreased sales volume of solar cells and solar modules as compared to 2014, but increased in 2016 due to
the increased sales volume of solar cells and solar modules as compared to 2015.
For the three years ended 31 December 2014, 2015 and 2016, the administrative expenses of Jiangsu
Yongneng amounted to RMB46,579,000, RMB50,151,000 and RMB23,052,000, respectively, mainly
due to the facts that the exchange loss, which was included in the administrative expenses, increased by
RMB6,190,000 in 2015 as compared to 2014 and decreased by RMB23,004,000 in 2016 as compared to
2015.
– III-1 –
APPENDIX III
MANAGEMENT DISCUSSION AND ANALYSIS OF JIANGSU YONGNENG
For the three years ended 31 December 2014, 2015 and 2016, the applicable tax rate in the PRC for
Jiangsu Yongneng was 15%, 15% and 15%, respectively. The income tax credit for the year ended 31
December 2014 was RMB2,154,000 and the income tax expense for the two years ended 31 December
2015 and 2016 was RMB1,611,000 and RMB10,208,000, respectively.
CAPITAL STRUCTURE, LIQUIDITY AND FINANCIAL RESOURCES
Jiangsu Yongneng funded its operation mainly with its internal resources and bank borrowings. As at
31 December 2014, 2015 and 2016, the cash and bank balances and time deposits of Jiangsu Yongneng
were RMB20,140,000, RMB60,839,000 and RMB48,626,000, respectively. As at 31 December 2014,
2015 and 2016, the total bank borrowings of Jiangsu Yongneng was RMB91,000,000, RMB84,000,000
and RMB88,000,000, respectively. As at 31 December 2014, 2015 and 2016, the gearing ratio of Jiangsu
Yongneng, calculated as the proportion of total debt to total capital, was 49.32%, 59.74% and 50.80%,
respectively.
As at 31 December 2016, Jiangsu Yongneng had no available credit line or borrowing facilities with
banks. The maturity profile of all liabilities are within one year or on demand and Jiangsu Yongneng
had no non-current liabilities. As at 31 December 2016, Jiangsu Yongneng had no outstanding capital
commitments and there was no authorized commitment that had not yet been contracted for.
All bank borrowings of Jiangsu Yongneng are denominated in RMB and are short term and carried at fixed
interest rates. Foreign currency cash balances of Jiangsu Yongneng are denominated in USD and EUR.
Please refer to notes (22) and (25) of the financial information of the Target Group set out in Appendix II
of this circular for details.
The Target Group had net current liabilities of approximately RMB51,913,000 as at 31 December 2016.
This condition indicates the existence of a material uncertainty which may cast significant doubt on the
Target Group’s and Jiangsu Yongneng’s ability to continue as a going concern and therefore it may be
unable to realise its assets and discharge its liabilities in the normal course of business. Nevertheless, the
directors of Jiangsu Yongneng are of the opinion that the Target Group and Jiangsu Yongneng will have
sufficient working capital to meet its financial obligations as and when they fall due given that:
(i)
the shareholders of Jiangsu Yongneng have sufficient financial capability and will actively provide
financial support to the Target Group and Jiangsu Yongneng to meet the Target Group’s and
Jiangsu Yongneng’s liabilities and commitments as and when they fall due; and
(ii)
the Company and its parent company, IRICO Group, have sufficient financial capability and will
actively provide financial support to the Target Group to meet its liabilities when they fall due after
the Acquisition.
– III-2 –
APPENDIX III
MANAGEMENT DISCUSSION AND ANALYSIS OF JIANGSU YONGNENG
PROSPECTS AND OUTLOOK
As at Latest Practicable Date, Jiangsu Yongneng did not have any plans for new business.
SIGNIFICANT INVESTMENTS
Jiangsu Yongneng did not have any significant investments as at 31 December 2014, 2015 and 2016.
CONTINGENT LIABILITIES AND CAPITAL COMMITMENTS
Jiangsu Yongneng had no material contingent liabilities or capital commitments as at 31 December 2014,
2015 and 2016.
MATERIAL ACQUISITIONS AND DISPOSALS
On 30 November 2016, Jiangsu Yongneng and Green Forte BV entered into an agreement, pursuant to
which Jiangsu Yongneng agreed to sell, and Green Forte BV agreed to acquire 70% of equity interests
in SuCo Holding GmbH at a cash consideration of approximately EUR480,000. As a result of such
disposal, Jiangsu Yongneng ceased to have any interest in SuCo Holding GmbH. Please refer to note (29)
of the financial information of the Target Group set out in Appendix II of this circular for details of such
disposal.
Save as disclosed above, there was no material acquisition or disposal of Jiangsu Yongneng for the three
years ended 31 December 2014, 2015 and 2016.
SEGMENTAL INFORMATION
Revenue of Jiangsu Yongneng represents revenue arising from production and sales of photovoltaic
glasses. All of its revenue, with reference to locations of external customers, was generated from the PRC,
South America, Europe, Africa, Australia, Asia, etc.
Jiangsu Yongneng has only one operating segment and therefore, no segment information is presented.
FOREIGN CURRENCY RISK AND INTEREST RATE RISK
The Target Group mainly operates in the PRC. Majority of its revenue, operating costs and cost of sales
are denominated in RMB. Certain trade receivables and bank balances and cash of the Target Group are
denominated in the United States Dollars (“USD”) and Euro (“EUR”). Such USD and EUR denominated
trade receivables and bank balances and cash are exposed to fluctuations in the value of RMB against USD
and EUR in which these trade receivables and bank balances and cash are denominated. Any significant
appreciation/depreciation of RMB against USD and EUR may result in significant exchange differences
– III-3 –
APPENDIX III
MANAGEMENT DISCUSSION AND ANALYSIS OF JIANGSU YONGNENG
which would be recorded in the consolidated statements of profit or loss and other comprehensive income.
Jiangsu Yongneng currently does not have foreign currency hedging policy. However, Jiangsu Yongneng
closely monitors currency risk and will consider hedging significant currency risk exposure should the
need arise.
Jiangsu Yongneng is exposed to fair value interest rate risk in relation to fixed-rate restricted bank
balances and fixed-rate bank borrowings. Jiangsu Yongneng currently does not have an interest rate
hedging policy. However, Jiangsu Yongneng closely monitors interest rate exposure and will consider
other necessary actions when significant interest rate exposure is anticipated.
Jiangsu Yongneng is also exposed to cash flow interest rate risk in relation to variablerate bank balances.
Its exposure to interest rates on financial liabilities are detailed in the liquidity risk management section in
note (6) of the financial information of the Target Group set ou in Appendix II of this circular.
EMPLOYEE AND REMUNERATION POLICIES
As at 31 December 2014, 2015 and 2016, the number of employees of Jiangsu Yongneng were 712, 642
and 443, respectively, For the three years ended 31 December 2014, 2015 and 2016, total staff costs
(including salaries and other benefits and pension scheme contributions) of Jiangsu Yongneng amounted
to RMB40,333,000, RMB41,311,000 and RMB32,395,000, respectively.
Jiangsu Yongneng remunerated its employees with respect to their employment terms, individual
performance and the prevailing industry practice and maintains pension schemes for the retirement
benefits of their employees.
CHARGES ON ASSETS
As at 31 December 2014, 2015 ad 2016, bank borrowings of Jiangsu Yongneng amounting to
RMB21,000,000, RMB14,000,000 and RMB18,000,000 are secured by the leasehold land and land use
rights of Jiangsu Yongneng with the carrying value of approximately RMB40,345,000, RMB38,013,000
and RMB35,681,000, respectively.
FUTURE PLANS FOR MATERIAL INVESTMENTS OR CAPITAL ASSETS
As at Latest Practicable Date, Jiangsu Yongneng had no significant investment and future plans for
material investments or capital assets.
– III-4 –
APPENDIX IV
(A)
UNAUDITED PRO FORMA FINANCIAL INFORMATION
OF THE ENLARGED GROUP
UNAUDITED PRO FORMA STATEMENT OF ASSETS AND LIABILITIES OF THE
ENLARGED GROUP
Introduction
The following is an illustrative and unaudited pro forma financial information (the “Unaudited Pro
Forma Financial Information”) which consists of the unaudited pro forma consolidated statement
of assets and liabilities at 31 December 2016 in connection with the proposed acquisition of 30%
equity interest in Jiangsu Yongneng Photovoltaic Technology Company Limited (the “Target
Company”) (the “Acquisition”). The Unaudited Pro Forma Financial Information is prepared
to illustrate the financial position of the Group immediately after completion of the Acquisition
(the “Enlarged Group”) as at 31 December 2016 as if the Acquisition had been completed on 31
December 2016. Details of the Acquisition are set out in the section headed “Letter from the Board”
contained in this circular.
The Unaudited Pro Forma Financial Information has been prepared based on a number of
assumptions, estimates and uncertainties. Accordingly, the Unaudited Pro Forma Financial
Information does not purport to describe the actual financial position of the Enlarged Group that
would have been attained had the Acquisition been completed on 31 December 2016. Neither does
the Unaudited Pro Forma Financial Information purport to predict the future financial position of
the Enlarged Group.
This Unaudited Pro Forma Financial Information has been prepared for illustrative purposes only
and because of its nature, it may not give a true picture of the financial position of the Enlarged
Group following the completion of the Acquisition.
The Unaudited Pro Forma Financial Information is prepared based on the consolidated statement
of financial position of the Group as at 31 December 2016 as set out in the annual report of the
Company for the year ended 31 December 2016, and the audited consolidated statement of financial
position of the Target Company as at 31 December 2016 as set out in the accountants’ report on
the Target Group included in Appendix II to this circular, after giving effect to the pro forma
adjustments described in the accompanying notes.
The Unaudited Pro Forma Financial Information should be read in conjunction with other financial
information included elsewhere in this circular.
– IV-1 –
APPENDIX IV
I.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
OF THE ENLARGED GROUP
Unaudited Pro Forma Consolidated Statement of Assets and Liabilities of the Enlarged
Group
Pro Forma Adjustments
IRICO Group
Target
New Energy
Company
Company
Jiangsu
Limited
Yongneng
The Enlarged
As at
As at
Group upon
31 December
31 December
2016
2016
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
Note 1
Note 2
Note 3
Note 4
Note 5
1,297,645
123,190
16,904
–
109,186
11,957
4,709
125,852
Intangible assets
22,205
21
40,866
63,092
Interests in associates
33,517
–
Interest in a joint venture
35,791
–
35,791
421,044
–
421,044
–
1,974
1,974
1,936,292
137,142
Inventories
113,563
153,888
Trade and bills receivables
622,119
534,262
411,733
84,710
3,140
–
3,140
Restricted bank balances
98,034
36,795
134,829
Bank balances and cash
428,178
11,831
1,676,767
821,486
Investment
Business
Professional completion of
in Associate Combination
Fees the Acquistion
RMB’000
Non-current assets
Property, plant and equipment
Investment properties
(1,684)
1,419,151
16,904
Leasehold land and land
use rights
(31,150)
2,367
Available-for-sale financial
assets
Deferred tax assets
Total non-current assets
(31,150)
43,891
–
2,086,175
Current assets
1,774
269,225
1,156,381
Other receivables, deposits and
prepayments
Tax recoverable
Total current assets
– IV-2 –
420
–
469,863
(68,000)
(948)
371,061
(65,806)
(948)
2,431,499
APPENDIX IV
UNAUDITED PRO FORMA FINANCIAL INFORMATION
OF THE ENLARGED GROUP
Pro Forma Adjustments
IRICO Group
Target
New Energy
Company
Company
Jiangsu
Limited
Yongneng
The Enlarged
As at
As at
Group upon
31 December
31 December
2016
2016
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
Note 1
Note 2
Note 3
Note 4
Note 5
25,563
–
–
–
–
25,563
1,702,330
821,486
–
(65,806)
(948)
2,457,062
Trade and bills payables
695,308
704,887
1,400,195
Other payables and accruals
572,650
52,063
624,713
786
5,349
6,135
1,552,684
88,000
1,640,684
12,099
–
12,099
–
23,100
23,100
Total current liabilities
2,833,527
873,399
–
–
–
3,706,926
Net current liabilities
(1,131,197)
(51,913)
–
(65,806)
(948)
(1,249,864)
805,095
85,229
(31,150)
(21,915)
(948)
836,311
Investment
Business
Professional completion of
in Associate Combination
Fees the Acquistion
RMB’000
Non-current assets classified as
held for sale
Current liabilities
Tax payable
Bank and other borrowings –
due within one year
Termination benefits
Dividend payable
TOTAL ASSETS LESS
CURRENT LIABILITIES
– IV-3 –
APPENDIX IV
UNAUDITED PRO FORMA FINANCIAL INFORMATION
OF THE ENLARGED GROUP
Pro Forma Adjustments
IRICO Group
Target
New Energy
Company
Company
Jiangsu
Limited
Yongneng
The Enlarged
As at
As at
Group upon
31 December
31 December
2016
2016
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
Note 1
Note 2
Note 3
Note 4
Note 5
516,610
–
Investment
Business
Professional completion of
in Associate Combination
Fees the Acquistion
RMB’000
Non-current liabilities
Bank and other borrowings –
due after one year
II.
516,610
Deferred income
98,797
98,797
Termination benefits
29,957
29,957
Deferred tax liabilities
7,232
7,232
Total non-current liabilities
652,596
–
–
–
–
652,596
Net assets
152,499
85,229
(31,150)
(21,915)
(948)
183,715
Notes to the Unaudited Pro Forma Statement of Assets and Liabilities of the Enlarged
Group
1.
The balances have been extracted from the audited consolidated financial statements
included in the annual report of the Company for the year ended 31 December 2016.
2.
The balances have been extracted from the accountant’s report of the Target Group
included in Appendix II to this circular.
– IV-4 –
APPENDIX IV
UNAUDITED PRO FORMA FINANCIAL INFORMATION
OF THE ENLARGED GROUP
3.
Upon completion of the Acquisition, the equity interest in Jiangsu Yongneng held by
the Group will increase from 21% of the issued share capital of Jiangsu Yongneng
as at 31 December 2016 to approximately 51% as enlarged by the Acquisition. In the
opinion of the Directors, the Company will obtain control in Jiangsu Yongneng after
considering the potential voting rights arising from the Acquisition, and as a result,
Jiangsu Yongneng will cease to be an associate of the Company upon completion of
the Acquisition and will be accounted for as a subsidiary of the Company as from
that date. Accordingly, Jiangsu Yongneng’s assets, liabilities, cash flows and results
will be consolidated into the consolidated financial statements of the Company upon
completion of the Acquisition.
4.
The identifiable assets and liabilities of the Jiangsu Yongneng are accounted for in the
unaudited pro forma consolidated statement of assets and liabilities of the Enlarged
Group at fair value under the acquisition method in accordance with Hong Kong
Financial Reporting Standard 3 (Revised), “Business Combination” (“HKFRS 3”).
For the purpose of the unaudited pro forma consolidated statement of assets and
liabilities and for illustration purpose only, the Group has carried out an illustrative
consideration allocation exercise in accordance with HKFRS 3. The identifiable
assets and liabilities of the Jiangsu Yongneng are recorded in the unaudited pro forma
consolidated statement of assets and liabilities of the Enlarged Group at their fair
value as estimated by the Directors with reference to the valuation report prepared
by Beijing Pan-China, as at 31 December 2016 for the purpose of purchase price
allocation (the “Valuation Report”).
The Valuation Report was prepared with the objective of providing a reference point
of the economic impact to the Directors with the scope covering the entire equity
interest of Jiangsu Yongneng which includes all the assets and liabilities of Jiangsu
Yongneng.
The fair values of the identifiable assets and liabilities are determined using the assetbased approach.
The recognition of the goodwill of approximately RMB40.9 million, which represents
the excess of the consideration for the Acquisition over the fair value of the
Company’s 30% share of the identifiable assets and liabilities of Jiangsu Yongneng, is
set out below.
RMB’000
Consideration
Less: Fair value of the Company’s 30% share in net identifiable
assets and liabilities of Jiangsu Yongneng
Goodwill
68,000
(27,134)
40,866
– IV-5 –
APPENDIX IV
UNAUDITED PRO FORMA FINANCIAL INFORMATION
OF THE ENLARGED GROUP
RMB’000
Carrying amount of the net assets of Jiangsu Yongneng
Fair value adjustment as per the Valuation Report
– Property plant and equipment
– Land use rights
– Inventories
– Other receivables and deposits
85,229
Fair value of the net assets of Jiangsu Yongneng
90,448
Fair value of the Company’s 30% share in net identifiable assets
and liabilities of Jiangsu Yongneng
27,134
(1,684)
4,709
1,774
420
The valuation of identifiable assets and liabilities is not a precise science and the
conclusions arrived at in many cases will of necessity be subjective and dependent on
the exercise of individual judgement. Therefore, there is no indisputable single value
and a valuer normally expresses the opinion on the value as falling within a likely
range.
The amounts of goodwill and fair value of the identifiable assets and liabilities of
the Target Group on the date of completion are subject to (i) the completion of the
valuation of the fair value of the identifiable assets and liabilities of Jiangsu Yongneng
on the date of completion and (ii) the financial position of Jiangsu Yongneng on
the date of completion. Therefore, the amounts of goodwill, assets and liabilities of
Jiangsu Yongneng may be materially different from the estimated amounts used in the
preparation of the Unaudited Pro Forma Financial Information presented above.
According to the Group’s accounting policies, internal and external sources of
information are reviewed at the end of each reporting period to identify indications
that property, plant and equipment, leasehold land and intangible assets may be
impaired or, except to the case of goodwill, an impairment loss previously recognised
no longer exists or may have decreased. If any such indication exists, the asset’s
recoverable amount is estimated. In addition, for goodwill and intangible assets that
have indefinite useful lives, the recoverable amount is estimated annually whether or
not there is any indication of impairment.
For the purpose of the Unaudited Pro Forma Financial Information, the Directors
have assessed whether there is any impairment indicator in respect of the goodwill
and other intangible assets expected to arise from the Acquisition following the
principles set out in Hong Kong Accounting Standard 36 “Impairment of Assets”. The
Directors confirm that consistent policies and assumptions with regards to impairment
assessment on goodwill and other intangible assets will be applied for the purposes
of the Unaudited Pro Forma Financial Information and for future financial reporting.
Based on the Directors’ assessment, the Directors consider that there is no impairment
indicator on the goodwill with assumed values set out above.
– IV-6 –
APPENDIX IV
5.
(B)
UNAUDITED PRO FORMA FINANCIAL INFORMATION
OF THE ENLARGED GROUP
The adjustment represents the estimated professional fees and transaction costs
of approximately RMB0.9 million payable by the Group in connection with the
Acquisition, which are assumed to be paid upon the Acquisition.
REPORT ON UNAUDITED PRO FORMA STATEMENT OF ASSETS AND LIABILITIES
OF THE ENLARGED GROUP
The following is the text of a report received from PKF, Certified Public Accountants, Hong Kong,
for the purpose of incorporation in this circular.
INDEPENDENT REPORTING ACCOUNTANT’s ASSURANCE REPORT ON THE
COMPILATION OF UNAUDITED PRO FORMA FINANCIAL INFORMATION INCLUDED
IN A CIRCULAR
大信梁學濂（香港）會計師事務所
The Directors
IRICO Group New Energy Company Limited
Dear Sirs,
We have completed our assurance engagement to report on the compilation of unaudited pro forma
financial information of IRICO Group New Energy Company Limited (the “Company”) and its
subsidiaries (collectively the “Group”), and Jiangsu Yongneng Photovoltaic Technology Company
Limited (the “Target Company”) (collectively the “Enlarged Group”) by the directors of the
Company (the “Directors”) for illustration purposes only. The unaudited pro forma financial
information consists of the unaudited pro forma consolidated statement of assets and liabilities as at
31 December 2016 and the related notes (the “Unaudited Pro Forma Financial Information”) as
set out on pages IV-1 to IV-7 of the circular dated 31 May 2017 in connection with the acquisition
of 30% equity interest in the Target Company (the “Acquisition”) by the Company. The applicable
criteria on the basis of which the Directors have compiled the Unaudited Pro Forma Financial
Information are described on pages IV-1 to IV-7 of the Circular.
The Unaudited Pro Forma Financial Information has been compiled by the Directors to illustrate
the impact of the Acquisition on the Group’s financial position as at 31 December 2016 as if the
Acquisition had taken place on 31 December 2016. As part of this process, information about
the Group’s financial position has been extracted by the Directors from the Group’s consolidated
financial statements for the year ended 31 December 2016, on which an auditor’s report has been
published.
– IV-7 –
APPENDIX IV
UNAUDITED PRO FORMA FINANCIAL INFORMATION
OF THE ENLARGED GROUP
Directors’ Responsibility for the Unaudited Pro Forma Financial Information
The Directors are responsible for compiling the Unaudited Pro Forma Financial Information in
accordance with paragraph 4.29 of the Rules Governing the Listing of Securities on The Stock
Exchange of Hong Kong Limited (the “Listing Rules”) and with reference to Accounting Guideline
7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” (“AG 7”)
issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”).
Our Independence and Quality Control
We have complied with the independence and other ethical requirements of the “Code of Ethics
for Professional Accountants” issued by the HKICPA, which is founded on fundamental principles
of integrity, objectivity, professional competence and due care, confidentiality and professional
behavior.
Our firm applies Hong Kong Standard on Quality Control 1 “Quality Control for Firms that
Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services
Engagements” issued by the HKICPA and accordingly maintains a comprehensive system of
quality control including documented policies and procedures regarding compliance with ethical
requirements, professional standards and applicable legal and regulatory requirements.
Reporting Accountant’s Responsibilities
Our responsibility is to express an opinion, as required by paragraph 4.29(7) of the Listing Rules,
on the Unaudited Pro Forma Financial Information and to report our opinion to you. We do not
accept any responsibility for any reports previously given by us on any financial information used
in the compilation of the Unaudited Pro Forma Financial Information beyond that owed to those to
whom those reports were addressed by us at the dates of their issue.
We conducted our engagement in accordance with Hong Kong Standard on Assurance Engagements
3420 “Assurance Engagements to Report on the Compilation of Pro Forma Financial Information
Included in a Prospectus” issued by the HKICPA. This standard requires that the reporting
accountant plan and perform procedures to obtain reasonable assurance about whether the Directors
have compiled the Unaudited Pro Forma Financial Information in accordance with paragraph 4.29
of the Listing Rules and with reference to AG 7 issued by the HKICPA.
For the purposes of this engagement, we are not responsible for updating or reissuing any reports
or opinions on any historical financial information used in compiling the Unaudited Pro Forma
Financial Information, nor have we, in the course of this engagement, performed an audit or review
of the financial information used in compiling the Unaudited Pro Forma Financial Information.
The purpose of the Unaudited Pro Forma Financial Information included in the Circular is solely
to illustrate the impact of the Acquisition as if the event had occurred or the transaction had been
undertaken at an earlier date selected for purposes of the illustration. Accordingly, we do not
provide any assurance that the actual outcome of the Acquisition would have been as presented.
– IV-8 –
APPENDIX IV
UNAUDITED PRO FORMA FINANCIAL INFORMATION
OF THE ENLARGED GROUP
A reasonable assurance engagement to report on whether the Unaudited Pro Forma Financial
Information has been properly compiled on the basis of the applicable criteria involves performing
procedures to assess whether the applicable criteria used by the Directors in the compilation of the
Unaudited Pro Forma Financial Information provide a reasonable basis for presenting the significant
effects directly attributable to the Acquisition, and to obtain sufficient appropriate evidence about
whether:
•
the related pro forma adjustments give appropriate effect to those criteria; and
•
the Unaudited Pro Forma Financial Information reflects the proper application of those
adjustments to the unadjusted financial information.
The procedures selected depend on the reporting accountant’s judgement, having regard to the
reporting accountant’s understanding of the nature of the Group, the Acquisition in respect of which
the Unaudited Pro Forma Financial Information has been compiled, and other relevant engagement
circumstances.
The engagement also involves evaluating the overall presentation of the Unaudited Pro Forma
Financial Information.
We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Opinion
In our opinion:
(a)
the Unaudited Pro Forma Financial Information has been properly compiled by the Directors
on the basis stated;
(b)
such basis is consistent with the accounting policies of the Group; and
(c)
the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial
Information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.
PKF
Certified Public Accountants
Hong Kong,
31 May 2017
– IV-9 –
APPENDIX V
SUMMARY OF VALUATION REPORT OF JIANGSU YONGNENG
The following is an English translation of the summary of the valuation report in respect of Jiangsu
Yongneng, which is prepared by Beijing Pan-China for the purpose of inclusion in this circular. Such
report is prepared in Chinese and this English translation is provided for your reference only. In the event
of any inconsistency between the Chinese and English versions, the Chinese version shall prevail.
Beijing Pan-China holds the domestic assets appraisal qualification jointly granted by the China
Securities Regulatory Commission and the Ministry of Finance of the PRC.
SUMMARY OF VALUATION REPORT
Valuation in relation to the Proposed Acquisition of Equity Interest in
Jiangsu Yongneng Photovoltaic Technology Company Limited* by
IRICO Group New Energy Company Limited*
Tian Xing Ping Bao Zi (2016) No. 1370
As engaged by IRICO Group New Energy Company Limited*, Beijing Pan-China Assets Appraisal
Co., Ltd. has conducted a valuation on the entire shareholders’ equity interest of Jiangsu Yongneng
Photovoltaic Technology Company Limited* (hereinafter referred to as “Jiangsu Yongneng”) in
accordance with relevant laws and regulations, asset valuation standards and principles.
I.
VALUATION SUBJECT
The valuation subject is the entire shareholders’ equity interest of Jiangsu Yongneng.
II.
VALUATION SCOPE
The valuation scope include all assets and liabilities of Jiangsu Yongneng included in the valuation
scope as at the valuation base date.
III.
VALUE TYPE AND ITS DEFINITION
The value type for this evaluation is the market value.
IV.
VALUATION BASE DATE
The valuation base date is 31 December 2016.
V.
ASSUMPTIONS OF THE VALUATION
General assumptions:
– V-1 –
APPENDIX V
1.
SUMMARY OF VALUATION REPORT OF JIANGSU YONGNENG
Transaction
:
assumption
all assets to be valued are assumed to be in transaction and valuers
conduct the valuation according to simulated market conditions such
as transaction conditions of the assets to be valued.
2.
Open market
:
assumption
this is an assumption about market conditions and effects of such
market conditions on assets. An open market means a well-developed
and competitive market with willing buyers and willing sellers
acting voluntarily and rationally at arms’ length, having sufficient
opportunities and time to obtain market information and under no
compulsion or restrictions to buy or sell.
3.
Continuous use
:
assumption
the continuous use assumption is a hypothesis made on the conditions
of the market where the assets are intended to be entered as well as
the status of the assets in such market conditions. It is first assumed
that the assets to be appraised are in use, and it is further assumed that
the assets that are in use will be used continuously. Under continuous
use assumption, no consideration is given to the conversion of the use
of the assets or the use of the assets under the best condition. Thus,
the valuation results are subject to a restricted scope of applicability.
4.
Going concern
:
assumption
it is an assumption made by taking the whole assets of an enterprise as
the object of valuation. In this way, the enterprise operates continually
in pursuit of its operation objective under its external environment as
the main operating entity. The operator of the enterprise is capable
of taking responsibility. The enterprise operates legally and makes
appropriate profits to maintain the capability of going concern.
VI.
VALUATION METHOD:
The market approach had not been adopted in this valuation, as it was difficult to search for any
transaction cases due to the scarce listed companies comparable to the appraised entity in this
valuation.
The valuation results based on the income approach are prone to the future profitability, quality
of assets, operational abilities and operational risks of the enterprise, while the future profitability
of the appraised entity is subject to significant uncertainties, as the photovoltaic industry where it
operates is likely to be materially affected by the national policies and the international market.
– V-2 –
APPENDIX V
SUMMARY OF VALUATION REPORT OF JIANGSU YONGNENG
The asset-based approach can reflect the fair market value of the assets from an asset replacement
perspective. We had conducted a comprehensive review and valuation on the assets and liabilities
of the appraised entities in accordance with the actual situations of this valuation, and based on the
detailed information on assets and liabilities provided by the appraised entity and any necessary
information required for the asset-based approach and obtained externally by the valuers, relatively
speaking, the results based on the asset-based approach are considered more reliable. Accordingly,
the results based on the asset-based approach are chosen as the final valuation conclusion in this
valuation.
The asset-based approach refers to the method of valuation, in which the value of the valuation
target is determined by reasonable appraisal of the value of all on-and-off balance sheet assets
and liabilities on the basis of the balance sheet. For the purpose of this valuation, the necessary
information for adopting the asset-based approach could be provided by the appraised entities or
collected by the valuer externally, which allowed a comprehensive review and valuation on the assets
and liabilities of the appraised entities. Therefore, the asset-based approach was adopted for this
valuation;
The asset based approach first adopts appropriate methods to evaluate the market value of each asset
to arrive at the overall asset value of the company, then sums them up to deduct the liabilities for
which the company should undertake, and finally arrives at the net asset value of the company.
– V-3 –
APPENDIX V
SUMMARY OF VALUATION REPORT OF JIANGSU YONGNENG
The valuation process for each type of asset and liability included within the scope of the valuation is
clarified as below:
The valuation process of various assets and liabilities is stated as follows:
1.
Valuation of current assets and liabilities
Current assets of the valuation subject include monetary capital, notes receivable, accounts
receivable, prepayments, other receivables, inventories and other current assets; liabilities
include short term borrowings, notes payable, accounts payable, advanced payments, staff
remuneration payable, tax payable, dividends payable and other payables.
(1)
Monetary capital
:
it includes cash on hand, bank deposits and other monetary
capital. The appraised value of which was determined as the
verified book value which was arrived at after checking of
cash inventory and the verification of bank reconciliation
statements, bank confirmations, and other proofs of cash
and bank balances. Funds denominated in foreign currencies
are translated into RMB at the exchange rate by the State
Administration of Foreign Exchange as at the valuation base
date.
(2)
Notes receivable
:
notes receivable refer to the commercial bills received by
enterprises for selling products or rendering services, etc.
All notes receivable in the scope of valuation are bankers’
acceptance. For notes receivable, the valuer checked the book
records and the register of notes receivable while making
inventories of and verified the notes receivable. Corresponding
sales contracts and delivery orders (shipping orders) as well
as other original records were also checked for certain notes
receivable of large amount. The appraised value was then
determined at the verified book value after verification.
– V-4 –
APPENDIX V
(3)
SUMMARY OF VALUATION REPORT OF JIANGSU YONGNENG
Accounts receivable :
accounts receivable and other receivables are valued according
and other
to their likely recoverable amount on the basis that they have
receivables
been verified. With regard to those receivables which are, with
sufficient reason, believed to be fully recoverable, the appraised
value is the total amount of the accounts receivable; with
regard to the partial amount which is probably irrecoverable,
in the event that it is difficult to confirm the amount of
irrecoverable receivables, historical information and on-site
investigation are used to familiarize the situation, specifically
analyze the amount, time and reasons of loans, recovery of the
amounts, as well as the capital, credit and current situation of
operating management to estimate the partial amount which is
probably irrecoverable in accordance with the aging analysis
method as the appraised value calculated after deduction of
the loss from risk; with regard to those which have conclusive
evidences proving that the receivable cannot be recovered, the
appraised value will be nil. The “provision of impairment” on
the accounts shall be accounted for as zero.
(4)
Prepayments
:
the appraised value shall be determined based on the value
of assets or rights from corresponding goods that can be
recovered. for recoverable goods or rights, the verified book
value is taken as the appraised value. Where there is conclusive
evidence that the corresponding goods cannot be recovered,
or the corresponding assets or interests cannot be formed, the
appraised value of such prepayments will be nil. For deferred
expense items with corresponding rights or value after the
valuation base date, the appraised value shall be determined
based on the original amount incurred and the ratio of
remaining benefit period to the total amortization period.
(5)
Inventories
:
Inventories of enterprises include raw materials, materials in
transit at the warehouse, finished goods and goods in process.
– V-5 –
APPENDIX V
SUMMARY OF VALUATION REPORT OF JIANGSU YONGNENG
Valuers check the inventory declaration sheet against the
breakdown, general account and accounting statement and
review the relevant accounting records and original vouchers
to confirm the existence and ownership of the inventory. We
check and verify the internal control system of inventories,
incoming, outgoing and retention accounting system for
inventories and regular counts system. Through checking the
recent in and out records of inventories, we understand the
circulation of inventories and make special investigation into
the quality of inventories. After verification, we confirm that
the internal control system of the enterprise is strict and sound,
that the receipt and shipment of inventory and the bills and
account books are complete and clear. Valuers made a sample
check on the inventories. Samples selected for sample check
represent more than 40% of the total inventory, with carrying
amount representing more than 60%. We have made a sample
check on the in-and-out record of the inventories from the
valuation base date to the stock take date, etc., and we confirm
the in-and-out volume of inventories from the valuation base
date to the stock take date and backward calculated the actual
amount of the inventories at the valuation base date;
Raw materials
:
For the purchased raw materials with short inventory period,
high marketability and stable market price, the verified book
value is taken as the appraised value;
– V-6 –
APPENDIX V
SUMMARY OF VALUATION REPORT OF JIANGSU YONGNENG
Finished goods
:
valuation approaches applicable for finished goods include
cost approach and market approach, whereas the market
approach was mainly adopted in this valuation. For fast
moving products, appraised values were determined according
to their ex-factory selling price less operating expenses and
all taxes; for products with normal sales, appraised values
were determined according to their ex-factory selling price
less operating expenses, all taxes and appropriate amounts
of net profit after tax; for products with poor marketability,
appraised values are determined according to their ex-factory
selling price less operating expenses, all taxes and net profit
after tax; for products that are slow-moving, overstocked and
sold with discounts, appraised values are determined according
to their net realizable values. The products sold on installment
and on consignment shall be deemed as finished products in
the valuation provided that the books, original documents and
contracts were duly verified;
Goods in process
:
for goods in process and semi-finished goods with a higher
degree of finishing, the appraised value shall be determined at
the equivalent of the finished products based on the finishedproduct approach. For the goods in process and semi-finished
goods with a lower degree of finishing, the verified book value
is taken as the appraised value given the short time inputs
in terms of labor and material expenses as well as the slight
change in value.
(6)
Other current assets :
refer to wealth management products of banks purchased by
enterprises. Valuers shall confirm the accuracy and authenticity
of the amounts reported through review of the agreements and
purchase receipts of wealth management products purchased by
enterprises on the basis of verifying correctness, and the book
value after verification is recognised as the appraised value.
(7)
Liabilities
:
the appraised value of liabilities shall be determined based
on the liability items and amounts actually to be assumed by
the appraised entities provided that such liabilities were duly
checked and verified
– V-7 –
APPENDIX V
2.
SUMMARY OF VALUATION REPORT OF JIANGSU YONGNENG
Valuation of non-current assets
(1)
Buildings and constructions (structures)
The buildings and constructions are primarily appraised based on cost approach.
Appraised value = full replacement price ×comprehensive newness rate
1)
Determination of full replacement price of buildings and constructions
Full replacement price = comprehensive construction and installation price +
preliminary and other expenses + capital cost
For large-scale, high-value and significant buildings (structures), their overall
construction and installation prices were determined after computing their
respective civil construction costs and installation charges according to the
quota standards and relevant charging documents implemented locally.
For low-value and simple-structured buildings (structures), their overall
construction and installation prices were determined by using the unilateral cost
method.
Preliminary fees and other expenses are determined according to industry
standards and relevant local regulations on administrative and institutional fees.
The full replacement price was determined after calculating the capital cost
based on the lending interest rate on the valuation base date and the normal
construction period of the type of buildings.
2)
Determination of comprehensive newness rate
(A)
For high-value and important buildings (structures), the newness rate was
determined based on both the surveyed newness rate and the newness
rate over useful life. The formula is as follows:
Comprehensive newness rate = surveyed newness rate ×60% + theoretical
newness rate×40%
– V-8 –
APPENDIX V
SUMMARY OF VALUATION REPORT OF JIANGSU YONGNENG
In which:
Theoretical newness rate (%) = remaining service life/(remaining service
life + the serviced life)×100%
In determining the surveyed newness rate, construction completion
documents of major buildings shall be inspected to learn about the
maintenance and management history, while onsite survey shall be
conducted to evaluate the three parts including structure, decoration and
equipment of the buildings with on-site survey lists filled in and calculate
surveyed newness rate.
(B)
For low-value and simple structured buildings (structures), the newness
rate was determined based on useful life approach with adjustment
according to the specific condition. The formula is as follows:
Newness rate = (service life –serviced life)/service life×100%.
(2)Equipment
Equipment within the scope of valuation includes three major categories: machinery
equipment, transportation equipment and electrical equipment.
The equipment is appraised at the cost approach, according to the valuation purpose
and the principle of sustainable use and based on the market price in combination with
the features of the equipment and the information collected.
Appraised value = full replacement price ×comprehensive newness rate
1)
Machinery equipment
For this valuation, machinery equipment within the scope of valuation including
homemade equipment.
①
Determination of full replacement price
Full replacement price = Purchase price of equipment + freight and
miscellaneous charges + installation and debugging expense + basic
expenses + other expenses + capital cost-VAT
– V-9 –
APPENDIX V
SUMMARY OF VALUATION REPORT OF JIANGSU YONGNENG
(A)
Purchase price of equipment
The purchase price of a homemade equipment was mainly
determined based on the quotation of manufacturers or
trading companies with reference to the Quotation Manual of
Electromechanical Products and the recent contractual price of
similar equipment. For certain equipment the quotation of which
were not available, the price index approach was adopted in
assessing the purchase price.
The purchase price of imported equipment is valued by reference
to the prevailing or recently settled FOB price or CIF price of
comparable imported equipment after verifying the FOB price or
CIF price of the equipment by reviewing and checking the import
contracts and import declaration forms of relevant equipment.
With the prevailing price of the equipment as the base reference of
its valuation, the valuation also take into account of the following
fees or expenses: marine cargo insurance premiums, customs
duties, value-added tax for imported goods, bank fees, handling
fees in relation to foreign trade and inspection fees. In respect of
the imported equipment of which purchase price is not available
upon enquiries, its equipment purchase price is valued by using
the price index method.
(B)
Freight and miscellaneous charges
The charge is calculated on the basis of the purchase price and by
different rates depending on the distance between the manufacturer
and the location of the equipment, the weight, shape and size of
the equipment.
(C)
Installation and debugging charges
The charge is calculated on the basis of the purchase price and by
different rates depending on the features, weights and difficulty in
installation of the equipment.
For small equipment and equipment with no need of installation,
the charge is not considered.
– V-10 –
APPENDIX V
SUMMARY OF VALUATION REPORT OF JIANGSU YONGNENG
(D)
Basic expenses
The basic expenses is calculated by different rates depending on
the features of the equipment on the basis of the purchase price
and with reference to the Methods for Preparation of Estimates
of Construction Projects and Indexes for Estimates issued by the
Ministry of Machinery Industry.
(E)
Other expenses
The other expenses include the administrative expenses,
the expenses for feasibility report and valuation, design
fee, engineering supervision fee, etc. They were calculated
according to the other fee standard of the construction projects in
combination with the features of the equipment on the basis of the
sum of the purchase price, the freight and miscellaneous expenses,
basic expenses and installation and debugging expenses.
(F)
Capital cost
The capital cost was calculated evenly over the construction
period according to the reasonable period of the project and based
on the loan interest rate applicable on the valuation base date.
Capital cost = (purchase price of equipment + freight and
miscellaneous expenses + installation and debugging fee + basic
expenses + other expenses) × loan interest rate × construction
period × 1/2
②
Determination of comprehensive newness rate
Comprehensive newness rate = surveyed newness rate × 0.6 + theoretical
newness rate × 0.4
(A)
Surveyed newness rate
The surveyed newness rate is determined mainly according to
the actual conditions of the equipment, by surveying and scoring
various aspects of the equipment one by one, including technical
conditions and maintenance of the equipment and the work
environment surrounding the equipment.
– V-11 –
APPENDIX V
SUMMARY OF VALUATION REPORT OF JIANGSU YONGNENG
(B)
Theoretical newness rate
Theoretical newness rate is determined by reference to the
economic life (or remaining service life) and the serviced life of
the equipment.
Theoretical newness rate = (economic service life – serviced life)/
economic service life × 100%
For equipment whose serviced life were longer than the economic
service life, the following formula was applied:
Theoretical newness rate = remaining service life/(serviced life +
remaining service life) × 100%
For equipment of lower value with light and simple structure
and normal use, the newness rate was determined at service life
approach based on the serviced life with consideration of its
maintenance condition.
③
Determination of the appraised value
The appraised value of machinery equipment = full replacement price ×
comprehensive newness rate
2)
Valuation of Vehicles
①
Full replacement price of vehicles
The full replacement price of vehicles consists of purchase price
(excluding VAT), taxes in connection with purchase of vehicles and other
reasonable expenses (comprising three parts such as fees of inspecting
the vehicles, license fee and handling fee). The purchase price is valued
by reference to the market price of similar vehicles in latest transactions.
②
Determination of comprehensive newness rate
The comprehensive newness rate is apprised by way of the technically
assessed grading approach in combination with the theoretical newness
rate.
– V-12 –
APPENDIX V
SUMMARY OF VALUATION REPORT OF JIANGSU YONGNENG
③
Determination of the appraised value of vehicles
Appraised value = full replacement price of vehicles × comprehensive
newness rate
3)
Valuation of Electronic Equipment
①
Determination of full replacement price for electronic equipment
Electronic equipment represents mostly office equipment such as
computers, printers and air conditioners. The distributors of the
electronic equipment undertake the delivery and installation of such
equipment. Their replacement cost are valued by direct reference to their
purchase price.
②
Determination of newness rate
For electronic equipment, air conditioners and other small devices, their
comprehensive newness rate is determined mainly according to their
economic service life. For large electronic equipment, when determining
their comprehensive newness rate, the valuers also consider other factors
including the work environment surrounding the equipment and the
operating conditions of the equipment.
③
Determination of appraised value
Appraised value = full replacement price of electronic equipment ×
newness rate
For vehicles and electronic equipment which were purchased a long
time ago, ceased to be produced and have no comparable prices, they are
valued mainly by reference to second-hand transaction prices using the
market approach.
– V-13 –
APPENDIX V
(3)
SUMMARY OF VALUATION REPORT OF JIANGSU YONGNENG
Land use rights
The valuation method adopted in land valuation complies with the requirements and
the application conditions stipulated in the Regulations on the Evaluation of Urban
Land, and is in line with the valuation purpose. The valuation methods adopted in this
valuation were determined pursuant to the Regulations on the Evaluation of Urban
Land and based on the development status of local real estate market, the specific
characteristics of the valuation subject and the valuation purpose. The common
valuation methods include market comparison approach, income capitalization
approach, cost approximation approach, residue approach and benchmark land
premium coefficient correction approach. Based on the on-site survey and analysis by
the valuers, benchmark land premium coefficient correction approach was adopted in
the valuation.
(4)
Other intangible assets
Other intangible assets mainly include patent application fees and the purchased
software.
The appraised value is determined by the valuers based on the verified book value
upon inspection of the relevant original vouchers and investigation and verification
with regard to the reasonability and correctness of the amortization policy.
(5)
Deferred income tax assets
The value of assets and rights still entitled to the appraised entity after the valuation
base date is regarded as the appraised value upon the examination over the books and
original vouchers.
(6)
Other non-current assets
Other non-current assets that fall within the scope of the evaluation are insurance
wealth management products purchased by Jiangsu Yongneng. The valuers ascertained
the authenticity and accuracy of the contract and its amount after reviewing and
checking the purchase contract with the premium, the coverage, profits and other items
as focal points. As such, the appraised value is determined based on the book value in
the evaluation.
– V-14 –
APPENDIX V
SUMMARY OF VALUATION REPORT OF JIANGSU YONGNENG
VII. BASIS OF VALUATION
The basis of economic activities, basis of laws and regulations, basis of valuation standards, basis
of asset ownership and basis of price selection, on which this valuation was conducted, are set out as
follows:
(I)
Basis of economic activities
Meeting Minutes of IRICO Group New Energy Company Limited (General Manager Office
[2016] No.45) (《彩虹集團新能源股份有限公司會議紀要》(總經理辦公[2016]45號)).
(II)
Basis of laws and regulations
1.
Law of the People’s Republic of China on the State-Owned Assets of Enterprises (《中
華人民共和國企業國有資產法》);
2.
Company Law of the People’s Republic of China (《中華人民共和國公司法》);
3.
Securities Law of the People’s Republic of China (《中華人民共和國證券法》);
4.
Property Law of the People’s Republic of China (《中華人民共和國物權法》);
5.
Urban Real Estate Administration Law of the People’s Republic of China (《中華人
民共和國城市房地產管理法》);
6.
Enterprise Income Tax Law of the People’s Republic of China (《中華人民共和國企
業所得稅法》);
7.
Regulations for the Implementation of the Land Administration Law of the People’s
Republic of China (《中華人民共和國土地管理法實施條例》);
8.
Provisional Regulations on Urban Land Use Tax of the People’s Republic of
China(《中華人民共和國城鎮土地使用稅暫行條例》);
9.
Regulations for the Implementation of the Enterprise Income Tax Law of the People’s
Republic of China (《中華人民共和國企業所得稅法實施條例》);
10.
Provisional Regulations on Value-added Tax of the People’s Republic of China (《中
華人民共和國增值稅暫行條例》);
– V-15 –
APPENDIX V
SUMMARY OF VALUATION REPORT OF JIANGSU YONGNENG
11.
Regulations for the Implementation of the Provisional Regulations on Value-added
Tax of the People’s Republic of China (《中華人民共和國增值稅暫行條例實施細
則》);
12.
Asset Appraisal Law of the People’s Republic of China (《中華人民共和國資產評估
法》);
13.
Other relevant laws and regulations.
(III) Basis of valuation standards
1.
Asset Valuation Standards – Basic Standards (Cai Qi [2004] No. 20) (《資產評估準
則－基本準則》(財企[2004]20號));
2.
Asset Valuation Professional Ethical Standards – Basic Standards (Cai Qi [2004] No.
20) (《資產評估職業道德準則－基本準則》(財企[2004]20號));
3.
Asset Valuation Professional Ethical Standards – Independence (Zhong Ping Xie [2012]
No. 248) (《資產評估職業道德準則－獨立性》(中評協[2012]248號));
4.
Asset Valuation Standards – Valuation Report (Zhong Ping Xie [2007] No. 189) (《資
產評估準則－評估報告》(中評協[2007]189號));
5.
Asset Valuation Standards – Valuation Procedure (Zhong Ping Xie [2007] No. 189)
(《資產評估準則－評估程序》(中評協[2007]189號));
6.
Asset Valuation Standards – Valuation Entrustment Contract (Zhong Ping Xie [2007]
No. 189) (《資產評估準則－評估委託合同》(中評協[2007]189號));
7.
Asset Valuation Standards – Real Estate (Zhong Ping Xie [2007] No. 189) (《資產評
估準則－不動產》(中評協[2007]189號));
8.
Asset Valuation Standards – Machinery & Equipment (Zhong Ping Xie [2007] No.
189) (《資產評估準則－機器設備》(中評協[2007]189號));
9.
Asset Valuation Standards – Intangible Assets (Zhong Ping Xie [2008] No. 217) (《資
產評估準則－無形資產》(中評協[2008]217號));
10.
Asset Valuation Standards – Enterprise Value (Zhong Ping Xie [2011] No. 227) (《資
產評估準則－企業價值》(中評協[2011]227號));
– V-16 –
APPENDIX V
SUMMARY OF VALUATION REPORT OF JIANGSU YONGNENG
(IV) Basis of asset ownership
1.
Land use right certificate;
2.
Property ownership certificate;
3.
Motor vehicles license and registration certificate;
4.
Contracts and invoices for acquisition of major equipment as well as relevant
agreements, contracts and other documents;
5.
(V)
Other ownership documents.
Basis for price selection in the valuation
1.
The asset valuation declaration form and income forecast statement provided by the
appraised entities;
2.
Relevant construction budget and final account information provided by the enterprise;
3.
Financial statements and audit reports provided by the enterprise;
4.
Other relevant valuation information recorded and collected by valuers from on-site
survey;
5.
The primal accounting statements, information in the aspect of financial accounting
management, as well as financial information including the relevant agreements,
contracts and invoices which are provided by the appraised entities;
6.
The statistics, technical standards information as well as price information and data
released by the State’s relevant departments, together with the relevant price inquiry
information and price determination parameter data collected by our company.
– V-17 –
APPENDIX V
SUMMARY OF VALUATION REPORT OF JIANGSU YONGNENG
VIII. VALUATION CONCLUSION
Valuation conclusion based on the asset-based approach
Under the going concern assumption as at the valuation base date, the book value and the
appraised value of total assets of Jiangsu Yongneng were RMB958,627,300 and RMB963,845,400,
respectively, representing an appreciation of RMB5,218,100 or 0.54%; the book value and the
appraised value of its liabilities were RMB873,397,600 and RMB873,397,600, respectively, without
any movements; and the book value and the appraised value of its net assets were RMB85,229,700
and RMB90,447,800, respectively, representing an appreciation of RMB5,218,100 or 6.12%.
Summary of Asset Valuation Results
Unit: RMB0,000
Appraised Appreciation/
Item
Book value
value
depreciation
Appreciation
rate
%
Current assets
82,092.97
82,312.35
219.38
0.27
Non-current assets
13,769.76
14,072.19
302.43
2.20
–
–
–
–
–
–
12,318.90
12,150.48
-168.42
–
–
–
Intangible assets
1,226.50
1,697.35
470.85
38.39
Land use right
1,224.33
1,695.17
470.84
38.46
224.36
224.36
–
–
Total assets
95,862.73
96,384.54
521.81
0.54
Current liabilities
87,339.76
87,339.76
–
–
–
–
–
87,339.76
87,339.76
–
–
8,522.97
9,044.78
521.81
6.12
Including: Long-term equity
investments
Investment properties
Fixed assets
-1.37
Construction in
progress
Others
Non-current liabilities
Total liabilities
Net assets
– V-18 –
APPENDIX V
IX.
SUMMARY OF VALUATION REPORT OF JIANGSU YONGNENG
NOTES ON SPECIAL ISSUES
The following issues are beyond the practicing standards and capabilities that can be estimated
by the Company’s registered appraisal staff, but these issues may actually have impacts on the
valuation conclusion. Users of this valuation report should pay particular attention to:
(I)
The “appraised value” referred to herein is a fair valuation presented for the purpose set out
expressly herein on the assumption that the assets entrusted for evaluation maintain their
uses on a going concern basis with conditions and external economic environments on the
valuation base date, which shall bear no liability for any other purposes.
(II)
The valuation conclusion in the report reflects the market value of the evaluation objects for
the purpose of the report on the basis of an open market, and does not include any fees or
taxes that shall be borne in the ownership registration or change of relevant assets or makes
no tax adjustments for the value addition of the assets evaluation. The valuation conclusion
shall be deemed as a guaranteed realizable price of evaluation objects.
(III) Premiums or discounts caused by factors such as controlling interest and minority interest
have not been taken into consideration in this valuation, nor has the effect of the liquidity of
the equity interest entrusted for evaluation.
(IV) Where there are any changes in the number of assets and price standards within the effective
term after the valuation base date and up to 30 December 2017, proper adjustments shall be
made to the valuation conclusion instead of direct utilization.
We hereby request users of this report to pay due attention to possible effects of the aforesaid
special issues on the valuation conclusion.
Beijing Pan-China Assets Appraisal Co., Ltd.
Certified Valuers: Wen Lizhi, Liu Yankun
20 March 2017
Contact method for Beijing Pan-China Assets Appraisal Co., Ltd.:
Address: 23F, Yuetan Building, No. 2, Yuetan North Street, Beijing
Telephone number: (8610) 6808 3855
Fax: (8610) 6808 1109
– V-19 –
APPENDIX VI
1.
GENERAL INFORMATION
RESPONSIBILITY STATEMENT
This circular, for which the Directors collectively and individually accept full responsibility,
includes particulars given in compliance with the Listing Rules for the purpose of giving
information with regard to the Company. The Directors, having made all reasonable enquiries,
confirm that to the best of their knowledge and belief the information contained in this circular is
accurate and complete in all material respects and not misleading or deceptive, and there are no
other matters the omission of which would make any statement herein or this circular misleading.
2.
DISCLOSURE OF INTERESTS
(a)
Interests and Short Positions of Directors, Supervisors, Chief Executive and Senior
Management
As at the Latest Practicable Date, none of the Directors, Supervisors, chief executives or
senior management members of the Company and their respective associates had any interest
or short position in the shares, underlying shares and/or debentures (as the case may be) of
the Company and/or any of its associated corporations (within the meaning of Part XV of the
SFO) which was (a) required to be notified to the Company and the Stock Exchange pursuant
to Divisions 7 and 8 of Part XV of the SFO (including any interest and short position which
any such Director, Supervisor, chief executive or member of senior management was taken
or deemed to have under such provisions of the SFO); (b) required to be recorded in the
register of interests required to be kept by the Company pursuant to section 352 of the SFO;
or (c) otherwise required to be notified to the Company and the Stock Exchange pursuant to
the Model Code for Securities Transactions by Directors of Listed Companies as set out in
Appendix 10 to the Listing Rules in force as at the Latest Practicable Date.
Mr. Si Yuncong and Mr. Huang Mingyan act as the Directors of the Company. Mr. Si
Yuncong concurrently acts as the general manager of IRICO Group and Mr. Huang Mingyan
concurrently acts as the deputy general manager of IRICO Group. Mr. Ding Wenhui acts
as the supervisor and the chairman of the supervisory committee of the Company, and he
concurrently serves as the deputy secretary of the Chinese Communist Party, the deputy
secretary of discipline inspection commission and the chairman of the employee union of
IRICO Group.
Save as disclosed above, as at the Latest Practicable Date, none of the Directors was a
director or employee of a company which had an interest or short position in the shares and
underlying shares of the Company which would fall to be disclosed to the Company under
the provisions of Divisions 2 and 3 of Part XV of the SFO.
– VI-1 –
APPENDIX VI
3.
GENERAL INFORMATION
COMPETING INTERESTS
As at the Latest Practicable Date, none of the Directors or, so far as is known to them, any of their
respective close associates (as defined in the Listing Rules) was interested in any business (apart
from the Group’s business) which competes or is likely to compete either directly or indirectly with
the Group’s business (as would be required to be disclosed under Rule 8.10 of the Listing Rules as
if each of them were a controlling Shareholder).
4.
INTERESTS IN THE ENLARGED GROUP’S ASSETS OR CONTRACTS OR
ARRANGEMENTS SIGNIFICANT TO THE ENLARGED GROUP
As at the Latest Practicable Date, none of the Directors or Supervisors had any interest in any assets
which have been, since 31 December 2016 (being the date to which the latest published audited
accounts of the Company were made up), acquired or disposed of by or leased to any member of the
Enlarged Group, or are proposed to be acquired or disposed of by or leased to any member of the
Enlarged Group.
As at the Latest Practicable Date, none of the Directors or Supervisors was materially interested in
any contract or arrangement, subsisting at the date of this circular, which is significant in relation to
the business of the Enlarged Group.
5.
CONSENT AND QUALIFICATION OF EXPERTS
(a)
The following are the qualifications of the experts who have given an opinion or advice
which is contained in this circular:
(b)
Name
Qualification
PKF
Certified public accountants
Beijing Pan-China
Independent valuer qualified in the PRC
As at the Latest Practicable Date, the above experts did not have any shareholding directly
or indirectly in any member of the Group or any right, whether legally enforceable or not, to
subscribe for or to nominate persons to subscribe for securities in any member of the Group
and it had no interest, either directly or indirectly, in any assets which have been, since the
date to which the latest published audited financial statements of the Company were made
up, acquired or disposed of by or leased to or are proposed to be acquired or disposed of by
or leased to any member of the Group.
– VI-2 –
APPENDIX VI
(c)
GENERAL INFORMATION
On the Latest Practicable Date, each of the above experts has given and has not withdrawn
its written consent to the issue of this circular with the inclusion herein of its report and
reference to its name and letter, where applicable, in the form and context in which it
appears.
6.
SERVICE CONTRACTS
As at the Latest Practicable Date, none of the Directors or Supervisors had any existing or
proposed service contract with any member of the Enlarged Group (excluding contracts expiring
or terminable by the employer within a year without payment of any compensation (other than
statutory compensation)).
7.
MATERIAL ADVERSE CHANGE
As the Latest Practicable Date, the Directors were not aware of any material adverse change in the
financial or trading position of the Group since 31 December 2016, the date to which the latest
published audited consolidated financial statements of the Group were made up.
8.
MATERIAL LITIGATION
As at the Latest Practicable Date, the Company is not engaged in any litigation or claims of material
importance and, so far as the Directors are aware, no litigation or claims of material importance is
pending or threatened against any member of the Enlarged Group.
9.
MATERIAL CONTRACTS
The following contracts have been entered into by members of the Enlarged Group (not being
contract entered into in the ordinary course of business) within two years immediately preceding the
date of this circular which are or may be material:
(a)
the Equity Acquisition Variation Agreement;
(b)
the equity transfer agreement dated 28 February 2017 entered into between the Company,
Xianyang IRICO Electronics Shadow Mask Co., Ltd.* (咸陽彩虹電子網版有限公司)
(“IRICO Shadow Mask”) and Xianyang Zhongdian IRICO Group Holdings Ltd.* (咸陽中電
彩虹集團控股有限公司) (“Zhongdian IRICO”), pursuant to which the Company and IRICO
Shadow Mask agreed to sell, and Zhongdian IRICO agreed to acquire 90% equity interest
in Kunshan IRICO Industry Co., Ltd.* (昆山彩虹實業有限公司) at a cash consideration of
approximately RMB71,440,000;
– VI-3 –
APPENDIX VI
(c)
GENERAL INFORMATION
the assets transfer agreement dated 28 December 2016 entered into between the Company
and Zhongdian IRICO, pursuant to which the Company agreed to transfer the relevant
assets of the operation department of special railway lines to Zhongdian IRICO at a cash
consideration of approximately RMB4,658,000;
(d)
the assignment agreement dated 28 September 2016 entered into between the Company and
CEC, pursuant to which the Company agreed to transfer the relevant accounts receivable to
CEC at a cash consideration of approximately RMB36,199,000; and
(e)
the equity transfer agreement dated 9 May 2016 entered into between the Company and
Zhongdian IRICO, pursuant to which the Company agreed to sell, and Zhongdian IRICO
agreed to acquire, 60% equity interest in Xianyang IRICO Electronics Accessories Co., Ltd.*
(咸陽彩虹電子配件有限公司) at a cash consideration of approximately RMB45,946,000.
10.MISCELLANEOUS
(a)
The English language text of this circular shall prevail over the Chinese language text.
(b)
Mr. Chu Xiaohang is the company secretary of the Company. He is responsible for the
securities management, legal matters and investor relations of the Company. Mr. Chu joined
the Group in July 1991. Mr. Chu graduated from Northwest University with a bachelor’s
degree in computer science and is a senior engineer. He obtained a master’s degree in project
management from the Graduate School of Chinese Academy of Sciences. He served as a
senior project management engineer in the strategic planning department of IRICO Group
and head of the office of the Board of the Company. He acted as our joint company secretary
of the Company from November 2009 to November 2012. On 20 November 2012, he was
appointed as the sole company secretary of the Company.
11.
DOCUMENTS FOR INSPECTION
Copy of the following documents will be available for inspection during normal business hours
at the Company’s principal place of business in Hong Kong at 6/F, Nexxus Building, No. 41
Connaught Road, Central, Hong Kong for a period of 14 days from the date of this circular:
(a)
the existing articles of association of the Company;
(b)
the financial information of the Target Group from PKF, the text of which is set out in
Appendix II to this circular;
– VI-4 –
APPENDIX VI
(c)
GENERAL INFORMATION
the report from PKF on the unaudited pro forma financial information of the Enlarged Group,
the text of which is set out in Appendix IV to this circular;
(d)
the valuation report of Jiangsu Yongneng from Beijing Pan-China, the summary of which is
set out in Appendix V to this circular;
(e)
the written consent referred to in the section headed “Consent and Qualification of Experts”
in this appendix;
(f)
the annual reports of the Group for each of the two years ended 31 December 2015 and 2016;
(g)
the material contracts referred to in the section headed “Material Contracts” in this appendix;
(h)
the circular of the Company dated 3 April 2017; and
(i)
this circular.
– VI-5 –