Offering of 1,200,000 ordinary bearer shares
This is an initial public offering of 1,200,000 new shares (the “New Shares”) in Fenghua SoleTech AG (the
“Company” or “Fenghua SoleTech AG” and collectively with its direct and indirect subsidiaries, “Fenghua”
or the “Fenghua Group”) (the “Offering”).
The Offering consists of public offerings in Germany and Poland and private placements to institutional
investors outside Germany, Poland and the United States. The shares have not been and will not be registered under the U.S. Securities Act of 1933, as amended, and are only being offered and sold outside the
United States in reliance on Regulation S under the Securities Act. For a description of restrictions on
offers, sales and transfers of the shares and the distribution of this prospectus in other jurisdictions, see:
“Underwriting – Selling and Transfer Restrictions”.
Prior to the Offering, there has been no public market for the shares. Fenghua SoleTech AG intends to apply for
admission of all of its up to 11,200,000 shares (including the New Shares) to trading on the regulated market
(Regulierter Markt) of the Frankfurt Stock Exchange (General Standard) as well as for the simultaneous admission to trading in the regulated market (Parallel Market) of the Warsaw Stock Exchange.
See: “Risk Factors” for factors that should be considered before purchasing shares.
The price range within which purchase orders may be submitted is between EUR 10.00 and EUR 12.00 per New
Share. The offer period commences on 17 October 2014 and ends on 23 October 2014.
Delivery of the shares is expected to take place on 7 November 2014 through the book-entry facilities of Clearstream Banking AG, against payment for the shares in immediately available funds.
This document constitutes a prospectus for the purposes of the public offerings in Germany and Poland
and the listing of the shares on the regulated market (Regulierter Markt) of the Frankfurt Stock Exchange
(the “Prospectus”) as well as for the simultaneous admission to trading in the regulated market (Parallel
Market) of the Warsaw Stock Exchange.
This Prospectus has been prepared in the English language with a German-language summary in accordance
with Commission Regulation (EC) No 809/2004 of 29 April 2004 and Commission Delegated Regulation (EU)
No 486/2012 of 30 March 2012 amending Regulation (EC) No 809/2004 and conforms to the requirements of
the German Securities Prospectus Act (Wertpapierprospektgesetz). This Prospectus has been approved by the
German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – “BaFin”)
after a review for completeness of the Prospectus, including a review for coherence and comprehensibility of the
presented information, according to Section 13, paragraph 1 of the German Securities Prospectus Act, and notified to the Polish Financial Supervisory Authority (Komisja Nadzoru Finansowego – “KNF”) in accordance
with Section 18, paragraph 1 of the German Securities Prospectus Act and the European passport mechanism set
out in the Prospectus Directive (No 2003/71/EC).
Joint Global Coordinators, Joint Bookrunners and Joint Lead Managers
ACON Actienbank AG, Dom Maklerski DF Capital Sp. z o.o.
Prospectus dated: 10 October 2014
Table of Contents
SUMMARY OF THE PROSPECTUS .............................................................. 1
Section A – Introduction and Warnings ....................................................................... 1
Section B – Issuer ............................................................................................................ 2
Section C – Securities ...................................................................................................... 8
Section D – Risks ........................................................................................................... 10
Section E – Offer ........................................................................................................... 14
ZUSAMMENFASSUNG DES PROSPEKTS................................................. 19
Abschnitt A – Einführung und Warnhinweise ........................................................... 19
Abschnitt B – Emittent ................................................................................................. 20
Abschnitt C – Wertpapiere .......................................................................................... 26
Abschnitt D – Risiken ................................................................................................... 28
Abschnitt E – Angebot .................................................................................................. 32
RISK FACTORS ............................................................................................... 38
Risks Related to Fenghua's Business ........................................................................... 38
Risks Related to the Political, Social and Legal Environment of the People's
Republic of China.......................................................................................................... 48
Risks Related to the Offering ....................................................................................... 51
Risks Related to the Offering in Poland ...................................................................... 53
GENERAL INFORMATION .......................................................................... 56
Responsibility for the Contents of the Prospectus ..................................................... 56
Subject Matter of this Prospectus ................................................................................ 56
Forward-Looking Statements ...................................................................................... 56
Information Derived from Third Parties .................................................................... 57
Documents Available for Inspection ........................................................................... 57
Notes Regarding Financial and Currency Data ......................................................... 57
Auditors.......................................................................................................................... 58
THE OFFERING .............................................................................................. 59
Subject Matter of the Offering..................................................................................... 59
Timetable for the Offering ........................................................................................... 59
Price Range, Offer Period, Offer Price, and Allotment............................................. 60
General Allotment Criteria .......................................................................................... 61
Delivery and Settlement of the New Shares ................................................................ 61
General and Specific Information on the Shares ....................................................... 61
Market Protection Agreement/Selling Restrictions (Lock-up) ................................. 62
Admission for Trading and Listing of Shares ............................................................ 63
Designated Sponsor ....................................................................................................... 63
REASONS FOR THE OFFERING, USE OF PROCEEDS, COSTS AND
INTERESTS OF THIRD PARTIES INVOLVED IN THE OFFERING ... 64
Reasons for the Offering............................................................................................... 64
Use of Proceeds and Costs ............................................................................................ 64
Interests of Third Parties Involved in the Offering ................................................... 64
DIVIDEND POLICY AND EARNINGS PER SHARE ................................ 66
Dividend Rights and Dividend Policy .......................................................................... 66
Earnings per Share ....................................................................................................... 67
CAPITALISATION AND INDEBTEDNESS ................................................ 68
DILUTION ......................................................................................................... 70
I
SELECTED FINANCIAL INFORMATION ................................................. 71
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION ........................................ 74
Overview ........................................................................................................................ 74
Key Factors affecting Results of Operations .............................................................. 75
Results of Operations .................................................................................................... 77
Balance Sheet Data ........................................................................................................ 84
Liquidity ......................................................................................................................... 88
Future Commitments .................................................................................................... 90
Contingent Liabilities ................................................................................................... 90
Off-Balance Sheet and other Arrangements............................................................... 90
Critical Accounting Policies and Estimation Uncertainties ...................................... 90
INDUSTRY OVERVIEW ................................................................................ 92
Overview of the Chinese Economy .............................................................................. 92
China Adult Footwear Market .................................................................................... 93
China Adult Sports Footwear Market ........................................................................ 95
China Adult Shoe Sole Market .................................................................................... 96
China Adult Sports Shoe Sole Market ........................................................................ 97
Competition and Competitors ...................................................................................... 99
BUSINESS........................................................................................................ 102
Overview ...................................................................................................................... 102
Strengths ...................................................................................................................... 102
Strategy ........................................................................................................................ 104
Products ....................................................................................................................... 105
Production .................................................................................................................... 106
Supply and Outsourcing ............................................................................................. 109
Distribution and Marketing ....................................................................................... 110
Customers .................................................................................................................... 111
Design/R&D ................................................................................................................. 112
Business Locations, Property, Plant and Equipment .............................................. 112
Intellectual Property ................................................................................................... 115
Employees .................................................................................................................... 116
Insurance...................................................................................................................... 117
Investments .................................................................................................................. 117
Material Agreements .................................................................................................. 117
Legal and Arbitration Proceedings ........................................................................... 117
REGULATORY ENVIRONMENT .............................................................. 118
PRC Company Law .................................................................................................... 118
Laws and Regulations Relating to Foreign Investment ........................................... 119
Patent and Trademark Protection ............................................................................. 122
Anti-unfair Competition Law .................................................................................... 126
Product Quality Law .................................................................................................. 126
Consumer Protection Law.......................................................................................... 126
Laws and Regulations Relating to PRC System ....................................................... 127
Laws and Regulations Relating to Expansion of Production Capacity ................. 128
Laws and Regulations Relating to Discharge of Waste ........................................... 128
Laws and Regulations Relating to Employment ...................................................... 128
Laws and Regulations Relating to Production Safety ............................................. 130
PRC Tax Laws ............................................................................................................. 130
II
SHAREHOLDER STRUCTURE (PRIOR TO THE OFFERING AND
UPON COMPLETION OF THE OFFERING) ........................................... 132
GENERAL INFORMATION ON THE COMPANY .................................. 133
Formation, Business Name, Legal Seat, Financial Year and Term of the
Company ...................................................................................................................... 133
Business Purpose of the Company ............................................................................. 133
Notices, Paying and Depositary Agent ...................................................................... 134
Group Structure and Corporate Developments ....................................................... 134
INFORMATION ON THE SHARE CAPITAL OF THE COMPANY
AND APPLICABLE PROVISIONS ............................................................. 137
Share Capital and Shares ........................................................................................... 137
Authorised Share Capital ........................................................................................... 137
General Provisions Relating to Profit Allocation and Dividend Payments ........... 138
General Provisions Relating to a Liquidation of the Company .............................. 138
General Provisions Governing Changes in Share Capital ...................................... 139
General Provisions Relating to Pre-Emptive Rights................................................ 139
Reporting and Notification Requirements in Relation to Share Ownerships ....... 139
Public Takeovers ......................................................................................................... 141
Squeeze-Out of Minority Shareholders and Integration ......................................... 142
CORPORATE BODIES AND MANAGEMENT ........................................ 144
Management Board ..................................................................................................... 145
Supervisory Board ...................................................................................................... 147
Certain Information on the Members of the Management Board and
Supervisory Board ...................................................................................................... 150
General Shareholders' Meeting ................................................................................. 150
Corporate Governance ............................................................................................... 151
RELATED PARTY TRANSACTIONS ........................................................ 153
Credit Guarantees ....................................................................................................... 153
Transfer of Equity Interests in Jinjiang Fenghua .................................................... 154
Transactions between Jinjiang Fenghua and Jinjiang Yingchao Shoe Materials
Co., Ltd......................................................................................................................... 154
Guarantee Relating to Social Security and Housing Fund Payments .................... 155
Guarantee Relating to Insurance............................................................................... 155
TAXATION IN GERMANY .......................................................................... 156
Taxation of the Company ........................................................................................... 156
Taxation of Shareholders ........................................................................................... 157
Taxation of Dividends ................................................................................................. 157
Taxation of Capital Gains .......................................................................................... 160
Inheritance and Gift Tax ............................................................................................ 162
Other Taxes ................................................................................................................. 162
TAXATION IN POLAND .............................................................................. 163
Taxation of Shareholders ........................................................................................... 163
Taxation of Dividends ................................................................................................. 163
Taxation of Capital Gains .......................................................................................... 164
Tax on Civil Law Actions (“TCLA”) ........................................................................ 165
UNDERWRITING .......................................................................................... 166
Underwriting Agreement............................................................................................ 166
Commissions ................................................................................................................ 166
III
Termination/Indemnity .............................................................................................. 166
Other Relationships .................................................................................................... 167
Selling and Transfer Restrictions .............................................................................. 167
RECENT DEVELOPMENTS AND OUTLOOK ........................................ O-1
FINANCIAL SECTION ..................................................................................F-1
GLOSSARY ..................................................................................................... G-1
SIGNATURES .................................................................................................. S-1
IV
SUMMARY OF THE PROSPECTUS
Summaries are made up of disclosure requirements known as “Elements”. These elements are numbered in
Sections A -E (A.1 – E.7). This summary contains all the Elements required to be included in a summary for this
type of securities and issuer. Because some Elements are not required to be addressed, there may be gaps in the
numbering sequence of the Elements.
Even though an Element may be required to be inserted in the summary because of the type of securities and
issuer, it is possible that no relevant information can be given regarding the Element. In this case a short description of the Element is included in the summary with the mention of “not applicable”.
Section A – Introduction and Warnings
A. 1
A.2
Warnings
Consent to use the prospectus
for a subsequent resale or final
placement of shares by financial
intermediaries
Warning that:

this Summary should be read as an introduction to this prospectus (“Prospectus”);

any decision to invest in the securities should be based on
consideration of the Prospectus as a whole by the investor;

where a claim relating to the information contained in the
Prospectus is brought before a court, the plaintiff investor
might, under the national legislation of the respective member states of the European Economic Area, have to bear the
costs of translating the Prospectus before the legal proceedings are initiated.

Fenghua SoleTech AG, Frankfurt, Germany (the “Company” or “Fenghua SoleTech AG”, and collectively with its
direct and indirect subsidiaries “Fenghua” or the “Fenghua
Group”), ACON ACTIENBANK AG, München, Germany
(“ACON” or the “Underwriter”) and Dom Maklerski DF
Capital Sp. z o.o. (“DF Capital”, ACON and DF Capital
the “Joint Global Coordinators” or the “Joint Lead Managers”) assume responsibility for the contents of this summary pursuant to Section 5 (2b) No.4 of the German Securities Prospectus Act (Wertpapierprospektgesetz) including its
translation contained in this Prospectus. With regard to the
content of this summary including its translation, civil liability attaches to those persons who are responsible for the
preparation of the summary or for the issuance, but only if
the summary is misleading, inaccurate or inconsistent when
read together with the other parts of the Prospectus or if it
does not provide, when read together with the other parts of
the Prospectus, all necessary key information.
Not applicable. Consent of the Company regarding the use of the
prospectus for a subsequent resale or final placement of securities
by financial intermediaries has not been granted.
1
Section B – Issuer
B.1
Legal and commercial name of
the Issuer
Fenghua SoleTech AG
B.2
Domicile, legal form, legislation, country of incorporation
Frankfurt am Main, Germany.
Description of, and key factors
relating to, the nature of the
issuer’s current operations and
principal activities, stating the
main categories of products
sold and/or services performed
and identification of the principal markets in which the issuer
competes
Fenghua is a modern technology driven Chinese producer of shoe
soles founded in 2004. Fenghua's operations include the processing
of raw materials such as natural or artificial rubber (“RB”) or ethylene vinyl acetate (“EVA”) materials, the manufacturing of thermoplastic rubber (“TPR”) and EVA compound pellets as well as
the production of thermoplastic elastomer (“TPE”), polyurethane
(“PU”) or thermoplastic polyurethane (“TPE-U” or “TPU”), all of
which is used for various components of shoe soles. The soles
manufactured by Fenghua are designed for performance sports
shoes as well as for leisure and casual sports-inspired shoes targeting shoe producers mainly for mid to high-end shoes for Chinese
and international brands. All soles are produced at Fenghua's own
factory or by its contract manufacturers in the region of Jinjiang
which is one of the leading centres for shoes and shoe accessories
in China.
B.3
The Company is a German stock corporation (Aktiengesellschaft)
organised under the laws of the Federal Republic of Germany
which was founded by way of notarised deed of formation (Gründungsurkunde) on 22 July 2014 and incorporated by registration in
the commercial register of the local court (Amtsgericht) of Frankfurt am Main on 2 October 2014.
Fenghua produces more than 40 million pairs of shoe soles per year
with currently six production lines in EVA model one (“EVA MD
1”), 14 in EVA model two (“EVA MD 2”) and eight for RB versions. The soles are distributed through Fenghua's own sales network to producers of shoes for local and international brands and to
local distributers.
Fenghua's own research and development (“R&D”) department
constantly seeks to improve the manufacturing process. By focussing on R&D, Fenghua is able to also offer an own range of products to be manufactured as original design manufacturing
(“ODM”) as compared to other competitors producing only soles
under their customers design prerequisites as original equipment
manufacturing (“OEM”). For its ODM soles, Fenghua develops its
own prototypes and has registered 8 utility models for such prototypes.
Fenghua's revenues increased from EUR 59,218 thousand in 2011
to EUR 83,581 thousand in 2012, and further to EUR 90,056 thousand in 2013, representing a compound annual growth rate
(“CAGR”) of 23.3 %. Fenghua's net profits increased from
EUR 11,710 thousand in 2011 to EUR 15,489 thousand in 2012,
and further to EUR 18,750 thousand in 2013, representing a
CAGR of 26.5 %. Fenghua's revenues increased from EUR 37,407
thousand in the first six months of 2013 to EUR 42,467 thousand
in the first six months of 2014. Fenghua's net profits increased
from EUR 7,859 thousand in the first six months of 2013 to
EUR 9,547 thousand in the first six months of 2014. As at 30 June
2
2014, Fenghua had 1,822 employees.
Fenghua believes that the following competitive strengths are the
main drivers of its future growth:

Fenghua has an optimised production process with advanced production equipments.

Fenghua is located in a favourable geographic location: the
Quanzhou shoe industry centre.

Fenghua has strong design and development capabilities.

Fenghua is a one-stop supply centre for shoe soles.

Fenghua has an experienced management team.
Fenghua is pursuing the following strategic objectives:
B.4a
Description of the most significant recent trends affecting the
issuer and the industries in
which it operates

Fenghua strives to increase its production capacity to benefit from economies of scale and satisfy strong demand.

Fenghua plans to increase design and development capabilities to create added value.

Fenghua targets higher-value brands with better prospects.

Fenghua intends to strengthen sales and marketing channels.
Leading players of the adult sports shoe sole manufacturing industry in China have accumulated a large amount of capital as a consequence of the market development. Furthermore, some of these
players have tapped into the footwear manufacturing industry by
establishing their own brands, or acquiring existing brands. In
addition to such downward integration, some industry players have
started an upward integration by producing EVA pellets which are
necessary to produce EVA MD 1 or EVA MD 2 shoe soles in an
attempt to lowering production costs and guarantee a constant
quality while reducing the dependency from third party suppliers
(Source: Adult Shoe Sole Market in Mainland China. Euromonitor
International (the “Report”)).
Another trend is the increasing efforts in terms of R&D. After
years of OEM manufacturing, evermore industry players start with
the accumulated capital to invest in own R&D in order to produce
own specific products and designs (as ODM). This has also increased the general competitiveness of such companies as it also
allows for a better quality control and an increased added value of
the products so manufactured (Source: Report).
B.5
Description of the issuer’s position within the group
As at the date of this Prospectus, the Company holds 100 % of the
shares of Hong Kong Mou Lung Holding Company Ltd.
(“Fenghua Hong Kong”), a company incorporated under Hong
Kong law which acts as intermediate holding company and holds
100 % of the equity interests in Fujian Maolong Shoe Materials
Co. Ltd. (“Fenghua Fujian”), a company incorporated in the PRC
acting as intermediate holding company which in turn holds 100 %
of the shares of Jinjiang Fenghua Shoe Material Co. Ltd.
(“Fenghua Jinjiang”), a company incorporated in the PRC. The
operative business of Fenghua is being carried out by Fenghua
Jinjiang.
3
B.6
Person holding a direct or indirect interest in the Issuer’s
capital or voting rights which is
notifiable under the Issuer national law, together with the
amount of each such person’s
interest.
The following table provides an overview of the shareholding
structure and the participation of the shareholders in the share capital of the Company prior to the Offering and upon completion of
the Offering.
Name of
shareholder
Capital Mobilier Inc1
Ordinary
bearer
shares
in %
Ordinary
bearer shares
upon completion of the
Offering
in %
6,750,000
67.500
6,750,000
60.27
487,500
4.875
487,500
4.35
475,000
4.750
475,000
4.24
498,750
4.988
498,750
4.45
407,500
4.075
407,500
3.64
450,000
4.500
450,000
4.02
481,250
4.813
481,250
4.30
450,000
4.500
450,000
4.02
0
0
1,200,000
10.71
10,000,000
100
11,200,000
100
Commerce
Union (Malta)
Investment
Ltd.2
Midasi (Malta)
Investment
Ltd.
3
LGT Capital
(Malta) Ltd.4
Financier Inc.5
Rosy Frontier
Investments
Ltd.6
Mr. Thomas
Tan Hock Nie7
Ms. Yeap Soon
Mooi8
Free Float
Total
1
Capital Mobilier Inc. (“CMI”), a company incorporated in Anguilla under register no. 2261732 with the Registrar of Companies of Anguilla,
whose registered address is Intertrust Building, The Valley, Anguilla,
British West Indies and whose ultimate shareholder is Mr. Weijie Lin, a
Philippine national and Chinese resident, the company's CEO, a related
party.
2
Commerce Union (Malta) Investment Ltd. (“CUM”), a company incorporated in Malta under register no. C65267 with the Registrar of Companies of Malta, whose registered address is 260, Triq San Albert, Gzira,
Malta and whose ultimate shareholder is Mr. Shize Lin, a Chinese national and resident, a related party.
3
Midasi (Malta) Investment Ltd. (“MMI”), a company incorporated in
Malta under register no. C65268 with the Registrar of Companies of
Malta, whose registered address is 260, Triq San Albert, Gzira, Malta
and whose ultimate shareholder is Mr. Yuzhu Ye, a Chinese national and
resident.
4
LGT Capital (Malta) Ltd. (“LGT”), a company incorporated in Malta
under register no. C65097 with the Registrar of Companies of Malta,
whose registered address is 260, Triq San Albert, Gzira, Malta and
whose ultimate shareholder is Ms. Lim Geok Tin, a Singaporean national
and resident.
5
Financier Inc. (“FI”), a company incorporated in Anguilla under register
no. 2260225 with the Registrar of Companies of Anguilla, whose registered address is Intertrust Building, The Valley, Anguilla, British West
Indies and whose ultimate shareholder is Ms. Nor Fazlina Binti Mohd
4
Ghouse, a Malaysian national and resident.
6
Rosy Frontier Investments Ltd. (“RFI”) a company incorporated in the
British Virgin Islands under register no. 1818330 with the Registrar of
Corporate Affairs of the British Virgin Islands, whose registered address
is P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola,
British Virgin Islands and whose ultimate shareholder is Ms. Jingrong
Zhuang, a Chinese national and resident.
7
Mr. Thomas Tan Hock Nieh (“Mr. Tan”) is a Malaysian national and
resident.
8
Ms. Yeap Soon Mooi (“Ms. Yeap”) a Malaysian national and resident.
CMI, CUM, MMI, LGT, FI, RFI, Mr. Tan and Ms Yeap are together referred
to as the “Founding Shareholders” and each a “Founding Shareholder”.
Upon completion of the Offering, Capital Mobilier Inc. will continue to hold at least 60.27 % of the Company's share capital (assuming placement of all New Shares and therefore will continue to
have control over the Company.
B.7
Whether the Issuer’s major
shareholders have different
voting rights if any
Founding Shareholders of the Company do not have different voting rights.
Whether the Issuer is directly
or indirectly owned or controlled and by whom and description of the nature of such
control
Prior to the implementation of the Offering, the Company’s CEO,
Mr. Weijie Lin indirectly holds 67.5 % of the Company’s share
capital and voting rights. Through his shareholdings, Mr. Lin will
be in a position, irrespective of the voting behaviour of other
shareholders, to exercise considerable influence at the Company's
General Shareholders' Meetings, and consequently, over decisions
regarding measures which are presented for a vote at the General
Shareholders' Meetings (including the election of the members of
the Supervisory Board and the approval of important capital
measures).
Selected Historical Financial Information
The Company was founded by way of notarised deed of formation (Gründungsurkunde) on 22 July 2014
and incorporated by registration in the commercial register of the local court (Amtsgericht) of Frankfurt on 2 October 2014.
The operational business of Fenghua is exclusively carried out by Jinjiang Fenghua Shoe Material Co.
Ltd., Jinjiang (“Fenghua Jinjiang”). All shares in Fenghua Jinjiang are owned by Fujian Maolong
Shoe Materials Co. Ltd., Quanzhou (“Fenghua Fujian”). All shares in Fenghua Fujian are owned by
Hong Kong Mou Lung Holding Company Limited. (“Fenghua Hong Kong”), a company under Hong
Kong law, whose sole shareholder is Fenghua SoleTech AG.
In order to present the business, financial condition and results of operations, in relation to the business
of Fenghua, Fenghua has prepared consolidated financial statements of Fenghua Hong Kong as at and
for the years ended 31 December 2011, 31 December 2012 and 31 December 2013 under IFRS (the
“Consolidated Financial Statements”) and the unaudited interim condensed consolidated financial
statements of Fenghua Hong Kong as at and for the six-month-period ended 30 June 2014 under IFRS
with comparative information as at and for the six-month-period ended 30 June 2013 (the “Interim
Condensed Consolidated Financial Statements”). The Consolidated Financial Statements were audited
by Crowe Kleeberg GmbH Wirtschaftsprüfungsgesellschaft, Augustenstrasse 10, 80333 Muenchen,
Germany (“Crowe”). The Interim Condensed Consolidated Financial Statements are unaudited.
Fenghua's selected financial information as at and for the years ended 31 December 2011, 31 December 2012, and 31 December 2013, and as at and for the six-month-periods ended 30 June 2014 and 30
June 2013, which is reflected in this section, was taken or, as the case may be, derived from the Consolidated Financial Statements and the Interim Condensed Consolidated Financial Statements, respective-
5
ly.
The following figures were subject to rounding adjustments that were carried out according to established commercial standards. As a result, the figures stated in the table may not exactly add up to the total values that may
also be stated in the table.
31 December
2011
2012
30 June
2013
(audited)
2013
1
(unaudited)
EUR
thousand
Revenue
2014
EUR
thousand
59,218
83,581
90,056
37,407
42,467
Cost of sales
(42,665)
(61,470)
(64,826)
(27,089)
(29,423)
Gross Profit
16,553
22,111
25,230
10,318
13,044
Other income
63
150
568
531
64
Distribution and selling expenses
(224)
(259)
(250)
(117)
(114)
Administrative and general expenses
(435)
(756)
(568)
(279)
(263)
Research and development expenses
–
–
–
–
–
Net finance costs
(344)
(593)
(137)
(133)
–
Profit before tax
15,613
20,653
24,843
10,320
12,731
Tax expenses
(3,903)
(5,164)
(6,093)
(2,461)
(3,184)
Net profit for the financial year
11,710
15,489
18,750
7,859
9,547
Cash flows from operating activities
17,239
10,547
17,563
7,899
11,476
Cash flow used in investing activities
(1,803)
(1,465)
(1,200)
(496)
–
Cash flow used in financing activities
(2,339)
(11,761)
(8,735)
(8,148)
3
Cash at end of period
22,095
19,210
26,493
19,129
38,034
Selected Cash Flow Data
1
Audited information except for percentage figures
6
31 December
Other Selected Financial Data1
2011
30 June
2012
2013
2013
(unaudited)
EUR
thousand
Gross profit margin
EUR
thousand
2014
(unaudited)
EUR
thousand
EUR
thousand
EUR
thousand
28.0 %
26.5 %
28.0 %
27.6 %
30.7 %
EBITDA
16,962
22,231
26,030
10,973
13,222
EBITDA margin3
28.6 %
26.6 %
28.9 %
29.3 %
31.1 %
15,894
21,096
24,900
10,417
12,667
26.8 %
25.2 %
27.6 %
27.8 %
29.8 %
19.8 %
18.5 %
20.8 %
21.0 %
22.5 %
7,165
5,217
–
–
–
(14,930)
(13,993)
(26,493)
(19,129)
(38,034)
2
EBIT
4
EBIT margin5
Net profit margin
Financial debt7
Net debt
8
6
1
This information was calculated based on the Consolidated Financial Statements and the Interim Condensed Consolidated Financial
Statements
2
EBITDA is calculated as net profit for the financial year less interest income plus interest expense plus tax payable less tax refund
plus/less investment income plus depreciation and amortisation
3
EBITDA margin is calculated as EBITDA divided by revenues times 100
4
EBIT is calculated as net profit for the financial year less interest income plus interest expense plus tax payable less tax refund plus/less
investment income
5
EBIT margin is calculated as EBIT divided by revenues times 100
6
Net profit for the period divided by revenues times 100
7
Financial debt is calculated as total loans and borrowings from financial institutions
8
Net debt is calculated as total loans and borrowings less cash and cash equivalents
Description of significant change
to the issuer's financial condition
and operating results during or
subsequent to the period covered
by the historical financial information
The following changes in the Company's financial conditions and
results of operation occurred in the financial years 2011, 2012
and 2013 and the six-month-periods ended 30 June 2013 and 30
June 2014:
Financial Years 2011 and 2012
Revenues increased from EUR 59,218 thousand in 2011 by
EUR 24,363 thousand, or 41.1 % to EUR 83,581 thousand in
2012. This increase was mainly due to an increase in order volume which was partly outsourced and partly due to higher sales
prices. Cost of sales increased from EUR 42,665 thousand in
2011 by EUR 18,805 thousand, or 44.0 %, to EUR 61,470 thousand in 2012. The increase was mainly due to the increase in
sales volume and the increase in average unit cost. Fenghua's
EBITDA increased from EUR 16,962 thousand in 2011 by
EUR 5,269 thousand, or 31.1 %, to EUR 22,231 thousand in
2012.
Financial Years 2012 and 2013
Revenue increased from EUR 83,581 thousand in 2012 by
EUR 6,475 thousand, or 7.7 %, to EUR 90,056 thousand in 2013.
The sales volume increased by 21.9 % in 2013 but the increase in
revenue was mitigated by a lower average selling price. Cost of
sales increased from EUR 61,470 thousand in 2012 by
7
EUR 3,356 thousand or 5.5 %, to EUR 64,826 thousand in 2013.
The increase was mainly due to the increase in sales volume and
the decrease in average unit cost. Fenghua's EBITDA increased
from EUR 22,231 thousand in 2012 by EUR 3,799 thousand, or
17.1 %, to EUR 26,030 thousand in 2012.
Six-month-periods ended 30 June 2013 and 30 June 2014.
Between 30 June 2014 and the date of this Prospectus, there have
been no significant changes in Fenghua’s financial condition or
operating results.
B.8
Selected Pro Forma Financial
Information
Not applicable. This Prospectus does not contain pro forma financial information.
B.9
Profit Forecast or Estimate, if
any
Not applicable. This Prospectus does not contain profit forecast
or estimate.
B.10
Nature of any qualifications in
the audit report on the historical
financial information
Not applicable. There are no qualifications in the audit report for
the Consolidated Financial Statements.
B.11
Explanation if the Issuer’s working capital is not sufficient for its
present requirements
Not applicable. Fenghua's working capital is sufficient for its
present requirements.
Section C – Securities
C.1
Description of the type and the
class of securities being offered
and/or admitted to trading, including any security identification number
The Offering consists of 1,200,000 no par value ordinary bearer
shares (Inhaberstückaktien) of Fenghua SoleTech AG, each having a notional amount of the share capital of EUR 1.00 and each
vested with full dividend rights for the short financial year 2014
(the “New Shares”).
Fenghua SoleTech AG intends to apply for admission of all of its
shares, up to 11,200,000 shares (including the New Shares), to
trading on the regulated market (Regulierter Markt) of the Frankfurt Stock Exchange (General Standard) as well as for the simultaneous admission to trading in the regulated market (Parallel
Market) of the Warsaw Stock Exchange.
International Securities Code (ISIN): DE000A13SX89
German Securities Code (WKN): A13SX8
Ticker Symbol: FGT
C.2
Currency of the securities to be
issued
EUR
C.3
The number of shares issued and
fully paid and issued but not fully
paid. The par value per share, or
that the shares have not par value.
The existing share capital of the Company consists of 10,000,000
fully paid no par value ordinary bearer shares (Inhaberstückaktien), each having a notional amount of the share
capital of EUR 1.00.
8
C.4
Description of rights attached to
the securities
Each share confers one vote at the General Shareholders' Meeting
(Hauptversammlung) of the Company. There are no limitations to
the voting rights. Founding Shareholders of the Company do not
have different voting rights. Shareholders have all rights pursuant
to German law.
The shares are vested with full dividend rights stating from and
for the short financial year (Rumpfgeschäftsjahr) 2014.
C.5
Description of any restrictions on
the free transferability of the
securities
Not applicable: There are no transfer restrictions.
C.6
An indication as to whether the
securities offered are or will be
the object of an application for
admission to trading on a regulated market and the identity of
all the regulated markets where
the securities are or are to be
traded
An application for admission of all of the shares of the Company
– including the New Shares – to trading on the regulated market
(Regulierter Markt) (General Standard) of the Frankfurt Stock
Exchange is expected to be filed on 18 October 2014 and admission is expected to be granted on 5 November 2014. Commencement of trading is expected to take place on 6 November 2014.
The Company will also make an application to the Warsaw Stock
Exchange (“WSE”) for the listing and trading of the Company's
shares, including the New Shares, in a continuous price-setting
system in the regulated market (Parallel Market) of the WSE.
C.7
Description of dividend policy
The Company's Management Board and Supervisory Board intend to propose a distribution of profits as dividends for short
fiscal year 2014 and following fiscal years in an amount corresponding to between 10 % and 20 % of the profit for the year
according to the consolidated IFRS financial statements of the
Company, if and to the extent the Company's (individual) annual
financial statement accounts for a respective balance sheet profit.
Such distribution will only be made if and to the extent it is covered by the annual net income which is shown in the respective
Company's (individual) annual financial statement in accordance
with HGB. The expenditures and costs of this Offering will have
a one-time impact that will adversely affect the Company's results of operations in 2014.
9
Section D – Risks
Prior to making a decision on the purchase of shares in the Company, investors should carefully consider certain risks. If any of the events associated with these risks occur, individually or in connection with other circumstances, the business of Fenghua may be affected to a substantial degree, with a material adverse effect on the
net assets, financial condition and results of operations of Fenghua. The stock exchange price of the shares
could decline as a result of an event associated with the occurrence of any of these risks, and investors could
lose some or all of the capital they have invested. The order in which the risk factors are presented is not an
indication of the likelihood of the risks actually occurring, the significance or degree of the risks or the scope of
any potential impairment to the Group's business. The risks mentioned could materialise individually or cumulatively.
D.1
Key information on the key risks
that are specific to the Issuer or
its industry
Risks Related to Fenghua's Business

The Company's operating history may not serve as an
adequate measure of the future prospects and results of
operations.

Fenghua operates in a very competitive market and the
intense competition Fenghua faces may result in a decline
in Fenghua's market share and lower profit margins.

Any material disruption of Fenghua's operations or the
operations of Fenghua's suppliers or contract manufacturers from natural disasters, war, political unrest and epidemics could materially adversely affect Fenghua's business, financial condition and results of operations.

Fenghua's insurance coverage may be inadequate to protect Fenghua against losses.

A potential shortage of any raw material may constrain
Fenghua's revenue growth and decrease its gross margins
and profitability through an increase of prices of such raw
materials.

Fenghua's future success largely hinges on its ability to
significantly expand both its manufacturing capacity and
sales volumes, which exposes Fenghua to a number of
risks and uncertainties.

Failure to execute Fenghua's growth strategies could strain
Fenghua's management, operational, financial and other
resources and materially and adversely affect Fenghua's
business, financial condition and results of operations.

The success of Fenghua's business depends on attracting
and retaining key personnel.

Any damage to the reputation of Fenghua could have a
material adverse effect on the business, financial condition
and results of operations.

Fenghua may be required to make additional payments for
social insurance and housing funds.

Fenghua's operations and financial performance may be
adversely affected by labour shortages, an increase in labour costs or by labour disputes.

Fenghua's operations could be materially adversely affected if Fenghua fails to manage effectively its relationships
10
with, or lose the services of, Fenghua's contract manufacturers.

Fenghua's business, financial condition and results of
operation could be materially adversely affected if
Fenghua or Fenghua's contract manufacturers fail to deliver products on schedule and at the level of quality expected by Fenghua's customers and distributors.

Fenghua may not be able to anticipate and respond in a
timely manner to rapid changes in consumers' tastes and
preferences.

The Company is a holding company whose liquidity depends upon having access to the liquid funds of its operating subsidiaries located in China.

Fenghua may not be able to adequately protect its intellectual property rights, which could harm its business.

Fenghua is exposed to potential environmental liability.
Changes in existing laws and regulations or additional or
stricter laws and regulations on environmental protection
in China may cause Fenghua to incur additional capital
expenditures.

Fenghua may be exposed to product liability, property
damage or personal injury claims, which may adversely
affect Fenghua's business, financial condition and results
of operations.

The Company and Fenghua Hong Kong may be treated as
tax resident enterprises for PRC tax purposes under the
PRC enterprise income tax laws and therefore be subject
to PRC taxation.

Shareholders may be subject to taxation under PRC tax
laws.

The Chinese “Provisions on the Acquisition of Domestic
Enterprises by Foreign Investors” (the “M&A Provisions”) may have a material adverse effect on Fenghua.

State Administration of Foreign Exchange (SAFE) regulations relating to offshore investments by PRC residents or
passport holders may adversely affect Fenghua's business
operations and financing alternatives.

Restrictions on foreign exchange and payments of dividends may limit Fenghua's subsidiaries' ability to remit
payments to Fenghua.

PRC regulations pertaining to loans and direct capital
investments by offshore parent companies to PRC entities
may delay or prevent Fenghua from using the proceeds
from this Offering.

Fenghua is exposed to foreign exchange regulations of the
PRC government which could also have a significant impact on currency exchange rates.

Fenghua's management and financial reporting systems
may be inadequate to support its future growth and to ensure accurate consolidated financial reporting.
11

The Management Board of the Company is not experienced in complying with German legal requirements for
listed companies and Fenghua has not established a comprehensive risk management system.

The Company's Supervisory Board may have difficulties
in adequately supervising the Management Board, in particular as the members of the Supervisory Board have only
limited experience in fulfilling their obligations arising
from the German Stock Corporation Act.
Risks Related to the Political, Social and Legal Environment
of the People's Republic of China
D.3
Key information on the key risks
that are specific to the securities

General risks relating to business operations in China
which are generally subject to greater economic, political,
and legal risks than operations in more developed economies.

Economic instability in China could adversely affect
Fenghua's business.

A destabilisation of the political system could threaten
China's economic liberalisation.

Health epidemics and outbreaks of contagious diseases,
including avian influenza, severe acute respiratory syndrome (SARS) or swine flu, could materially and adversely affect the Chinese economy.

The PRC legal system and national taxation laws contain
inherent uncertainties and inconsistencies.

The judiciary's lack of independence and limited experience and the difficulty of enforcing court decisions and
governmental discretion in enforcing court orders could
prevent Fenghua from obtaining effective remedies in a
court proceeding.

There are difficulties in seeking recognition and enforcement of foreign judgments in China.

Restrictions might be imposed on foreign investments in
PRC companies.

Changes in labour law and policy in the PRC could affect
Fenghua's results of operations.

The accuracy of industry and statistical data included in
the Prospectus may not be reliable.
Risks Related to the Offering

The Company's CEO, Mr. Weijie Lin, will still hold a
significant portion of the share capital of the Company after the Offering, which will enable him to exercise significant control over the Company and could subject him to
conflicts of interest.

Public trading in the Company's shares might not develop.

A volatile stock exchange price for the shares might develop.

The sale of shares by CMI could affect the share price.
12

There are risks for short sales before the delivery of the
shares.

The WSE might not grant the admission of the Shares to
trading or could revoke or suspend the trading.

The Offering may not be implemented in full which may
negatively affect the growth prospects of Fenghua and/or
the liquidity of the shares in the market.

If the Company does not comply with the regulatory requirements as a public company, this could lead to fines,
damage claims and a negative perception of the Company
which, in turn, could lead to the value of its Shares being
adversely affected.

Other public offerings during the offer period may lower
the interest of prospective investors in the Offering.

The Offering may be cancelled or suspended.
Risks Related to the Offering in Poland

Exercising certain shareholders' rights in the Company
may be more difficult and more costly for Polish investors
compared to exercising rights in a company governed by
Polish law.

Differences in trading, settlement and clearing systems in
Germany and Poland as well as currency differences and
potentially higher transaction costs could have an adverse
effect on the Offering in Poland and trading of the Shares
on the WSE.

Administrative measures may be imposed on the company
by the Polish Supervisory Authority (Komisja Nadzoru
Fonansowego) (“KNF”) if the Company violates its obligations in connection with the Offering in Poland and/or
admission to listing and trading on the WSE.

Administrative measures may be imposed on the Company by the KNF, if the Company violates its obligations regarding promotional activities in connection with the Offering in Poland.

Polish tax law may change and the potential changes
might negatively influence investors returns.

The Company’s non-compliance with the corporate governance rules of the WSE could lead to Polish investors
assessing the Company as comparably less transparent
which, in turn, may have an adverse effect on the Offering, value and liquidity of the Shares.

There are differences in insolvency regimes in Germany,
Poland and China.
13
Section E – Offer
E.1
The total net proceeds and an
estimate of the total expenses of
the Offer, including estimated
expenses charged to the investor
by the Issuer
As the net proceeds of the Offering depends on the gross proceeds and total costs of the Offering, Fenghua cannot reliably
predict the net proceeds at this time. Fenghua estimates that,
assuming the placement of all New Shares, the net total proceeds
of the Offering between EUR 10.4 million to EUR 12.7 million
are possible, which would be received by Fenghua from the sale
of the New Shares.
Based on the price range, the Company estimates that the total
costs of the Offering (including commissions for the Underwriter) will amount to between EUR 1.6 million and EUR 1.7 million
to be incurred by the Company.
Neither the Company nor the Underwriter will charge expenses
to investors. Investors will have to bear customary transaction
and handling fees charged by their safe-custody account-keeping
financial institutions.
E.2a
Reasons for the offer, use of proceeds, estimated net amount of
the proceeds
Fenghua's reasons for this Offering are to increase the awareness
of its brand and to use the proceeds from the capital increase to
pursue its growth strategy. The Company plans to use the net
proceeds that it will receive from the sale of the New Shares
(which is estimated to be between EUR 10.4 million to EUR 12.7
million) to finance the further expansion of Fenghua's business.
In particular, Fenghua plans:

to use approximately 95 % of the net proceeds (i.e., between EUR 9.88 million and EUR 12.07 million) to expand its production facilities by adding a level to its current building in order to increase the total floor space of
the factory from 1,600 m2 to 3,000 m2 and by investing in
machines for the production of shoe soles to be placed on
such additional floor space; and

to use approximately 5 % of the net proceeds (i.e., between EUR 0.52 million and EUR 0.63 million) for product design and technical development by investing in additional software for shoe sole designing and purchasing
equipment dedicated to prototype development and testing.
In case the net proceeds do not suffice for the above plan,
Fenghua plans to finance as much of this plan as possible with
the proceeds and invest its cash flow for the remainder. Should
the cash flow not be sufficient, the above plans are reduced to the
realisable level.
Fenghua believes, assuming that all of the New Shares are placed
that total gross proceeds from the Offering of between approximately EUR 12.0 million and EUR 14.4 million are attainable, of
which the Company receives net proceeds of between EUR 10.4
million and EUR 12.7 million. The commissions payable to the
Underwriter are expected to be between approximately EUR 0.6
million and approximately EUR 0.7 million.
Fenghua believes that the total costs of the Offering will amount
to between EUR 1.6 million and EUR 1.7 million.
14
E.3
Description of the terms and
conditions of the Offer
The Offering consists of a public offering in Germany and Poland
and private placements to institutional investors outside Germany, Poland and the United States.
The Offering consists of 1,200,000 no par value ordinary bearer
shares (Inhaberstückaktien) of Fenghua SoleTech AG, each having a notional amount of the share capital of EUR 1.00 and each
vested with full dividend rights for the short financial year 2014.
The New Shares originate from a capital increase from the authorised capital resolved by the Management Board expected on
27 October 2014.
Offer Period
The offer period commences on 17 October 2014 and ends on 23
October 2014. The Company and the Joint Global Coordinators
expressively reserve the right to close the order book prior to 23
October 2014, and announce an earlier end of the offer period.
Purchase orders are freely revocable until the end of the offer
period.
On the last day of the offer period, retail investors may submit
offers to purchase shares until 12:00 noon (Central European
Time) and the institutional investors until 6:00 p.m. (Central
European Time).
Price Range
The price range within which purchase orders may be placed is
between EUR 10.00 and EUR 12.00 per New Share.
Offer Price
The offer price per New Share will be collectively determined by
the Company and the Joint Global Coordinators using the order
book prepared during the bookbuilding process. Afterwards, the
offer price will be published in the form of an ad-hoc notice via
an electronic information system and on the Company's website
(www.Fenghua.de). Particularly in the event that the placement
volume proves insufficient to satisfy all of the purchase orders
submitted at the offer price, the Underwriter reserve the right not
to accept purchase orders, in whole or in part.
Amendments to the Terms of the Offer
Together with the Joint Global Coordinators, the Company reserves the right to decrease the number of New Shares, to increase or decrease the upper and/or lower limits of the price
range, and/or to extend or shorten the offer period. If any of the
terms of the offer are modified, the change will be published by
means of an announcement through an electronic information
service such as Reuters or Bloomberg and on the Company's
website (www.Fenghua.de), and/or, to the extent required by the
German Securities Trading Act (Wertpapierhandelsgesetz) or
German Securities Prospectus Act (Wertpapierprospektgesetz), as
an ad-hoc notice and/or as a supplement (Nachtrag) to the Prospectus. Investors who have submitted purchase orders will not
be notified individually.
Delivery and Settlement of New Shares
It is expected that the New Shares will be delivered on 7 November 2014 against payment of the offer price.
15
General Allotment Criteria
The Company and the Underwriter intend to comply with the
“Principles for the Allotment of Share Issues to Private Investors” (“Grundsätze für die Zuteilung von Aktienemissionen an
Privatanleger”), which were issued on 7 June 2000 by the Exchange Expert Commission (Börsensachverständigenkommission) of the German Federal Ministry of Finance (Bundesministerium der Finanzen).
Underwriter
ACON Actienbank AG
Joint Global Coordinators, Joint Bookrunners and Join-Lead
Managers
ACON Actienbank AG, Dom Maklerski DF Capital Sp. z o.o
Early Termination of the Offering
The underwriting agreement provides that ACON as the Underwriter may terminate the underwriting agreement under certain
circumstances, even after the shares have been allocated and
listed, up to delivery and settlement of the shares.
If the underwriting agreement is terminated, the Offering will not
take place. In such case, allocations of New Shares to investors
will be invalidated, and investors will have no claim for delivery.
Claims relating to any subscription fees paid and costs incurred
by any investor in connection with the subscription are governed
solely by the legal relationship between the investor and the institution to which the investor submitted its purchase order.
E.4
Description of any interest that is
material to the Offer including
conflicting interests
ACON and DF Capital have entered into a contractual relationship with Fenghua in connection with the implementation of the
Offering. ACON has been mandated as Underwriter and ACON
and DF Capital will advise Fenghua in connection with the implementation of the Offering and coordinate its structuring and
execution. ACON will purchase and sell the New Shares in accordance with the executed underwriting agreement. The compensation of the Underwriter and DF Capital is incentive-based
and depends on the amount of the offer proceeds such that the
Underwriter and DF Capital has an interest in the successful
implementation of the Offering.
In connection with the Offering, the Joint Lead Managers and
affiliated companies will be able to acquire New Shares for their
own accounts and hold, purchase or sell New Shares for their
own accounts and can also offer or sell these shares outside of the
Offering. The Joint Lead Managers do not intend to disclose the
scope of such investments or transactions to the extent that this is
not legally required.
The Founding shareholders have an interest in the Offering, as
the liquidity of their shares is increased. The CEO of the Company is also an indirect shareholder and his interest as Founding
Shareholders may not always be in line with the interest of the
Company.
E.5
Name of the person or entity
offering to sell the security
The New Shares are being offered by the Joint Lead Managers.
16
Lock-up agreements: the parties
involved; and indication of the
period of the lock up.
The Company has agreed with the Underwriter that, for the period ending twelve months after the shares have been listed on the
Frankfurt Stock Exchange, it will not:

announce or implement any capital increase from authorised capital (genehmigtes Kapital),

propose a resolution for any capital increase at the General
Shareholders' Meeting (Hauptversammlung),

(a) directly or indirectly issue, purchase, sell, offer, undertake to sell, promote, otherwise issue or announce an offer
in relation to shares or other securities of the Company
which are convertible or exchangeable into shares of the
Company or grant an option to purchase shares of the
Company, (b) enter into or execute transactions (including
derivatives transactions) that are economically equivalent
to the purchase or sale of the shares of the Company, or
(c) directly or indirectly cause or approve transactions
within the meaning of the foregoing provisions (a) and/or
(b).
CMI has agreed with the Underwriter that, for the period ending
twelve months after the listing of the shares of the Company on
the Frankfurt Stock Exchange it will not:

offer, pledge, allot, sell, contract or agree to sell or to
contribute or to otherwise transfer, enter into share pooling arrangements relating to the shares or otherwise act in
concert with another shareholder of the Company, sell any
option or contract to purchase, purchase any option to sell,
grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any
shares of the Company or any securities convertible into
or exercisable or exchangeable for shares of the Company;

enter into any swap or other arrangement that transfers to
another party, in whole or in part, the economic risk of
ownership of shares of the Company, whether any such
transaction described in the clauses above is to be settled
by delivery of shares of the Company or such other securities, in cash or otherwise;

make any demand for or exercise any right with respect to
the registration under U.S. securities laws of any shares of
the Company or any security convertible into or exercisable or exchangeable for shares of the Company; or

propose any increase in the share capital of the Company,
vote in favour of such a proposed increase or otherwise,
support any capital increase proposed with respect to the
Company without the written consent of the Joint Global
Coordinators.
These restrictions do not apply to the sale of the New Shares in
the course of the Offering, and to shares purchased in the open
market.
E.6
The amount and percentage of
immediate dilution resulting from
the Offer.
The net book value (i.e. total equity adjusted for land use rights)
as at 30 June 2014 as reflected in the Interim Condensed Consolidated Financial Statements under IFRS amounted to
EUR 49,392 thousand. This is equivalent to approximately
17
EUR 4.94 per share (calculated on the basis of 10,000,000 shares
as of the date of this Prospectus).
Assuming that all 1,200,000 New Shares are placed and that the
offer price would amount to EUR 11 per share which corresponds
to the mid-point of the price range, the Company would obtain
net proceeds from the placement of the New Shares of approximately EUR 11.5 million. If the Company had obtained this
amount already as at 30 June 2014, the net book value at that
time would have been about EUR 60.9 million or EUR 5.44 per
share (based on the increased number of 11,200,000 shares after
the placement of all New Shares). Consequently, under the
above-mentioned assumptions, the implementation of the Offering would lead to a direct increase in the book value of shareholders' equity of EUR 0.50, or 10.1 %, per share for the Founding Shareholders and a direct dilution of between EUR 5.56, or
50.5 %, per share for the purchasers of the New Shares.
E.7
In the case of a subscription offer
to existing shareholders, the
amount and percentage of immediate dilution if they do not subscribe to the new offer.
Not applicable as there is no offering of subscription rights to
existing shareholders.
Estimated expenses charged to
the investor by the Issuer or the
Offeror.
Not applicable. Neither the Company nor the Joint Lead Managers will charge expenses to investors. Investors will have to bear
customary transaction and handling fees charged by their safe
custody account-keeping financial institutions.
18
ZUSAMMENFASSUNG DES PROSPEKTS
Zusammenfassungen setzen sich aus als “Schlüsselinformationen” bezeichneten geforderten Angaben zusammen. Diese Schlüsselinformationen sind in den Abschnitten A – E (A.1 – E.7) nummeriert. Diese Zusammenfassung enthält all die geforderten Schlüsselinformationen, die in einer Zusammenfassung für diese Art von Wertpapieren und Emittenten einzubeziehen sind. Da gewisse Schlüsselinformationen nicht adressiert werden müssen, können Lücken in der Nummerierung der Schlüsselinformationen in dieser Zusammenfassung vorhanden
sein.
Auch wenn grundsätzlich eine Schlüsselinformation aufgrund der Art der Wertpapiere und des Emittenten in der
Zusammenfassung aufzuführen wäre, ist es möglich, dass hinsichtlich dieser Schlüsselinformation keine relevanten Angaben gemacht werden können. In einem solchen Fall wird eine kurze Beschreibung der Schlüsselinformation in die Zusammenfassung mit dem Hinweis “entfällt” aufgenommen.
Abschnitt A – Einführung und Warnhinweise
A. 1
A.2
Warnhinweise
Zustimmung zur Verwendung
des Prospekts für die spätere
Weiterveräußerung oder endgül-
Warnhinweise, dass:

diese Zusammenfassung als Einleitung zum Prospekt
(“Prospekt”) verstanden werden sollte;

jede Entscheidung des Anlegers über eine Investition in
die Wertpapiere sich auf eine Berücksichtigung des Prospekts als Ganzen stützen sollte;

für den Fall, dass vor einem Gericht Ansprüche aufgrund
der in diesem Prospekt enthaltenen Informationen geltend
gemacht werden, der als Kläger auftretende Anleger nach
den nationalen Rechtsvorschriften des jeweiligen Mitgliedsstaates des Europäischen Wirtschaftsraumes die
Kosten für die Übersetzung des Prospekts vor Prozessbeginn zu tragen haben könnte.

Die Fenghua SoleTech AG Frankfurt, Deutschland (die
“Gesellschaft” oder “Fenghua SoleTech AG” und gemeinsam mit ihren unmittelbaren und mittelbaren Tochtergesellschaften “Fenghua” oder “Fenghua Gruppe”),
ACON Actienbank AG München, Deutschland (“ACON”
oder der "Underwriter") und Dom Maklerski DF Capital
Sp. z o.o (“DF Capital”, ACON und DF Capital gemeinsam als, “Joint Global Coordinators” oder die “Joint
Lead Managers”) übernehmen im Sinne von §5 (2b) Nr.
4 Wertpapierprospektgesetz die Verantwortung für den
Inhalt dieser Zusammenfassung einschließlich deren in
diesem Prospekt enthaltenen Übersetzung. Diejenigen
Personen, die für die Erstellung der Zusammenfassung
verantwortlich sind oder von denen der Erlass ausgeht,
können für den Inhalt der Zusammenfassung einschließlich ihrer Übersetzung haftbar gemacht werden, jedoch
nur für den Fall, dass die Zusammenfassung irreführend,
unrichtig oder widersprüchlich ist, wenn sie zusammen
mit den anderen Teilen des Prospekts gelesen wird, oder
sie, wenn sie zusammen mit den anderen Teilen des Prospekts gelesen wird, nicht alle erforderlichen Schlüsselinformationen vermittelt.
Entfällt. Die Zustimmung der Gesellschaft zur Verwendung des
Prospekts für die spätere Weiterveräußerung oder endgültige
Platzierung von Wertpapieren durch Finanzintermediäre wurde
19
tige Platzierung von Aktien durch
Finanzintermediäre
nicht erteilt.
Abschnitt B – Emittent
B.1
Juristische und kommerzielle
Bezeichnung des Emittenten
Fenghua SoleTech AG
B.2
Sitz,
Rechtsform,
geltendes
Recht, Land der Gründung
Frankfurt am Main, Deutschland
Beschreibung
und
Schlüsselfaktoren in Bezug auf
die
Natur
der
derzeitigen
Geschäftstätigkeit
und
Haupttätigkeiten des Emittenten,
der Hauptkategorien der zu
verkaufenden Produkte und/oder
anzubietende
Dienstleistungen
und Identifizierung der Hauptmärkte auf denen der Emittent
tätig ist.
Fenghua ist ein technologiegetriebener chinesischer Hersteller
von Schuhsohlen und wurde 2004 gegründet. Fenghuas Tätigkeit
umfasst die Verarbeitung von Rohstoffen, wie Natur- oder
Kunstgummi (“RB”) oder Materialien aus Ethylenvinylacetat
(“EVA”), sowie der Herstellung von thermoplastischem Gummi
(“TPR”) und EVA Mischpellets sowie der Herstellung von thermoplastischem Elastomer (“TPE”), Polyurethan (“PU”) oder
thermoplastischem Polyurethan (“TPE-U” oder “TPU”), welche
für verschiedene Bestandteile von Schuhsolen verwendet werden.
Die Schuhsohlen, welche von Fenghua hergestellt werden, werden sowohl für Hochleistungssportschuhe entworfen, als auch für
Freizeit- und Casual Sportschuhe. Zielgruppen sind hauptsächlich
Schuhhersteller des mittleren und oberen Marktsegments für
chinesische und internationale Marken. Sämtliche Sohlen werden
in Fenghuas hauseigener Fabrik hergestellt oder von ihren Vertragsherstellern in der Region von Jinjiang, welche eines der
führenden Zentren für Schuhe und Schuhaccessoires in China ist.
B.3
Die deutsche Aktiengesellschaft, errichtet nach deutschem Recht,
wurde mit notarieller Gründungsurkunde vom 22. Juli 2014
gegründet und am 2. Oktober 2014 im Handelsregister des
Amtsgerichts Frankfurt eingetragen.
Fenghua produziert mehr als 40 Millionen Schuhsohlenpaare pro
Jahr, mit momentan sechs Produktionslinien für EVA Modell
eins (“EVA MD1”), vierzehn für EVA Modell zwei (“EVA
MD2”) und acht für Versionen im Kunstgummi. Die Sohlen
werden durch Fenghuas eigenes Vertriebsnetz an Schuhherstellern von lokalen und internationalen Marken sowie an Vertriebshändler ausgeliefert.
Fenghuas Forschung und Entwicklung (“R&D”) strebt fortlaufend danach, den Herstellungsprozess zu verbessern. Indem sie
sich auf R&D konzentrieren, ist Fenghua in der Lage, ein eigenes
Sortiment anzubieten, welches als Original Design Manufacturing (“ODM”) hergestellt wird, im Gegensatz zu anderen Wettbewerbern, die Schuhsolen lediglich nach Kundenanforderungen
im Rahmen des Original Equipment Manufacturing (“OEM”)
fertigen. Fenghua entwickelt ihre eigenen Prototypen für ihre
Sohlen und hat acht Gebrauchsmuster für solche Prototypen registriert.
Fenghuas Einnahmen stiegen von EUR 59.218 Tausend im Jahr
2011 auf EUR 83.581 Tausend im Jahr 2012 und im Jahr 2013
weiter auf EUR 90.056 Tausend, was einer jährlichen Wachstumsrate von 23,3 % entspricht. Fenghuas Nettoertrag stieg von
20
EUR 11.710 Tausend im Jahr 2011 auf EUR 15.489 Tausend im
Jahr 2012 und im Jahr 2013 weiter auf EUR 18.750 Tausend, was
einer jährlichen Wachstumsrate von 26,5 % entspricht. Fenghuas
Einnahmen stiegen von EUR 37.407 tausend in der ersten Hälfte
des Geschäftsjahres 2013 auf EUR 42.467 Tausend in der ersten
Hälfte des Geschäftsjahres 2014. Fenghuas Nettoertrag stieg von
EUR 7.859 Tausend in der ersten Hälfte des Geschäftsjahres
2013 auf EUR 9.547 Tausend der ersten Hälfte des Geschäftsjahres 2014. Zum 30. Juni 2014 beschäftigte Fenghua 1.822 Angestellte.
Fenghua ist der Ansicht, dass die folgenden Wettbewerbsstärken
ihre wichtigsten Wachstumstreiber darstellen:

Fenghua verfügt über einen optimierten Herstellungsprozess mit fortgeschrittener Produktionsausrüstung.

Fenghua hat ihren Sitz in einer geografisch idealen Lage:
dem Quanzhou Zentrum für Schuhindustrie

Fenghua verfügt über starke Design- und Entwicklungsmöglichkeiten.

Fenghua ist ein Rundum Versorgungszentrum für Schuhsohlen.

Fenghua verfügt über ein erfahrenes Führungsteam.
Fenghua verfolgt die folgenden strategischen Ziele:
B.4a
Beschreibung der wichtigsten
jüngsten Trends, die sich auf den
Emittenten und die Branchen, in
denen er tätig ist, auswirken

Fenghua strebt an, ihre Produktionskapazität zu erhöhen,
um von der Kostenersparnis durch Massenproduktion zu
profitieren, sowie um die starke Nachfrage zu befriedigen

Fenghua plant, ihre Design- und Entwicklungskapazitäten
auszubauen um so einen Mehrwert zu schaffen.

Fenghua zielt Marken im höheren Marktsegment mit besseren Aussichten an.

Fenghua plant, ihren Vertrieb und ihre Marketing Abteilung auszubauen.
Führende Unternehmen in der Industrie der Herstellung von
Sportschuhsohlen für Erwachsene in China haben als Konsequenz der Marktentwicklung ein hohes Eigenkapital akkumuliert.
Darüber hinaus haben einige dieser führenden Unternehmen
einen festen Standpunkt in der Schuhherstellungsindustrie gefasst, indem sie ihre eigenen Marken entwickelt, oder bereits
bestehende Marken aufgekauft haben. Zusätzlich zu dieser absteigenden Integration, haben einige führenden Unternehmen
dieser Industrie eine aufsteigende Integration begonnen, indem
Sie EVA Pellets herstellen, welche wiederum nötig sind, um
Schuhsohlen des Typs EVA MD 1 oder 2, herzustellen. Dies soll
dazu beitragen, Produktionskosten zu sparen und eine konstante
Qualität zu gewährleisen, während die Abhängigkeit von Fremdanbietern reduziert wird. (Quelle: Adult Shoe Sole Market in
Mainland China, Euromonitor International (der "Report")).
Ein weiterer Trend sind die zunehmenden Bemühungen im Hinblick auf R&D. Nach Jahren der OEM-Herstellung, beginnen
immer mehr Unternehmen in dieser Industrie ihr akkumuliertes
Eigenkapital in ihr eigens R&D zu investieren, um eigene Produkte und Designs (als OEM) herzustellen. Dies hat ebenfalls die
21
allgemeine Wettbewerbsfähigkeit solcher Unternehmen erhöht,
da so eine bessere Qualitätskontrolle und ein erheblicher Mehrwert solch hergestellter Produkte gewährleistet werden. (Quelle:
der "Report").
B.5
Beschreibung der Stellung des
Emittenten
innerhalb
dieser
Gruppe
Zum Datum des Prospekts hält die Gesellschaft 100 % der Aktien
der Hong Kong Mou Lung Holding Company Ltd. (“Fenghua
Hong Kong”), eine Gesellschaft nach dem Recht Hong Kongs,
welche als Zwischenholding agiert und eine 100 % Beteiligung
an der Fujian Maolong Shoe Materials Co. Ltd. (“Fenghua Fujian”) hält, eine Gesellschaft nach Recht der Volksrepublik China,
welche als Zwischenholding agiert und wiederum 100 % der
Aktien der Jinjiang Fenghua Shoe Material Co. Ltd. (“Fenghua
Jinjiang”) hält, eine Gesellschaft nach Recht der Volksrepublik
China. Das operative Geschäft wird durch Fenghua Jinjiang ausgeübt.
B.6
Name jeder Person, die eine
direkte oder indirekte Beteiligung
am Eigenkapital des Emittenten
oder einen Teil der Stimmrechte
hält, die/der nach den für den
Emittenten geltenden nationalen
Rechtsvorschriften meldepflichtig
ist, samt der Höhe der Beteiligungen der einzelnen Personen
Die folgende Tabelle bietet einen Überblick über die Beteiligungsstruktur und die Beteiligung der Aktionäre am Grundkapital
vor dem Angebot und nach Abschluss des Angebots.
Name des
Aktionärs
Capital Mobilier Inc1
Stückaktien
in %
Stückaktien
nach Vollendung des
Angebots
in %
6.750.000
67,500
6.750.000
60,27
Commerce
Union (Malta)
Investment
Ltd.2
487.500
4,875
487.500
4,35
Midasi (Malta)
Investment
Ltd. 3
475.000
4,750
475.000
4,24
LGT Capital
(Malta) Ltd.4
498.750
4,988
498.750
4,45
Financier Inc.5
407.500
4,075
407.500
3,64
Rosy Frontier
Investments
Ltd.6
450.000
4,500
450.000
4,02
Herr Thomas
Tan Hock Nie7
481.250
4,813
481.250
4,30
Frau Yeap
Soon Mooi8
450.000
4,500
450.000
4,02
0
0
1.200.000
10,71
10.000.000
100
11.200.000
100
Free Float
Gesamt
1
Capital Mobilier Inc (“CMI”), ein unter der Nr. 2261732 im Registergericht von Anguilla registriertes Unternehmen. Die eingetragene Anschrift ist Intertrust Building, The Valley, Anguilla, British West Indies. Der Hauptaktionär ist Herr Weijie Lin, philippinischer Staatsbürger und wohnhaft in China. Er ist der Vorstandsvorsitzende der Gesell-
22
schaft, eine der Gesellschaft nahestehende Person.
2
Commerce Union (Malta) Investment Ltd. (“CUM”), ein unter der Nr.
C65267 im Registergericht von Malta registriertes Unternehmen. Die
eingetragene Anschrift ist 260, Triq San Albert, Gzira, Malta. Der
Hauptaktionär ist Herr Shize Lin, chinesischer Staatsbürger und wohnhaft in China, eine der Gesellschaft nahestehende Person.
3
Midasi (Malta) Investment Ltd. (“MMI”), ein unter der Nr. C65268 im
Registergericht von Malta registriertes Unternehmen. Die eingetragene
Anschrift ist 260, Triq San Albert, Gzira, Malta. Der Hauptaktionär ist
Herr Yushu Ye, chinesischer Staatsbürger und wohnhaft in China.
4
LGT Capital (Malta) Ltd. (“LGT”), ein unter der Nr. C65097 im Registergericht von Malta registriertes Unternehmen. Die eingetragene
Anschrift ist 260, Triq San Albert, Gzira, Malta. Die Hauptaktionärin
ist Frau Lim Geok Tin, Staatsbürgerin von und wohnhaft in Singapur.
5
Financier Inc. (“FI”), ein unter der Nr. 2260225 im Registergericht
von Anguilla registriertes Unternehmen. Die eingetragene Anschrift ist
Intertrust Building, The Valley, Anguilla, British West Indies. Der
Hauptaktionär ist Frau Nor Fazlina Binti Mohd Ghouse, malaysische
Staatsbürgerin und wohnhaft in Malaysia.
6
Rosy Frontier Investments Ltd. (“RFI”) ein unter der Nr. 1818330 im
Registergericht der British Virgin Islands registriertes Unternehmen.
Die eingetragene Anschrift ist P.O. Box 957, Offshore Incorporations
Centre, Road Town, Tortola, British Virgin Islands. Der Hauptaktionär
ist Frau Jingrong Zhuang, chinesische Staatsbürgerin und wohnhaft in
China.
7
Herr Thomas Tan Hock Nie (“Herr Nieh”) ist malaysischer Staatsbürger und wohnhaft in Malaysien.
8
Frau Yeap Soon Mooi (“Frau Yeap”) ist malaysische Staatsbürgerin
und wohnhaft in Malaysia.
CMI, CUM, MMI, LGT, FI, RFI, Herr Tan und Frau Yeap werden zusammen als die “Gründungsaktionäre” und jeder als “Gründungsaktionär”
bezeichnet.
Nach Abschluss des Angebots wird Capital Mobilier Inc. weiterhin mindestens 60,27 % am Grundkapital der Gesellschaft halten
(unter der Annahme einer Platzierung aller Neuen Aktien) und
wird daher weiterhin die Kontrolle über die Gesellschaft behalten.
B.7
Angabe, ob die Hauptanteilseigner des Emittenten unterschiedliche Stimmrechte haben,
falls vorhanden
Die Gründungsaktionäre der
abweichenden Stimmrechte.
Gesellschaft
haben
keine
Angabe, ob an des Emittenten
unmittelbare oder mittelbare
Beteiligungen
oder
Beherrschungsverhältnisse
bestehen,
wer diese Beteiligungen hält bzw.
diese Beherrschung ausübt und
welcher Art die Beherrschung ist
Vor
der
Durchführung
des
Angebots
hielt
der
Vorstandsvorsitzende (CEO) der Gesellschaft, Herr Weijie Lin,
mittelbar 67,5 % des Grundkapitals und der Stimmrechte der
Gesellschaft. Durch seine Beteiligung wird Herr Lin in einer
Position sein, ungeachtet des Wahlverhaltens der anderen
Aktionäre, erheblichen Einfluss auf die Hauptversammlungen
auszuüben und als Folge dessen auch über Entscheidungen
bezüglich Maßnahmen, welche bei der Hauptversammlung zur
Wahl stehen werden (einschließlich der Wahl der Mitglieder des
Aufsichtsrates und der Zustimmung von wichtigen
Kapitalmaßnahmen).
Ausgewählte historische Finanzangaben
Die Gesellschaft wurde mit Gründungsurkunde am 22. Juli 2014 gegründet und am 2. Oktober 2014 im
Handelsregister des Amtsgerichts Frankfurt eingetragen.
Fenghuas operatives Geschäft wird einzig und alleine von Jinjiang Fenghua Shoe Material Co. ltd.,
23
Jinjiang (“Fenghua Jinjiang”) durchgeführt. Sämtliche Aktien an Fenghua Jinjiang werden von Fujian
Maolong Shoe Materials Co., Ltd., Quanzhou (“Fenghua Fujian”) gehalten. Sämtliche Aktien an Fenghua Fujian werden von Hong Kong Mou Lung Holding Company Limited (“Fenghua Hong Kong”)
gehalten, welche dem Hong Kong Recht unterliegt. Der alleinige Aktionär ist Fenghua SoleTech AG.
Um die Geschäfts-, Finanz- und Ertragslage im Hinblick auf das operative Geschäft von Fenghua darzustellen, hat Fenghua konsolidierte Jahresabschlüsse der Fenghua Hog Kong für die am 31. Dezember
2011, 31. Dezember 2012 und 31. Dezember 2013 endenden Geschäftsjahre nach IFRS (die “Konsolidierten Jahresabschlüsse”) sowie einen ungeprüften verkürzten konsolidierten Zwischenabschluss der
Fenghua Hong Kong für den am 30. Juni 2014 endenden sechs-Monats-Zeitraum mit Vergleichszahlen
für den am 30. Juni 2013 endenden sechs-Monats-Zeitraum nach IFRS (der “Verkürzte Konsolidierte
Zwischenabschluss”) erstellt. Die Konsolidierten Jahresabschlüsse wurden von der Crowe Kleeberg
GmbH Wirtschaftsprüfungsgesellschaft, Augustenstrasse 10, 80333 München, Deutschland (“Crowe”)
geprüft. Der Verkürzte Konsolidierte Zwischenabschluss ist ungeprüft.
Fenghuas ausgewählte Finanzangaben für die am 31. Dezember 2011, 31. Dezember 2012 und
31. Dezember 2013 endenden Geschäftsjahre sowie für die am 30. Juni 2014 und 30. Juni 2013 endenden sechs-Monats-Zeiträume, die in diesem Abschnitt enthalten sind, wurden aus den Konsolidierten
Jahresabschlüssen und dem Verkürzten Konsolidierten Zwischenabschluss entnommen oder abgeleitet.
Die folgenden Zahlenangaben wurden nach anerkannten Grundsätzen gerundet. Additionen der Zahlenangaben
in einer Tabelle können daher zu anderen als den ebenfalls in der Tabelle dargestellten Summen führen.
31. Dezember
2011
Umsatzerlöse
2012
30. Juni
2013
2013
2014
(geprüft)1
(ungeprüft)
TEUR
TEUR
59.218
83.581
90.056
37.407
42.467
(42.665)
(61.470)
(64.826)
(27.089)
(29.423)
Bruttoergebnis
16.553
22.111
25.230
10.318
13.044
Sonstige Erträge
63
150
568
531
64
Aufwendungen für Vertrieb und Verkauf
(224)
(259)
(250)
(117)
(114)
Verwaltungsaufwand und allgemeine betriebliche Aufwendungen
(435)
(756)
(568)
(279)
(263)
–
–
–
–
–
(344)
(593)
(137)
(133)
–
Ergebnis vor Ertragsteuer
15.613
20.653
24.843
10.320
12.731
Ertragsteuern
(3.903)
(5.164)
(6.093)
(2.461)
(3.184)
Periodenüberschuss
11.710
15.489
18.750
7.859
9.547
Cashflow aus Geschäftstätigkeit
17.239
10.547
17.563
7.899
11.476
Cashflow aus Investitionstätigkeit
(1.803)
(1.465)
(1.200)
(496)
–
Cashflow aus Finanzierungstätigkeit
(2.339)
(11.761)
(8.735)
(8.148)
3
Zahlungsmittel zum Periodenende
22.095
19.210
26.493
19.129
38.034
Herstellungskosten
Aufwendungen für Forschung und Entwicklung
Nettofinanzergebnis
Ausgewählte Angaben aus der Kapitalflussrechnung
1
Geprüfte Finanzangaben.
24
31. Dezember
Weitere ausgewählte
Finanzinformationen1
2011
2012
30. Juni
2013
2013
(ungeprüft)
TEUR
TEUR
2014
(ungeprüft)
TEUR
TEUR
TEUR
Bruttoergebnis-Marge
28,0 %
26,5 %
28,0 %
27,6 %
30,7 %
EBITDA2
16.962
22.231
26.030
10.973
13.222
EBITDA Marge3
28,6 %
26,6 %
28,9 %
29,3 %
31,1 %
EBIT4
15.894
21.096
24.900
10.417
12.667
EBIT Marge5
26,8 %
25,2 %
27,6 %
27,8 %
29,8 %
Nettoergebnis-Marge6
19,8 %
18,5 %
20,8 %
21,0 %
22,5 %
7.165
5.217
–
–
–
(14.930)
(13.993)
(26.493)
(19.129)
(38.034)
Finanzverbindlichkeiten7
Nettoverbindlichkeit
8
1
Diese Informationen wurden auf Basis der Konsolidierten Jahresabschlüsse und dem Verkürzten Konsolidierten Zwischenabschluss
berechnet.
2
EBITDA berechnet sich als Periodenüberschuss abzüglich Zinserträge zuzüglich Zinsaufwand zuzüglich Steueraufwand abzüglich
Steuerrückvergütung zuzüglich/abzüglich Kapitalerträge zuzüglich Abschreibungen.
3
EBITDA Marge berechnet sich aus EBITDA dividiert durch Umsatzerlöse multipliziert mit 100.
4
EBIT berechnet sich aus Periodenüberschuss abzüglich Zinserträge zuzüglich Zinsaufwand zuzüglich Steueraufwand abzüglich Steuerrückvergütung zuzüglich/abzüglich Kapitalerträge.
5
EBIT Marge berechnet sich als EBIT geteilt durch Umsatzerlöse multipliziert mit 100.
6
Periodenüberschuss geteilt durch Umsatzerlöse multipliziert mit 100.
7
Finanzverbindlichkeiten berechnen sich aus der Gesamtsumme der Fremdmittel von Finanzinstituten.
8
Nettoverbindlichkeiten berechnen sich aus der Gesamtsumme der Fremdverbindlichkeiten abzüglich flüssiger und gleichwertiger Mittel.
Beschreibung der wesentlichen
Veränderungen der Finanzlage
und des Betriebsergebnisses des
Emittenten in oder nach dem von
den wesentlichen historischen
Finanzinformationen abgedeckten Zeitraum.
Die folgenden Veränderungen fanden in der Finanzlage und des
Betriebsergebnisses der Gesellschaft in den Geschäftsjahren
2011, 2012, 2013 und den zum 30. Juni 2013 sowie zum 30. Juni
2014 endenden Sechsmonatszeiträumen statt:
Geschäftsjahre 2011 und 2012
Die Einnahmen stiegen von EUR 59.218 Tausend im Jahr 2011
um EUR 24.363 Tausend oder 41,1 % auf EUR 83.581 Tausend
im Jahr 2012. Dieser Anstieg ist hauptsächlich auf das steigende
Bestellvolumen zurückzuführen, bei welchen teilweise die Produktion ausgelagert wurde und teilweise auf höhere Verkaufspreise zurückzuführen war. Die Umsatzkosten stiegen von
EUR 42.665 Tausend im Jahr 2011 um EUR 18.805 Tausend
oder 44,0 % auf EUR 61.470 Tausend im Jahr 2012. Der Anstieg
lag hauptsächlich am steigenden Verkaufsvolumen sowie an den
steigenden durchschnittlichen Stückkosten. Fenghuas EBITDA
stieg 2011 von EUR 16.962 Tausend um EUR 5.269 Tausend,
oder 31,1 % auf EUR 22.231 Tausend im Jahr 2012.
Geschäftsjahre 2012 und 2013
Die Einnahmen stiegen von EUR 83.581 Tausend im Jahr 2012
um EUR 6.475 Tausend oder 7,7 % auf EUR 90.056 Tausend im
Jahr 2013. Das Verkaufsvolumen stieg um 21,9 % im Jahr 2013
aber die Zunahme der Einnahmen wurde durch einen niedrigeren
25
durchschnittlichen Verkaufspreis verringert. Die Umsatzkosten
stiegen von EUR 61.470 Tausend im Jahr 2012 um EUR 3.356
Tausend oder 5,5 % auf EUR 64.826 Tausend im Jahr 2013. Der
Anstieg lag hauptsächlich am steigenden Verkaufsvolumen sowie
an den sinkenden durchschnittlichen Stückkosten. Fenghuas
EBITDA stieg 2012 von EUR 22.231 Tausend um EUR 3.799
Tausend, oder 17,1 % auf EUR 26.030 Tausend im Jahr 2013.
Die zum 30. Juni 2013 und zum 30. Juni 2014 endenden Dreimonatszeiträume
Zwischen dem 30. Juni 2014 und dem Datum dieses Prospekts
gab es keine wesentlichen Veränderungen hinsichtlich der
Finanzlage und des Betriebsergebnisses von Fenghua.
Proforma-Finanz-
Entfällt. Dieser Prospekt enthält keine Pro-forma-Finanzangaben.
B.8
Ausgewählte
angaben
B.9
Gewinnprognosen
zungen
B.10
Art etwaiger Beschränkungen im
Bestätigungsvermerk zu den
historischen Finanzinformationen
Entfällt. Es gibt keine Beschränkungen im Bestätigungsvermerk
zu den historischen Finanzinformationen.
B.11
Erklärung, ob das Geschäftskapital des Emittenten nicht ausreicht, um die bestehenden Anforderungen zu erfüllen
Entfällt. Das Geschäftskapital der Fenghua ist für die aktuellen
Anforderungen ausreichend.
und
–schät-
Entfällt. Dieser Prospekt enthält keine Gewinnprognosen und schätzungen.
Abschnitt C – Wertpapiere
C.1
Art
und
Gattung
der
angebotenen
und/oder
zum
Handel
zuzulassenden
Wertpapiere,
einschließlich
Wertpapierkennnummer.
Gegenstand des Angebots sind 1.200.000 auf den Inhaber
lautende Stammaktien ohne Nennbetrag (Inhaberstückaktien) der
Fenghua SoleTech AG mit einem anteiligen Betrag am
Grundkapital von jeweils EUR 1,00 und mit voller
Gewinnanteilberechtigung für das Rumpfgeschäftsjahr 2014 (die
“Neuen Aktien”).
Fenghua SoleTech AG beabsichtigt, die Zulassung sämtlicher
Aktien, insgesamt bis zu 11.200.000 Aktien (einschließlich Neuer
Aktien), zum Handel am regulierten Markt der Frankfurter
Wertpapierbörse (General Standard) sowie zum Handel am
regulierten Markt (Paralell Market) der Warschauer Börse, zu
beantragen.
International Securities Code (ISIN): DE000A13SX89
Wertpapierkennnummer (WKN): A13SX8
Ticker Symbol: FGT
C.2
Währung
emission
der
Wertpapier-
C.3
Zahl der ausgegebenen und voll
eingezahlten Aktien und der ausgegeben, aber nicht voll eingezahlten Aktien
EUR
Das bestehende Grundkapital der Gesellschaft besteht aus
10.000.000 voll eingezahlten Inhaberstückaktien ohne Nennbetrag, von denen jede einen anteiligen Wert von EUR 1,00 des
Grundkapitals hat.
26
Nennbetrag je Aktie oder Aktien
ohne Nennbetrag
C.4
Beschreibung der mit den Wertpapieren verbundenen Rechte
Jede Aktie berechtigt zur Abgabe einer Stimme auf der
Hauptversammlung der Gesellschaft. Die Stimmrechte der
Aktionäre
unterliegen
keiner
Einschränkung.
Die
Gründungsaktionäre der Gesellschaft haben keine abweichenden
Stimmrechte. Die Aktionäre haben alle ihnen nach deutschem
Recht zustehenden Rechte.
Die Aktien sind beginnend mit und für das Rumpfgeschäftsjahr
2014 voll gewinnanteilberechtigt.
C.5
Beschreibung aller etwaigen Beschränkungen für die freie Übertragbarkeit der Wertpapiere
Entfällt: Es bestehen keine Einschränkungen der Übertragbarkeit.
C.6
Angabe, ob für die angebotenen
Wertpapiere die Zulassung zum
Handel an einem geregelten
Markt beantragt wurde bzw.
werden soll, und Nennung aller
geregelten Märkte, an denen die
Wertpapiere gehandelt werden
oder werden sollen.
Ein Antrag auf Zulassung sämtlicher Aktien der Gesellschaft –
inklusive der Neuen Aktien – zum Handel am Regulierten Markt
(General Standard) der Frankfurter Wertpapierbörse wird
voraussichtlich am 18. Oktober 2014 eingereicht und die
Börsenzulassung wird voraussichtlich am 5. November erteilt
werden. Die Notierungsaufnahme wird voraussichtlich am
6. November 2014 erfolgen.
Dividendenpolitik
Der Vorstand und der Aufsichtsrat der Gesellschaft
beabsichtigen, die Ausschüttung von Gewinnen als Dividende für
das Rumpfgeschäftsjahr 2014 und darauffolgende Geschäftsjahre
in einer Höhe von 10 % bis 20 % der Gewinne des jeweiligen
Jahres gemäß den konsolidierten IFRS Jahresabschlüssen der
Gesellschaft vorzuschlagen, sofern und soweit die (individuellen)
Jahresabschlüsse der Gesellschaft einen entsprechenden
Bilanzgewinn ausweisen. Eine solche Ausschüttung wird nur
erfolgen, sofern und soweit diese durch die jährlichen
Nettoeinnahmen, die in den jeweiligen (individuellen)
Jahresabschlüssen der Gesellschaft gemäß HGB, gedeckt ist. Die
Ausgaben und Kosten dieses Angebots werden einen einmaligen
Effekt haben, der die Geschäftsergebnisse der Gesellschaft für
2014 erheblich negativ beeinträchtigen wird.
C.7
Die Gesellschaft wird auch einen Antrag auf Zulassung der
Aktien der Gesellschaft, einschließlich der Neuen Aktien, zum
Handel an der Warschauer Wertpapierbörse (“WSE”) stellen,
und zwar in einem kontinuierlichen Preisermittlungssystem im
Regulierten Markt (Parallel Market) der WSE.
27
Abschnitt D – Risiken
Anleger sollten gewisse Risiken sorgfältig abwägen, bevor sie die Entscheidung zum Kauf von Aktien der Gesellschaft treffen. Das Eintreten der mit diesen Risiken verbundenen Ereignisse entweder einzeln oder zusammen mit
anderen Umständen kann sich wesentlich nachteilig auf die Geschäftstätigkeit von Fenghua auswirken und die
Vermögens-, Finanz- und Ertragslage von Fenghua erheblich beeinträchtigen. Es ist möglich, dass infolge eines
mit dem Eintreten dieser Risiken verbundenen Ereignisses der Börsenkurs der Aktien sinkt und Anleger ihr investiertes Kapital ganz oder teilweise verlieren. Die Reihenfolge, in der die Risikofaktoren dargestellt sind, stellt weder eine Aussage über die Eintrittswahrscheinlichkeit noch über die Bedeutung und Höhe der Risiken oder das
Ausmaß der möglichen Beeinträchtigung des Geschäfts der Gruppe dar. Die genannten Risiken können einzeln
oder kumulativ eintreten.
D.1
Zentrale Angaben zu den zentralen Risiken, die dem Emittenten
oder seiner Branche eigen sind
Risiken im Zusammenhang mit Fenghuas Geschäftstätigkeit

Die Betriebsgeschichte der Gesellschaft könnte nicht als
ausreichendes Maß der zukünftigen Aussichten und der Ertragslage dienen.

Fenghua arbeitet in einem sehr wettbewerbsorientierten
Marktumfeld und der starke Wettbewerb, dem Fenghua ausgesetzt ist, könnte in einem Rückgang von Fenghuas Marktanteil und geringeren Gewinnspannen resultieren.

Jegliche wesentliche Betriebsstörungen der Geschäftstätigkeit von Fenghua oder der Geschäftstätigkeit von Fenghuas
Lieferanten oder Vertragspartnern durch Naturkatastrophen,
Krieg, politische Unruhen und Epidemien können Fenghuas
Geschäftstätigkeit, sowie ihre Finanz- und Ertragslage erheblich beeinträchtigen.

Fenghuas Versicherungsschutz könnte nicht ausreichend
sein um sich gegen Verluste zu schützen.

Ein potentieller Mangel an Rohstoffen könnte Fenghuas
Ertragswachstum einschränken und die Gewinnspanne sowie die Profitabilität durch eine Preiserhöhung solcher Rohstoffe senken.

Fenghuas zukünftiger Erfolg hängt von ihrer Fähigkeit ab,
sowohl ihre Herstellungskapazitäten, als auch ihr Verkaufsvolumen beträchtlich zu steigern, was Fenghua einer Menge
Risiken und Unklarheiten aussetzt.

Sollte Fenghuas Wachstumsstrategien fehlschlagen, könnte
dies Fenghuas betriebswirtschaftliche, operative- und finanzielle und andere Ressourcen belasten und könnte Fenghuas
Geschäftstätigkeit und die Finanz- und Ertragslage erheblich
und negativ beeinträchtigen.

Der Erfolg von Fenghuas Geschäftstätigkeit ist abhängig
davon, qualifiziertes Personal zu finden und zu halten.

Jegliche Rufschädigung Fenghuas könnte Fenghuas Geschäftstätigkeit und ihre Finanz- und Ertragslage erheblich
einschränken

Fenghua könnte gezwungen sein, zusätzliche Zahlungen für
Sozialversicherungen und Wohnraumförderung zu leisten.

Fenghuas Geschäftstätigkeit und finanzielle Leistungsfähigkeit könnten von Personalmangel, steigenden Personalkosten oder Arbeitsrechtsstreitigkeiten erheblich eingeschränkt
28
werden.

Fenghuas Geschäftstätigkeit könnte erheblich eingeschränkt
werden, wenn Fenghua ihre Geschäftsbeziehungen zu Lohnherstellern nicht effektiv pflegen kann oder sie verliert.

Fenghuas Geschäftstätigkeit und ihre Finanz- und Ertragslage könnten erheblich eingeschränkt werden, wenn Fenghua
oder Fenghuas Lohnhersteller die Produkte nicht fristgerecht
liefern oder nicht die Qualität liefern, die von Fenghuas
Kunden und Vertriebshändlern erwartet wird.

Fenghua könnte nicht in der Lage sein, schnelle Änderungen
von Verbrauchergewohnheiten und -vorlieben rechtzeitig
vorauszusehen und entsprechend zu reagieren

Die Gesellschaft ist eine Holdinggesellschaft, deren Liquidität vom Zugriff auf die finanziellen Mittel der operativen
Tochtergesellschaften in China abhängig ist.

Fenghua könnte nicht in der Lage sein, ihre Immaterialgüterrechte ausreichend zu schützen, was Fenghuas Geschäft
schaden könnte.

Fenghua ist potentiellen Umwelthaftungsrisiken ausgesetzt.
Änderungen bestehender Gesetze und Richtlinien oder zusätzliche oder strengere Gesetze und Richtlinien zum Umweltschutz in China könnten bei Fenghua zu zusätzlichen
Investitionsausgaben führen.

Fenghua könnte Produkthaftung, Haftung für Sachschäden
oder für Personenschäden unterliegen, was Fenghuas Geschäftstätigkeit und ihre Finanz- und Ertragslage erheblich
einschränken könnte.

Die Gesellschaft und Fenghua Hong Kong könnten zu steuerlichen Zwecken der Volksrepublik China nach Unternehmenseinkommensteuerrecht als ein in China steueransässiges Unternehmen behandelt werden und daher der Besteuerung in China unterliegen.

Die Aktionäre könnten der Besteuerung in China unterliegen.

Die chinesischen “Bestimmungen zum Kauf von inländischen Unternehmen durch ausländische Investoren” (“M&A
Provisions”) könnten eine negative Auswirkung auf Fenghua haben.

Regulierungen der State Administration of Foreign Exchange (SAFE) bezüglich Investitionen im Ausland durch Einwohner von China oder Personen chinesischer Nationalität
könnten Fenghuas Geschäftsbetrieb und Finanzierungsalternativen negativ beeinflussen.

Einschränkungen von Devisenbestimmungen (foreign
exchange regulations) und Dividendenauszahlungen könnten Fenghuas Tochterunternehmen dahingehend einschränken, Zahlungen an Fenghua anzuweisen.

Chinas Bestimmungen bezüglich Darlehen und Kapitaldirektinvestitionen durch ausländische Muttergesellschaften
zu chinesischen Unternehmen könnten verzögern oder Fenghua an der Nutzung der Erlöse dieses Angebots hindern.
29

Fenghua wird Devisenbestimmungen der Regierung der
Volksrepublik China ausgesetzt was außerdem einen erheblichen Einfluss auf Wechselraten haben könnte.

Fenghuas Geschäftsleitung und Finanzberichtssystem könnte unzureichend sein, um Fenghuas zukünftiges Wachstum
zu unterstützen und um die sachgerechte Darstellung der
Konzernabschlüsse zu garantieren.

Der Vorstand der Gesellschaft hat keine Erfahrung in der
Einhaltung deutscher Rechtsvorschriften für börsennotierte
Unternehmen und Fenghua hat kein umfassendes Risikomanagementsystem aufgebaut.

Der Aufsichtsrat der Gesellschaft könnte Schwierigkeiten
bei der Überwachung des Vorstandes haben, insbesondere
da die Mitglieder des Aufsichtsrates nur begrenzte Erfahrung in der Erfüllung ihrer Aufgaben nach dem deutschen
Aktiengesetz hat.
Risiken bezüglich des politischen, sozialen und rechtlichen Umfelds in China

Allgemeine Risiken bezüglich der Geschäftstätigkeit in
China, welche generell größeren wirtschaftlichen, politischen und rechtlichen Risiken unterworfen ist, als Geschäftstätigkeit in weiter entwickelten Volkswirtschaften.

Wirtschaftliche Instabilität in China könnte sich ungünstig
auf die Geschäfte von Fenghua auswirken.

Eine Destabilisierung des politischen Systems könnte die
wirtschaftliche Liberalisierung Chinas gefährden.

Gesundheitsgefährdende Epidemien und der Ausbruch von
ansteckenden Krankheiten, wozu auch die Vogelgrippe, das
akute respiratorische Syndrom (SARS) oder die Schweinegrippe zählen, könnten die chinesische Wirtschaft erheblich nachteilig beeinflussen.

Das Rechtssystem der Volksrepublik China und die nationalen steuerlichen Vorschriften beinhalten Unsicherheiten und
Unstimmigkeiten.

Die mangelnde Unabhängigkeit und geringe Erfahrung des
Gerichtswesens und die Schwierigkeiten bei der Vollstreckung von richterlichen Entscheidungen sowie der Ermessensspielraum der staatlichen Behörden bei der Durchsetzung gerichtlicher Anordnungen könnten Fenghua daran
hindern, effektive Rechtsmittel in einem Gerichtsverfahren
einzusetzen.

Es bestehen Schwierigkeiten hinsichtlich der Anerkennung
und Durchsetzung von ausländischen Urteilen in China.

Ausländischen Investitionen in chinesischen Unternehmen
könnten Beschränkungen auferlegt werden.

Veränderungen der Arbeitspolitik und -gesetzgebung in
China könnten die Geschäftsergebnisse beeinflussen.

Die Genauigkeit der industriellen und der statistischen Daten, die in diesem Prospekt enthalten sind, könnte nicht zuverlässig sein.
30
D.3
Zentrale Angaben zu den zentralen Risiken, die den Wertpapieren eigen sind
Risiken bezüglich des Angebots

Der Vorstandsvorsitzende der Gesellschaft, Herr Weijie Lin,
wird auch nach dem Börsengang weiterhin einen beträchtlichen Teil des Grundkapitals der Gesellschaft halten, was
ihm ermöglicht, weiterhin ein hohes Maß an Kontrolle über
die Gesellschaft auszuüben und einen Interessenskonflikt für
ihn darstellen könnte.

Ein öffentlicher Handel mit Aktien der Gesellschaft könnte
sich möglicherweise nicht entwickeln.

Der Aktienkurs könnte Kursschwankungen ausgesetzt sein.

Der Verkauf von Aktien durch die CMI könnte den Aktienkurs beeinträchtigen.

Das Eingehen von Leerverkäufen vor Lieferung ist mit Risiken behaftet.

Die WSE könnte die Aktien nicht zum Handel zulassen oder
könnte den Handel später aussetzen bzw. die Zulassung zurücknehmen.

Das Angebot könnte nicht vollständig durchgeführt werden
was negativen Einfluss auf die Wachstumsperspektiven von
Fenghua und/oder die Liquidität der Aktien im Markt hat.

Sollte die Gesellschaft die regulatorischen Anforderungen,
die an eine börsennotierte Aktiengesellschaft gestellt werden, nicht erfüllen, könnte dies zu Geldbußen, Schadensersatzansprüchen und einem negativen Ansehen der Gesellschaft führen, was wiederum den Wert der Aktien negativ
beeinflussen könnte.

Andere öffentliche Angebote während des Angebotszeitraumes könnten das Interesse möglicher Investoren an dem
Angebot verringern.

Das Angebot könnte beendet oder ausgesetzt werden.
Risiken bezüglich des Angebots in Polen

Polnischen Investoren könnte die Ausübung bestimmter
Aktionärsrechte in der Gesellschaft schwieriger und kostenintensiver erscheinen als bei der Ausübung dieser Rechte bei
einem Unternehmen nach polnischem Recht.

Sowohl Unterschiede zwischen dem deutschen und polnischen Handels-, Abrechnungs- und Clearingsystem als auch
Währungsunterschiede und möglicherweise höhere Transaktionskosten könnten einen negativen Einfluss auf das Angebot in Polen und auf den Handel der Aktien an der WSE haben.

Sollte die Gesellschaft ihre Verpflichtungen im Zusammenhang mit dem Angebot in Polen und/oder der Zulassung zur
Notierung und zum Handel an der WSE verletzen, könnten
ihr behördliche Maßnahmen seitens der polnischen Finanzdienstleistungsaufsicht (Komisja Nadzoru Fonansowego –
“KNF”) drohen.

Sollte die Gesellschaft im Zusammenhang mit dem Angebot
ihre Verpflichtungen im Zusammenhang mit Werbemaßnahmen in Polen verletzen, könnten ihr behördliche Maß-
31
nahmen seitens der KNF drohen.

Das polnische Steuerrecht könnte sich verändern und die
potentiellen Veränderungen könnten den Gewinn der Investoren negativ beeinflussen.

Die Nichteinhaltung der Corporate Governance Vorschriften
der WSE durch die Gesellschaft könnte dazu führen, dass
polnische Anleger die Gesellschaft als vergleichsweise weniger tranparent einstufen, was wiederum einen negativen
Einfluss auf das Angebot, den Wert und die Liquidität der
Aktien haben könnte.

Die insolvenzrechtlichen Regelungen in Deutschland, Polen
und China sind unterschiedlich.
Abschnitt E – Angebot
E.1
Gesamtnettoerlöse der Erträge
und eine Schätzung der Gesamtausgaben des Angebots, einschließlich geschätzter Ausgaben,
die dem Investor von dem Emittenten in Rechnung gestellt werden
Da die Nettoerlöse des Angebots von dem Bruttoeinkommen und
den Gesamtkosten des Angebots abhängt, kann Fenghua zu diesem
Zeitpunkt noch keine zuverlässigen Angaben bezüglich der Nettoerlöse machen. Fenghua schätzt, dass Gesamtnettoerlöse zwischen
EUR 10,4 Millionen und EUR 12,7 Millionen möglich sind, wenn
man von einer Platzierung aller Neuen Aktien ausgeht, die Fenghua von dem Verkauf der Neuen Aktien erhalten würde.
Auf Basis der Preisspanne schätzt die Gesellschaft, dass sich die
Gesamtkosten des Angebots (einschließlich der Kommission des
Underwriters) zwischen EUR 1,6 Millionen und EUR 1,7 Millionen liegen, welche durch die Gesellschaft anfallen werden.
Weder die Gesellschaft noch der Underwriter werden den Investoren Gebühren berechnen. Die Investoren werden mit den üblichen
Transaktions- und Bearbeitungsgebühren belastet werden, die bei
ihrem kontoführenden Institut anfallen.
E.2a
Gründe für das Angebot, Verwendung der Erträge, geschätzter
Nettobetrag der Erträge
Fenghuas Gründe für das Angebot sind, die Aufmerksamkeit für
ihre Marke zu steigern und die Einnahmen aus der Kapitalerhöhung zu nutzen, um ihre Wachstumsstrategie zu verfolgen.
Die Gesellschaft plant, die Nettoerlöse, die es aus dem Verkauf der
Neuen Aktien erhalten wird (welche auf zwischen EUR 10,4 Millionen und EUR 12,7 Millionen geschätzt werden), für die Finanzierung des weiteren Ausbaus von Fenghuas Geschäften zu nutzen.
Insbesondere plant Fenghua:

ca. 95 % der Nettoerlöse (bzw. zwischen EUR 9,88 Millionen und EUR 12,07 Millionen) zu nutzen, um ihre Produktionseinrichtungen zu vergrößern, indem sie ein zusätzliches
Stockwerk zu ihrem momentan Gebäude hinzufügen, um
die gesamte Bodenfläche der Fabrik von 1.600 m2 zu
3.000 m2 zu erweitern. Außerdem soll in Produktionsmaschinen zur Herstellung der Schuhsohlen investiert werden,
womit dann das zusätzliche Stockwerk ausgestattet wird;
und

ca. 5 % der Nettoerlöse (bzw. zwischen EUR 0,52 Millionen und EUR 0,63 Millionen) für das Produktdesign und
32
die technische Entwicklung durch Investitionen in zusätzliche Software für das Design von Schuhsohlen und die Anschaffung von Geräten, welche der Entwicklung und zum
Test von Prototypen dienen, zu nutzen.
Für den Fall, dass die Nettoerlöse unzureichend für den oben aufgeführten Plan sein sollten, plant Fenghua, mit den Nettoerlösen so
viel wie möglich davon durchzuführen und den Rest mit ihrem
Cashflow zu finanzieren. Sollte der Cashflow nicht ausreichen,
verringern sich diese Pläne soweit eben möglich.
Unter der Annahme, dass alle Neuen Aktien platziert werden,
rechnet Fenghua mit einem Bruttoerlös des Angebots von insgesamt ungefähr EUR 12,0 Millionen bis EUR 14,4 Millionen, von
denen die Gesellschaft zwischen EUR 10,4 Millionen und
EUR 12,7 Millionen als Nettoerlös erhält. Die an die Konsortialbank zu zahlende Provision wird vermutlich zwischen EUR 0,6
Millionen und EUR 0,7 Millionen liegen.
Fenghua glaubt, dass sich die Gesamtkosten des Angebots auf
EUR 1,6 Millionen bis EUR 1,7 Millionen belaufen werden.
E.3
Beschreibung der Angebotsbedingungen
Das Angebot besteht aus einem öffentlichen Angebot in der Bundesrepublik Deutschland und Polen sowie Privatplatzierungen an
institutionellen Anlegern außerhalb der Bundesrepublik Deutschland, Polen und den Vereinigten Staaten.
Gegenstand des Angebots sind 1.200.000 auf den Inhaber lautende
Stammaktien ohne Nennbetrag (Inhaberstückaktien) der Fenghua
SoleTech AG mit einem anteiligen Betrag am Grundkapital von
jeweils EUR 1,00 und mit voller Gewinnanteilberechtigung für das
Rumpfgeschäftsjahr 2014 (die “Neuen Aktien”). Die Neuen Aktien stammen aus einer Kapitalerhöhung aus dem genehmigten
Kapital, die voraussichtlich am 27. Oktober 2014 vom Vorstand
beschlossen werden wird.
Angebotsfrist
Die Angebotsfrist beginnt am 17. Oktober 2014 und endet am 23.
Oktober 2014. Die Gesellschaft und die Joint Global Coordingators
behalten sich ausdrücklich das Recht vor, das Auftragsbuch vor
dem 23. Oktober 2014 zu schließen und das frühere Ende der Angebotsfrist zu verkünden.
Kaufangebote sind bis zum Ende jeder Angebotsfrist frei widerruflich.
Am letzten Tag der Angebotsfrist können Privatanleger Kaufangebote bis 12:00 Uhr (MEZ) und institutionelle Anleger bis
18:00 Uhr (MEZ) abgeben.
Preisspanne
Die Preisspanne, innerhalb derer Kaufangebote abgegeben werden
können, beträgt EUR 10,00 bis EUR 12,00 pro Neuer Aktie.
Platzierungspreis
Der Platzierungspreis je Neuer Aktie wird von der Gesellschaft und
den Joint Global Coordinators anhand des im BookbuildingVerfahren erstellten Auftragsbuchs gemeinsam festgelegt. Der
Platzierungspreis wird im Anschluss hieran in Form einer Ad-hocMitteilung über ein elektronisch betriebenes Informationssystem
und auf der Internetseite der Gesellschaft (www.Fenghua.de) ver-
33
öffentlicht. Insbesondere für den Fall, dass das Platzierungsvolumen nicht ausreicht, um sämtliche Kaufaufträge zum Platzierungspreis zu bedienen, behält sich der Underwriter vor, Kaufangebote
nicht oder nur teilweise anzunehmen.
Änderungen der Angebotsbedingungen
Die Gesellschaft behält sich gemeinsam mit den Joint Global
Coordinators das Recht vor, die Anzahl der Neuen Aktien zu verringern, die obere und/oder untere Begrenzung der Preisspanne zu
reduzieren oder zu erhöhen und/oder den Angebotszeitraum zu
verlängern oder zu verkürzen. Im Falle einer Änderung der Angebotsbedingungen wird die Änderung als Mitteilung über elektronische Informationsdienstleister wie Reuters oder Bloomberg sowie
auf der Internetseite der Gesellschaft (www.Fenghua.de) und, soweit dies nach dem Wertpapierhandelsgesetz und/oder dem Wertpapierprospektgesetz erforderlich ist, als Ad-hoc-Mitteilung
und/oder als Nachtrag zu diesem Prospekt veröffentlicht werden.
Eine individuelle Benachrichtigung der Anleger, die Kaufangebote
abgegeben haben, erfolgt nicht.
Lieferung und Abrechnung der Neuen Aktien
Die Neuen Aktien werden voraussichtlich am 7. November 2014
gegen Zahlung des Platzierungspreises geliefert.
Allgemeine Zuteilungskriterien
Die Gesellschaft und der Underwriter werden die “Grundsätze für
die Zuteilung von Aktienemissionen an Privatanleger” beachten,
die am 7. Juni 2000 von der Börsensachverständigenkommission
beim Bundesministerium der Finanzen herausgegeben wurden.
Underwriter
ACON Actienbank AG
Joint Global Coordinators, Joint Bookrunners und Joint Lead
Managers
ACON Actienbank AG, Dom Maklerski DF Capital Sp. z o.o
Vorzeitige Beendigung des Angebots
Der Übernahmevertrag sieht vor, dass ACON als der Underwriter
den Übernahmevertrag bei Vorliegen von bestimmten Umständen
kündigen kann. Dies ist auch noch nach Zuteilung und Notierung
der Aktien bis zur Lieferung und Abrechnung der Aktien möglich.
Im Falle einer Kündigung des Übernahmevertrags erfolgt kein
Angebot. In einem solchen Falle werden Aktienzuteilungen der
Neuen Aktien an die Anleger für ungültig erklärt und die Anleger
haben keinen Lieferungsanspruch. Ansprüche aus gezahlten Zeichnungsgebühren und den Anlegern im Zusammenhang mit der
Zeichnung entstandene Kosten werden ausschließlich nach Maßgabe der rechtlichen Verhältnisse zwischen dem jeweiligen Anleger und der Institution, bei der dieser ein Kaufangebot abgegeben
hat, geregelt.
E.4
Beschreibung jeglicher Interessen, die für das Angebot von Bedeutung sind, einschließlich Interessenskonflikte
ACON und DF Capital stehen in einer vertraglichen Beziehung zu
Fenghua im Rahmen der Umsetzung des Angebots. ACON wurde
als Underwriter mandatiert und ACON und DF Capital werden
Fenghua im Rahmen der Umsetzung des Angebots beraten und
dessen Strukturierung und Ausführung koordinieren. ACON wird
34
die Neuen Aktien im Rahmen des ausgeführten Übernahmevertrages erwerben und verkaufen. Die Vergütung der Joint Lead Manager ist leistungsbasiert und von der Höhe der Verkaufserlöse abhängig, so dass die Joint Lead Manager ein Interesse an einer erfolgreichen Umsetzung des Angebots haben.
Im Rahmen des Angebot werden die Joint Lead Manager und verbundene Unternehmen die Möglichkeit haben, Neue Aktien für
eigene Rechnung zu erwerben und zu halten, für eigene Rechnung
zu kaufen und zu verkaufen und können weiterhin diese Aktien
außerhalb des Angebots anbieten oder verkaufen. Die Joint Lead
Manager beabsichtigen nicht, den Umfang solcher Investitionen
oder Transaktionen über die rechtlich geforderten Rahmen hinaus
bekanntzugeben.
Die Gründungsaktionäre haben ein Interesse an dem Angebot, da
sich die Liquidität ihrer Anteile dadurch erhöht. Der Vorstandsvorsitzende der Gesellschaft ist ebenfalls ein indirekter Aktionär und
seine Interessen als Gründungsaktionär könnten nicht immer in
Einklang mit den Interessen der Gesellschaft stehen.
E.5
Name der Person oder des Unternehmens, der anbietet, die
Wertpapiere zu verkaufen
Die Neuen Aktien werden durch die Joint Lead Managers angeboten.
Marktschutzvereinbarung/
Veräußerungsbeschränkungen
(Lock-up)
Die Gesellschaft hat sich gegenüber dem Underwriter verpflichtet,
innerhalb der ersten zwölf Monate nach Notierung der Aktien der
Gesellschaft an der Frankfurter Wertpapierbörse:

keine Kapitalerhöhung aus genehmigtem Kapital anzukündigen oder durchzuführen,

der Hauptversammlung keine Kapitalerhöhung zur Beschlussfassung vorzuschlagen,

weder (a) direkt noch indirekt Aktien oder andere Wertpapiere der Gesellschaft, die in Aktien der Gesellschaft umgewandelt werden können oder dafür eingetauscht werden
können oder ein Recht zum Erwerb von Aktien der Gesellschaft verkörpern, auszugeben, zu kaufen, zu verkaufen, anzubieten, sich zu deren Verkauf zu verpflichten, zu vermarkten, anderweitig auszugeben oder ein darauf bezogenes
Angebot bekannt zu machen, noch (b) Geschäfte (einschließlich Derivativgeschäfte) abzuschließen oder durchzuführen, die wirtschaftlich dem Kauf oder Verkauf von Aktien der Gesellschaft entsprechen oder (c) weder direkt noch
indirekt Geschäfte im Sinne der vorangehenden Bestimmungen (a) und/oder (b) zu veranlassen oder diesen zuzustimmen.
CMI hat sich gegenüber dem Underwriter verpflichtet, innerhalb
der ersten zwölf Monate nach Notierung der Aktien der Gesellschaft an der Frankfurter Wertpapierbörse

weder direkt noch indirekt Aktien der Gesellschaft oder
andere Wertpapiere, die in Aktien der Gesellschaft umgewandelt, ausgeübt oder dafür eingetauscht werden können,
anzubieten, zu verpfänden, zuzuteilen, zu verkaufen, sich zu
deren Verkauf, Einbringung oder anderweitiger Übertragung zu verpflichten oder einverstanden zu sein, Aktionärsvereinbarungen im Hinblick auf die Stimmrechte einzuge-
35
hen oder anderweitig mit anderen Aktionären zusammenzuwirken (“acting in concert”), eine Option zu deren Erwerb
zu verkaufen oder sich zu dem Erwerb zu verpflichten, eine
Option zu deren Verkauf zu erwerben, eine Option, ein
Recht oder die Befugnis zu deren Erwerb zu gewähren oder
anderweitig Aktien der Gesellschaft oder andere Wertpapiere, die in Aktien der Gesellschaft umgewandelt oder ausgeübt oder dafür eingetauscht werden können, zu übereignen
oder diese zu veräußern,

keine Swapgeschäfte oder andere Geschäfte abzuschließen,
mit denen das wirtschaftliche Risiko verbunden mit dem
Besitz von Aktien der Gesellschaft ganz oder teilweise auf
einen Dritten übertragen wird, unabhängig davon, ob die in
den voranstehenden Klauseln beschriebenen Geschäfte
durch die Lieferung von Aktien der Gesellschaft, anderer
Wertpapiere, Barzahlung oder sonstiger Gegenleistung befriedigt werden sollen,

keine Registrierung von Aktien der Gesellschaft oder anderen Wertpapieren, die in Aktien der Gesellschaft umgewandelt, ausgeübt oder dafür eingetauscht werden können, nach
US-amerikanischen Wertpapierbestimmungen zu fordern
oder Rechte auf eine solche Eintragung auszuüben, oder

ohne die schriftliche Zustimmung der Joint Global Coordinators keine Kapitalerhöhung der Gesellschaft vorzuschlagen, einer solchen vorgeschlagenen Erhöhung zuzustimmen
oder eine vorgeschlagene Kapitalerhöhung der Gesellschaft
anderweitig zu unterstützen.
Diese Beschränkungen gelten nicht für den Verkauf der Neuen
Aktien im Rahmen des Angebots sowie für Aktien, die auf dem
freien Markt erworben werden.
E.6
Die Summe und der Prozentsatz,
die aus einer unmittelbaren Verwässerung resultieren
Für den Fall eines Zeichnungsangebots für die existierenden Aktionäre, die Summe und der Prozentsatz einer unmittelbaren
Verwässerung, sollten diese das
Der Nettobuchwert (entspricht dem Eigenkapital abzüglich Landnutzungsrechten) zum 30. Juni 2014 beträgt, wie im Verkürzten
Konsolidierten Zwischenabschluss unter IFRS angegeben,
EUR 49.392. Dies entspricht in etwa EUR 4,94 pro Aktie (kalkuliert auf der Grundlage von 10.000.000 Aktien zum Datum des
Prospektes).
Unter der Annahme, dass alle 1.200.000 Neuen Aktien platziert
werden und dass der Angebotspreis EUR 11 betragen wird, was der
Mitte der Preisspanne entspräche, ergäbe sich ein Nettoerlös aus
der Platzierung der Neuen Aktien von ca. EUR 11,5 Millionen für
die Gesellschaft. Hätte die Gesellschaft diese Summe bereits zum
30. Juni 2014 erreicht, wäre der Eigenkapitalwert zu dieser Zeit bei
ca. EUR 60,9 Millionen oder EUR 5,44 pro Aktie (basierend auf
der steigenden Anzahl der 11.200.000 Aktien nach der Platzierung
aller Neuen Aktien) gelegen. Aufgrund der oben erwähnten Annahmen, würde eine Einführung des Angebots zu einem direkten
Anstieg des Eigenkapitalwerts der Aktionäre von EUR 0,50, oder
10,1 % pro Aktie für den Gründungsaktionär und eine direkte
Verwässerung von zwischen EUR 5,56, oder 50,5 %, pro Aktie für
den Käufer der Neuen Aktien führen.
Nicht anwendbar, da es kein Angebot von Bezugsrechten an die
existierenden Aktionäre gibt.
36
neue Angebot nicht zeichnen
E.7
Geschätzte Ausgaben, die dem
Investor durch die Gesellschaft
oder den Anbieter in Rechnung
gestellt werden
Entfällt. Weder die Gesellschaft noch die Joint Lead Managers
werden den Investoren Gebühren in Rechnung stellen. Die Investoren werden von ihren depotführenden Finanzinstituten mit den
üblichen Transaktions- und Bearbeitungsgebühren belastet werden.
37
RISK FACTORS
Investors should carefully read and consider the risks described below and other information included in this
Prospectus before deciding whether to purchase shares of the Company. The occurrence of these risks, alone or
in connection with other circumstances, may materially and adversely affect the business of Fenghua and have a
material adverse effect on the business, financial condition and results of operations of Fenghua. The market
price of the shares could decline as a result of the occurrence of any of these risks, and investors may lose all or
part of their investment. Additional risks and uncertainties of which the Company is currently not aware could
also materially adversely affect the business of Fenghua and could have material adverse effects on the business,
financial condition and results of operations of Fenghua. Investors should pay particular attention to the fact
that the operating entities of Fenghua are incorporated in China and governed by a legal and regulatory environment which in various respects may differ from that of other countries. The order in which the following risk
factors are presented does not reflect the likelihood of their occurrence, nor the extent or significance of the
individual risks.
Risks Related to Fenghua's Business
The Company's operating history may not serve as an adequate measure of the future prospects and results of operations.
The Company's operating subsidiary, Fenghua Jinjiang was established in 2004 and has a long track record in the
industry. Nonetheless, the Company may not be able to maintain the substantial growth it has experienced in the
past several years (33 % growth between 2010 and 2011, and 27 % growth between 2011 and 2012, and 9 %
growth between 2012 and 2013). The Company's future success will depend on its ability to keep expanding its
sales volumes beyond its current level and to target brands with higher added-value. Investors should consider
Fenghua's business and prospects in light of the risks and difficulties Fenghua faces with a limited financial
reporting history in the competitive sports shoes industry and should not rely on Fenghua's past results as an
indication of Fenghua's future performance. In particular, Fenghua may face challenges in planning the Company's growth strategy and forecasting market demand accurately as a result of Fenghua's limited historical data. If
Fenghua is unable to successfully address these risks, difficulties and challenges as a result of Fenghua's limited
financial reporting history, Fenghua's ability to implement its strategic initiatives could be adversely affected,
which may in turn have a material adverse effect on Fenghua's business, financial condition, results of operations.
Fenghua operates in a very competitive market and the intense competition Fenghua faces may result in a
decline in Fenghua's market share and lower profit margins.
The market for sports shoe soles is highly fragmented and competitive. Fenghua estimates that there are 4,000
sports shoe soles manufacturers in Quanzhou. Participants in this market compete based on, among other things,
product variety, product design, product quality, marketing and promotion, price and the ability to meet delivery
commitments to customer. Furthermore, sports shoe brands companies are continuously demanding higher quality, shorter lead times and lower prices from their suppliers, while ordering smaller volumes to offer a greater
diversity of designs. As a result, the Company’s future success will depend on its ability to maintain an efficient,
timely and cost-effective production while delivering high-quality products. If it fails to do so, it may lose market share to better managed and faster-growing competitors. Fenghua may be forced to among other actions,
reduce prices and increase operating expenditures on advertising and product design and development, which
may in turn materially adversely affect Fenghua's business, financial condition and results of operations.
Any material disruption of Fenghua's operations or the operations of Fenghua's suppliers or contract
manufacturers from natural disasters, war, political unrest and epidemics could materially adversely
affect Fenghua's business, financial condition and results of operations.
Fenghua's operations are subject to uncertainties and contingencies beyond Fenghua's control that could result in
material disruptions and adversely affect Fenghua's results of operations. These include war, riots, public disorder, civil commotion, fire, earthquake, flood and other natural calamities, epidemics, outbreaks of infectious
disease, terrorism, whether locally or nationwide, or incidents such as industrial accidents, equipment failures,
power failures or disruptions, the breakdown, failure or substandard performance of equipment, the improper
installation or operation of equipment and the destruction of buildings, equipment and other facilities due to
natural disasters, the malfunction of information systems, delays in the distribution and transportation of
Fenghua's products or other operational problems, strikes or other labour difficulties and disruption of public
38
infrastructure such as roads, ports or utilities. Any such disruption of Fenghua's operations or the operations of
Fenghua's suppliers or contract manufacturers could cause Fenghua to disrupt, limit or delay Fenghua's production, prevent Fenghua from meeting customer orders, increase Fenghua's costs of production or require Fenghua
to make additional capital expenditures and could materially adversely affect Fenghua's results of operations.
Fenghua currently does not have a business interruption insurance to offset potential losses caused by any interruption in Fenghua's production, which could materially adversely affect Fenghua's business, financial condition
and results of operations.
Fenghua's insurance coverage may be inadequate to protect Fenghua against losses.
Fenghua may not have an adequate property or casualty insurance covering Fenghua's facilities, equipment,
office buildings or other assets. Fenghua also does not have any business liability or business interruption insurance coverage for Fenghua's operations in China. If any claims for injury were brought against Fenghua, or if
Fenghua experiences any business disruption, litigation or natural disaster, Fenghua may incur substantial costs
and experience diversion of resources. Significant uninsured damage to any of Fenghua's production facilities,
office buildings or other assets, whether as a result of “Acts of God” or other causes, could have a material and
adverse effect on Fenghua's business, financial condition and results of operations.
A potential shortage of any raw material may constrain the Fenghua's revenue growth and decrease its
gross margins and profitability through an increase of prices of such raw materials.
The Company is located in a region with a large number of raw material suppliers. It orders raw materials from
several large suppliers in batches. Raw materials account for 56 % of the 2013 production cost of a sole. To the
extent Fenghua's raw material suppliers do not continue to supply Fenghua with the raw materials it requires at
similar prices, volumes or at all, Fenghua's production may be seriously impacted and Fenghua's reputation,
business, results of operations, financial condition and prospects may materially suffer. Oil is the main product
used to produce plastic resins and synthetic rubber. As a result, the Company’s production costs are highly dependent on the price of oil. If the Company faces market situations with increasing raw material prices, and is
unable to pass on the costs fully onto customers, Fenghua's margins may be adversely affected. This could have
a material adverse effect on Fenghua's business, financial condition and results of operations.
Fenghua's future success largely hinges on its ability to significantly expand both its manufacturing capacity and sales volumes, which exposes Fenghua to a number of risks and uncertainties.
Fenghua's future success depends on its ability to increase both its manufacturing capacity and sales volumes. If
Fenghua is unable to do so, it may be unable to expand its revenues and maintain its competitive position.
Fenghua's ability to establish additional processing capacity and increase sales volumes is subject to significant
risks and uncertainties, including: raising significant additional funds to purchase raw materials or to build additional manufacturing facilities, delays and cost overruns as a result of a number of factors. In particular, Fenghua
believes that the expansion of its production capacity is an integral part of Fenghua's long-term strategy to
achieve better sales in China. Fenghua's ability to meet its estimate for the scale of production needed to achieve
better sales is affected by its ability to expand its existing production facility and install new production lines. If
Fenghua is unable to establish or successfully operate additional production capacity, Fenghua may be unable to
expand its business as planned. Moreover, Fenghua cannot ensure that if it does expand the production capacity
it will be able to generate sufficient customer demand for the sports shoe soles production to support its increased production levels. Any of those risks could have a material adverse effect on Fenghua's business, financial condition and results of operations.
Failure to execute Fenghua's growth strategies could strain Fenghua's management, operational, financial
and other resources and materially and adversely affect Fenghua's business, financial condition and results of operations.
Fenghua's growth strategies include, among other things, strengthening Fenghua's product design and development capabilities through expanding the research and development activities and further expanding Fenghua's
production capacity. Pursuing Fenghua's growth strategies will require significant additional financial resources
and impose more responsibilities on Fenghua's management, including the need to raise working capital, to identify, recruit, train and integrate additional employees and to oversee a larger design and development team, the
expansion of Fenghua's production facilities and the coordination and cooperation with a growing number of
customers. In addition, pursuing Fenghua's growth strategies may place a strain on Fenghua's administrative and
operational infrastructure, in particular on Fenghua's internal controls and financial reporting processes and systems. As Fenghua's operations expand, Fenghua expects that additional resources will be required to manage
new relationships with additional customers as well as other third parties including contract manufacturers, raw
39
material suppliers, equipment providers and consultants. Fenghua's ability to manage Fenghua's working capital,
operations and growth will require Fenghua to continue to improve Fenghua's operational, financial and management controls, reporting systems and procedures. If Fenghua is unable to effectively manage Fenghua's
growth, it may be difficult for Fenghua to execute Fenghua's business strategies and a decrease in the market
demand for Fenghua's products and the corresponding drop in the sales of Fenghua's products could result in an
accumulation of inventory in the retail network and may materially adversely affect Fenghua's business, financial condition, results of operations and prospects. If any new products fail to achieve commercial acceptance at
the rate or level expected, Fenghua may experience lower returns from Fenghua's capital expenditures and a
material adverse effect on Fenghua's financial condition and results of operations. In addition, if Fenghua fails to
successfully gauge future demand for Fenghua's products, Fenghua may experience overcapacity, which could
negatively impact Fenghua's business, financial condition and results of operations.
The success of Fenghua's business depends on attracting and retaining key personnel.
The success of Fenghua's business will depend largely on its ability to attract and retain its key personnel, in
particular its Management Board members. Fenghua's success to date has been largely attributable to the efforts
of the management team, in particular of Fenghua's founder and Chief Executive Officer (“CEO”), Mr. Weijie
Lin with more than 18 years' experience in the China's sports shoe soles industry. Fenghua's other Management
Board members, Fenghua's Chief Financial Officer (“CFO”), Mr. Shiau Wuee Yong, and Mr. Jia Jian Lin, the
Chief Operations Manager (“COO”), as well as Fenghua's senior management are also of particular importance
to Fenghua's business due to their know-how and close relationships with customers and suppliers.
Fenghua's future success will also depend upon its ability to attract and retain qualified senior- and mid-level
management as well as qualified production staff. Fenghua's production process is labour intensive and requires
a large workforce, with a certain degree of training and/or experience in the sports shoe soles industry. Competition for such personnel is intense in China and especially in Jinjiang and may intensify in case of a further entry
of competitors into the Chinese market for sports shoes soles.
Fenghua cannot guarantee that it will be able to attract, retain or recruit suitable replacements for its key personnel. These individuals might move to competitors or form a competing company and compete with Fenghua for
customers, business partners, and other key professionals at Fenghua using their experience and expertise. The
loss of any of its key personnel without adequate replacement could have a material adverse effect on Fenghua's
business, financial condition and results of operations.
Any damage to the reputation of Fenghua could have a material adverse effect on the business, financial
condition and results of operations.
Maintaining a good reputation is important to selling Fenghua’s products while targeting customers with brands
with higher added-value. If Fenghua fails to maintain high standards for product quality, its reputation could be
jeopardised. Damage to the reputation of Fenghua or loss of client confidence in the products of Fenghua could
result in reduction of sales and could have a material adverse effect on the business, financial condition and
results of operations of Fenghua, as well as require additional resources to rebuild the reputation of Fenghua.
Fenghua may be required to make additional payments for social insurance and housing funds.
According to PRC law, in particular, Chinese regulations for social insurance and housing funds, Fenghua Fujian
and Fenghua Jinjiang are required to make contributions for the social insurance and for the housing funds to
their employees. However, in some localities in China such as Quanzhou, the payment of social insurance and
housing funds was not strictly enforced in the past. Housing funds are usually not broadly accepted by Chinese
workers as it allows for a housing not in the area of the (migrant) worker but in the area of work. Before August
2014, the social insurance contribution made by Fenghua was not complete for social insurance and has not been
paid at all for housing funds. The exact amount of outstanding social insurance and housing funds payments
cannot be calculated by the Company. On 22 May 2014, Mr. Weijie Lin issued a letter of undertaking under
which he undertook that if Fenghua Fujian and/or Fenghua Jinjiang are requested to make up the payment of
social insurance and housing fund and to pay the compensation, fines, costs and fees by an effective arbitration
award or court decision in respect of the dispute with their employee(s) due to the above reasons or by the written notice of the government authorities, he shall, within the stipulated period of time prescribed in the arbitration award, court decision or the written notice of the government authorities, make these payments regarding
the payment claim of social insurance allocated. Furthermore, the letter of undertaking states that if he fails to
pay the relevant payment within the stipulated period, Fenghua Fujian and/or Fenghua Jinjiang are entitled to
dispose all of his assets until the above-mentioned payment obligations are completely fulfilled. In the event that
a claim for payments for the social insurance funds and housing funds would be successfully made or the reimbursement is delayed, such claim could have a material adverse effect on the business, financial condition and
40
results of operations of Fenghua.
Fenghua's operations and financial performance may be adversely affected by labour shortages, an increase in labour costs or by labour disputes.
Fenghua operates in a labour-intensive industry. Fenghua's success depends in part upon its ability to attract,
motivate and retain a sufficient number of qualified employees or workers. Qualified individuals are in short
supply and competition for these employees or workers is intense. Fenghua incurred direct labour costs of
EUR 8,889 thousand, EUR 8,892 thousand, EUR 9,509 thousand and EUR 5,716 thousand in 2011, 2012, 2013
and in the first six months of 2014, respectively, representing 21 %, 14 %, 15 % and 19 % of Fenghua's total cost
of sales in those respective periods. Labour costs in the PRC have increased and may continue to increase in the
future. If labour costs in the PRC increase substantially and Fenghua cannot pass on such increases to its customers by increasing its sales prices, Fenghua's business, financial condition and results of operations may be
materially adversely affected.
Further, labour disputes, work stoppages or slowdowns at Fenghua's facility or any of Fenghua's contract manufacturers or suppliers could significantly disrupt Fenghua's operations or Fenghua's expansion plans. There have
been labour disputes and work stoppages in the Chinese footwear industry in Dongguan recently based on the
lack of the respective company to pay the contributions for the housing funds, and it is possible that such labour
disputes or work stoppages will affect Fenghua, as also Fenghua has not paid social security payments for the
housing funds (see: Risk Factors – Risks Related to Fenghua's Business – Fenghua may be required to make
additional payments for social insurance and housing funds). Delays caused by any such disruptions could materially adversely affect Fenghua's production and revenues, which could have a material adverse effect on
Fenghua's business, financial condition and results of operations.
Fenghua's operations could be materially adversely affected if Fenghua fails to manage effectively its relationships with, or lose the services of, Fenghua's contract manufacturers.
In 2011, 2012, 2013 and in the first six months of 2014, approximately Nil %, 29 %, 33.9 % and 33.9 % of
Fenghua's total sales volume of EVA MD soles, respectively were manufactured by contract manufacturers.
Currently, Fenghua only has two contract manufacturers for EVA soles both of which account for more than
15 % of Fenghua's production output. Fenghua plans to increase its soles production capacity using a portion of
the proceeds from this Offering. Although Fenghua expects to be able to manufacture more products at its own
facility, Fenghua's reliance on contract manufacturers may increase in the future if the increase in demand for
Fenghua's products exceeds the increase in the production capacity at its manufacturing facility. As Fenghua
does not enter into long-term contracts with its contract manufacturers, they may decide not to accept Fenghua's
future purchase orders on the same or similar terms, or at all. If a contract manufacturer decides to substantially
reduce its volume of supply to Fenghua or to terminate its business relationship with Fenghua, Fenghua may not
be able to find a suitable replacement in a timely manner and may be forced to default sales agreements with its
customers. This will already be the case if this applies for one of the two contract manufacturers for EVA soles.
This may seriously impact Fenghua's revenues and adversely affect Fenghua's reputation and relationships with
Fenghua's customers, causing a material adverse effect on Fenghua's business, financial condition and results of
operations.
Further, if any of these contract manufacturers fails to provide the required number of products meeting
Fenghua's quality standards, Fenghua may have to delay delivery of products to Fenghua's distributors, become
unable to supply products, or even recall products previously dispatched. This could cause Fenghua to lose revenues or market share and damage Fenghua's reputation, any of which could have a material adverse effect on
Fenghua's business, financial condition, results of operations and prospects. In addition, some contract manufacturers may not fully comply with certain laws, such as labour and environmental laws. If any of these contract
manufacturers is found to have violated laws and regulations in the PRC, media reports on such violations may
negatively affect Fenghua's reputation and image, resulting in material and adverse impact on Fenghua's business, financial condition and results of operations.
Fenghua also provides the designs of Fenghua's products to the contract manufacturers, as well as guidance for
how to manufacture the products ordered by Fenghua. Fenghua does not have direct control over the contract
manufacturers. If any of them is involved in unauthorised production and sale of goods using Fenghua's brand
under conditions that do not adhere to Fenghua's policies, Fenghua's reputation, financial condition and results of
operations may be materially adversely affected.
Fenghua's reliance on contract manufacturers may grow in the future even if Fenghua increases its production
capacity as Fenghua's production capacity may not be sufficient to keep pace with the increased production requirements driven by growth in demand for Fenghua's products. Fenghua may not be able to find sufficient addi-
41
tional contract manufacturers to produce Fenghua's products on the same or similar terms as Fenghua's existing
contract manufacturers, which could result in not being able to achieve Fenghua's desired growth.
Fenghua's business, financial condition and results of operation could be materially adversely affected if
Fenghua or Fenghua's contract manufacturers fail to deliver products on schedule and at the level of
quality expected by Fenghua's customers and distributors.
The operation of Fenghua's business requires successful coordination of several sequential and complex processes. The disruption of any of such processes could interrupt Fenghua's revenue generation and result in a material
and adverse effect on Fenghua's relationships with customers and distributors, brands for which the soles are
produced and Fenghua's financial performance. Fenghua and its contract manufacturers may experience delays
in adjusting or upgrading production lines when introducing new products, delays in expanding manufacturing
capacity, disruption in manufacturing processes and failure by Fenghua's business partners to adequately perform
the services Fenghua needs. All these may have a material adverse effect on Fenghua's sales and results of operations. In addition, a failure or an interruption could occur at any stage of Fenghua's product development, manufacturing and delivery processes, resulting in products not meeting the expectations of Fenghua's customers and
distributors in terms of quality and delivery time, which could have a material adverse effect on Fenghua's business, financial condition and results of operations.
Fenghua may not be able to anticipate and respond in a timely manner to rapid changes in consumers'
tastes and preferences.
As Fenghua's shoe soles products are closely linked with fashion and trends, Fenghua's sales are dependent on
Fenghua's ability to cater to different consumer fashion tastes and preferences. As regards its ODM (Original
Design Manufacturing) business, Fenghua directly monitors the market and as regards the OEM (Original
Equipment Manufacturing) business, it is Fenghua's customers' duty to do so. Fenghua believes that a substantial
portion of its revenue is dependent on market perception, which requires continued anticipation and responsiveness to rapidly changing market and fashion trends by Fenghua itself or its customers. Fenghua's failure to anticipate accurately and respond to market and fashion trends in a timely manner could result in Fenghua's lower
sales volumes, lower selling prices and lower profits. This could in turn negatively affect its business, financial
condition and results of operations. Likewise, Fenghua's customers' failure to anticipate the market and fashion
trends could result in lower orders from Fenghua which in turn negatively affects Fenghua's business, financial
condition and results of operations.
The Company is a holding company whose liquidity depends upon having access to the liquid funds of its
operating subsidiaries located in China.
The Company is a holding company without any operating business of its own. Fenghua's operations are located
in China. Therefore, the Company's liquidity partly depends upon having access to dividend distributions from
its indirect PRC subsidiaries through the Company's direct subsidiary, which is a Hong Kong holding company.
Current PRC regulations permit the payment of dividends only out of accumulated profits determined in accordance with Chinese accounting standards and regulations. In addition, the Company's PRC subsidiaries are required to set aside at least 10 % of their after-tax profits each year to fund a statutory reserve fund until such
reserves in aggregate reach 50 % of their registered capital and may be required to set aside a portion of their
profits to fund an employee welfare fund. These reserves are not distributable as cash dividends.
Under PRC foreign exchange rules and regulations, payments of current account items, including profit distributions and operating-related expenditures, may generally be made in foreign currencies without prior approval but
are subject to procedural requirements. Strict foreign exchange controls generally apply to capital account transactions, such as the repayment of a loan, the payment of interest on a loan and investments in negotiable instruments. These transactions must be approved by and/or registered with the State Administration of Foreign Exchange (“SAFE”) or its local counterparts.
There can be no assurance that Fenghua will be able to meet all of its foreign currency obligations under PRC
laws or to remit profits out of China. Currently, the Company has no approvals for the payment of current account items. Should the Company's PRC subsidiaries be, or become, restricted and/or legally prohibited from
and/or unable to pay dividends or other distributions outside of China, this could have a material adverse effect
on Fenghua's business, financial condition, and results of operations.
Fenghua may not be able to adequately protect its intellectual property rights, which could harm its business.
Fenghua believes intellectual property rights are crucial to its success in respect of the ODM business. Fenghua's
principal intellectual property rights include Fenghua's utility models. Although Fenghua relies on the registra-
42
tion of utility models and applicable laws to protect its intellectual property rights, these measures may not be
sufficient to prevent any misappropriation of Fenghua's intellectual property rights. The legal framework governing intellectual property in the PRC is still evolving and the level of protection of intellectual property rights in
the PRC differs from those in more developed jurisdictions such as members of the European Union. As a result,
Fenghua may not enjoy the same level of protection of Fenghua's intellectual property rights as what is typically
available in these jurisdictions. There is no assurance that third parties will not infringe Fenghua's intellectual
property rights in the future. Fenghua's efforts to enforce or defend Fenghua's intellectual property rights may
not be adequate and may require significant attention from Fenghua's management and may be costly. In addition, Fenghua may have to initiate legal proceedings to defend the ownership of Fenghua's trademarks or brand
against unlawful infringement by third parties. These legal proceedings may be costly and time-consuming and
Fenghua might be required to devote substantial management time and resources in an attempt to achieve a favourable outcome. The outcome of any legal actions to protect Fenghua's intellectual property rights may be
uncertain. If Fenghua is unable to adequately protect or safeguard Fenghua's intellectual property rights,
Fenghua's business, financial condition and results of operations may be adversely affected.
Fenghua is exposed to potential environmental liability. Changes in existing laws and regulations or additional or stricter laws and regulations on environmental protection in China may cause Fenghua to incur
additional capital expenditures.
The production of certain products by Fenghua or Fenghua's contract manufacturers, particularly plastic, is subject to PRC environmental protection laws and regulations. These laws and regulations require enterprises engaged in manufacturing products that may cause environmental waste to adopt effective measures to control and
properly dispose of industrial waste. If an enterprise fails to comply with such laws or regulations and causes
pollution, the environmental protection authorities may levy fines or even order the enterprise to be closed if the
enterprise has caused serious pollution. Although Fenghua believes its current pollution control facilities and
measures are effective and Fenghua is not in violation of any PRC environmental protection laws, Fenghua may,
however, be subject to fines or even more severe administrative punishments if the PRC government imposes
stricter environmental protection laws with which Fenghua cannot comply by using its current pollution control
facilities and measures. If the PRC government imposes stricter environmental protection laws, Fenghua may
have to incur additional expenditures on pollution control facilities and measures in order to comply with such
stricter laws. If Fenghua is unable to pass on the additional expenditures to its customers through higher prices
for Fenghua's products, Fenghua's financial condition and results of operations may be materially adversely
affected.
Moreover, Fenghua has no direct control over its contract manufacturers. If any of them fails to comply with any
PRC environmental laws or regulations, any such violations or any media reports on such violations may negatively affect Fenghua's reputation and image, resulting in a material and adverse impact on Fenghua's business,
financial condition and results of operations.
Fenghua may be exposed to product liability, property damage or personal injury claims, which may adversely affect Fenghua's business, financial condition and results of operations.
Fenghua sells all its products in China and the final product (i.e. the shoes) is being sold worldwide. Fenghua
may be exposed to product liability claims and Fenghua may, as a result, have to expend significant financial and
managerial resources to defend against such claims. Such product liability claim risks may increase as legal
concepts in product liability begin to develop and mature in China and in other countries and regions where
Fenghua's products may be sold. In line with common industry practice, Fenghua does not maintain product
liability insurance coverage and Fenghua's results of operations and business prospects may be materially adversely affected by a successful product liability claim against Fenghua. In addition, Fenghua does not maintain
third party liability insurance against claims for property damage or personal injury. (see: “Risk Factors – Risks
related to the business – Fenghua's insurance coverage may be inadequate to protect Fenghua against losses.”).
Regardless of the ultimate merits of a claim or dispute, Fenghua may face significant costs and expenses to defend against such claims or enter into settlement agreements. Fenghua may suffer serious damage to Fenghua's
reputation, be subject to material monetary damages and be subject to government investigations. In such cases,
it may lead to fines and sanctions against Fenghua and result in negative public perception of Fenghua, all of
which could have a material adverse effect on Fenghua's business, financial condition and results of operations.
The Company and Fenghua Hong Kong may be treated as tax resident enterprises for PRC tax purposes
under the PRC enterprise income tax laws and therefore be subject to PRC taxation.
The Enterprise Income Tax Law (“EIT Law”) introduced the concept of a tax resident enterprise (“TRE”) defined as an enterprise which is established in the PRC under the PRC laws and regulations, or which has its de
facto management body in the PRC. TREs are subject to the PRC enterprise income tax for their worldwide
43
income, including income received from their subsidiary. According to Article 4 of the Implementing Rules of
the EIT Law (the “Implementing Rules”), “de facto management body” refers to the management body that
exercises essential management and control over the enterprise. As a result, if a holding company located outside
the PRC is actually managed by a management body in China, the overseas company will be regarded as a TRE
and subject to enterprise income tax for its worldwide income. According to the interpretation of Article 4 of the
Implementing Rules given by the Chinese State Administration of Taxation (“SAT”) on its website, the location
of the de facto management body shall be determined by a substance-over-form method. In particular, mere offshore board meetings shall not be sufficient for the de facto management body being located outside of China.
Dividends (derived from direct equity interest) received by one TRE from another TRE (excluding listed shares
in the Chinese stock market with a holding period less than 12 months) are exempted from enterprise income tax.
Most of the members of Fenghua's management are currently located in China and Fenghua expects them to
continue to be located in China. However, due to a lack of clear guidance on the criteria pursuant to which the
PRC tax authorities will determine Fenghua's tax residency under the EIT Law, it remains unclear whether the
PRC tax authorities will treat the Company and Fenghua Hong Kong as PRC tax resident enterprises.
Currently, neither the Company nor Fenghua Hong Kong has notified the PRC tax authorities of its potential
status as a PRC tax resident enterprise. However, if the Company and Fenghua Hong Kong are deemed to be
PRC tax resident enterprises, the following PRC tax implications will apply:

The Company and Fenghua Hong Kong might both be subject to an enterprise income tax at the rate of
25 % on their worldwide income, which could have an impact on Fenghua's effective tax rate and an adverse effect on Fenghua's net income and results of operations. However, the EIT Law provides that qualified dividend income between tax resident enterprises is exempted income, which the Implementation
Rules have clarified to mean a dividend derived by a tax resident enterprise on equity interest it directly
owns in another tax resident enterprise. It is possible, therefore, that the dividends the Company receives
through Fenghua Hong Kong and Fenghua Fujian from Fenghua Jinjiang would be treated as exempted
income under the EIT Law and its Implementation Rules. In this case, the Company would be subject to
an enterprise income tax in the PRC at the rate of 25 % on its worldwide income except for dividends received from Fenghua Hong Kong.

The Company would be obliged under the PRC EIT Law to withhold PRC withholding tax on the gross
amount of dividends the Company pays to shareholders who are non-PRC tax residents, if such dividends
are regarded as income derived from sources within the PRC. The withholding tax rate is 10 % for shareholders which are companies and other organizations and 20 % for shareholders who are natural persons,
unless otherwise provided under the applicable double taxation treaties between China and other countries.
Under the current double taxation treaty between China and Germany, the same withholding tax rate of
10 % for dividends distributed to enterprise shareholders applies. Under the PRC EIT Law, such withholding tax on dividends is to be deducted by the tax resident enterprise from the gross dividends and
paid to the competent PRC tax authority on behalf of the non-PRC tax resident shareholders. As the
Company has issued bearer shares, and no practical guidance has been issued by the SAT about the
treatment of dividends paid by foreign entities considered as TREs, the Company may not be able to ascertain whether or not its shareholders are non-PRC tax residents, and may not be able to fully comply
with the withholding requirement in case it is considered as a TRE, which subjects it to additional uncertainty.
Further, any gains realised on the transfer of shares in the Company by non-PRC resident investors will also be
subject to a 10 % (if the investor is a company or other organization) or 20 % (if the investors is a natural person)
PRC withholding tax, under the EIT Law or PRC Individual Income Tax Law, if such gains are then regarded as
income derived from sources within China, unless the applicable double taxation treaty provides otherwise. In
case the 10 % or 20 % PRC withholding tax respectively is payable for the gains, under PRC tax law, the nonPRC resident investors are obliged to declare such tax by themselves with the competent PRC tax authority. If
such investors fail to declare such tax with the PRC tax authority, the relevant tax authority may order them to do
so within a period of time or impose a fine of up to RMB 10,000 (EUR 1,226). In addition, if the investors fail to
pay such tax within the prescribed period, the tax authority may pursue the payment with a late payment surcharge and may also additionally impose a fine of up to five times the outstanding tax payment.
If any of the aforementioned risks materialises, the value of an investment in the shares of the Company may be
materially adversely affected.
44
Shareholders may be subject to taxation under PRC tax laws.
The Company and Fenghua Hong Kong are currently not treated as TREs under the EIT Law. Since Fenghua
Hong Kong's management is based in China and all members of the Company's management board reside in
China, there is a risk that Fenghua Hong Kong and the Company are regarded as a TRE.
Should both, Fenghua Hong Kong and the Company be considered as TREs, then shareholders which are not
TREs and which receive dividends distributed by the Company for earnings derived since January 1, 2008 and
sourced within China would be subject to a PRC income tax at the rate of 10 % for non-individual shareholders
and 20 % for individual shareholders applicable to such dividend and the Company would be obliged under the
EIT Law to withhold PRC income tax on dividends payable to non TRE shareholders. Investors (nonindividuals) are not TREs so long as they were not established in the PRC and do not have a de facto management body located in the PRC. Individual investors are not PRC tax resident if they do not habitually reside in
the PRC. A lower withholding tax rate may apply if a non TRE investor or a non tax resident individual is from a
jurisdiction that has entered into an income tax treaty or agreement with China that allows a lower withholding.
Similarly, if both, Fenghua Hong Kong and the Company are considered TREs, any gain realised on the transfer
of shares in the Company by non TRE investors or non-tax resident individuals is also subject to a 10 % or 20 %
PRC income tax if such gain is regarded as income derived from sources within China, unless the applicable
income tax treaty provides otherwise.
If any of the aforementioned risks materialises, the value of an investment in the shares of the Company may be
materially adversely affected.
The Chinese “Provisions on the Acquisition of Domestic Enterprises by Foreign Investors” (the “M&A
Provisions”) may have a material adverse effect on Fenghua.
On 8 August 2006, six Chinese regulatory agencies, including the Ministry of Commerce (“MOFCOM”) and
the China Securities and Regulatory Commission (“CSRC”), promulgated the Provisions for the Acquisition of
Domestic Enterprises by Foreign Investors (“M&A Provisions”), which came into effect on 8 September 2006
and were further amended by MOFCOM on 22 June 2009. The M&A Provisions provide, among others, that an
offshore special purpose vehicle (“SPV”), which is formed by Chinese legal entities and/or individuals for indirect overseas listings and that directly or indirectly controls Chinese companies, must obtain the approval of the
CSRC prior to the listing and trading of its shares on a foreign stock exchange. A number of additional requirements must be fulfilled in the course of an initial public offering, the violation of which may lead to regulatory
actions or other sanctions by the CSRC or other Chinese regulatory agencies. In addition to the provisions relating to foreign indirect listings, the M&A Provisions also stipulate that a domestic natural person or legal person
must obtain approval from MOFCOM before acquiring an affiliated domestic company via a foreign company
established or controlled by such domestic natural or legal person.
The Company believes that the M&A Provisions do not apply to its restructuring procedures because Mr. Weijie
Lin became a Philippine citizen in year 2011 and before the establishment of Fenghua Hong Kong which is ultimately controlled by Mr. Weijie Lin, the establishment of Fenghua Fujian and the acquisition of the shares in
Fenghua Jinjiang by Fenghua Hong Kong via Fenghua Fujian. However, there can be no assurance that
MOFCOM or CSRC will agree with this view. MOFCOM or CSRC may consider that the M&A Provisions
apply to the restructuring procedures of Fenghua because Mr. Weijie Lin was a PRC citizen before the year 2011
and the shareholder of Fenghua Jinjiang before acquisition of the shares in Fenghua Jinjiang by Fenghua Fujian
and, therefore, MOFCOM's approval would be required with respect to the share acquisition of Fenghua Jinjiang
by Fenghua Hong Kong via Fenghua Fujian and CSRC's approval with respect to the Offering and the listing of
the shares of the Company under the M&A Provisions. Respective approvals from MOFCOM and CSRC have
not been applied for and have thus not been granted.
If such approvals were sought, it cannot be ruled out that the MOFCOM and/or the CSRC would ultimately
refuse to grant such approvals. If an approval is required from the MOFCOM and/or the CSRC and as long as
such approval has not been granted, profits of Fenghua could be prevented from being distributed to its parent
company and to the Company and/or loans could be prevented from being granted by the Company to Fenghua.
Any of these consequences could have material adverse effects on the business, financial condition and results of
operations of Fenghua.
45
State Administration of Foreign Exchange (SAFE) regulations relating to offshore investments by PRC
residents or passport holders may adversely affect Fenghua's business operations and financing alternatives.
In July 2014, SAFE issued a regulation regarding offshore investments by PRC residents, known as SAFE Notice 37. It requires PRC residents to register with the local counterparts of the SAFE in connection with certain
offshore investment activities. Since the Company's current indirect controlling shareholder Mr. Weijie Lin may
be regarded as a PRC resident as he mainly reside in the PRC for economic interest, Fenghua is affected by the
registration requirements imposed by SAFE Notice 75. Further, under SAFE Notice 37, such PRC resident controlling shareholder will also be required to amend his SAFE registrations under certain circumstances, including
upon any further transfer of equity interests as well as any material change in the offshore company. There is no
assurance that necessary SAFE registrations can be made in a timely manner. The failure or inability of any of
the Company's current or future direct or indirect controlling shareholders who are PRC residents, whose actions
the Company does not control, to obtain any required approvals or to make any required registrations in a timely
manner could subject the Company's direct or indirect controlling PRC shareholders to future registration under
SAFE Notice 37 as well as subject Fenghua to fines and legal sanctions, restrict the Company's intended investments in its PRC subsidiaries or limit Fenghua's ability to make distributions or pay dividends and could thus
have material adverse effects on the business, financial condition and results of operations of Fenghua.
Restrictions on foreign exchange and payments of dividends may limit Fenghua's subsidiaries' ability to
remit payments to Fenghua.
At present, the Renminbi is not freely convertible to other currencies, and conversion and remittance of foreign
currencies are subject to PRC foreign exchange regulations. Under current PRC laws and regulations, payments
of current account items, including profit distributions, interest payments and operation-related expenditures,
may be made in foreign currencies without prior approval from SAFE, but are subject to procedural requirements
including presenting relevant documentary evidence of such transactions and conducting such transactions at
designated foreign exchange banks within China who have the licenses to carry out foreign exchange business.
Fenghua cannot apply for the payments in advance. Under Fenghua's current structure, its source of funds primarily consists of dividend payments from Fenghua's subsidiaries in the PRC. Fenghua cannot assure that
Fenghua will be able to meet all of Fenghua's foreign currency obligations or to remit profits out of China. If
future changes in relevant regulations were to place restrictions on the ability of Fenghua's subsidiaries to remit
dividend payments to Fenghua, Fenghua's liquidity and ability to satisfy Fenghua's third-party payment obligations and Fenghua's ability to distribute dividends in respect of the shares could be materially adversely affected.
This could materially adversely affect Fenghua's business, financial condition and results of operations.
PRC regulations pertaining to loans and direct capital investments by offshore parent companies to PRC
entities may delay or prevent Fenghua from using the proceeds from this Offering.
In utilising the proceeds from this Offering to finance Fenghua's business, the Company, as a holding company,
or Fenghua Hong Kong may make loans or additional capital contributions to Fenghua which is a foreigninvested enterprise (“FIE”). Any loans by an offshore parent company to a FIE established by it are subject to
approvals and/or registration requirements and must be within the margin between the FIE's total investment
amount and registered capital. Further, loans to FIEs have to be registered with SAFE or its local counterpart. In
addition, if Fenghua Hong Kong finances Fenghua through additional capital contributions, the amount of these
capital contributions must be approved by and registered with the competent government authorities. There can
be no assurance that Fenghua will be able to obtain these government registrations or approvals on a timely basis, if at all. If Fenghua fails to receive such registrations or approvals, the ability to use the proceeds from this
Offering and Fenghua's ability to fund and expand the operational business in China could be adversely affected,
which could have a material adverse effect on the business, financial condition and results of operations of
Fenghua.
Fenghua is exposed to foreign exchange regulations of the PRC government which could also have a significant impact on currency exchange rates.
The consolidated financial statements contained in this Prospectus for the periods under review were prepared in
EUR and Fenghua's future consolidated financial statements will be prepared in EUR, while Fenghua's operating
currency is RMB, which is currently not a freely convertible currency. During the periods under review, the
exchange rate of the RMB against the EUR fluctuated. The average exchange rate of RMB/EUR in 2011 was
9.0026, in 2012 was 8.1171, in 2013 was 8.2270 and in the first six months of 2014 was 8.4197. A devaluation
of the RMB against the EUR would have an adverse currency translation effect on Fenghua's consolidated financial statements. As the value of the RMB is controlled by PRC authorities, foreign exchange policies of the PRC
46
government also have a significant impact on currency exchange rates. Fenghua currently does not have a formal
hedging policy with respect to the foreign exchange exposure. Therefore, fluctuations in currency exchange rates
could have material adverse effects on the business, financial condition and results of operations of Fenghua.
Fenghua's operations in China are further subject to foreign exchange regulation in the PRC and Fenghua's PRC
subsidiaries require approval if they intend to borrow funds from entities outside of China. In addition, Fenghua's
PRC subsidiaries need to obtain approval from or register with Chinese government agencies if they intend to
secure financing through equity contributions by Fenghua. In the event that Fenghua cannot obtain necessary
financing on reasonable terms, or at all, it may be forced to scale back its plans for future business expansion.
Furthermore, Fenghua's subsidiaries in China are subject to certain restrictions on the amount of foreign debt
they can borrow.
The occurrence of any of the aforementioned risks could have a material adverse effect on the business, financial
condition and results of operations of Fenghua.
Fenghua's management and financial reporting systems may be inadequate to support its future growth
and to ensure accurate consolidated financial reporting.
Fenghua's management information system and financial reporting system may be less developed than those of
companies that operate in more developed markets, and may not provide Fenghua's management with as much
or as accurate information as required, or not provide the required information in time.
In particular, preparation of consolidated International Financial Reporting Standards (“IFRS”) financial statements, which Fenghua will be required to produce after the listing of its shares at the Frankfurt Stock Exchange,
may pose problems for Fenghua's current financial reporting system. The preparation of consolidated IFRS financial statements is a complex process. Fenghua may also not have an adequate number of English speaking
employees in its financial department sufficiently qualified to assist with the preparation of the IFRS financial
statements. Fenghua may therefore need to hire additional staff for its finance department with knowledge in
IFRS accounting requirements and a sufficient command of the English language. However, such personnel is
hard to find in the PRC. There is an increasing demand within the PRC for the small number of IFRSexperienced accounting personnel as more companies in the PRC begin to prepare financial statements on the
basis of IFRS. The general shortage of qualified staff and intense competition for such staff may hinder
Fenghua's efforts to hire and retain key accounting staff. An insufficient number of qualified accounting staff
would increase the difficulty of preparing Fenghua's consolidated IFRS financial statements.
Fenghua's potentially insufficient and inadequate management information system and financial reporting system, as well as a potential inability to hire further qualified personnel may hinder Fenghua's future growth and
ability to comply with future legal requirements to prepare its financial statements under IFRS. This may have a
material adverse effect on Fenghua's business, financial condition and results of operations.
The Management Board of the Company is not experienced in complying with German legal requirements for listed companies and Fenghua has not established a comprehensive risk management system.
Fenghua has no experience in complying with German legal requirements for listed companies. None of the
members of the Management Board of Fenghua SoleTech AG speaks German. Fenghua currently only has small
legal, finance and accounting departments and is not used to dealing with increased legal, accounting, transparency and administrative requirements imposed on a publicly listed company in Germany. The obligation to comply with German corporate governance requirements and post-admission obligations, in particular requirements
relating to the publication of ad-hoc information, quarterly reports as well as various other reporting, notification
and publication obligations resulting from the Company's listing on the regulated market (Regulierter Markt) of
the Frankfurt Stock Exchange (General Standard) as well as on the regulated market (Parallel Market) of the
Warsaw Stock Exchange will put increasing demands on Fenghua's finance and accounting departments. In
addition, the preparation of quarterly financial reports and annual consolidated financial statements under IFRS,
which the Company will be required to produce after the listing of its shares on the Frankfurt Stock Exchange
and the additional reporting requirements it will face as a public company may lead to problems for Fenghua's
current financial reporting system. Fenghua may not have an adequate number of management and accounting
personnel sufficiently qualified to assist with the preparation of the IFRS financial statements, to install and
operate adequate management reporting systems and to meet reporting requirements as a public company.
Fenghua has currently no risk management system following standards applied in more developed economies.
If Fenghua fails to comply with its obligations as a public company or if any risks materialise which could have
been prevented by a formalised risk management system, this could have a material adverse effect on the business, financial condition and results of operations of Fenghua.
47
The Company's Supervisory Board may have difficulties in adequately supervising the Management
Board, in particular as the members of the Supervisory Board have only limited experience in fulfilling
their obligations arising from the German Stock Corporation Act.
Fenghua's assets are largely located in China and the members of the Company's Management Board reside in
China. The Company is a holding company without any operational business of its own. The members of the
Supervisory Board (Aufsichtsrat) of Fenghua SoleTech AG (“Supervisory Board”) have no experience in fulfilling their obligations arising from the German Stock Corporation Act (Aktiengesetz). The member of the Supervisory Board residing outside of China may have difficulties in fulfilling his statutory supervisory duties visà-vis the management residing in China as a result of the physical distance to China and language barriers. In
addition, the members of the Management Board have no experience with German corporate governance requirements and statutory reporting obligations. Any lack of supervision by the Company's Supervisory Board
may have a material adverse effect on the business, financial condition, and results of operations of Fenghua.
Risks Related to the Political, Social and Legal Environment of the People's Republic of
China
General risks relating to business operations in China which are generally subject to greater economic,
political, and legal risks than operations in more developed economies.
The entire operational business of Fenghua is conducted and revenues are generated in China. Accordingly,
Fenghua's business, financial condition, results of operations and prospects are affected significantly by the economic, political and legal environment and other developments in China. Therefore, investors should be aware
that Fenghua's operations are subject to greater risks than operations in more developed markets, including significant legal, economic and political risks. Moreover, emerging economies like China are subject to rapid
changes and therefore the information set out herein may become outdated quickly. Investments in emerging
markets or in companies that operate in emerging markets are generally exposed to additional risks and are generally only suitable for sophisticated investors who fully appreciate the significance of the risks involved.
Economic instability in China could adversely affect Fenghua's business.
The Chinese economy differs from the economies of most developed countries in many respects, including the
amount of government involvement, the level of development, the growth rate, the control of foreign exchange,
and the allocation of resources. In the past, Chinese economic reforms have in general led to increased economic
growth. While the Chinese economy has thus grown significantly in the past 30 years, the growth has been uneven geographically, among various sectors of the economy, and during different periods. There can be no assurance that the Chinese economy will continue to grow, or that if there is growth, such growth will be steady and
uniform, or that if there is a slowdown, such slowdown would not have a negative effect on Fenghua's business.
Possible risks for the Chinese economy include, among others, significant declines in gross domestic product,
hyperinflation, an unstable currency, high government debt relative to gross domestic product, a weak banking
system providing limited liquidity to domestic enterprises, rising unemployment due to further privatisation of
state-owned enterprises and rising costs triggered by environmental damages – notably air pollution, soil erosion,
and the steady fall of the water table. The occurrence of one or several of these risks could have material adverse
effects on the business, financial condition and results of operations of Fenghua.
A destabilisation of the political system could threaten China's economic liberalisation.
While the PRC economy has changed fundamentally from a centrally planned system to a more marketorientated economy over the last three decades, the political system in China still operates under communist
control. Although political conditions in China seem to be generally stable, changes may occur in its political
system which might affect the ownership or operation of Fenghua's business, including, among others, changes
in government as well as in legislative and regulatory regimes.
A material change in China's economic liberalisation triggered by political disruptions or by other means could
impact the country's economic growth in general and Fenghua's business in particular. Social instability could
increase public support for renewed centralised authority, and nationalism or violence could lead to a tougher
stance by the Chinese government on foreign investors operating in China or on foreign investment in general.
Any such development could have a material adverse effect on the business, financial condition and results of
operations of Fenghua.
48
Health epidemics and outbreaks of contagious diseases, including avian influenza, severe acute respiratory
syndrome (SARS) or swine flu, could materially and adversely affect the Chinese economy.
Fenghua's business could be adversely affected by the effects of avian flu, SARS or other epidemics or outbreaks
such as the swine flu. China reported a number of cases of SARS, a highly contagious form of atypical pneumonia, in 2003, which resulted in the closure by the PRC government of many businesses in May and June of 2003
to prevent the transmission of SARS. In recent years, there have been reports of occurrences of various other
epidemics, including avian flu and swine flu. Any prolonged recurrence of avian flu, SARS or swine flu or other
adverse public health developments in China may have a material adverse effect on Fenghua's business operations. This could include illness and loss of Fenghua's management and key employees, as well as temporary
closure of its offices or adverse effects on its supply or distribution network. Such losses would severely disrupt
the Company's business operations. Fenghua has not adopted any contingency plans to combat any future outbreak of avian flu, swine flu, SARS or any other epidemic.
Since all of Fenghua's operations and the majority of its customers and suppliers are based in China, an outbreak
of swine flu, avian flu, SARS or other contagious disease in China, or in neighbouring countries, or the perception that such an outbreak could occur, as well as the measures taken by the governments of countries affected,
could have material adverse effects on the business, financial condition and results of operations of Fenghua.
The PRC legal system and national taxation laws contain inherent uncertainties and inconsistencies.
As most of Fenghua's business is conducted in China, the majority of its operations are governed by PRC laws.
China is still in the process of developing a comprehensive statutory framework, and its legal system is still
considered to be underdeveloped in comparison with legal systems in most western countries. In particular, PRC
foreign investment laws and company law as well as provisions for the protection of shareholders' rights and
access to information are less developed and confer less protection than those applicable to companies incorporated in Germany or other member states of the European Economic Area (“EEA”). The following factors create
uncertainty with respect to Fenghua's business:

inconsistencies between and among the constitution, national laws, government decrees as well as governmental, ministerial and local orders, decisions, resolutions and other acts;

conflicting local, regional and national rules and regulations;

inconsistent use of terms for different rules by different localities and governmental departments;

lack of judicial and administrative guidance on interpreting legislation, in particular, tax legislation;

absence of a solid system of checks and balances between the different parts of the government;

relative inexperience of judges and courts in interpreting legislation;

high degree of discretion on the part of governmental authorities, which can result in arbitrary actions
such as suspension or termination of licenses or approvals, and relatively untested bankruptcy procedures
that might be vulnerable to abuse; and

differences in the application of norms between different local authorities.
Furthermore, many laws, regulations and legal requirements have only slowly been adopted by the central or
local governments, and their implementation, interpretation and enforcement may involve uncertainty due to the
lack of established practices available for reference. Depending on the government agency or how an application
or a case is presented to such agency, Fenghua may receive less favourable interpretations of law than its competitors. In addition, any litigation in China may be protracted and result in substantial legal costs and diversion
of resources and management attention. Similarly, legal uncertainty in China may limit the legal protection
available to potential litigants. The occurrence of one or several of these risks could have material adverse effects on the business, financial condition and results of operations of Fenghua.
The judiciary's lack of independence and limited experience and the difficulty of enforcing court decisions
and governmental discretion in enforcing court orders could prevent Fenghua from obtaining effective
remedies in a court proceeding.
China's judicial system may not be as independent or immune to economic, political and nationalistic influences
as judicial systems in European jurisdictions. The court system in China is largely understaffed and underfunded. Since courts in China are financially dependent on the respective local governments, judges tend to favour the economic interests of the municipalities or provinces and the enterprises located there. The independ-
49
ence of judges is further undermined by the fact that Chinese judges are only appointed for a limited period of
time and may be dismissed during their term of office. Some older judges have not had any prior legal education.
Courts in China are often inexperienced in the area of business law. Not all PRC legislation and court decisions
are readily available to the public or organised in a manner that facilitates understanding. Enforcement of court
orders can, in practice, be very difficult in China. Additionally, court decisions are often used in furtherance of
political and commercial aims. Fenghua might be subjected to claims by competitors or other parties and may
not be able to receive a fair hearing in the course of the respective trial or legal procedure. Judicial decisions in
China can also be unpredictable and may not provide effective remedies. These uncertainties also extend to
property rights. Expropriation or nationalisation of the Company's PRC subsidiaries, their assets or portions
thereof, potentially without adequate compensation, could have material adverse effects on the business, financial condition and results of operations of Fenghua.
There are difficulties in seeking recognition and enforcement of foreign judgments in China.
Fenghua's assets are largely located in China and most of its management personnel and directors reside there.
The Company is a holding company without any significant operational business of its own. China has not entered into treaties or arrangements providing for the recognition and enforcement of judgments made by the
courts of Germany or most other jurisdictions, including judgments obtained in relation to claims investors may
make with regard to this Offering. As a result, it will be difficult or impossible for investors to affect service of
process or enforce judgments from courts of other jurisdictions against Fenghua or its assets, management personnel or directors in China.
Restrictions might be imposed on foreign investments in PRC companies.
As part of China's accession to the World Trade Organisation (“WTO”) in 2001, China undertook to eliminate
certain trade-related investment measures and to open up specified industry sectors that had previously been
closed to foreign investment. Even though China has lived up to most of its WTO commitments, foreign investors still encounter barriers in practice as some of the newly enacted or modified laws and regulations are enforced in an inconsistent manner by different authorities. In addition, there is no guarantee that the Chinese government will not tighten its stance on foreign investors in other areas not covered by the WTO commitments and
that control over companies operating in certain sectors considered to be politically sensitive will not change.
The MOFCOM and the National Development and Reform Commission (“NDRC”) have issued the Foreign
Investment Industry Guidance Catalogue (the “Catalogue”) that divides certain investment projects into three
categories: encouraged, restricted and prohibited, with industries and sectors that are not mentioned or listed
deemed to be permitted. Based on the latest version of the Catalogue (effective as of 30 January 2012), the businesses of Fenghua are not mentioned or listed in the Catalogue and as such are deemed as being permitted. The
Catalogue is, however, regularly revised. Should Fenghua's business activities be subject to foreign investment
restrictions or prohibitions imposed by any future amendments to the Catalogue, this could have a material adverse effect on Fenghua's business, financial condition and results of operations.
Changes in labour law and policy in the PRC could affect Fenghua's results of operations.
On 29 June 2007, the Standing Committee of the People's Congress of the PRC adopted a new labour law namely, the Labour Contract Law of the PRC (“Labour Law”), which became effective on 1 January 2008 and was
further amended on 28 December 2012 and came into force on 1 July 2013. The Labour Law was introduced to
enhance rights for mainland workers, including open-ended work contracts and severance pay. The Labour Law
requires new actions to be taken by employers to ensure the welfare of their employees. The Labour Law, inter
alia, requires employers to provide written contracts to their workers, restricts the use of temporary labourers and
makes it harder to lay off employees.
Under the PRC Social Insurance Law, Fenghua is required to make such contributions for the benefit of the
employees as pension contribution, unemployment insurance, basic medical insurance, work-related injury insurance and maternity insurance.
However, there is no assurance that the PRC Government will not make any further amendments to the Labour
Law and the insurance coverage issues which may affect Fenghua's financial results. Further restrictions in the
Labour Law and possible increases of social insurance contributions could materially adversely affect Fenghua's
business, financial condition and results of operations.
50
The accuracy of industry and statistical data included in the Prospectus may not be reliable.
Certain industry and statistical data included in this Prospectus has been derived from publicly available sources,
the reliability of which may vary. Such statistical data as well as other statistical and industry data used in this
Prospectus and the source data on which such information is based may not have been extracted or derived from
a source in a manner analogous to that used in other countries. Generally, third party information is more difficult to obtain in China compared to some other countries that enjoy higher transparency.
Selected information relating to the Chinese sports shoe soles industry and statements made regarding Fenghua's
position in the industry were derived from and extracted from the report of Euromonitor International (Adult
Sport Shoe Sole Market in Mainland China, Euromonitor International 2012, the “Report” or “EM Report”).
Due to the limited availability of public information about the sports shoe soles industry in China, Fenghua specifically commissioned Euromonitor International to draft the Report for the purpose of extracting certain information and statistics from that Report in this Prospectus.
Industry publications, generally state that the information they contain has been obtained from sources believed
to be reliable, but that the accuracy and completeness of such information is not guaranteed. The Company has
accurately reproduced information derived from third parties including the Report. However, neither the Company nor the Joint Lead Managers have independently verified the figures, market data or other information on
which third parties have based their studies. Accordingly, the Company and the Joint Lead Managers assume no
responsibility and make no representation or warranty as to the accuracy of any information derived from information and studies of third parties included in this Prospectus.
Any mistakes, inaccuracies or omissions in industry and statistical data included in this Prospectus may provide
investors with an incomplete overview of certain specific industry and statistical information in the Prospectus.
Risks Related to the Offering
The Company's CEO, Mr. Weijie Lin, will still hold a significant portion of the share capital of the Company after the Offering, which will enable him to exercise significant control over the Company and could
subject him to conflicts of interest.
Immediately upon closing of the Offering, assuming placement of all New Shares, Fenghua's CEO, Mr. Weijie
Lin, will indirectly hold approximately 60.27 % of the Company's share capital and voting rights. Through his
shareholdings, Mr. Lin will be in a position, irrespective of the voting behaviour of other shareholders, to exercise considerable influence at the Company's General Shareholders' Meetings, and consequently, over decisions
regarding measures which are presented for a vote at the General Shareholders' Meetings (including the election
of the members of the Supervisory Board and the approval of important capital measures). Mr. Lin's interests as
a major shareholder may conflict with his duties as CEO to act in the best interest of the Company and/or the
interest of other shareholders and he could exercise his influence over the Company to the detriment of the
Company and/or other shareholders, which could have a material adverse effect on the business, financial condition, and results of operations of Fenghua.
Public trading in the Company's shares might not develop.
Prior to the Offering, there was no public trading in the Company's shares. The offer price for the shares will not
necessarily provide any indication of the stock exchange price at which the shares will subsequently be traded on
the Frankfurt Stock Exchange or any other exchange. No assurance can be given that liquid trading in the shares
of the Company will develop after the Offering and that the stock exchange price will not fall below the offer
price. The Company cannot forecast to what extent investors' interest in its shares will foster trading, nor whether a liquid trading market will develop. The stock exchange price of the Company's shares could become subject
to greater volatility and consequently buy and sell orders might be executed less efficiently. Under certain circumstances, investors might not be able to sell their shares at the purchase price fixed for the Offering or at a
higher stock exchange price, or might not be able to sell them at all.
A volatile stock exchange price for the shares might develop.
After the Offering, the stock exchange price of the Company's shares could fluctuate considerably, especially
because of fluctuating actual or forecasted results, revised earnings outlooks, the failure to meet analysts' expectations, changed economic conditions in general, or other factors. The general volatility of stock exchange prices
could also exert pressure on the stock exchange price of the Company's shares without any direct connection
with Fenghua's business, its financial condition or earnings position, or its business prospects. In addition, in
51
connection with the Offering and the placement of the New Shares no stabilisation measures will be taken by a
stabilisation manager to stabilise the stock exchange or market price of the Company's shares to offset any sales
pressure that may exist. As the shares are growth stocks and are likely to be influenced by various developments
in China, the Company's shares are particularly susceptible to fluctuations.
The sale of Shares by CMI could affect the share price.
Immediately upon the closing of the Offering assuming placement of all New Shares, CMI will hold approximately 60.27 % of the share capital and an equivalent percentage of the Company's voting rights. CMI has
agreed with the Underwriter that, for 12 months after the listing of the shares of the Company on the Frankfurt
Stock Exchange, it will not dispose of Shares of the Company other than shares purchased in the open market
following the Offering. The Company cannot, however, give any assurance that CMI will always observe and
comply with this undertaking and/or that the Underwriter will be in the position to enforce that market protection
agreement.
There are risks for short sales before the delivery of the Shares.
The underwriting agreement provides that the Underwriter may terminate the underwriting agreement under
certain circumstances. If the underwriting agreement is terminated, the Offering will not take place. Investors
who have engaged in so-called “short sales” will bear the risk of being unable to cover such short sales through
the delivery of shares.
The WSE might not grant the admission of the Shares to trading or could revoke or suspend the trading.
There is no guarantee that the WSE will grant the admission to trading of the Shares on the regulated market
(Parallel Market) of the WSE. Furthermore, if certain conditions are met, the trading can be suspended or the
admission to trading can be revoked in full.
The admission of the Shares to trading on the WSE requires that: (i) that the KNF receives from BaFin a certificate confirming that this Prospectus has been approved in Germany, a copy of the Prospectus and a Polish translation of the Prospectus summary, as well as some additional information to complete the Prospectus passporting
procedure; (ii) that the Polish National Depository for Securities (the “NDS”) registers the Shares with the deposit; and (iii) that the management board of the WSE approves admission of the Shares to listing and trading on
the WSE. The Company intends to take all the necessary steps to ensure that the Shares are admitted to trading
and listed on the WSE as soon as possible. However, there is no guarantee that all of the aforementioned conditions will be met in time or at all and that the Shares will be admitted to trading and listed on the WSE on the
date expected or at all.
The management board of the WSE has the right to suspend trading of the Shares, if the Company fails to comply with the regulations of the WSE or if such suspension is necessary to protect the interests of market participants. Moreover, trading may be suspended at the request of the Company or the KNF. In the latter case, trading
may be suspended at the request of the KNF, if it threatens investors’ interests, the orderly stock exchange trading, or the security of Shares exchange trading.
If the Company fails to fulfil certain requirements or obligations arising from the applicable laws and regulations
of the WSE and/or if the orderly trading in Shares, or the investors’ interests are endangered, the Company’s
securities can be excluded from trading on the WSE. This particularly may be the case: (i) if transferability of the
Shares is restricted; (ii) if the Shares cease to exist in a book entry form; (iii) at the request of the KNF; or (iv) if
the Shares are excluded from trading on a regulated market by a relevant supervisory authority.
The Offering may not be implemented in full which may negatively affect the growth prospects of
Fenghua and/or the liquidity of the shares in the market.
This Offering relates to 1,200,000 ordinary bearer shares consisting of 1,200,000 New Shares. Thus, in case all
of the 1,200,000 New Shares are allotted to investors the Company's free float will amount to approximately
10.71 % of its total share capital. However, the actual number of New Shares that will be allotted to investors,
i.e. the placement volume, will be jointly determined by the Company and the Joint Lead Managers based on the
orders received using the order book prepared during the bookbuilding process, and will also depend on the offer
price and certain allotment criteria. There is no guarantee that all of the New Shares will eventually be placed
with investors.
If the amount of New Shares placed with investors is significantly lower, resulting in lower net proceeds than
envisaged, the Company may not be able to fund certain of the investments for which it intends to use the proceeds from this Offering in full or at all which may affect the Company's growth strategy. In addition, if the
overall placement volume is significantly lower than the number of New Shares which form the subject matter of
52
the Offering, the free float will be significantly lower than the percentage stated above, which may have a material adverse effect on the tradability of the shares and on the shareholder structure of the Company. If the amount
of New Shares placed is zero, the Company will not be able to fund any of the envisaged investments and the
free float will remain the same as it currently is.
The materialisation of any of the above risks could have a material adverse effect on the value of the shares of
the Company.
If the Company does not comply with the requirements as a public company, the value of its Shares may
be adversely affected.
A publicly listed company is subject to a number of obligations including reporting and disclosure obligations.
The Company has never been subject to such obligations and may fail to fulfil such obligations sufficiently. As a
consequence, the Company may be subjected to fines, damage claims and negative investor perception and
shareholders may not be provided on time or at all with price sensitive information or the content of materials
made public may be of an unsatisfactory quality. In addition, the Company may be fined or other sanctions may
be imposed on the Company for noncompliance with regulations relating to publicly listed companies. If any of
the above risks materializes, the value of the Company's Shares could be materially adversely affected.
Other public offerings during the offer period may lower the interest of prospective investors in the Offering.
There is a risk that public offerings of other companies, to be conducted during the offer period, may lower the
interest of prospective investors in participating in the Offering. As a result the estimated funding required for
the Company’s future development may not be gained fully or at all.
The Offering may be cancelled or suspended
Public offerings are subject to various circumstances independent from the Company. In particular, the demand
for the New Shares is shaped, among others, by investor sentiment toward the sector and legal and financial
conditions of the Offering. In case such circumstances have an adverse impact on the results of the Offering, the
Company, acting in agreement with the Joint Lead Managers may decide to cancel or suspend the Offering.
Consequently, the investors will be unable to successfully subscribe for the New Shares. In such a case, payments made by investors during the Offering will be returned without interest or any other compensation.
Risks Related to the Offering in Poland
Exercising certain shareholders' rights in the Company may be more difficult and more costly for Polish
investors compared to exercising rights in a company governed by Polish law.
The Company was established in Germany and is governed by German law. The Company's corporate structure
as well as the rights and obligations of the Company's shareholders may be different to the rights and obligations
of shareholders in companies governed by Polish or other non-German law. It may be more difficult for nonGerman investors to exercise certain shareholders' rights in a German company and may result in higher transaction costs than to exercise rights in a company governed by Polish or other non-German law.
Differences in trading, settlement and clearing systems in Germany and Poland as well as currency differences and potentially higher transaction costs could have an adverse effect on the Offering in Poland and
trading of the Shares on the WSE.
Differences in trading, settlement and clearing systems in Germany and Poland as well as currency differences
and potentially higher transaction costs could have an adverse effect on the Offering in Poland and differences in
the settlement and clearing systems, trading currencies, fees as well as other issues related to trading of the
Shares on the Frankfurt Stock Exchange and the WSE can result in potentially higher transaction costs for Polish
and other non-German investors and it may adversely affect the transferability of the Shares between the stock
exchanges. Moreover, the Shares will be quoted and traded on the regulated market of the Frankfurt Stock Exchange in Euro and subscribed by investors in Poland in PLN. Therefore, investors are exposed to currency risk
which may affect the value of the Shares and the value of potential dividends. Changes in currency exchange
rates may result from various factors such as macroeconomic factors, speculative transactions and interventions
by central banks and governments.
Administrative measures may be imposed on the Company by the KNF if the Company violates its obligations in connection with the Offering in Poland and/or admission to listing and trading on the WSE.
Pursuant to articles 19, 16, 17 and 18 of the Polish Act on Public Offering, the KNF must notify the BaFin about
53
any violation of law in connection with the Offering in Poland and/or admission to listing and trading on the
WSE committed by the Company. If, despite the notice, BaFin does not promptly take any action to prevent a
further violation of law or if such action is not effective, then, in order to protect the investors' interests, and after
giving notice to BaFin and the European Securities and Markets Authority, KNF may: (i) order that the Offering,
subscription or sale of Shares and/or admission to listing and trading on the WSE must be discontinued or suspended for a period no longer than 10 business days; (ii) prohibit the commencement or continuation of the Offering, subscription or sale of Shares and/or admission to listing and trading on the WSE; or (iii) publish, at the
Company's cost, information about the unlawful conduct occurring in connection with the Offering, subscription
or sale of Shares and/or with respect to application for admission to listing and trading on the WSE.
If the Company fails to comply with KNF's decision described in points (i) and (ii) above, KNF may also impose
on the Company a fine of up to PLN 5,000,000 (EUR 1,194,300).
The Company intends to conduct the Offering in accordance with applicable laws. However, it cannot exclude
the possibility that a breach of relevant Polish regulations may occur.
Administrative measures may be imposed on the Company by KNF, if the Company violates its obligations regarding promotional activities in connection with the Offering in Poland.
Pursuant to articles 19 and 53 of the Polish Act on Public Offering, KNF must notify BaFin about any violation
of law governing promotional activities regarding the Offering in Poland committed by the Company. If, despite
the notice, BaFin does not promptly take any action to prevent a further violation of law or if such action is not
effective, then, in order to protect the investors' interests, and after giving notice to BaFin, KNF may: (i) order
that commencement of a promotional activities must be suspended or the promotional activities must be discontinued for a period of no longer than 10 business days in order to rectify all identified irregularities; or (ii) prohibit promotional actions if the Company deliberately fails to rectify the irregularities identified by KNF within a
period of no longer than 10 business days or the content of promotional materials breaches provisions of Polish
law, (iii) publish, at the cost of the Company, information that the promotional action has been conducted unlawfully, indicating a violation of the law.
If the Company violates certain obligations regarding promotional activities in Poland describes in article 53 of
the Polish Act on Public Offering, KNF may impose on the Company a fine of up to PLN 1,000,000
(EUR 238.860). Moreover, if the Company fails to comply with KNF's decisions described in points (i) and (ii)
above, KNF may also impose on the Company a fine of up to PLN 5,000,000 (EUR 1,194,300).
The Company intends to conduct the Offering in accordance with applicable laws. However, it cannot exclude
the possibility that a breach of relevant Polish regulations may occur.
Polish tax law may change and the potential changes might negatively influence investors' returns.
Polish tax law is subject to numerous changes. In practice, the tax authorities apply the law relying on both the
legal provisions and interpretations provided by higher-instance authorities or courts. Such interpretations may
also be subject to change, or may be replaced with different interpretations, or various conflicting interpretations
may exist. In particular, any changes in regulations on capital gains tax or changes to the German-Polish Double
Taxation Treaty may influence the returns made by investors. This risk could have material adverse effects on
the Offering in Poland.
The Company's non-compliance with the corporate governance rules of the WSE may have an adverse
effect on the Offering, value and liquidity of the Shares.
As a result of the differences between Polish and German law, the Company is not, as of the date of this Prospectus, in full compliance with the WSE Corporate Governance Rules referred in Code of Best Practice for WSE
Listed Companies (“Best Practices”). Certain principles contained in the Best Practices will apply to the Company only to the extent they are compatible with German law. The Company’s declaration on compliance with
the Best Practices will be published pursuant to the applicable provisions of law and respective regulations. Despite the fact that the Best Practices apply on the basis of “comply or explain” principle, Polish investors consider companies that comply with the Best Practices more transparent. Hence, non-complying with the Best Practices may have an adverse effect on the Offering, value and liquidity of Shares.
There are differences in insolvency regimes in Germany, Poland and China.
Polish investors may face difficulties in pursuing claims due to differences in insolvency, reorganisation, liquidation, receivership, administration, arrangement or other scheme with creditors regimes in Poland, Germany and
China, as the Company is а holding company organised аnd existing under German lаw with limited assets except for the equity interest in its subsidiaries (the Fenghua Group's assets аre located in China). For those reasons
Polish investors as creditors mаy encounter difficulties in the conduct of proceedings with respect to the Compa-
54
ny and any other entities within the Fenghua Group аnd their assets.
55
GENERAL INFORMATION
Responsibility for the Contents of the Prospectus
Fenghua SoleTech AG, Frankfurt, Germany, (the “Company” or “Fenghua SoleTech AG” and collectively
with its direct and indirect subsidiaries “Fenghua” or “Fenghua Group”) and ACON ACTIENBANK AG,
Munich, Germany (“ACON” or the “Underwriter”) and Dom Maklerski DF Capital Sp. z o.o. (“DF Capital”,
ACON and DF Capital the “Joint Global Coordinators” or the “Joint Lead Managers”), assume responsibility for the contents of this prospectus (the “Prospectus”) pursuant to Section 5, paragraph 4 of the German Securities Prospectus Act (Wertpapierprospektgesetz) and declare that, to their knowledge, the information contained
in the Prospectus is correct and that no material facts have been omitted.
Subject Matter of this Prospectus
The Offering consists of a public offering in Germany and Poland and private placements outside Germany,
Poland and the United States.
For purposes of the Offering, this Prospectus relates to a total of 1,200,000 no par value ordinary bearer shares
(Inhaber-Stückaktien) consisting of:

1,200,000 no par value ordinary bearer shares from the capital increase out of the authorised capital resolved the Management Board expected on 27 October 2014 (the “New Shares”).
For purposes of admission to trading on the regulated Market (Regulierter Markt) of the Frankfurt Stock Exchange (General Standard) as well as a simultaneous admission to trading in the regulated market (Parallel
Market) of the WSE, this Prospectus relates to a total of up to 11,200,000 no par value ordinary bearer shares
consisting of:

the current share capital of 10,000,000 no par value ordinary bearer shares (the “Existing Shares” and
together with the New Shares, the “Shares”); and

the New Shares.
Each of the Shares has a notional amount of the share capital of EUR 1.00 and is vested with full dividend rights
for the short financial year 2014.
Forward-Looking Statements
This Prospectus contains certain forward-looking statements, which relate to the business, the financial development, and the results of operations of Fenghua as well as the business divisions in which Fenghua operates.
Forward-looking statements relate to future facts, events and other circumstances which are not historical facts.
In particular, this applies to statements containing information on future financial results, plans, and expectations
regarding the business and management of Fenghua, its growth and profitability, and general economic and
regulatory conditions, and other factors affecting Fenghua.
Forward-looking statements are based on current estimates and assumptions made by the Company to the best of
its knowledge. Such forward-looking statements are based on assumptions and are subject to risks, uncertainties
and other factors that could cause the actual financial condition and results of Fenghua to differ materially from
and fail to meet the expectations expressed or implied by such forward-looking statements. The business of
Fenghua is subject to a number of risks and uncertainties that could also cause a forward-looking statement,
estimate or prediction to become inaccurate. Accordingly, prospective investors are strongly advised to read the
sections of the Prospectus, “Summary” “Risk Factors”, “Management's Discussion and Analysis of Financial
Condition and Results of Operations”, “Industry Overview”, “Business”, “Regulatory Environment”, and “Recent Developments and Outlook”, which contain a detailed description of factors that have an impact on the
business of Fenghua and the market in which Fenghua operates.
In light of these risks, uncertainties and assumptions, it is possible that the future events mentioned in this Prospectus may not occur, and that forward-looking estimates and forecasts derived from third-party studies reproduced in this Prospectus may prove to be inaccurate (see: “General Information – Information Derived from
Third Parties”). Moreover, neither the Company nor the Underwriter assumes any obligations, except as re-
56
quired by law, to update any forward-looking statements or to conform such forward-looking statements to future events or developments.
Information Derived from Third Parties
This Prospectus contains numerous references to data, statistical information and studies prepared by third parties. In the preparation of this Prospectus the following sources have been relied upon:

Adult Sports Shoe Sole Market in Mainland China, Euromonitor International, November 2012

Statistical Communiqué of the People's Republic of China on the 2013 National Economic and Social
Development, National Bureau of Statistics of China, 24 February 2014

Footwear market in China, Sealand Securities Co., Ltd. on the footwear market in China, 14 August 2012

China Sports Goods Survey – The Landscape is Changing, Morgan Stanley, 18 April 2011

Report on China's economic, social development plan”, NPC, 18 March 2011, www.npc.gov.cn

“Outlines of the Twelfth Five-Year Plan”, NPC, 17 March 2011, www.npc.gov.cn
Information in this Prospectus that is sourced from third parties has been accurately reproduced and, as far as the
Company is aware and is able to ascertain from information published by that third party, no facts have been
omitted which would render the reproduced information inaccurate or misleading.
Market studies are often based on information and assumptions that may not be accurate or appropriate, and their
methodology is inherently predictive and speculative. This Prospectus also contains estimates made by the Company relating to market data of third parties that are based on published market data or figures from publicly
available sources. Neither the Company, nor the Joint Lead Managers have independently verified the figures,
market data or other information on which third parties have based their studies. Accordingly, the Company and
the Joint Lead Managers assume no responsibility and make no representation or warranty as to the accuracy of
any information derived from information and studies of third parties included in this Prospectus.
Documents Available for Inspection
For the duration of the validity of this Prospectus, copies of the following documents will be available for inspection in printed form during regular business hours at the offices of the Company:

the Company's Articles of Association (Satzung) and the rules of procedure (Geschäftsordnung) for the
Management Board and Supervisory Board;

the Consolidated Financial Statements of Fenghua Hong Kong as of and for the years ended 31 December
2013, 2012 and 2011;

the Interim Condensed Consolidated Financial Statements of Fenghua Hong Kong as at 30 June 2014;

IFRS opening statements of financial positions as of 8 September 2014 of Fenghua SoleTech AG in
foundation (in Gründung).
Future annual reports and interim reports of the Company will be available at its offices.
Notes Regarding Financial and Currency Data
Certain numerical data (including certain percentage rates) are subject to rounding adjustments that were carried
out according to established commercial standards. As a result, the aggregate amounts in this Prospectus may not
correspond in all cases to the individual amounts contained in the underlying sources. Figures stated in tables
may not exactly add up to the total values that may also be stated in these tables. Percentage rates quoted in the
Prospectus were, however, calculated on the basis of actual values rather than rounded values. Accordingly,
percentages quoted in the Prospectus may in some cases differ from percentage rates based on the rounded values. Some figures (including percentages) in this Prospectus have been rounded to the nearest whole number. As
a result, figures in tables so rounded may in some cases not add up to the exact totals shown in the tables. Percentages quoted in the text were, however, calculated on the basis of actual values rather than the rounded values. Accordingly, percentages quoted in the text may in some cases differ from percentages based on the rounded values.
57
The functional currency of Fenghua is Renminbi (“RMB”) whereas the Consolidated Financial Statements and
the Interim Condensed Consolidated Financial Statements are in EUR. The RMB financial data has been translated into EUR using the following exchange rates:
2011
2012
2013
30 June 2013
30 June 2014
EUR per
RMB 1.00
EUR per
RMB 1.00
EUR per
RMB 1.00
EUR per
RMB 1.00
EUR per
RMB 1.00
End of period
0.1214
0.1199
0.1188
0.1242
0.1190
Average
0.1111
0.1232
0.1216
0.1219
0.1188
Accordingly, the presentation of the financial statements in Euro for the periods under review is not fully comparable to each other because different RMB/EUR exchange rates were used for each period under review.
All information with respect to currencies in this Prospectus, to the extent not otherwise indicated, refers to
EUR. For the translation of RMB or PLN amounts which are not related to the financial statements of Fenghua
SoleTech AG, the exchange rate of EUR 0.1188 per RMB 1.00 as at 31 December 2013 has been used and the
exchange rate of EUR 0.2389 per PLN 1.00 as at 17 September 2014 has been used. Amounts used in industry
reports may have been based on different exchange rates. Amounts denominated in other currencies are expressly identified as such with the corresponding currency designation or currency symbol.
Auditors
The Consolidated Financial Statements of Fenghua Hong Kong as at and for the years ended 31 December 2011,
31 December 2012 and 31 December 2013 under IFRS and the IFRS opening statements of financial positions as
of 8 September 2014 of Fenghua SoleTech AG in foundation (in Gründung) have been audited by Crowe
Kleeberg GmbH Wirtschaftsprüfungsgesellschaft, Augustenstrasse 10, 80333 Munich, Germany (“Crowe”),
independent accountants, as stated in their reports appearing elsewhere herein and each are accompanied by an
unqualified auditor's report, copies of which are included in this Prospectus. Crowe is a member of the German
Chamber of Public Accountants (Wirtschaftsprüferkammer).
58
THE OFFERING
Subject Matter of the Offering
The Offering consists of a public offering in Germany and Poland and private placements to institutional investors outside Germany, Poland, and the United States.
The Offering consists of 1,200,000 no par value ordinary bearer shares (Inhaber-Stückaktien) of Fenghua SoleTech AG, each having a notional amount of the share capital of EUR 1.00 and each vested with full dividend
rights for the short financial year 2014, consisting of:

1,200,000 no par value ordinary bearer shares from the capital increase out of the authorised capital
against cash contributions resolved by the Management Board expected on 27 October 2014 (the “New
Shares”).
The nominal value of the New Shares that are the subject of this Offering represents a total of EUR 1,200,000 of
the share capital. Upon implementation and registration of the capital increase for the issuance of the New
Shares, assuming placement of all New Shares, the share capital will amount to up to EUR 11,200,000. In connection with the Offering, 10.71 % of the shares of the Company will be offered.
In connection with the Offering, the Company will receive the net proceeds from the sale of the New Shares.
ACON and DF Capital are the Joint Global Coordinators and Joint Lead Managers.
The Company has appointed DF Capital as the Joint Global Coordinator and Joint Lead Manager for the purposes of the Offering on the territory of Poland and admission for trading and listing of the Shares on the WSE.
The Company has appointed ACON as the Joint Global Coordinator and Joint Lead Manager for the purposes of
the Offering on the territory of Germany and admission for trading and listing of the Shares on the Frankfurt
Stock Exchange.
Subscription orders will be accepted only from prospective investors who at the time of placing their orders
(before the end of the offer period), have opened securities accounts with entities of their choice, licensed to
provide such services within the territory of Germany or Poland.
Together with placing subscription orders, investors are obliged to submit instructions to deposit the New
Shares, that are allotted to the investor, on the investor’s securities account.
Timetable for the Offering
The scheduled timetable for the Offering is as follows:
10 October 2014
Approval of the Prospectus by BaFin and notification of the Prospectus to the Polish
Financial Supervisory Authority (Komisja Nadzoru Fonansowego – “KNF”)
Publication of the Prospectus on the website of Fenghua SoleTech AG
17 October 2014
Commencement of the offer period
23 October 2014
End of the offer period for retail investors at 12:00 noon (Central European Time)
and for institutional investors at 6 p.m. (Central European Time)
24 October 2014
Determination of the offer price and allotment; publication of the offer price, the
offer volume and the allotment criteria in the form of an ad-hoc notice
Subscription of the New Shares
28 October 2014
Registration of the implementation of the capital increase with the commercial
register, issuance of the certificate evidencing the New Shares
5 November 2014
Listing approval issued by the Frankfurt Stock Exchange and the WSE
59
6 November 2014
Commencement of trading of the Shares on the Frankfurt Stock Exchange and the
WSE
7 November 2014
Book-entry delivery of New Shares against payment of the offer price
On the date of its approval, the Prospectus will be published on the Company's website (www.Fenghua.de), and
is also available in printed form free of charge during regular business hours from the Company, and the Joint
Lead Managers.
Price Range, Offer Period, Offer Price, and Allotment
The price range within which purchase orders may be placed is between EUR 10.00 and EUR 12.00. The Offering will be denominated in EUR. The investors domiciled in Poland will subscribe for and pay for the subscribed
New Shares in PLN. The PLN equivalent of the price range will be established by the Company on the basis of
the average PLN/EUR exchange rate set by the National Bank of Poland and valid as at 6.00 PM Central European Time of two business days before commencement of the offer period; so established PLN equivalent of the
price range will be announced by the Company the day before the commencement of the offer period.
The offer period, within which investors will have the possibility to place purchase orders for the New Shares
commences on 17 October 2014 and ends on 23 October 2014. During the offer period, offers to purchase shares
may be submitted by retail investors at the branch offices of the Joint Lead Managers or at the client service
point of the selling agents as well as via the Internet and telephone facilities in accordance with the terms of the
agreements relating to the brokerage services provided by these entities. Institutional investors may placed offers
to purchase the New Shares at the branch offices of the Joint Lead Managers. On the last day of the offer period,
retail investors will be able to submit offers to purchase New Shares until 12:00 noon and institutional investors
until 6:00 p.m. (Central European Time).
The Company, together with the Joint Global Coordinators, reserves the right to decrease the number of New
Shares, to increase or decrease the upper limit and/or lower limit of the price range, and/or to extend or shorten
the offer period. If any of the terms of the offer are modified, the change will be published by means of an announcement through electronic information services such as Reuters or Bloomberg and on the Company's website (www.Fenghua.de) and, if required under the German Securities Trading Act (Wertpapierhandelsgesetz)
and/ or the German Securities Prospectus Act (Wertpapierprospektgesetz), as an ad-hoc notice and/or a supplement (Nachtrag) to the Prospectus. Investors who have submitted purchase offers will not be notified individually. Any changes to the number of New Shares or the price range or any extension or shortening of the offer period will not nullify purchase orders that have already been placed. Investors who have already placed purchase
orders prior to the publication of a supplement will have the right provided under the German Securities Prospectus Act (Wertpapierprospektgesetz) to withdraw from these purchase orders within two business days following
publication of the supplement. Instead of withdrawing their purchase orders, investors may also amend these
purchase orders submitted prior to publication of the supplement (Nachtrag) or place new limited or unlimited
purchase orders within two business days after publication of the supplement (Nachtrag).
Once the offer period has expired, it is expected that the Company and the Joint Global Coordinators will jointly
determine the offer price on 24 October 2014 using the order book prepared during the bookbuilding process.
The basis for the bookbuilding process is the price range. The determination of the offer price will depend on the
purchase offers for the shares submitted by investors during the offer period and collected in the abovementioned order book. The placement price will be determined on the basis of the purchase orders submitted by
investors. These orders will be assessed on the basis of the price per share offered by the investor and his expected investment horizons. This method of determining the offer price primarily aims at maximizing the proceeds from the Offering. Consideration will also be given to whether the offer price and the number of shares to
be placed allow for the reasonable expectation that, given the total demand for the Company's shares, the share
price will demonstrate steady performance in the aftermarket. Attention will therefore also be paid to the composition of the group of shareholders in the Company that would result from setting the offer price at a certain
price, and the expected behaviour of such group of investors after the implementation of the Offering.
Purchase orders are freely revocable until the end of the offer period.
Once the offer price has been determined, the New Shares will then be allotted to investors based on the orders
submitted. The offer price is expected to be published on 24 October 2014 by means of an ad-hoc notice on an
electronic information system and on the Company's website. Investors who have submitted purchase orders
60
with the Joint Global Coordinators will be able to obtain information from the Joint Global Coordinators with
respect to the offer price and the number of shares allotted to them beginning no earlier than the one business
day following the determination of the offer price, and trading of the Shares may not begin before allotment.
Multiple subscriptions are not permissible. Particularly in the event that the placement volume proves to be insufficient to satisfy all orders placed at the offer price, the Joint Global Coordinators reserve the right not to
accept purchase orders, in whole or in part.
General Allotment Criteria
No agreements exist between the Company and the Underwriter as to the allotment procedure prior to the commencement of the offer period. The Company and the Underwriter intend to comply with the “Principles for the
Allotment of Share Issues to Private Investors” (“Grundsätze für die Zuteilung von Aktienemissionen an Privatanleger”), which were issued on 7 June 2000 by the Exchange Expert Commission (Börsensachverständigenkommission) of the German Federal Ministry of Finance (Bundesministerium der Finanzen). After the offer
period has ended, the Company and the Underwriter will determine and publish the details of the allotment
method in accordance with the “Principles for the Allotment of Share Issues to Private Investors”.
Delivery and Settlement of the New Shares
Book-entry delivery of the allotted New Shares against payment of the offer price and the customary securities
commission is expected to take place on 7 November 2014. The Shares will be made available to shareholders as
co-ownership interests in the respective global certificate. Payment for the New Shares must be made in EUR in
Germany and in PLN in Poland in accordance with the rules of the entity accepting the subscription order. At the
investor's option, shares purchased pursuant to this Offering will be credited to a securities deposit account maintained by a German bank with Clearstream Banking AG, Mergenthaler Allee 61, 65760 Eschborn, Germany for
the account of such investor or to the securities deposit account of a participant at Euroclear Bank S.A./N.V., 1,
Boulevard Roi Albert II, 1120 Brussels, Belgium, as operator of the Euroclear Systems, or Clearstream Banking
S.A., L-2967 Luxembourg or to the securities account of a participant of the NDS, which is the Polish central
clearinghouse and depository for securities, with its seat at ul. Książęca 4, 00-498 Warsaw, Poland.
General and Specific Information on the Shares
Voting Rights
Each Share confers one vote at the General Shareholders' Meeting (Hauptversammlung) of the Company. There
are no limitations to the voting rights. Founding Shareholders of the Company do not have different voting
rights.
Dividend Entitlement
The Shares are vested with full dividend rights for the short financial year (Rumpfgeschäftsjahr) 2014.
Form and Certification of Shares
According to the Company's Articles of Association (Satzung), all shares have been and will be issued as no par
value ordinary bearer shares (Inhaber-Stückaktien). The Existing Shares are represented by one global share
certificates without dividend coupons, which is deposited with Clearstream Banking AG, Eschborn, Germany.
The New Shares will be represented by an additional global share certificate, which will also be deposited with
Clearstream Banking AG. The Company's Articles of Association exclude the rights of shareholders to receive
individual share certificates for their shares to the extent permitted by law and unless required by the rules of
stock exchanges to which the shares are admitted. The Company may issue share certificates that represent one
share (so-called individual certificates) (Einzelurkunden) or several shares (so-called global certificates) (Globalurkunden). The shares which are the subject of the Offering provide holders thereof with the same rights as all
other shares and do not entitle holders to any rights or advantages in excess thereof.
61
German Securities Identification
(ISIN)/Ticker Symbol
Number
(WKN)/International
German Securities Identification Number (WKN):
A13SX8
International Securities Identification Number (ISIN):
DE000A13SX89
Ticker Symbol:
FGT
Securities
Identification
Number
Transferability, Lock-up
The shares are freely transferable in accordance with legal requirements for bearer shares. Except for the restrictions set forth under “Market Protection Agreement/Selling Restrictions (Lock-Up)”, there are no prohibitions with respect to the disposal or the transferability of the shares.
Market Protection Agreement/Selling Restrictions (Lock-up)
The Company has agreed with the Underwriter that, for the period ending twelve months after the Shares have
been listed on the Frankfurt Stock Exchange, it will not:

announce or implement any capital increase from authorised capital (genehmigtes Kapital),

propose a resolution for any capital increase at the General Shareholders' Meeting (Hauptversammlung),

(a) directly or indirectly issue, purchase, sell, offer, undertake to sell, promote, otherwise issue or announce an offer in relation to shares or other securities of the Company which are convertible or exchangeable into shares of the Company or grant an option to purchase shares of the Company, (b) enter
into or execute transactions (including derivatives transactions) that are economically equivalent to the
purchase or sale of the shares of the Company, or (c) directly or indirectly cause or approve transactions
within the meaning of the foregoing provisions (a) and/or (b).
CMI has agreed with the Underwriter that, for the period ending twelve months after the listing of the Shares of
the Company on the Frankfurt Stock Exchange it will not:

offer, pledge, allot, sell, contract or agree to sell or to contribute or to otherwise transfer, enter into share
pooling arrangements relating to the shares or otherwise act in concert with another shareholder of the
Company, sell any option or contract to purchase, purchase any option to sell, grant any option, right or
warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of the Company
or any securities convertible into or exercisable or exchangeable for shares of the Company;

enter into any swap or other arrangement that transfers to another party, in whole or in part, the economic
risk of ownership of shares of the Company, whether any such transaction described in the clauses above
is to be settled by delivery of shares of the Company or such other securities, in cash or otherwise;

make any demand for or exercise any right with respect to the registration under U.S. securities laws of
any shares of the Company or any security convertible into or exercisable or exchangeable for shares of
the Company; or

propose any increase in the share capital of the Company, vote in favour of such a proposed increase or
otherwise, support any capital increase proposed with respect to the Company without the written consent
of the Joint Global Coordinators.
These restrictions do not apply to the sale of the New Shares in the Offering, and to shares purchased in the open
market.
62
Admission for Trading and Listing of Shares
An application for admission of all of the shares of the Company – including the New Shares – to trading on the
regulated market (Regulierter Markt) (General Standard) of the Frankfurt Stock Exchange is expected to be filed
on 18 October 2014 and admission is expected to be granted on 5 November 2014. Commencement of trading is
expected to take place on 6 November 2014.
The Company will also make an application to the Warsaw Stock Exchange (Giełda Papierów Wartościowych w
Warszawie S.A.) (“WSE”) for the listing and trading of the Company's shares, including the New Shares, in a
continuous price-setting system in the regulated marked (Rynek Równoległy) of the WSE (Parallel Market) of
the WSE.
If the application for listing and trading on the WSE is approved, the trading of the Company's Shares, including
the New Shares, on the WSE is expected to commence on the same date as on the Frankfurt Stock Exchange,
namely on 6 November 2014.
Designated Sponsor
The Company intends to appoint ACON as the designated sponsor of the Shares traded on the Frankfurt Stock
Exchange. ACON may, by itself or through or another designated sponsor, among other things, place limited buy
or sell orders for shares of the Company in the electronic trading system of the Frankfurt Stock Exchange during
daily trading hours. This is expected to improve liquidity of trading for the shares of the Company. The Company does not intend to engage a designated sponsor for the Shares traded on the WSE.
63
REASONS FOR THE OFFERING, USE OF PROCEEDS, COSTS AND
INTERESTS OF THIRD PARTIES INVOLVED IN THE OFFERING
Reasons for the Offering
Fenghua's reasons for this Offering are to increase the awareness of its brand and to use the proceeds from the
capital increase to pursue its growth strategy, in particular, to expand its value chain and production capacity, to
expand its distribution channels, and to strengthen its research and development capabilities as well as marketing
activities. Furthermore, Fenghua intends to increase its reputation on the Chinese markets being a listed company, which can lead to more favourable conditions with market participants or the government.
Use of Proceeds and Costs
Fenghua will receive the net proceeds from the Offering of the New Shares, i.e., the gross proceeds from the sale
of the New Shares less commissions paid by Fenghua to the Joint Lead Managers and costs associated with the
Offering. As the gross proceeds and the costs of the Offering depend on the total number of shares placed and
the offer price, Fenghua cannot reliably predict the gross proceeds from the Offering, the costs of the Offering or
the net proceeds at this stage.
Subject to the uncertainty associated with such an estimate and stemming from numerous relevant factors which
may exercise an influence but cannot be foreseen at the present time, Fenghua believes, assuming that all of the
New Shares are placed that total gross proceeds from the Offering of between approximately EUR 12.0 million
and EUR 14.4 million are attainable, of which the Company receives net proceeds of between EUR 10.4 million
and EUR 12.7 million. The commissions payable to the Joint Lead Managers are expected to be between approximately EUR 0.6 million and approximately EUR 0.7 million.
Subject to the above uncertainties, Fenghua believes that the total costs of the Offering will amount to between
EUR 1.6 million and EUR 1.7 million.
Fenghua believes that the net total proceeds of the Offering between EUR 10.4 million to EUR 12.7 million are
possible.
The Company plans to use the net proceeds that it will receive from the sale of the New Shares (which is estimated to be between EUR 10.4 million to EUR 12.7 million) to finance the further expansion of Fenghua's business. In particular, Fenghua plans:

to use approximately 95 % of the net proceeds (i.e., between EUR 9.88 million and EUR 12.07 million) to
expand its production facilities by adding a level to its current building in order to increase the total floor
space of the factory from 1,600 m2 to 3,000 m2 and by investing in machines for the production of shoe
soles to be placed on such additional floor space; and

to use approximately 5 % of the net proceeds (i.e., between EUR 0.52 million and EUR 0.63 million) for
product design and technical development by investing in additional software for shoe sole designing and
purchasing equipment dedicated to prototype development and testing.
In case the net proceeds do not suffice for the above plan, Fenghua plans to finance as much of this plan as possible with the proceeds and invest its cash flow for the remainder. Should the cash flow not be sufficient, the
above plans are reduced to the realisable level.
Interests of Third Parties Involved in the Offering
ACON and DF Capital have entered into a contractual relationship with Fenghua in connection with the implementation of the Offering. ACON has been mandated as Underwriter and ACON and DF Capital will advise
Fenghua in connection with the implementation of the Offering and coordinate its structuring and execution.
ACON will purchase and sell the New Shares in accordance with the executed underwriting agreement. The
compensation of the Joint Lead Managers is incentive-based and depends on the amount of the offer proceeds
such that the Joint Lead Managers have an interest in the successful implementation of the Offering.
In connection with the Offering, the Joint Lead Managers and affiliated companies will be able to acquire New
Shares for their own accounts and hold, purchase or sell New Shares for their own accounts and can also offer or
64
sell these shares outside of the Offering. The Joint Lead Managers do not intend to disclose the scope of such
investments or transactions to the extent that this is not legally required.
The Founding shareholders have an interest in the Offering, as the liquidity of their shares is increased. The CEO
of the Company is also an indirect shareholder and his interest as Founding Shareholders may not always be in
line with the interest of the Company. Others than the ones mentioned above there are no conflicts of interest of
third parties involved in the Offering.
65
DIVIDEND POLICY AND EARNINGS PER SHARE
Dividend Rights and Dividend Policy
The shares of individual shareholders in the profit of the Company are determined in accordance with the number of shares they hold in the registered capital (Section 60, paragraph 1 of the German Stock Corporation Act).
The adoption of resolutions regarding the distribution of dividends on the Company's shares for a given financial
year is the responsibility of the General Shareholders' Meeting (Hauptversammlung) held during the following
financial year, which resolves on the utilisation of the Company's distributable profits on the basis of the nonbinding proposal of the Management Board (Vorstand) and the Supervisory Board (Aufsichtsrat). If the Founding Shareholders hold an effective or, depending on their presence at the General Shareholders' Meeting of the
Company, a factual majority of the voting rights present or represented at the General Shareholders' Meeting,
they may exercise further influence on the utilisation of the Company's profits and/or the dividends' policy (see:
“Risk Factors – Risks related to Fenghua's Business – The Company's CEO, Mr. Weijie Lin, will also after the
Offering indirectly still hold a significant portion of the share capital of the Company which enables him to exercise significant control over the Company and could subject him to conflicts of interest”). The ability of the
Company to pay dividends depend upon Fenghua obtaining respective approvals under Chinese law (see: “Risk
Factors – Risks related to Fenghua's Business – The Company is a holding company whose liquidity depends
upon having access to the liquid funds of its operating subsidiaries located in China.”)
Under German law a resolution concerning dividends and the utilisation of distributable profits may be adopted
only on the basis of a balance sheet profit (Bilanzgewinn) shown in the Company's adopted annual individual
financial statement (festgestellter Jahresabschluss) to be prepared in accordance with generally accepted German accounting principles, i.e. the accounting provisions of the German Commercial Code (Handelsgesetzbuch/HGB). In determining the balance sheet profit available for distribution, the annual net income
(Jahresüberschuss) or annual net loss (Jahresfehlbetrag) of the respective year must be adjusted for profits and
losses carried forward from the previous year and for deposits into or withdrawals from reserves. Certain reserves are to be created by law and must be deducted, where applicable, when calculating the balance sheet profits available for distribution. In a resolution regarding the utilisation of balance sheet profits, the General Shareholders' Meeting can include further amounts in retained earnings or carry them forward as profit.
Dividends resolved at the General Shareholder's Meeting are payable on the first business day after such meeting, unless the dividend resolution provides otherwise. Dividend claims are subject to a three-year limitation
period. Dividends which were not exercised by shareholders shall be retained by the Company. The Company's
Management Board and Supervisory Board intend to propose a distribution of profits as dividends for the short
fiscal year 2014 and following fiscal years in an amount corresponding to between 10 % and 20 % of the profit
for the year according to the consolidated IFRS financial statements of the Company, if and to the extent the
Company's (individual) annual financial statement accounts for a respective balance sheet profit. Such distribution will only be made if and to the extent it is covered by the annual net income which is shown in the respective Company's (individual) annual financial statement in accordance with HGB. The expenditures and costs of
this Offering will have a one-time impact that will adversely affect the Company's results of operations in 2014.
Dividend income is subject to German dividend withholding tax (Kapitalertragsteuer) (see: “Taxation in Germany – Taxation of Shareholders – Taxation of Dividends”).
66
Earnings per Share
The Company was founded by notarised deed of formation (Gründungsurkunde) on 22 July 2014 and incorporated by registration in the commercial register of the local court of Frankfurt am Main on 2 October 2014. It
therefore does not have a three-year financial history. On the basis of the audited consolidated financial statements under IFRS of Fenghua Hong Kong for the financial years 2011, 2012 and 2013, the following summary
shows the earnings of Fenghua Hong Kong on a consolidated basis (rounded to two decimal points), the earnings
per share, each in accordance with IFRS and the dividends declared as of and for the years ended
31 December 2011, 31 December 2012 and 31 December 2013 on a consolidated basis.
Financial Year ended 31 December
(unaudited)1
2011
2012
2013
Net profit for the financial year (in EUR thousand)
11,710
15,489
18,750
Assumed number of shares on 31 December2
10,000
10,000
10,000
Earnings per share in EUR (undiluted)3
1.17
1.55
1.88
Dividends per share in EUR4
0.67
0.99
–
1
Unaudited information except for “net profit for the financial year” and “dividends declared”.
2
For better comparability with future financial information, the current number of shares in the Company of 10,000,000 has been used.
3
For comparative purposes, calculation based on number of shares of the Company issued at the time of approval of this Prospectus,
unaudited information.
4
The Company did not declare dividends for the year 2013.
67
CAPITALISATION AND INDEBTEDNESS
The data presented in the following table shows the capitalisation of the Company as at 31 August 2014 on a
consolidated basis on the assumption that the Company had existed and been registered in the commercial register already as at 31 August 2014 (middle column) and adjusted on the basis of the additional assumption that the
Company had implemented the capital increase of the New Shares and had received the expected net proceeds
from the Offering already as at 31 August 2014 (right column). The data is taken and, as the case may be, derived from the unaudited management accounts.
As of 31 August 2014
(EUR thousand)
(unaudited)
(adjusted)8
As of 31 August 2014
(EUR thousand)
(unaudited)
(unadjusted)
Capitalisation
Total Current Liabilities
9,021
9,021
thereof secured
0
0
thereof guaranteed
0
0
9,021
9,021
Total Non-Current Liabilities
0
0
thereof secured
0
0
thereof guaranteed
0
0
thereof unsecured / unguaranteed
0
0
9,021
9,021
Shareholder's Equity
55,593
67,133
thereof share capital
10,000
11,200
0
10,340
thereof statutory reserve
5,403
5,403
thereof foreign currency translation reserve
2,453
2,453
thereof retained earnings
37,737
37,737
Total Capitalisation2
64,614
76,154
41,922
53,462
0
0
41,922
53,462
0
0
0
0
Current Financial Debt4
0
0
thereof current bank debt
0
0
thereof current portion of non-current debt
0
0
thereof other current financial debt
0
0
0
0
0
0
thereof non-current bank loans
0
0
thereof bonds issued
0
0
thereof unsecured / unguaranteed
Total Liabilities
1
thereof capital reserve
Indebtedness
Liquidity
thereof cash
thereof cash equivalents
thereof trading securities
Current Financial Receivables
3
Net Current Financial Indebtedness
5
Non-Current Financial Indebtedness
6
68
As of 31 August 2014
(EUR thousand)
(unaudited)
(adjusted)8
As of 31 August 2014
(EUR thousand)
(unaudited)
(unadjusted)
thereof other non-current loans
0
0
Net Financial Indebtedness7
0
0
1.
Total Liabilities represent the sum of Total Current Liabilities and Total Non-Current Liabilities.
2.
Total Capitalization represents the sum of Total Liabilities and Shareholder's Equity.
3.
Current Financial Receivables are financial assets defined in IAS 32.11 which are expected to be recovered or settled no more than
twelve months after the balance sheet date (except for cash and cash equivalents disclosed under liquidity).
4.
Current Financial Debt as defined in IAS 32.11 which are expected to be recovered or settled no more than twelve months after the
balance sheet date (except for cash and cash equivalents disclosed under liquidity).
5.
Current Financial Debt minus Current Financial Receivables minus Liquidity.
6.
Non-Current Financial Liabilities as defined in IAS 32.11 which are expected to be recovered or settled more than twelve months after
the balance sheet date (except for cash and cash equivalents disclosed under liquidity).
7.
Net Current Financial Indebtedness plus Non-Current Financial Indebtedness.
8.
Assuming that the Company obtains net proceeds of EUR 11,540 thousand which corresponds to a placement of all New Shares at the
mid-point of the price range.
Indirect, Contingent Indebtedness and Other Financial Commitments
As at 31 August 2014, Fenghua had no indirect, contingent indebtedness or other financial commitments.
Statement of Working Capital
In the Company's opinion, Fenghua's working capital (not taking into account the proceeds from the Offering) is
sufficient for its present requirements that means sufficient to cover those payment obligations which will become due at least within the next twelve months from the date of this Prospectus.
No Significant Change
Between 30 June 2014 and the date of this Prospectus, there have been no significant changes in Fenghua's financial or trading position.
69
DILUTION
The net book value (i.e. total equity adjusted for land use rights) as at 30 June 2014 as reflected in the Interim
Condensed Consolidated Financial Statements under IFRS of amounted to EUR 49,392 thousand. This is equivalent to approximately EUR 4.94 per share (calculated on the basis of 10,000,000 shares as of the date of this
Prospectus).
Assuming that all 1,200,000 New Shares are placed and that the offer price would amount to EUR 11 per share
which corresponds to the mid-point of the price range, the Company would obtain net proceeds from the placement of the New Shares of approximately EUR 11.5 million. If the Company had obtained this amount already
as at 30 June 2014, the net book value at that time would have been about EUR 60.9 million or EUR 5.44 per
share (based on the increased number of 11,200,000 shares after the placement of all New Shares). Consequently, under the above-mentioned assumptions, the implementation of the Offering would lead to a direct increase
in the book value of shareholders' equity of EUR 0.5, or 10.1 %, per share for the Founding Shareholders and a
direct dilution of between EUR 5.56, or 50.5 %, per share for the purchasers of the New Shares.
70
SELECTED FINANCIAL INFORMATION
The Company was founded by way of notarised deed of formation (Gründungsurkunde) on 22 July 2014 and
incorporated by registration in the commercial register of the local court (Amtsgericht) of Frankfurt on 2 October 2014.
The operational business of Fenghua is exclusively carried out by Jinjiang Fenghua Shoe Material Co. Ltd.,
Jinjiang (“Fenghua Jinjiang”). All shares in Fenghua Jinjiang are owned by Fujian Maolong Shoe Materials
Co. Ltd., Quanzhou (“Fenghua Fujian”). All shares in Fenghua Fujian are owned by Hong Kong Mou Lung
Holding Company Limited. (“Fenghua Hong Kong”), a company under Hong Kong law, whose sole shareholder
is Fenghua SoleTech AG.
In order to present the business, financial condition and results of operations, in relation to the business of
Fenghua, Fenghua has prepared consolidated financial statements of Fenghua Hong Kong as at and for the
years ended 31 December 2011, 31 December 2012 and 31 December 2013 under IFRS (the “Consolidated
Financial Statements”) and unaudited interim condensed consolidated financial statements of Fenghua Hong
Kong as at and for the six-month-period ended 30 June 2014 under IFRS with comparative information as at
and for the six-month-period ended 30 June 2013 (the “Interim Condensed Consolidated Financial Statements”).
The Consolidated Financial Statements and the Interim Condensed Consolidated Financial Statements have
been prepared on a voluntary basis for the purpose of this Offering. The purpose of these financial statements is
to put the investor in the position to better compare the development of the business, financial condition and the
results of operations of Fenghua over the periods under review.
The Consolidated Financial Statements were audited by Crowe Kleeberg GmbH Wirtschaftsprüfungsgesellschaft, Augustenstrasse 10, 80333 Muenchen, Germany (“Crowe”). The Interim Condensed Consolidated Financial Statements are unaudited.
Fenghua's selected financial information as at and for the years ended 31 December 2011, 31 December 2012,
and 31 December 2013, and as at and for the six-month-periods ended 30 June 2014 and 30 June 2013, which is
reflected in this section, was taken or, as the case may be, derived from the Consolidated Financial Statements
and the Interim Condensed Consolidated Financial Statements, respectively.
71
The following figures were subject to rounding adjustments that were carried out according to established commercial standards. As a result, the figures stated in the table may not exactly add up to the total values that may
also be stated in the table.
31 December
2011
Revenue
2012
30 June
2013
2013
2014
(audited)1
(unaudited)
EUR
thousand
EUR
thousand
59,218
83,581
90,056
37,407
42,467
Cost of sales
(42,665)
(61,470)
(64,826)
(27,089)
(29,423)
Gross Profit
16,553
22,111
25,230
10,318
13,044
Other income
63
150
568
531
64
Selling and distribution
expenses
(224)
(259)
(250)
(117)
(114)
Administrative and other expenses
(435)
(756)
(568)
(279)
(263)
Net finance costs
(344)
(593)
(137)
(133)
–
Profit before tax
15,613
20,653
24,843
10,320
12,731
Income tax expenses
(3,903)
(5,164)
(6,093)
(2,461)
(3,184)
Net profit for the financial year
11,710
15,489
18,750
7,859
9,547
Cash flows from operating activities
17,239
10,547
17,563
7,899
11,476
Cash flow used in investing activities
(1,803)
(1,465)
(1,200)
(496)
–
Cash flow used in financing activities
(2,339)
(11,761)
(8,735)
(8,148)
3
Cash at end of period
22,095
19,210
26,493
19,129
38,034
Selected Cash Flow Data
1 Audited information.
72
31 December
Other Selected Financial Data1
2011
30 June
2012
2013
2013
(unaudited)
EUR
thousand
EUR
thousand
2014
(unaudited)
EUR
thousand
EUR thousand
EUR thousand
Gross profit margin
28.0 %
26.5 %
28.0 %
27.6 %
30.7 %
2
EBITDA
16,962
22,231
26,030
10,973
13,222
EBITDA margin3
28.6 %
26.6 %
28.9 %
29.3 %
31.1 %
15,894
21,096
24,900
10,417
12,667
26.8 %
25.2 %
27.6 %
27.8 %
29.8 %
19.8 %
18.5 %
20.8 %
21.0 %
22.5 %
7,165
5,217
–
--
--
(14,930)
(13,993)
(26,493)
(19,129)
(38,034)
EBIT
4
EBIT margin5
Net profit margin
6
Financial debt7
Net debt
8
1
This information was calculated based on the Consolidated Financial Statements and the Interim Condensed Consolidated Financial
Statements
2
EBITDA is calculated as net profit for the financial year less interest income plus interest expense plus tax payable less tax refund
plus/less investment income plus depreciation and amortisation
3
EBITDA margin is calculated as EBITDA divided by revenues times 100
4
EBIT is calculated as net profit for the financial year less interest income plus interest expense plus tax payable less tax refund plus/less
investment income
5
EBIT divided by revenues times 100
6
Net profit for the period divided by revenues times 100
7
Financial debt is calculated as total loans and borrowings from financial institutions.
8
Net debt is calculated as total loans and borrowings less cash and cash equivalents.
73
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
The following discussion and analysis of the financial condition and results of operations should be read in
conjunction with the other information in this Prospectus, including the financial information and related notes
thereto beginning on page F-1 and the section “Selected Financial Information”.
The Company was founded by way of notarised deed of formation (Gründungsurkunde) on 22 July 2014 and
incorporated by registration in the commercial register of the local court of Frankfurt on 2 October 2014.
The operational business of Fenghua is exclusively carried out by Jinjiang Fenghua Shoe Material Co. Ltd.,
Jinjiang (“Fenghua Jinjiang”). All shares in Fenghua Jinjiang are owned by Fujian Maolong Shoe Materials
Co. Ltd., Quanzhou (“Fenghua Fujian”). All shares in Fenghua Fujian are owned by Hong Kong Mou Lung
Holding Company Limited. (“Fenghua Hong Kong”), a company under Hong Kong law, whose sole shareholder is Fenghua SoleTech AG.
In order to present the business, financial condition and results of operations, in relation to the business of
Fenghua, Fenghua has prepared consolidated financial statements of Fenghua Hong Kong as at and for the
years ended 31 December 2011, 31 December 2012 and 31 December 2013 under IFRS (the “Consolidated
Financial Statements”) and unaudited interim condensed consolidated financial statements of Fenghua Hong
Kong as at and for the six-month-period ended 30 June 2014 under IFRS with comparative information as at
and for the six-month-period ended 30 June 2013 (the “Interim Condensed Consolidated Financial Statements”).
The Consolidated Financial Statements and the Interim Condensed Consolidated Financial Statements have
been prepared on a voluntary basis for the purpose of this Offering. The purpose of these financial statements is
to put the investor in the position to better compare the development of the business, financial condition and the
results of operations of Fenghua over the periods under review.
The Consolidated Financial Statements were audited by Crowe Kleeberg GmbH Wirtschaftsprüfungsgesellschaft, Augustenstrasse 10, 80333 Muenchen, Germany (“Crowe”). The Interim Condensed Consolidated Financial Statements are unaudited.
The following figures were subject to rounding adjustments that were carried out according to established commercial standards. As a result, the figures stated may not exactly add up to the figures stated as the sums of these
figures.
Overview
Fenghua is a modern technology driven Chinese producer of shoe soles founded in 2004. Fenghua's operations
include the processing of raw materials such as natural or artificial rubber (“RB”) or ethylene vinyl acetate
(“EVA”) materials, the manufacturing of thermoplastic rubber (“TPR”) and EVA compound pellets as well as
the production of thermoplastic elastomer (“TPE”), polyurethane (“PU”) or thermoplastic polyurethane (“TPEU” or “TPU”), all of which is used for various components of shoe soles. The soles manufactured by Fenghua
are designed for performance sports shoes as well as for leisure and casual sports-inspired shoes targeting shoe
producers mainly for mid to high-end shoes for Chinese and international brands. All soles are produced at
Fenghua's own factory or by its contract manufacturers in the region of Jinjiang which is one of the leading centres for shoes and shoe accessories in China.
Fenghua produces more than 40 million pairs of shoe soles per year with currently six production lines in EVA
model one (“EVA MD1”), 14 in EVA model two (“EVA MD 2”) and eight for RB versions. The soles are distributed through Fenghua's own sales network to producers of shoes for local and international brands and to
local distributers.
Fenghua's own research and development (“R&D”) department constantly seeks to improve the manufacturing
process by not only enhancing the composition of raw materials but also by improving the production processes
such as moulding. By focussing on R&D, Fenghua is able to also offer an own range of products to be manufactured as original design manufacturing (“ODM”) as compared to other competitors producing only soles under
their customers design prerequisites as original equipment manufacturing (“OEM”). For its ODM soles,
Fenghua develops its own prototypes and has registered 8 utility models for such prototypes in order to protect
74
its intellectual property. Customers of Fenghua usually produce shoes as OEM so that the Fenghua's soles commonly become part of a sports shoe under various brands of sports equipment or fashion brands.
Fenghua's revenues increased from EUR 59,218 thousand in 2011 to EUR 83,581 thousand in 2012, and further
to EUR 90,056 thousand in 2013, representing a CAGR of 23.3 %. Fenghua's net profits increased from
EUR 11,710 thousand in 2011 to EUR 15,489 thousand in 2012, and further to EUR 18,750 thousand in 2013,
representing a CAGR of 26.5 %. Fenghua's revenues increased from EUR 37,407 thousand in the first six
months of 2013 to EUR 42,467 thousand in the first six months of 2014. Fenghua's net profits increased from
EUR 7,859 thousand in the first six months of 2013 to EUR 9,547 thousand in the first six months of 2014. As at
30 June 2014, Fenghua had 1,822 employees.
Key Factors affecting Results of Operations
The Company believes that the following factors had and/or will continue to have a material effect on its results
of operation and financial condition:
General economic conditions in the PRC and the world and growth in disposable income of residents of the
PRC and the world
Fenghua believes that the performance of the overall PRC and global footwear markets is primarily driven by the
growth of the PRC as well as the global economy, in particular the increase in disposal income of the PRC and
the global population. Fenghua believes that sustained economic growth and increasing disposable income of
Chinese and global consumers in the PRC and worldwide are very important reasons for rising demand for consumer goods. Even though Fenghua’s revenue is generated solely in the PRC market, most of its OEM customers
are export oriented. Economic growths in the PRC and the world therefore have direct impact on the level of
demand for Fenghua’s product. Likewise, an economic downturn in the PRC and the global markets has a direct
negative impact on Fenghua's business.
Fluctuations in prices of raw materials
Fenghua attributes its success as a shoe materials company to its attractively priced and high quality products.
Fenghua's ability to continue to sell its products at the current price level is important to its financial performance. In determining the sales prices, Fenghua takes into account the market supply and demand, cost of sales
and prices of competing products. Raw material prices are a major factor in determining its prices. The purchase
price that Fenghua pays is influenced by global and domestic demand and significant portion of Fenghua’s cost
of sales. Fluctuation in the costs of Fenghua’s raw materials and any limitations on Fenghua’s ability to pass on
increases in raw material costs to the customers may materially adversely impact Fenghua’s cost of sales and
gross profit margins (see “Risk Factors – Risks related to the business – A potential shortage of any raw material may constrain the Fenghua's revenue growth and decrease its gross margins and profitability through an
increase of prices of such raw materials.”). Petroleum products are the major feedstock for plastic resins and
synthetic rubber used in the manufacture of sports shoe soles. Thus, the prices of plastic resins and synthetic
rubber, including EVA, PU, and TPR are therefore dependent on the price of petroleum. Plastic resins and synthetic rubber are by themselves commodities and they are also subjected to fluctuation in world prices. As these
raw materials are subjected to commodity-like fluctuations in global prices, all manufacturers that use these
materials are affected, including Fenghua. Unfavourable fluctuations in the price, availability and quality of raw
materials could cause production delays and increase production costs. In addition, Fenghua is also subject to
risks associated with outsourced production. If a contract manufacturer fails to provide the required number of
products meeting Fenghua’s quality standards, in a timely manner and at reasonable prices, Fenghua may be
forced to default under the agreements with the customers, which could have an adverse effect on Fenghua’s
results of operations.
In addition, labour costs for the production are a significant portion of Fenghua’s costs of sales and Fenghua
expects the labour costs to rise in the future. Labour costs amounted to 23.0 %, 16.2 %, 16.4 % and 19.4 % of
Fenghua’s total costs of sales in 2011, 2012 and 2013 and in the first six months of 2014. Payroll costs (including directors and key management personnel) amounted to EUR 9,799 thousand in 2011, EUR 9,986 thousand in
2012, EUR 10,605 thousand in 2013 and EUR 5,716 thousand in the first six months of 2014.
If and to the extent Fenghua is not able to pass increased raw material costs to its customers or to agree on certain price increases with its customers and distributors, its results of operations will be adversely affected. If the
75
costs of raw materials decrease and Fenghua is in a position that it does not have to lower the prices of its products accordingly, its results of operations will be positively affected.
Effects of currency fluctuation
The Consolidated Financial Statements, the Interim Condensed Consolidated Financial Statements, and the AG
Financial Statements were prepared in EUR and the Company’s future consolidated financial statements will be
prepared in EUR, while Fenghua’s operating currency is RMB, which is currently not a freely convertible currency. A de-valuation of the RMB versus the EUR would therefore have an adverse foreign currency translation
effect whereas an appreciation of the RMB versus the Euro would have a positive currency translation effect on
Fenghua’s consolidated financial statements. For example, the Consolidated Financial Statements and the Interim Condensed Consolidated Financial Statements of the Company were prepared using an exchange rate for the
years ended 31 December 2011, 2012 and 2013 and for the six months period ended 30 June 2014 of 8.2339
EUR per RMB, 8.3378 EUR per RMB, 8.4146 EUR per RMB and 8.4024 EUR per RMB, respectively. Measured in RMB, Fenghua’s revenues increased by 27.3 % (compared to an increase of 41.1 % in EUR) from 2011
to 2012, by 9.2 % (compared to 7.7 % in EUR) from 2012 to 2013 and by 16.5 % (compared to 13.5 % in EUR)
from the first six months of 2014 to the first six months of 2013. As the value of the RMB is controlled by the
PRC authorities, it is possible that foreign exchange policies of the PRC government could have a significant
impact on foreign currency exchange rates. An increase in the value of the RMB against the EUR would therefore increase Fenghua’s profitability measured in EUR while a decrease in the value of the RMB against the
EUR would decrease Fenghua’s profitability measured in EUR.
Timely development of marketable products is a core competency needed in the shoe industry
Fashion, including sports-inspired fashion is characterised by continuous and rapid changes in new fashion
trends, the frequent introduction of new products and enhancements and changing consumer preferences, spending patterns and demands. Fenghua is required to continuously invest in research, development, design capacity
and marketing with regard to its ODM products which are used in fashionable shoes in order to maintain or
strengthen its market share and reputation. Fenghua’s ODM products can only remain competitive if they continue to meet consumer preferences in terms of quality, design and price. If Fenghua develops fashion meeting
consumer trends and preferences, Fenghua’s products will face a better demand and market. Likewise, if
Fenghua fails to predict or anticipate such trends and preferences, produced goods may not easily be sold or only
at significantly lower prices.
76
Results of Operations
The following table presents the income statement data of Fenghua Hong Kong for the years ended 31 December
2011, 2012 and 2013 on a consolidated basis, and for the six-month-periods ended 30 June 2013 and 30 June
2014 on a consolidated basis, which was taken from the Consolidated Financial Statements and from the Interim
Condensed Consolidated Financial Statements, respectively.
2011
EUR
thousand
Revenue
31 December
30 June
(audited)1
(unaudited)
2012
% of
revenues
EUR
thousand
2013
% of
revenues
2013
2014
EUR
thousand
% of
revenues
EUR
thousand
% of
revenues
EUR
thousand
% of
revenues
100.0
37,407
100.0
42,467
100.0
59,218
100.0
83,581
100.0
90,056
Cost of sales
(42,665)
(72.0)
(61,470)
(73.6)
(64,826)
(72.0)
(27,089)
(72.4)
(29,423)
(69.3)
Gross Profit
16,553
28.0
22,111
26.4
25,230
28.0
10,318
27.6
13,044
30.7
Other income
63
0.1
150
0.2
568
0.6
531
1.4
64
0.2
Distribution and selling
expenses
(224)
(0.4)
(259)
(0.3)
(250)
(0.3)
(117)
(0.3)
(114)
(0.3)
Administrative and
general expenses
(435)
(0.7)
(756)
(0.9)
(568)
(0.6)
(279)
(0.7)
(263)
(0.6)
Net finance costs
(344)
(0.6)
(593)
(0.7)
(137)
(0.1)
(133)
(0.4)
–
Profit before tax
15,613
26.4
20,653
24.7
24,843
27.6
10,320
27.6
12,731
30.0
Tax expenses
(3,903)
(6.6)
(5,164)
(6.2)
(6,093)
(6.8)
(2,461)
(6.6)
(3,184)
(7.5)
Net profit for the
financial year
11,710
19.8
15,489
18.5
18,750
20.8
7,859
21.0
9,547
22.5
Exchange differences
on foreign currency
translation (net of tax)
1,186
2.0
(358)
(0.4)
(618)
(0.7)
923
2.5
78
0.2
Total comprehensive
income
12,896
21.8
15,131
18.1
18,132
20.1
8,782
23.5
9,625
22.7
Other comprehensive
income:
1
Audited information except for percentage figures
77
Revenues
The development of Fenghua's revenues and certain related key figures influencing the revenues are the following:
(audited)
(unaudited)
(unaudited)
FYE 2011
FYE 2012
FYE 2013
1H 2013
1H 2014
EUR
thousand
EUR
thousand
EUR
thousand
EUR
thousand
EUR
thousand
59,218
–
83,581
41.1 %
90,056
7.7 %
37,407
–
42,467
13.5 %
Revenue
%
increase
FY2011
FY2012
FY2013
1H 2013
1H 2014
(thousand
pairs)
(thousand
pairs)
(thousand
pairs)
(thousand
pairs)
(thousand
pairs)
Sales volume
36,977
45,847
55,880
22,426
26,796
% increase
–
24.0 %
21.9 %
–
19.5 %
48,123
48,123
48,123
24,061
24,061
–
–
–
–
–
37,041
32,432
36,873
16,956
19,848
% increase
–
(12.4 %)
13.7 %
–
17.1 %
Outsourced quantity
–
13,374
18,994
5,507
7,080
% increase
–
–
42.0 %
–
28.6 %
77.0 %
67.4 %
76.6 %
70.5 %
82.5 %
Production capacity
% increase
Production output
Utilisation rate
Revenue increased from EUR 59,218 thousand in 2011 by EUR 24,363 thousand, or 41.1 % to EUR 83,581
thousand in 2012. As during the financial year 2012 the order volume from customers has exceeded Fenghua's
production capacity, two subcontractors were engaged in order to outsource 29.2 % customer orders to capture
such increase of demand. Fenghua mainly attributes the increased revenues to its competent R&D team, which
enabled Fenghua to enhance Fenghua's product offerings and secure more customers. In 2012, Fenghua developed about 180 sport shoe-soles designs, of which 72 designs were added to its product line, bringing the number of ODM (self-produced) designs in use to 402, compared to a number of OEM designs (designed by clients)
of 148. Apart from increased sales volume, revenues were also boosted by an increase in the average selling
price of Fenghua's major products – RB, EVA MD1 and EVA MD2, averaging from EUR 1.60 in 2011 to
EUR 1.82 in 2012. The average selling price was increased in line with the increase in prices of raw materials
and commodities globally.
Revenue increased from EUR 83,581 thousand in 2012 by EUR 6,475 thousand, or 7.7 %, to EUR 90,056 thousand in 2013. The sales volume increased by 21.9 % in 2013 but the increase in revenue was mitigated by a
lower average selling price, averaging from EUR 1.82 in 2012 to EUR 1.61 in 2013. The lower average selling
price was in line with the drop in prices of raw materials.
Additionally, Fenghua's customer base also enlarged over the years under review, from 184 customers in 2011 to
204 customers for 2013. In 2013, Fenghua successfully developed and added to its production line 68 sport shoesoles designs, bringing the total number of ODM designs and OEM designs to 411 and 167 respectively.
Revenue increased from EUR 37,407 thousand as at 30 June 2013 by EUR 5,060 thousand, or 13.5 %, to
EUR 42,467 thousand in as at 30 June 2014. The sales volume increased by 19.5 % in the first six months of
2014 but the increase in revenue was mitigated by a lower average selling price, averaging from EUR 1.67 in the
first six months of 2013 to EUR 1.58 in the first six months of 2014. The lower average selling price was in line
with the drop in prices of raw materials.
78
Revenues breakdown by type of product
The following table shows a breakdown of Fenghua's revenues by type of product for each of the three years
ended 31 December 2011, 2012 and 2013 and the six-month-periods ended 30 June 2013 and 30 June 2014:
2011
EUR
thousand
RB
31 December
30 June
(audited)1
(unaudited)
2012
% of
revenues
EUR
thousand
2013
% of
revenues
2013
2014
EUR
thousand
% of
revenues
EUR
thousand
% of
revenues
EUR
thousand
% of
revenues
515
0.9
1,390
1.7
2,719
3.0
846
2.3
2,221
5.2
EVA MD1
19,756
33.4
31,535
37.7
31,609
35.1
13,314
35.6
14,080
33.2
EVA MD2
38,947
65.7
50,656
60.6
55,728
61.9
23,247
62.1
26,166
61.6
Total
59,218
100.0
83,581
100.0
90,056
100.0
37,407
100.0
42,467
100.0
The main contributor to Fenhgua's revenues is the EVA MD2 category which accounted for 65.7 % and 60.6 %
of total revenues for 2011 and 2012 respectively. Revenues for EVA MD2 shoe soles increased from
EUR 38,947 thousand in 2011 by EUR 11,709 thousand, or 30.1 %, to EUR 50,656 thousand in 2012. Sales
volume increased from 23.4 million pairs in 2011 to 26.7 million pairs in 2012. Revenues from category EVA
MD1 shoe soles accounted for 33.4 % and 37.7 % of Fenghua's total revenue for 2011 and 2012 respectively.
Revenues for EVA MD1 shoe soles increased from EUR 19,756 thousand in 2011 by EUR 11,779 thousand, or
59.6 %, to EUR 31,535 thousand in 2012. Sales volume increased from 13.1 million pairs in FY2011 to 18.0
million pairs in FY2012 and to 20.5 million. Revenues from RB accounted for 0.9 % and 1.7 % of our total revenue for FY2011 and FYE2012 respectively. Revenues for RB shoe soles increased from EUR 515 thousand in
2011 by EUR 875 thousand, or 169.9 %, to EUR 1,390 thousand in 2012. Sales volume increased from 0.5 million pairs in FY2011 to 1.1 million pairs in FY2012. However, parts of the production of RB shoes soles were
also used in the production of EVA MD1and EVA MD2 shoe soles.
In 2013, Fenhgua's revenues were again mainly derived the EVA MD2 category which accounted for 61.9 % of
total revenues for 2013. Revenue for EVA MD2 shoe soles increased from EUR 50,656 thousand by EUR 5,072
thousand, or 10.0 %, to EUR 55,728 thousand in 2013. Sales volume increased from 26.7 million pairs in
FY2012 to 33.1 million pairs in FY2013.Revenues from category EVA MD1 shoe soles accounted for 37.7 %
and 35.1 % of Fenghua's total revenue for FY2012 and FY2013 respectively. Revenue for EVA MD1 shoe soles
increased slightly from EUR 31,535 by EUR 74 thousand, or 0.2 %, to EUR 31,609 thousand in 2013. Sales
volume increased from 18.0 million pairs in 2012 to 20.5 million pairs in 2013.
Fenghua was able to derive more revenues from the sale of EVA MD1 and EVA MD2 shoe soles in 2012 and
2013 as it outsourced the customer orders for the major products of EVA MD1 and EVA MD2, via the engagement of the two subcontractors. This enabled the Group to continue to fulfil the increased demand of EVA MD1
and EVA MD2 shoe soles from our customers when the production capacity was running in full.
Apart from increased production capacity via outsourcing, the increase was also due to more orders from existing and new customers as Fenghua's R&D Team was able to develop more models and variants of EVA MD1
and EVA MD2 shoe soles at higher quality which were able to meet the needs of customers.
Revenues from RB accounted for 1.7 % and 3.0 % of Fenghua's total revenue for 2012 and 2013 respectively.
Revenues for RB shoe soles increased significantly from EUR 1,390 thousand in 2012 by EUR 1,329 thousand,
or 95.6 %, to EUR 2719 thousand in 2013. Sales volume increased from 1.1 million pairs in 2012 to 2.3 million
pairs in 2013. Production of RB shoes soles was also used in the production of EVA MD1and EVA MD2 shoe
soles.
In the first six months of 2014, Fenhgua's revenues were still mainly derived from the EVA MD2 category
which accounted for 61.6 % of total revenues for the first six months of 2014. Revenues for EVA MD2 shoe
soles increased from EUR 23,247 thousand by EUR 2,919 thousand, or 12.6 %, to EUR 26,166 thousand in the
first six months of 2014. Sales volume increased from 13.3 million pairs in the first six months of 2013 to 15.7
million pairs in the first six months of 2014.Revenues from category EVA MD1 shoe soles accounted for 35.6 %
and 33.2 % of Fenghua's total revenue for the first six months of 2013 and the first six months of 2014 respec-
79
tively. Revenue for EVA MD1 shoe soles increased slightly from EUR 13,314 by EUR 766 thousand, or 5.8 %,
to EUR 14,080 thousand in the first six months of 2014. Sales volume increased from 8.4 million pairs in the
first six months of 2013 to 9.1 million pairs in the first six months of 2014.
Revenues from RB accounted for 2.3 % and 5.2 % of Fenghua's total revenue for the first six months of 2013
and the first six months of 2014 respectively. Revenues for RB shoe soles increased significantly from EUR 846
thousand in the first six months of 2013 by EUR 1,375 thousand, or 162.5 %, to EUR 2,221 thousand in the first
six months of 2014. Sales volume increased from 0.7 million pairs in the first six months of 2013 to 1.9 million
pairs in the first six months of 2014. The production of RB shoes soles was also used in the production of EVA
MD1 and EVA MD2 shoe soles.
Cost of Sales and Gross Profit Margin
Cost of Sales
The following table shows a breakdown of Fenghua's cost of sales of the three years ended 31 December 2011,
2012 and 2013 and the six-month-periods ended 30 June 2013 and 30 June 2014:
2011
EUR
thousand
31 December
30 June
(audited)1
(unaudited)
2012
%
EUR
thousand
2013
%
EUR
thousand
2013
%
EUR
thousand
2014
%
EUR
thousand
%
Material costs
27,852
65.3
37,800
61.5
36,119
55.7
16,240
60.0
18,005
61.2
Salaries and
related costs
9,799
23.0
9,986
16.2
10,605
16.4
4,987
18.4
5,716
19.4
955
2.2
963
1.6
977
1.5
477
1.7
483
1.6
Others
4,059
9.5
12,721
20.7
17,125
26.4
5,385
19.9
5,219
17.8
Total
42,665
100.0
61,470
100.0
64,826
100.0
27,089
100.0
29,423
100.0
Depreciation
Cost of sales increased from EUR 42,665 thousand in 2011 by EUR 18,805 thousand, or 44.0 %, to EUR 61,470
thousand in 2012. The increase was mainly due to the increase in sales volume and the increase in average unit
cost. The Group incurred EUR 8.4 million processing outsourcing fees to outsource 13.4 million pairs of EVA
MD1 and EVA MD2 to subcontractors.
Cost of sales increased from EUR 61,470 thousand in 2012 by EUR 3,356 thousand or 5.5 %, to EUR 64,826
thousand in 2013. The increase was mainly due to the increase in sales volume and the decrease in average unit
cost. The Group incurred EUR 11.8 million processing outsourcing fees to outsource 19.0 million of EVA MD1
and EVA MD2 to subcontractors.
Cost of sales increased from EUR 27,089 thousand in the first six months of 2013 by EUR 2,334 thousand or
8.6 %, to EUR 29,423 thousand in the first six months of 2014. The increase was mainly due to the increase in
sales volume and the decrease in the average unit costs. The Group incurred EUR 4,400 thousand processing
outsourcing fees in order to outsource 7.1 million of EVA MD1 and EVA MD2 to subcontractors.
80
Gross profit breakdown by type of product
The following table shows a breakdown of Fenghua's gross profit by segment for each of the three years ended
31 December 2011, 2012 and 2013 and the six-month-periods ended 30 June 2013 and 30 June 2014:
2011
EUR
thousand
RB
31 December
30 June
(audited)1
(unaudited)
2012
% of
revenues
EUR
thousand
2013
% of
revenues
2013
2014
EUR
thousand
% of
revenues
EUR thou
sand
% of
revenues
EUR tho
usand
% of
revenues
117
0.7
314
1.4
716
2.9
199
1.9
703
5.4
EVA MD1
5,305
32.0
8,148
36.8
9,086
36.0
3,745
36.3
4,456
34.2
EVA MD2
11,131
67.3
13,649
61.8
15,428
61.1
6,374
61.8
7,885
60.4
Total
16,553
100.0
22,111
100.0
25,230
100.0
10,318
100.0
13,044
100.0
The Group’s gross profit increased from EUR 16,553 thousand by EUR 5,558 thousand, or 33.6 %, to
EUR 22,111 thousand in 2012. Gross profit margin declined from 28.0 % in 2011 to 26.5 % in 2012 which was
mainly attributable to the additional processing outsourcing fees for the outsourced portion of EVA MD1 and
EVA MD2.
The Group’s gross profit increased from EUR 22,111 thousand by EUR 3,119 thousand, or 14.1 %, to
EUR 25,230 thousand in 2013. Gross profit margin improved from 26.5 % in 2012 to 28.0 % in 2013 which was
mainly due to the decrease in average cost of sale per pair of shoe sole by EUR 0.18 from EUR 1.34 in 2012 to
EUR 1.16 in 2013, the decrease in average cost of sale was line with the drop in the prices of raw materials.
The Group’s gross profit increased from EUR 10,318 thousand by EUR 2,726 thousand, or 26.4 %, to
EUR 13,044 thousand in the first six months of 2014. Gross profit margin improved from 27.6 % in the first six
months of 2013 to 30.7 % in the first six months of 2014 which was mainly due to the decrease in the average
costs of sales per pair of shoe sole by EUR 0.11 from EUR 1.21 in the first six months of 2013 to EUR 1.10 in
the first six months of 2014, the decrease in the average costs of sales was in line with the drop in the prices of
raw materials.
Other Income
Other income consists mainly of bank interest income and waiver of debt owing to a director.
Other income increased from EUR 63 thousand in 2011 by EUR 87 thousand, or 138.1 %, to EUR 150 thousand
in 2012. The increase was mainly due to the increased in bank interest income with increase in cash at bank
balances.
Other income increased from EUR 150 thousand in 2012 by EUR 418 thousand, or 278.7 %, to EUR568 thousand in 2013. The increase was mainly due to the waiver of debt owing to a director.
Other income decreased from EUR 531 thousand in the first six months of 2013 by EUR 467 thousand, or
87.9 %, to EUR 64 thousand in the first six months 2014. The decrease was mainly due to a waiver of debt owing to a director in the first six months of 2013.
81
Distribution and Selling Expenses
Distribution and selling expenses comprise mainly of salaries and related costs for sale personnel, depreciation
etc.
31 December
30 June
(audited)1
(unaudited)
2011
EUR
thousand
Salaries and
related costs
Depreciation
Others
Total
2012
2013
EUR
thousand
%
EUR
thousand
%
2013
EUR
thousand
%
2014
EUR
thousand
%
%
203
90.6
244
94.2
241
96.4
112
95.7
111
97.4
17
7.6
15
5.8
9
3.6
5
4.3
3
2.6
4
1.8
–
–
–
–
–
–
–
–
224
100.0
259
100.0
250
100.0
117
100.0
114
100.0
Selling and distribution expenses increased from EUR 224 thousand in 2011 by EUR 35 thousand, or 15.6 %, to
EUR 259 thousand in 2012. The increase was mainly due to the increase in staff costs.
Selling and distribution expenses decreased from EUR 259 thousand in 2012 by EUR 9 thousand to EUR 250
thousand in 2013. The decrease was mainly due to the decrease in depreciation expenses.
Selling and distribution expenses decreased from EUR 117 thousand in the first six months of 2013 by EUR 3
thousand to EUR 114 thousand in the first six months of 2014. The decrease was mainly due to the slight decrease in depreciation expenses.
Administrative and General Expenses
Administration and general expenses comprise mainly of director’s non fee emoluments, salaries for administrative personnel, depreciation and amortisation costs, plant and equipment written and other office expenses etc.
2011
EUR
thousand
Director’s non
fee emoluments
31 December
30 June
(audited)1
(unaudited)
2012
EUR
thousand
%
2013
%
EUR
thousand
2013
%
EUR
thousand
2014
%
EUR
thousand
%
29
6.7
36
4.8
35
6.2
16
5.7
16
6.1
Salaries and
related costs
154
35.4
210
27.8
184
32.4
87
31.2
75
28.5
Depreciation
96
22.1
156
20.6
136
23.9
70
25.1
65
24.7
Plant &
equipment
written off
1
0.2
230
30.4
4
0.7
4
1.4
–
–
Amortisation
–
–
1
0.1
8
1.4
4
1.4
4
1.5
Others
155
35.6
123
16.3
201
35.4
98
35.2
103
39.2
Total
435
100.0
756
100.0
568
100.0
279
100.0
263
100.0
Administration expenses increased from EUR 435 thousand in 2011 by EUR 321 thousand, or 73.8 %, to
EUR 756 thousand in 2012. The increase was mainly due to the plant and equipment written off by EUR 230
thousand.
82
Administration expenses decreased from EUR 756 thousand in 2012 by EUR 188 thousand, or 24.9 % to
EUR 568 thousand in 2013. The decrease was mainly due to lower depreciation expenses and plant and equipment written off.
Administration expenses decreased from EUR 279 thousand in the first six months of 2013 by EUR 16 thousand,
or 5.7 % to EUR 263 thousand in the first six months of 2014. The decrease was mainly due to lower salaries
costs and depreciation expenses.
Finance Cost
Finance costs mainly comprise of interest paid for short term borrowings. All bank borrowings were fully settled
in 2013.
Finance costs increased from EUR 344 thousand in 2011 by EUR 249 thousand, or 72.4 %, to EUR 593 thousand in 2012. The increase was mainly due to more short term borrowings were drawn down.
Finance costs decreased from EUR 593 thousand in 2012 by EUR 456 thousand, or 76.9 %, to EUR 137 thousand in 2013. The decrease was mainly due to all short term borrowings having been fully settled.
Finance costs were nil in the first six months of 2014 mainly due to the fact that no short term borrowings were
drawn down during the period.
Tax Expenses
Tax expenses mainly represent income tax determined by applying the applicable rate of income tax on profits of
Fenghua PRC.
The applicable tax rates in Fenghua Jinjiang and Fenghua Fujian for the financial years ended 31 December 2011
to 2013 and six months ended 30 June 2013 and 2014 were based on the income tax rate of 25.0 %. Since incorporation, Fenghua Fujian has no assessable profit and thus was not subject to any taxation.
Fenghua Hong Kong is subjected to Hong Kong corporate income tax of 16.5 % on the taxable profits for the
financial years ended 31 December 2011 to 2013 and the six months ended 30 June 2013 and 2014. Since incorporation, it has no assessable profit and thus was not subject to any taxation.
Tax expenses arise on the level of Fenghua Jinjiang.
Income tax expense increased from EUR 3,903 thousand in 2011 by EUR 1,261 thousand, or 32.3 %, to
EUR 5,164 thousand in 2012. The increase was line with the increase in taxable profits.
Income tax expense increased from EUR 5,164 thousand in 2012 by EUR 929 thousand to EUR 6,093 thousand
in 2013. The increase was line with the increase in taxable profits.
Income tax expense increased from EUR 2,461 thousand in the first six months of 2013 by EUR 723 thousand to
EUR 3,184 thousand in the first six months of 2014. The increase was line with the increase in taxable profits.
83
Balance Sheet Data
The following table presents balance sheet data of Fenghua Hong Kong as at 31 December 2011, 2012 and 2013
on a consolidated basis, and as at 30 June 2014 on a consolidated basis, which was taken from the Consolidated
Financial Statements and the Interim Condensed Consolidated Financial Statements, respectively.
31 December
(audited)
30 June
(unaudited)
2011
2012
2013
2014
EUR
thousand
EUR
thousand
EUR
thousand
EUR
thousand
Assets
Non-current assets
Property, plant and equipment
7,178
6,786
6,798
6,255
–
401
390
386
7,178
7,187
7,188
6,641
907
1,377
890
2,509
Trade receivables
10,552
12,392
13,086
12,014
Cash and cash equivalents
22,095
19,210
26,493
38,034
Total current assets
33,554
32,979
40,469
52,557
Total assets
40,732
40,166
47,657
59,198
*
*
*
*
Reserves
16,745
22,021
40,153
49,778
Total equity
16,745
22,021
40,153
49,778
7,165
5,217
–
–
11,208
7,620
5,596
7,631
Amount owing to a director
3,941
3,895
14
18
Current tax liabilities
1,673
1,413
1,894
1,771
23,987
18,145
7,504
9,420
23,987
18,145
7,504
9,420
40,732
40,166
47,657
59,198
Land use rights
Total non-current assets
Current assets
Inventories
Equity and liabilities
Equity
Share capital
Liabilities
Current liabilities
Interest bearing bank borrowings
Trade and other payables
Total current liabilities1
Total liabilities
1
Total equity and liabilities
Note: * Represents an amount less than EUR 1,000
1 unaudited information
84
Non-current Assets
Non-current assets comprise of property, plant and equipment and land use rights. Non-current assets amount to
EUR7.2 million as at 31 December 2011, 2012 and 2013 and EUR 6,600 thousand as at 30 June 2014.
Property, plant and equipment
Property, plant and equipment mainly comprise of building, plant and machinery, office equipment and motor
vehicles.
Property, plant and equipment decreased from EUR 7,178 thousand as at 31 December 2011 by EUR 392 thousand, or 5.5 %, to EUR 6,786 thousand as at 31 December 2012. The decrease was mainly due to the additional
of plant and equipment has been offset by the depreciation charge and property, plant and equipment written off.
Property, plant and equipment remained relatively stable at EUR 6,798 thousand as at 31 December 2013 which
is an increase of EUR 12 thousand or 0.2 %. The additional of plant and equipment has been offset by the depreciation charge and property, plant and equipment and motor vehicles written off.
Property, plant and equipment decreased from EUR 6,798 thousand as at 31 December 2013 by EUR 543 thousand, or 8.0 %, to EUR 6,255 thousand as at 30 June 2014. The decrease was mainly due to depreciation charges.
Land use rights
Land use rights were acquired in 2012.
Land use rights decreased from EUR 401 thousand as at 31 December 2012 by EUR 11 thousand, or 2.7 %, to
EUR 390 thousand as at 31 December 2013 and further decreased to EUR 386 thousand as at 30 June 2014. The
decrease was mainly due to the annual amortisation.
Current Assets
Inventories
Inventories comprise of raw materials, work-in-progress and finished goods.
Inventories increased significantly from EUR 907 thousand as at 31 December 2011 by EUR 470 thousand, or
51.8 %, thousand to EUR 1,377 thousand as at 31 December 2012. The increase was mainly due to the increase
in work-in-progress.
Inventories decreased from EUR 1,377 thousand as at 31 December 2012 by EUR 487 thousand, or 35.4 %, to
EUR 890 thousand as at 31 December 2013. The decrease was mainly due to the decrease in work-in-progress.
Inventories increased significantly from EUR 890 thousand as at 31 December 2013 by EUR 1,619 thousand, or
181.9 %, to EUR 2,509 thousand as at 30 June 2014. The increase was mainly due to the fact that certain models
with more complicated design took a longer production cycle in order to complete.
Fenghua's average inventory turnover period for the period under review was 8 days, 8 days, 5 days and 15 days
as at 31 December 2011, 2012, 2013 and 30 June 2014 respectively.
Trade receivables
Trade receivables increased from EUR 10,552 thousand as at 31 December 2011 by EUR 1,840 thousand, or
17.4 %, to EUR 12,392 thousand as at 31 December 2012 and further increased by EUR 694 thousand, or 5.6 %,
to EUR 13,086 thousand as at 31 December 2013. The increase was mainly due to the increase in sales.
Trade receivables decreased from EUR 13,086 thousand as at 31 December 2013 by EUR 1,072 thousand, or
8.2 %, to EUR 12,014 thousand as at 30 June 2014. The decrease was mainly due to a better collection of payment from customers.
Fenghua's average trade receivable turnover period for the period review was 65 days, 54 days, 53 days and 51
days as at 31 December 2011, 2012, 2013 and 30 June 2014 respectively.
Cash and cash equivalents
Cash and cash equivalents comprise of bank deposits and cash on hand.
Cash and cash equivalents decreased from EUR 22,095 thousand by EUR 2,885 thousand, or 13.1 %, as at 31
December 2011 to EUR 19,210 thousand as at 31 December 2012. The decrease was mainly due to the higher
dividend payment in 2012.
85
Cash and cash equivalents increased strongly from EUR 19,210 thousand as at 31 December 2012 by EUR 7,283
thousand, or 37.9 %, to EUR 26,493 thousand as at 31 December 2013. The increase was mainly due to no dividend payment in 2013.
Cash and cash equivalents increased from EUR 26,493 thousand as at 31 December 2013 by EUR 11,541, or
43.6 %, to EUR 38,034 thousand as at 30 June 2014. The increase was mainly due to higher cash flow generated
from the operations.
Equity
Equity increased from EUR 16,745 thousand as at 31 December 2011 by EUR 5,276 thousand or 31.5 %, to
EUR 22,021 thousand as at 31 December 2012. The aggregate effect of the profit for the year was offset by a
dividend payment of EUR 9.9 million.
Equity increased significantly from EUR 22,021 thousand as at 31 December 2012 by EUR 18,132 thousand, or
82.3 % to EUR 40,153 thousand as at 31 December 2013. The sharp increase was mainly due to the fact that no
dividend was paid and the aggregate effect of the profit for the year.
Equity increased from EUR 40,153 thousand as at 31 December 2013 by EUR 9,625 thousand, or 24.0 % to
EUR 49,778 thousand as at 30 June 2014. The increase was mainly due to the aggregate effect of the profit for
the year.
Reserves include reserves for monthly contribution for pension insurance in the amount of EUR 724 thousand as
at 31 December 2013 and EUR 392 thousand as at 30 June 2014. Other than the monthly contribution for pension insurance, Fenghua does not have reserves for pension payments.
Current Liabilities
Interest-bearing bank borrowings
Interest-bearing bank borrowings comprise primarily short term bank loans.
Bank borrowings decreased from EUR 7,165 thousand as at 31 December 2011 by EUR 1,948 thousand, or
27.2 %, to EUR 5,217 thousand as at 31 December 2012. The decrease was mainly due to the fact that partial
bank borrowings were settled in 2012. All bank borrowings were fully settled in 2013, so that they decreased to
nil as at 31 December 2013 and 30 June 2014.
The interest-bearing bank borrowings were secured by pledged with bank deposits, guaranteed by a director and
related parties.
Trade and other payables
Trade and other payables mainly comprise of trade payables, bill payables, value added tax and other tax payables, salary payable and other payables.
The following table shows a breakdown of the trade and other payables as at 31 December 2011, 2012 and 2013
and the six-month-periods ended 30 June 2014:
31 December
(audited)
30 June
(unaudited)
2011
2012
2013
2014
EUR
thousand
EUR
thousand
EUR
thousand
EUR
thousand
Trade payables
1,795
5,935
3,862
6,139
Bill payables
7,286
–
–
–
993
839
769
415
1,134
846
962
1,026
–
–
3
51
11,208
7,620
5,596
7,631
VAT and other tax payable
Salary payable
Other payables and accruals
Total
86
Trade and other payable decreased strongly from EUR 11,208 thousand as at 31 December 2011 by EUR 3,588
thousand, or 32.0 %, to EUR 7,620 thousand as at 31 December 2012 due to the full settlement of bill payables
as a method of payment purchase in 2012.
Trade and other payables decreased from EUR 7,620 thousand as at 31 December 2012 by EUR 2,024 thousand,
or 26.6 %, to EUR 5,596 thousand as at 31 December 2013. The decrease was mainly due to lower purchases
during the year end in FY2013.
Trade and other payables increased from EUR 5,596 thousand as at 31 December 2013 by EUR 2,035 thousand,
or 36.4 %, to EUR 7,631 thousand as at 30 June 2014. The increase was mainly due to higher purchases of raw
materials standby for production demands.
Fenghua's average trade payable turnover period for the period review was 15 days, 35 days, 22 days and 38
days as at 31 December 2011, 2012, 2013 and 30 June 2014 respectively.
Amount owing to a director
Amount owing to a director, amounting to EUR 3,941 thousand as at 31 December 2011 and EUR 3,895 thousand as at 31 December 2012 and EUR 14 thousand as at 31 December 2013 and EUR 18 thousand as at 30 June
2014, The amount relates to the advance from a director was to use for its subsidiary’s working capital.
Current tax liabilities
Current tax payable decreased from EUR 1,673 thousand as at 31 December 2011 by EUR 260 thousand, or
15.5 %, to EUR 1,413 thousand as at 31 December 2012 due to lower current tax provisions for the fourth quarter in 2012.
Current tax payable increased from EUR 1,413 thousand as at 31 December 2012 by EUR 481 thousand, or
34.0 % to EUR 1,894 thousand as at 31 December 2013.
Current tax payable decreased from EUR 1,894 thousand as at 31 December 2013 by EUR 123 thousand, or
6.5 % to EUR 1,771 thousand as at 30 June 2014.
87
Liquidity
The following table presents cash flow information of Fenghua Hong Kong for the years ended 31 December
2011, 2012 and 2013 on a consolidated basis, and the six-month-periods ended 30 June 2013 and 30 June 2014
on a consolidated basis, which was taken from the Consolidated Financial Statements and the Interim Condensed
Consolidated Financial Statements, respectively.
31 December
(audited)
30 June
(unaudited)
2011
2012
2013
2013
2014
EUR
thousand
EUR
thousand
EUR
thousand
EUR
thousand
EUR
thousand
Cash flows from operating activities
Profit before tax
15,613
20,653
24,843
10,320
12,731
Interest expense
344
593
137
133
–
Interest income
(63)
(150)
(80)
(36)
(64)
1,068
1,134
1,122
552
551
Amortisation of land use rights
–
1
8
4
4
Property, plant and equipment written off
1
230
4
4
–
Inventories write back
–
–
(1)
(1)
–
Gain on disposal of property, plant and equipment
–
–
(2)
(2)
–
Waiver of debts
–
–
(485)
(492)
–
16,963
22,461
25,546
10,482
13,222
304
(495)
488
(298)
(1,615)
(3,141)
(2,024)
(827)
2,707
1,090
6,512
(3,543)
(1,998)
(2,370)
2,024
Cash generated by operations
20,638
16,399
23,209
10,521
14,721
Income taxes paid
(3,118)
(5,409)
(5,589)
(2,525)
(3,309)
63
150
80
36
64
(344)
(593)
(137)
(133)
–
17,239
10,547
17,563
7,899
11,476
(1,803)
(1,052)
(1,246)
(542)
–
Purchase of land use rights
–
(413)
–
–
–
Proceed from disposal of property, plant and equipment
–
–
46
46
–
Adjustments for:
Depreciation of property, plant and equipment
Operating cash flows before movements in working
capital
Decrease/ (increase) in inventories
(Increase)/ decrease in trade receivables
Increase/ (decrease) in trade and other payables
Interest received
Interest paid
Net cash flows generated by operating activities
Cash flows from investing activities
Purchase property, plant and equipment
88
31 December
(audited)
30 June
(unaudited)
2011
2012
2013
2013
2014
EUR
thousand
EUR
thousand
EUR
thousand
EUR
thousand
EUR
thousand
(1,803)
(1,465)
(1,200)
(496)
–
–
–
–
–
*
272
4
(3,448)
(3,454)
3
(6,665)
(9,855)
–
–
–
4,054
(1,910)
(5,287)
(4,694)
–
Net cash (used in)/generated from financing activities
(2,339)
(11,761)
(8,735)
(8,148)
3
Net increase/ (decrease) in cash and cash equivalents
13,097
(2,679)
7,628
(745)
11,479
Cash and cash equivalents at the beginning of the
financial year/period
7,279
22,095
19,210
19,210
26,493
Foreign exchange translation reserve
1,719
(206)
(345)
664
62
22,095
19,210
26,493
19,129
38,034
Net cash used in investing activities
Cash flows for financing activities
Proceeds from issuance of shares
Advance from a director
Dividend paid
Net repayment of bank borrowings
Cash and cash equivalent at the end of the financial
year/period
Note: * Represents an amount less than EUR 1,000
Net Cash Flow Generated by Operating Activities
Net cash generated from operating activities decreased from EUR 17,239 thousand in 2011 by EUR 6,692 thousand, or 38.8 %, to EUR 10,547 thousand in 2012. The decrease was mainly due to the increase in operating cash
flow before movements in working capital of EUR 5,498 thousand was offset by the changes of trade and other
payables of EUR 10,055 thousand and increase in income tax payments of EUR 2,291 thousand.
Net cash generated from operating activities increased from EUR 10,547 thousand in 2012 by EUR 7,016 thousand, or 66.5 %, to EUR 17,563 thousand in 2013. The increase was mainly due to the increase in operating cash
flow before movements in working capital of EUR 3,085 thousand and the increased receipt from trade receivables of EUR 1,197 thousand and decreased payment to trade and other payables of EUR 1,545 thousand.
Net cash generated from operating activities increased from EUR 7,899 thousand in the first six months of 2013
by EUR 3,577 thousand, or 45.3 %, to EUR 11,476 thousand in the first six months of 2014. The increase was
mainly due to the increase in operating cash flows before movements in working capital of EUR 2,740 thousand
and the increase in trade and other payables of EUR 4,394 thousand.
Net Cash used in Investing Activities
Net cash used for investing activities decreased from EUR 1,803 thousand in 2011 to EUR 1,465 thousand in
2012 and further decreased to EUR 1,200 thousand in 2013 which was mainly due to the absence of any purchase of land use rights in 2013. Net cash for investing activities decreased from EUR 496 thousand in the first
six months of 2013 to EUR nil in the first six months of 2014.
Net Cash used in Financing Activities
Net cash used for financing activities increased significantly from EUR 2,339 thousand in 2011 by EUR 9,422
thousand, or 402.8 %, to EUR 11,761 thousand in 2012. The increase was mainly due to the increase in dividend
payment of EUR 3,190 thousand and the changes of net repayment of bank borrowings of EUR 5,964 thousand.
89
Net cash used for financing activities decreased from EUR 11,761 thousand in 2012 by EUR 3,026 thousand, or
25.7 %, to EUR 8,735 in 2013. The decrease was mainly due to the repayment to a director of EUR 3,448 thousand and to an increase in net repayment of bank borrowings of EUR 3,377 thousand and further because no
dividend was paid in 2013.
Net cash used for financing activities decreased from EUR 8,148 thousand in the first six months of 2013 by
EUR 8,151 thousand to become net cash generated from EUR 3 thousand in the first six months of 2014. The
decrease was mainly due to the absence of repayment to a director of EUR 3,454 thousand and the repayment of
bank borrowings of EUR 4,694 in the first six months of 2014.
Future Commitments
As at 31 December 2011, 2012, 2013 and 30 June 2014, Fenghua was not subject to any future commitments.
Contingent Liabilities
Before August 2014, the social insurance and housing funds contribution made by the subsidiaries of the Company did not cover the full contribution as required under the law of the PRC. The director of the Company has
issued a letter of undertaking under which he undertook the payment of the social insurance, housing funds and
the related payment if the subsidiaries are requested to make up the payment .
Off-Balance Sheet and other Arrangements
Fenghua has not removed any obligations from its balance sheet or created off-balance sheet obligations in offbalance sheet transactions. There are no other obligations and risks which were not reflected in the Consolidated
Financial Statements and the Interim Condensed Consolidated Financial Statements.
Critical Accounting Policies and Estimation Uncertainties
The following are key assumptions concerning the future and other key sources of estimation uncertainty that
have a significant risk of causing a material adjustment to the carrying amounts of financial information set out
herein. Investors should read the following paragraphs in conjunction with the financial statements, including the
related notes, set out on page F-1 et seq.
Depreciation of Property, Plant and Equipment
The estimates for the residual values, useful lives and related depreciation charges for the property and equipment are based on commercial and production factors which could change significantly as a result of technical
innovations and competitors’ actions in response to the market conditions. Changes in the expected level of
usage and technological development could impact the economic useful lives and the residual values of these
assets, therefore future depreciation charges could be revised.
Impairment of Receivables
An impairment loss is recognised when there is objective evidence that a financial asset is impaired. Management specifically reviews its loans and receivables financial assets and analyses historical bad debts, customer
concentrations, customer creditworthiness, current economic trends and changes in the customer payment terms
when making a judgement to evaluate the adequacy of the allowance for impairment losses. Where there is objective evidence of impairment, the amount and timing of future cash flows are estimated based on historical loss
experience for assets with similar credit risk characteristics. If the expectation is different from the estimation,
such difference will impact the carrying value of receivables.
Write-down of Inventories
Reviews are made periodically by management on damaged, obsolete and slow-moving inventories. These reviews require judgement and estimates. Possible changes in these estimates could result in revisions to the valuation of inventories.
90
Income Taxes
There are certain transactions and computations for which the ultimate tax determination may be different from
the initial estimate. The Group recognises tax liabilities based on its understanding of the prevailing tax laws and
estimates of whether such taxes will be due in the ordinary course of business. Where the final outcome of these
matters is different from the amounts that were initially recognised, such difference will impact the income tax
and deferred tax provisions in the years in which such determination is made.
Impairment of Non-financial Assets
When the recoverable amount of an asset is determined based on the estimate of the value-in-use of the cashgenerating unit to which the asset is allocated, the management is required to make an estimate of the expected
future cash flows from the cash-generating unit and also to apply a suitable discount rate in order to determine
the present value of those cash flows.
91
INDUSTRY OVERVIEW
Selected macroeconomic, statistical, and industry related information provided in this section has been prepared
on the basis of various external sources. In particular, selected information relating to the Chinese shoe equipment industry and Fenghua's position therein was extracted from the market research report on the adult sports
shoe sole market (the “Report” or “EM Report”) conducted by Euromonitor International (“Euromonitor” or
“EM”) dated November 2012 and an in-depth study conducted by Sealand Securities Co., Ltd. on the footwear
market in China dated 14 August 2012 (the “SS Study”). Due to the limited availability of public information
about the Chinese shoe equipment industry in the PRC, Euromonitor was specifically commissioned to draft the
Report for the purpose of extracting certain information and statistics from the Report into the Prospectus.
Translation of amounts used in this section may have different exchange rates than those used in the Annual
Consolidated Financial Statements and the Interim Condensed Consolidated Financial Statements. Amounts
denominated in other currencies are expressly identified as such with the corresponding currency designation or
currency symbol. The terms “PRC” and “China” or references made to a Chinese person or the Chinese market
used in this section do not include Hong Kong and Macau.
Overview
With approximately one-fifth of the world's population and a fast-growing gross domestic product (“GDP”),
China represents a significant growth opportunity for a wide variety of casual wear products, including sportswear and sports shoes. The improved living standards and increased disposable income in China that has resulted
from the vibrant economic growth have driven the rapid development of the sportswear and sports shoes market
in China in recent years and increased market awareness of sportswear brands. Consumers are putting greater
importance behind factors such as product uniqueness, fashion and celebrity endorsement (Source: Morgan
Stanley, “China Sports Goods Survey – The Landscape is Changing”, dated 18 April 2011, EM Report). China's
adult footwear market is expected to grow at a compound annual growth rate (“CAGR”) of 9.7 % from 2012 to
2016 in terms of retail sales value and of 7.1 % in terms of retails sales volume, reaching a market size of
RMB 364.2 billion (EUR 43.26 billion) and 3,016 million pairs respectively in 2016. (Source: Report)
Overview of the Chinese Economy
China's economy has expanded rapidly since the adoption of reform and market liberalisation policies by the
Chinese government beginning in the late 1970's. China's economy has demonstrated strong and steady growth
over the last three decades and has become one of the largest economies in the world. In 2013, the GDP of China
was RMB 56,884.5 billion (EUR 6,756.1 billion), up by 7.7 %. The growth rate has been steady as compared to
2012 (7.7 %) and it has slowed down from 2011 (9.3 %) (Source: National Bureau of Statistics of China, “Statistical Communiqué of the People's Republic of China on the 2013 National Economic and Social Development”,
dated 24 February 2014).
China has passed Japan as the world's second largest economy in 2010 and has a continuously growing importance in the world's economy (Source: Report)
(Source: National Bureau of Statistics of China, “Statistical Communiqué of the People's Republic of China on
the 2013 National Economic and Social Development”, dated 24 February 2014)
92
The slowing but still robust growth of the Chinese macro economy has led to increasing disposable income of
Chinese residents in recent years. The per capita annual disposable income of the urban population was
RMB 18,311 (EUR 2,176), an increase of 10.9 % to the previous year. The per capita annual disposable income
of rural households grew from RMB 6,977 (EUR 775) in 2011 to RMB 8,869 (EUR 1078) in 2013 (which is a
CAGR of 8.33 %) while the per capita annual disposable income of urban households increased from
RMB 21,810 (EUR 2,423) in 2011 to RMB 26,955 (EUR 3,276) in 2013 (which is a CAGR of 7.32 %) (Source:
National Bureau of Statistics of China, “Statistical Communiqué of the People's Republic of China on the 2013
National Economic and Social Development”, dated 24 February 2014).
Due to an increasing demand of – especially urban – consumers for a quality and western oriented lifestyle and
in consequence of an increasing disposable income, the domestic sales volume is constantly rising (Source: Report). The consumer prices are currently basically stable with an increase of 2.6 % in 2013, while the prices for
clothing went up by only 2.3 % in 2013 (Source: National Bureau of Statistics of China, “Statistical Communiqué of the People's Republic of China on the 2013 National Economic and Social Development”, dated 24 February 2014).
The Twelfth-Five-Year Plan, 2011 -2015
The National People's Congress of China (the “NPC”) adopted the Twelfth Five-Year Plan on 14 March 2011.
The aim of the Twelfth Five-Year Plan is to address social inequality and to foster sustainable economic growth
by expanding domestic demand. The NPC intends to achieve increased domestic demand by shifting emphasis
from investment towards consumption and from urban and coastal growth towards rural and inland development.
The NPC aims for the economic growth of the PRC to be driven by a balanced mix of consumer spending, investments and exports. It also contains the planned improvements of the production facilities and technologies of
the leather and footwear industry.
The main targets of the Twelfth Five-Year Plan include: GDP annual growth of about 7 % of per capita income
in the period from 2011 to 2015, an increase in domestic demand and consumer spending, acceleration of the
economic restructuring in 2011, spending 2.2 % of the GDP on research and development by 2015, having a
population of below 1.39 billion people by 2015, re-adjustment of income distribution to decrease social inequality and to stop the excessive rise of housing prices. (Source: NPC, “Report on China's economic, social development plan”, dated 18 March 2011, www.npc.gov.cn; NPC, “Outlines of the Twelfth Five-Year Plan”, dated 17
March 2011, www.npc.gov.cn; Report)
Urbanisation
Due to a large-scale industrialisation and a respective economic development, urbanisation is a constantly growing factor in the Chinese population. For the first time in 2011, the urban population was larger than the rural
population. At the end of 2013, China has reached a total population of 1,360.72 million. The urbanisation rate at
that time is 53.7 %. (Source: National Bureau of Statistics of China, “Statistical Communiqué of the People's
Republic of China on the 2013 National Economic and Social Development”, dated 24 February 2014). Following from the urbanisation is better access of consumers to modern retail channels and the endeavouring of a new
lifestyle, which may include health awareness and sports affinity by e.g. visits to the gym or jogging activities
(Source: Report). The urban unemployment rate was 4.05 % at the end of 2013, and the number of migrant
workers slightly grew in 2013, while the number of migrant workers who work in their own region is rising
(Source: National Bureau of Statistics of China, “Statistical Communiqué of the People's Republic of China on
the 2013 National Economic and Social Development”, dated 24 February 2014).
China Adult Footwear Market
The footwear market in China is expanding due to the sizable population and increasing consumer affluence.
After expansions of sales networks of respective brand owners, China has become the world's largest country for
the manufacturing, consumption and export of footwear products. (Source: SS Study) The chart below illustrates
the historical development of the footwear export market in China in terms of export volumes from 1995 to the
first half year of 2012:
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(Source: SS Study)
The adult footwear market in China reached RMB 227.9 billion (EUR 25.315 million) in terms of retail sales
value, with a total retail sales volume of over 2.16 million pairs in 2011, growing at a CAGR of 9.8 % and 8.6 %,
respectively from 2007 to 2011. Significant rise in the footwear market was perceived during the 2008 Beijing
Olympics, which was significantly promoted by formidable marketing campaigns and noted sales network expansion be leading sportswear brands. Following the general rise of sales networks and increasing stocks, overall
domestic sales of footwear products since 2008 have levelled out, in volume terms, to a more rational level of
growth. (Source: Report).
The following tables show the historical and expected development of the adult footwear market in China in
terms of retail sales value and retail sales volume from 2007 to 2016:
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Note: E= estimated; (Source: Report)
China Adult Sports Footwear Market
Historically, the China adult sports footwear market began to evolve roughly after 1980 where international
brands entered and dominated the market. By their entrance and their introducing new ideas in relation to products design and marketing, the Chinese consumers became interested in the variety of styles and fashion. Inspired by these international brands, domestic brands emerged and entered the market competing with the international brands. Many of these new participants profited from the OEM manufacturing process whereby they
gained marketing and managerial experience. Domestic brands have been extremely growing until 2008 (Source:
Report). Listed below is a chart contains the milestones in the development of Mainland China’s adult sports
footwear market:
(Source: Report)
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A factor fostering the increase in the market size is the consumers' increased awareness of healthy living and the
sports brands' efforts in further popularising this trend by holding sports events, as well as diversified product
offerings and marketing campaigns. Marketing was as at peak during the Beijing Olympics 2008, which is why
after this stage competition has intensified following a rapid expansion of the market. As a consequence, the
sportswear brands were faced with increased inventory, slowing order growth and higher management and operational costs for marketing events and sales networks. (Source: Report)
Chinese consumers are increasingly adopting a trend of healthy living, inspired by western culture – which places value on enjoying leisure and sports activities. Sports have nowadays become not only an effective way of
healthy living, but also a form of social activity. Hence, consumers are increasingly open to wearing sports shoes
not only while doing sports, but also in their daily life, their leisure time and when travelling. This has created a
large demand for sports footwear products. Furthermore, a diversified sports activity becoming popular including
some emerging sports, such as rock climbing, golf and yoga, have created also more diversified demands for
adult sports footwear. Therefore, many sports footwear companies are launching new product lines for specific
sports purposes. Furthermore, the Chinese government encourages its people with various programmes to engage
in sportive activities. This is done not only by financing local sports activities, but also by sponsoring international sports events which is aimed at creating a greater demand for the own sports activities of the consumers
(Source: Report).
With the smaller tier 3 and tier 4 cities becoming ever more important from an economic perspective, they provide for the most prospective market for adult footwear and adult sports footwear. This is not only true due to the
expansion of retail chains into such cities, but also by an increasing online sales market. In addition to this, Chinese consumers, in becoming more fashion-aware, are also looking for fashionable sports shoes that do not suit a
specific sports purpose but which can be worn according to the latest fashion trends in everyday life. Therefore,
many international and domestic brands have created such sports-inspired shoes in order to meet such demand.
This is believed to bring vigour and vitality to the Chinese adult sports footwear market (Source: Report).
China Adult Shoe Sole Market
Directly influenced by the demand for footwear products being the respective upstream industry, China is said to
be the largest production base for the world's adult footwear market. This is underpinned by the fact that only
20 % of the production volume is directly consumed in China. As a consequence, the China adult footwear market depends on worldwide economic parameters and demand. There are four main bases for adult footwear manufacturing in China, including Guangdong Province (Dongguan), Fujian Province (Quanzhou/Jinjiang), Zhejiang
Province (Wenzhou) and Sichuan Province (Chongqing). These four major manufacturing hubs accounted for
more than 70 % of the total production volume of adult footwear in 2012. Guangdong and Fujian are the biggest
centres of shoe production catering for roughly 60 % of the total output in 2012. Accessory manufacturers such
as shoe sole producers have emerged in these regions thereby creating shoe-making clusters offering the complete value chain and a reduction of logistics (Source: Report; SS Study). The chart below summarises and compares the main strengths and characteristics of each of these footwear clusters:
Main production cities
Dongguan, Huidong
Jinjiang, Shishi
Wenzhou, Taizhou,
Wenling
Chengdu, Chongqing
Product types
Mainly female footwear; sports footwear
mostly OEM
Mainly sports footwear
Mainly male leather
footwear; partly casual
footwear
Mainly mid to low-end
female footwear and
children footwear
Geographic
advantages
- Pearl River delta
- Express railways and
highways
- International airports
- Starting point of the
ancient “maritime silk
road”
- Ports and harbours
- Yangtze River delta
- Ports and harbours
- Sichuan basin suitable for animal husbandry
- Amble supply of raw
materials (leather
etc.)
Industry chain
advantages
- More than 3,000
footwear production
companies and footwear machinery production companies
- More than 4,000 footwear production companies
- The “Footwear Material Street” in Jinjiang is
- Mature industry chain
and system
- Several major footwear
markets and production
bases
- More than 4000
footwear productionrelated companies
- Two major footwear
markets: the
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Main production cities
Dongguan, Huidong
Jinjiang, Shishi
Wenzhou, Taizhou,
Wenling
the biggest footwear
material market in
Eastern China, with an
annual trading volume
of RMB 2 billion
(EUR 0.24 billion)
Chengdu, Chongqing
Shuangnan Leather
Market and the
Jinhua Footwear Material Market
Technology
advantages
Strong R&D capacity
for female footwear
Mainly OEM sports footwear with increasing
ODM capacities
Strong leather footwear
R&D capacities
Mainly OEM, small
scale but flexible; suitable for production of
small volumes of fashionable footwear
Brand advantages
- Mainly OEM for
international tier 1,
tier 2 brands, including Nike, Adidas,
Reebok, Puma and
Clarks
- Constituting 60 % of
global production
volume of international brand;
- Strong marketing capacities
- Various top local
brands, including ANTA, 361°, XTEP and
Guirenniao
Four well-known local
brands and nine wellknown local trademarks
Local brands not widely
known
(Source: SS Study)
While shoes produced in China are mainly exported, soles are usually sold domestically (and exported as a final
part of the shoes). After 2008, the market for shoe soles has slowed down, but it has regained momentum.
(Source: Report).
According to the “Implementation Plan for the Adjustment and Revitalization of Light Industry of Fujian Province”, the Fujian local government has planned to accelerate the concentration of the footwear industry by developing high-end, high-performance and high-comfort shoe products and shoe materials in Fujian (Source: Report).
The domestic rising consumption of shoes also fosters the shoe soles market. Paired with a perceived increase in
quality, the shoe soles market is believed to be awaiting a positive development (Source: Report).
China Adult Sports Shoe Sole Market
With China being the world's biggest production base of adult sports footwear products and approximately 80 %
of the production being targeted for the export, the adult sports shoe sole is an important component in this market. Hence, a large number of the sports shoe soles are produced for domestic customers and intended for a final
product which is exported. The remaining portion is sold to domestic producers of sports shoes. Only a very
small amount of soles is directly exported. After the slight adjustment in the sports shoe soles market that followed the adjustment in the sports shoes market in 2008 and 2009, market momentum regained but was influenced by the world financial as well as the Eurozone debt crisis. Both events slowed the pace for the starting
regaining of the market sizes (Source: Report).
The sales value of China's adult sports shoe sole market reached RMB 24.9 billion (EUR 2.96 billion) and
2,265.5 million pairs in 2011, with a CAGR of 6.8 % in terms of value and 3.4 % in terms of volume from 2007
to 2011. The market is expected to achieve RMB 30.5 billion (EUR 3.62 billion) and 2,433.3 pairs in 2016, with
a CAGR of 4.1 % in terms of value and 1.5 % in terms of volume over 2012 to 2016. The following tables show
the historical and expected development of the adult shoe sole market in China in terms of manufacturer sales
value and manufacturer sales volume from 2007 to 2016:
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A factor influencing the local market in Fujian is the “Implementation Plan to Accelerate the Development of the
Sports Industry in Fujian Province”, issued by the local government. According to such plan, further three to five
sports industry clusters shall be created and 10-15 sports industry related companies are scheduled for a listing
on a stock exchange. Furthermore, taxes will be reduced under certain aspects (Source: Report).
Furthermore, the market for sports shoe soles is driven by an increasing demand in sports shoes, including a
rising demand for different types of sports shoes which is fostered by increasing per capita income and combined
with a changing lifestyle especially of urban citizens (Source: Report).
Market Entry Barriers
There are several barriers to enter in the sports shoe soles market in China. First, an entrant needs to have deep
knowledge and technical understanding in the various aspects of the functionality of the sports shoe soles, including the necessity for a comprehensive knowledge for the entire shoe-making industry and a rich experience
in manufacturing adult sports shoe soles. The production of EVA MD1 or even EVA MD2 soles incurs a sub-
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stantial amount of technical expertise as mistakes in the ratios of chemicals can greatly influence the final product (Source: Report).
In connection with the technical barrier there is a capital barrier, as the necessary equipment for the injection and
stamping of EVA soles is a substantial cost factor. In addition to the EVA injection machine, entrants would
need a rubber out-sole crafting machine, an assembly line and warehousing facilities which entails the necessity
to invest a substantial amount of cash. This is combined with the requirement of a certain number of cash and
personal to run the daily business (Source: Report).
Another entry barrier is the fact that most adult sports footwear manufacturers have established close and stable
relationship with their contracted suppliers. Therefore, new entrants may find it extremely difficult to jump into
the market and take big clients. In addition, new entrants may also find it difficult to attract specific management
specialists and the large number of experienced workers, which are necessary to be competitive in this industry.
(Source: Report).
Market Trends
Leading players of the adult sports shoe sole manufacturing industry in China have accumulated a large amount
of capital as a consequence of the market development. Furthermore, some of these players have tapped into the
footwear manufacturing industry by establishing their own brands, or acquiring existing brands. In addition to
such downward integration, some industry players have started an upward integration by producing EVA pellets
which are necessary to produce EVA MD 1 or EVA MD 2 shoe soles in an attempt to lowering production costs
and guarantee a constant quality while reducing the dependency from third party suppliers (Source: Report).
Another trend is the increasing efforts in terms of R&D. After years of OEM manufacturing, evermore industry
players start with the accumulated capital to invest in own R&D in order to produce own specific products and
designs (as ODM). This has also increased the general competitiveness of such companies as it also allows for a
better quality control and an increased added value of the products so manufactured (Source: Report).
Competition and Competitors
Market Positioning
In terms of geographic competition between the two main clusters Quanzhou/Jinjiang and Dongguan, the former
is benefiting from a larger scale production. This is due to the fact that despite there being many producers in
Dongguan, they are relatively small as compared to their competitors in Quanzhou/Jinjiang. The former is also a
major centre of domestic sportswear brands including ANTA, Xtep, 361°, Peak, Qiaodan, Deerway, whereas
manufacturers in Dongguan have historically focused on international brands. The sports shoe soles manufacturers in Quanzhou are usually active in both the OEM and the ODM business and are hence more active in own
R&D (Source: Report).
The adult sports shoe sole manufacturing industry is a very fragmented market, with around 3,000 participants.
According to EM in 2011, China’s adult sports shoe sole market reached RMB 24.9 billion (EUR 2.96 billion),
of which, the top 10 companies represented 14.3 % of the total manufacturer sales value.
The following chart shows the market share of the top 10 companies in the adult sports shoe sole market in China by manufacturer sales value in 2011:
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(Source: Report)
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The following chart shows the top 10 companies in the adult sports shoe sole market in China by manufacturer
sales value in 2011:
Rank
Company Name
Unit
2011
Company Share 2011 in %
1
Multi Sports Holdings Limited
RMB mn
861.7
3.5
2
Jinjiang Fenghua Shoe Material Co Ltd
RMB mn
533.1
2.1
3
Taiya Shoes Co Ltd
RMB mn
385.7
1.5
4
Mao Tai (Fujian) Shoe Material Co Ltd
RMB mn
359.0
1.4.
5
XingQuan International Sports Holdings
Limited
RMB mn
310.0
1.2
6
Wan Jia Xin (Fujian) Leather & Plastic Shoe
Material Co Ltd.
RMB mn
294.9
1.2
7
Jinjiang Yi Heng Shoe Material Co Ltd
RMB mn
211.1
0.8
8
Quanzhou Xin Tai Shoe Material Co Ltd
RMB mn
206.8
0.8
9
Xin Xie Zhi (Fujian) Co Ltd
RMB mn
205.3
0.8
10
Hong Wei Xie Zhi (China) Co Ltd
RMB mn
1998.7
0.8
(Source: Report)
Competitors
Fenghua believes that the following companies are its main competitors:
Taiya Shoes Co. Ltd.
With a manufacturer sales value of RMB 385.7 million in Quanzhou, Taiya Shoes Co. Ltd. ranked third in China’s adult sports shoe sole market. Taiya Shoes Co Ltd tapped into the adult sports shoe sole manufacturing
industry in 2001, and was the first adult sports shoe sole company to become listed on China’s Shenzhen Stock
Exchange in December of 2010. Taiya Shoes Co Ltd is the primary supplier for many domestic sportswear
brands, including: ANTA, Xtep, 361°, etc., by providing EVA MD1, EVA MD2, and PU adult sports shoe soles.
Mao Tai (Fujian) Shoe Material Co. Ltd.
Mao Tai (Fujian) Shoe Material Co. Ltd. is located in Quanzhou, and is one of the pioneers of the adult sports
shoe sole industry with 24 years of operating history. It achieved RMB 359.0 million in manufacturer sales value
in 2011 and ranked fourth in China's adult sports shoe sole market. Mao Tai (Fujian) Shoe Material Co Ltd.
produces: rubber, TPR, EVA MD1, and EVA MD2 adult sports shoe soles, with a focus on rubber adult sports
shoe soles.
XingQuan International Sports Holdings Limited
XingQuan International Sports Holdings Limited was established in 1995 in Quanzhou. XingQuan International
Sports Holdings Limited ranked fifth, with a manufacturer sales value of RMB 310.0 million in China’s adult
sports shoe sole market. XingQuan International Sports Holdings Limited was listed on the Bursa Malaysia in
2009. With the expansion of XingQuan International Sports Holdings Limited’s business, manufacturing of adult
sports shoe sole has become less weighted for XingQuan International Sports Holdings Limited’s sales revenue,
accounting for about 20 % of its revenue.
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BUSINESS
Overview
Fenghua is a modern technology driven Chinese producer of shoe soles founded in 2004. Fenghua's operations
include the processing of raw materials such as natural or artificial rubber (“RB”) or ethylene vinyl acetate
(“EVA”) materials, the manufacturing of thermoplastic rubber (“TPR”) and EVA compound pellets as well as
the production of thermoplastic elastomer (“TPE”), polyurethane (“PU”) or thermoplastic polyurethane (“TPEU” or “TPU”), all of which is used for various components of shoe soles. The soles manufactured by Fenghua
are designed for performance sports shoes as well as for leisure and casual sports-inspired shoes targeting shoe
producers mainly for mid to high-end shoes for Chinese and international brands. All soles are produced at
Fenghua's own factory or by its contract manufacturers in the region of Jinjiang which is one of the leading centres for shoes and shoe accessories in China.
Fenghua produces more than 40 million pairs of shoe soles per year with currently six production lines in EVA
model one (“EVA MD1”), 14 in EVA model two (“EVA MD 2”) and eight for RB versions. The soles are distributed through Fenghua's own sales network to producers of shoes for local and international brands and to
local distributers.
Fenghua's own research and development (“R&D”) department constantly seeks to improve the manufacturing
process by not only enhancing the composition of raw materials but also by improving the production processes
such as moulding. By focussing on R&D, Fenghua is able to also offer an own range of products to be manufactured as original design manufacturing (“ODM”) as compared to other competitors producing only soles under
their customers design prerequisites as original equipment manufacturing (“OEM”). For its ODM soles,
Fenghua develops its own prototypes and has registered 8 utility models for such prototypes in order to protect
its intellectual property. Customers of Fenghua usually produce shoes as OEM so that the Fenghua's soles commonly become part of a sports shoe under various brands of sports equipment or fashion brands.
Fenghua's revenues increased from EUR 59,218 thousand in 2011 to EUR 83,581 thousand in 2012, and further
to EUR 90,056 thousand in 2013, representing a CAGR of 23.3 %. Fenghua's net profits increased from
EUR 11,710 thousand in 2011 to EUR 15,489 thousand in 2012, and further to EUR 18,750 thousand in 2013,
representing a CAGR of 26.5 %. Fenghua's revenues increased from EUR 37,407 thousand in the first six
months of 2013 to EUR 42,467 thousand in the first six months of 2014. Fenghua's net profits increased from
EUR 7,859 thousand in the first six months of 2013 to EUR 9,547 thousand in the first six months of 2014. As at
30 June 2014, Fenghua had 1,822 employees.
Strengths
Fenghua believes that the following competitive strengths are the main drivers of its future growth:
Fenghua has an optimised production process with advanced production equipments
Fenghua is equipped with significant production capacities: As one of China’s largest shoe sole producers,
Fenghua is able to satisfy large orders of up to several million pairs of soles (divided into several cycles) with
minimal lead times, competitive prices and uniform quality. New sets of moulds can be produced within 20 days,
with each set including different sizes. Where moulds are already available, Fenghua can deliver products within
7 to 10 days for most orders, or 15 to 20 days for large orders of over 100,000 pairs. Fenghua intends to enlarge
its production capacities in order to be able to serve larger and more important customers and to insource the
outsourced production capacities. Fenghua has been producing at maximum practical production capacity since
2012, forcing it to outsource 30 % of production. In order to maintain quality, it has mainly outsourced the production of simpler designs, EVA MD1, as a priority, and supplies the semi-processed raw materials and any TPE,
TPU-E, TPR, PU and/or RB components to the contract manufacturers. Furthermore and unlike most of its competitors, Fenghua produces its own key semi-processed raw materials used in the production of shoe soles: EVA
pellets and RB panels. Fenghua orders raw materials in large batches from reliable, pre-approved Chinese producers. The raw material is inspected upon delivery to ensure uniform quality. It is then mixed by Fenghua’s
experienced technicians, who adjust the formulations to adapt the product to different designs and usages. This
allows Fenghua to reduce reliance on third-party suppliers, ensure consistent product quality, reduce lead times
and reduce costs, while closely matching customers' needs. Fenghua’s production facilities conform to the ISO
9001:2008 and ISO 14001:2004 norms. Its production facilities allow it to produce the entire sole from the mixing of raw materials to the moulding to the assembly of components.
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Fenghua is located in a favourable geographic location: the Quanzhou shoe industry centre
Fenghua’s location in Jinjiang which is part of Quanzhou, one of the leading Chinese centres for shoes, enables
it to access a large number of local raw material suppliers, allowing it to benefit from competitive prices while
reducing logistics costs. As at 30 June 2014, Fenghua had 70 suppliers of which 55 are regularly used. Raw
materials can often be delivered within hours, allowing Fenghua to keep its raw material inventory levels low
(inventory is kept around seven days on average in the first six months of 2014). Furthermore, Fenghua estimates
that there are roughly 4,000 shoe manufacturers in Quanzhou serving as a large potential client base. Most sports
shoe brands and OEM producers of shoes do not manufacture shoe soles in-house because of substantial equipment requirements and as they, due to their size are incapable to integrate downwards. A third aspect is the following: In recent years, an increasing number of Tier 2 and Tier 3 international sports shoe brands have shifted
their production from Dongguan/Shenzhen (another large production base of sports shoes in China) to Jinjiang/Quanzhou because of perceived relatively faster rising labour costs in Dongguan, access to a relatively
larger number of qualified and experienced workers in Jinjiang as well as necessary infrastructure to support the
production. The Company believes that it will be able to access an increasing number of OEM clients for international sports shoe brands, which show the best prospects for Fenghua's development.
Fenghua has strong design and development capabilities
Fenghua has a growing ODM business: While the majority of its production is OEM, Fenghua places increased
emphasis on R&D. Its R&D team of 29 people allows it to design and develop its own shoe soles. In 2013,
Fenghua developed about 205 sport shoe-soles designs, of which 68 designs were added to its product line,
bringing the number of ODM (self-produced) designs in use to 411, as compared to the number of OEM designs
(designed by clients) of 167. In 2013, 89.1 % of Fenghua’s revenues were derived from in-house designed soles
(ODM). In addition, Fenghua obtained 6 utility models for sports shoe soles in 2013, adding to the existing
number of registered utility models of 8. These utility models can benefit Fenghua’s entire range of products.
Fenghua is a one-stop supply centre for shoe soles
Fenghua has a large product range: It is able to produce shoe soles made of EVA, RB, TPE, TPE-U and/or TPR
for a large variety of sports, including indoor and outdoor running shoes, tennis shoes, skateboard shoes, hiking
shoes and sports-inspired casual and leisure shoes. This allows it to satisfy an increasing demand in China for
function-specific as well as fashion sports or leisure shoes. Not all other competitors are able to manufacture
both the granules and the soles and not all of such have larger production capacities. Fenghua’s strong R&D
capabilities combined with its scale, quality and fast delivery enable Fenghua to support leading domestic and
international sports shoe brands. As of 30 June 2014, Fenghua serves over 367 mid to high-end OEM sports shoe
manufacturers in China, of which 314 in Fujian. These OEMs supply tier 1 Chinese brands and tier 2 and 3 international brands such as Li Ning and tier 2 and 3 international sports brands such as Fila, Power and Brooks.
Fenghua does not rely on one customer as its largest client accounts for less than 3 % of total 2013 sales.
Experienced management team
The Company's Chief Executive Officer (“CEO”), Mr. Weijie Lin, the founder and chairman of the Group, has
over 18 years of experience in the sports shoe sole industry. Most of Fenghua’s management team has been
working at the company since it was founded. Active in the shoe materials industry since 1996, he established
Jinjiang Fenghua Shoe Material Co., Ltd. in 2004. With a deep understanding of the market, he built up a professional team with strong experience in the market for shoe materials. The Chief Operating Officer (“COO”), who
is also the General Manager and Head of Purchase Department, Mr. Jia Jian Lin is active in the sports shoe
industry since 1992, he has been Deputy-General Manager then General Manager of Fenghua since its foundation in 2004. He participated in an MBA course at Quanzhou Huaqiao University between 2009 and 2010. The
Chief Financial Officer (“CFO”), Mr. Shiau Wuee Yong graduated with a Bachelor of Commerce, major
in Accounting from The Flinders University of South Australia, Australia in 1998. He qualified as a Certified
Practicing Accountant, Australia in 2003. In 2004, he qualified as a Chartered Accountant, Malaysia. After graduation, he gained experience working for local accounting firms. In 2002, he joined Meiban Technologies Inc.
(Malaysia) as accountant and subsequently was promoted as finance manager. In 2010, he moved on to join
Multi Sports Holdings Ltd. a company listed on Bursa Malaysia, as chief financial officer, before joining
Fenghua in August 2012.
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Strategy
Fenghua is pursuing the following strategic objectives:
Increase production capacity to benefit from economies of scale and satisfy strong demand
Fenghua aims to expand its production capacity in order to meet the anticipated increase in demand for its products. The current production capacity is limited by the number of production lines. Fenghua currently has eight
production lines for RB shoe soles and shoe-sole components, six production lines for EVA MD1 shoe soles and
14 production lines for EVA MD2 shoe soles, and 33 production lines for TPR and TPU component manufacturing. In addition, Fenghua has seven production lines for assembling and fusing together the various components
of shoe soles, and 1 production line for manufacturing EVA compound pellets and TPR compound pellets.
Fenghua intends to expand and renovate the existing production facilities by building additional levels in order
to increase the total floor space of the factory from 1,600 m 2 to 3,000 m2. Fenghua also targets to purchase and
install more productive machinery and equipments to increase production capacities. In particular, Fenghua
intends to purchase 11 production lines for EVA MD2 shoe soles, seven production lines for EVA MD1 shoe
soles, three production lines for TPR/TPU component manufacturing, one EVA granulation production line and
five assembling lines to increase the annual production capacity from 48 million pairs to approximately 80 million pairs.
These additional production lines will firstly be used to insource the currently outsourced production capacities
(19.0 million pairs or 30% of total sales orders in 2013) of EVA MD1 soles as a priority, as it has less addedvalue than EVA MD2, in order to increase Fenghua's gross margin. Fenghua expects that the outsourced sales
orders will increase to 40% by the end of 2014. The expansion of production capacity will not only eliminate the
dependence on outsourcing, but also increase the orders of the existing customers and to support the organic
growth of Fenghua.
Secondly the additional capacity is aimed to serve the sports shoe manufacturers that shifted their operations
from Dongguan to Jinjiang recently. Fenghua expects that more manufacturers will follow in order to take advantage of lower wages for highly skilled workers in Jinjiang.
Thirdly, they are intended to serve customers who need to be able to place larger orders. Fenghua intends to
strengthen its sales and marketing teams to maintain close relationships and collaborations with its customers to
continuously develop technologies and design along with them. Larger orders for Fenghua will mean higher
economies of scale and a better level of productivity fuelling the price competitiveness and profitability of the
Group.
Finally, they aim to satisfy an – according to Fenghua – increasing demand because of better market conditions
linked to (i) a growing middle class in China, (ii) a higher per capita disposable income leading to changing
customer patterns towards healthier behaviours which are becoming the mainstream. Besides, the support from
the Chinese Government to foster sports as a healthy attitude will, according to Fenghua, also fuel the sports
footwear market.
Increase design and development capabilities to create added value
Fenghua aims to increase its product design and development capabilities in order (i) to enhance product quality
(ii) to create more innovative soles with various functionalities and sophisticated designs and (iii) to intensify the
securing of technological advantages by registering utility model which is supposed to raise the average sales
price of its shoe soles. It also aims at being able to better serving domestic and international brands by investing
in additional sole design software as well as by acquiring equipment dedicated to prototype development and
testing. Fenghua expects that a growing ODM business is one of the core trends in the market for shoe soles for
higher valued shoes, so that the intensification of its R&D capabilities is a major business strategy. In terms of
R&D, Fenghua also plans to cooperate with the Pensole institute after the implementation of the Offering, being
one of the largest sport shoe designer academies in the world, based in the USA. This cooperation will in
Fenghua's opinion, foster additional research on raw materials to improve comfort, durability and functionspecific performances. Furthermore, Fenghua expects to improve its R&D capabilities, study new materials and
obtain more information on the market trends for sports footwear. This way, Fenghua thrives to stay up-to-date
on the latest designs and developments in the international sport footwear market. Pensole was founded by the
former footwear design director for the Jordan Brand, and works with Tier 1 brands such as Adidas and Nike.
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Target higher-value brands with better prospects
Because of fast-rising costs in Dongguan which is another production centre for sports shoes in China, large
sports shoe brands are currently shifting their production from Dongguan to Jinjiang. The Group aims to take
advantage of this shift by dedicating more production resources to these Tier 2 and Tier 3 international brands.
For example, it has started supplying Quanzhou Senyu Sports Goods Co., Ltd., the only OEM of Brooks in China, who also supplies brands such as Li Ning and Fila. Brooks is famous for selling sport-specific performance
running shoes. Fenghua aims to capture on both domestic and export footwear markets. In the past, Chinese
consumers rarely distinguished between different types of sports shoes. This is now changing fast as Chinese
consumers start to acquire sport specific sports shoes as well as leisure or casual sports-inspired shoes. As a
result, Fenghua believes that the current sports shoe market, suffering from high inventories, is expected to recover soon, with a higher emphasis on performance-oriented and function-specific sport shoes.
Strengthen sales and marketing channels
Fenghua aims to expand its sales and marketing team in order to better being able to attach to a growing number
of customers. Furthermore, it plans to increase its visibility on the market for shoe soles by intensifying marketing tools. Such is mainly planned by the publishing of advertisements in magazines or other media and by increasing participation in exhibitions.
Products
Fenghua produces various kinds of shoe soles made of EVA, RB, TPE, TPU, TPR and PU. Shoe soles can be
made of single materials such as rubber or EVA or in composite form with e.g. an EVA upper sole, an RB lower
sole and PU and/or TPU components.
The following illustration shows a typical sports shoe sole with its different components:
Fenghua's final products are only the entire soles, single components are only produced as parts for the production process.
EVA Sport shoe soles
EVA soles became popular for sports shoes after 2007 thanks to their properties: light-weight, soft, flexible,
good breathability, resistant to wear and tear, dimensional stability, can be dyed to various colours, easily
mouldable into various shapes, good tensile strength, waterproof, UV-resistant and non-toxic. EVA soles' key
component provides elasticity, softness and flexibility. In most sports shoe soles, there is an EVA upper sole
which is combined with a lower sole and maybe with components. However, there are also EVA only soles.
EVA soles are divided into two types depending on the method of production (for details see Business – Production).
The EVA MD1 is produced in a single step of moulding (injection or stamping moulding). This is a simpler
production process thus produced at lower costs than EVA MD2. The EVA MD2 soles are produced in two steps
of moulding (injection before stamping moulding). This produces higher quality soles with better properties
(elasticity, softness, comfort, anti-shock) as well as a larger variety of designs.
Fenghua manufactures EVA soles of both types for running, tennis, basketball, hiking and leisure or casual-wear
sports and sports-inspired shoes, to meet various sports shoe design requirements.
105
RB Shoe Soles
RB soles are made of natural rubber, styrene butadiene rubber (“SBR”) and polybutadiene rubber (“PR”). It is a
more traditional form of sole that is highly durable, highly resistant to wear and tear, has good abrasion resistance, provides good traction, has excellent tensile strength, and is waterproof, oil-resistant and anti-static. RB
soles are often used as outsole polymerised with the EVA midsole. However, also common for certain types of
shoes are also soles entirely made of rubber.
Fenghua manufactures RB only soles mainly for skateboarding and leisure or casual-wear shoes. Furthermore,
Fenghua produces outsoles made of rubber for EVA component soles.
TPE/TPU/TPR components
Besides EVA and RB soles, Fenghua manufactures TPE/TPU/TPR components which will be assembled and
fused with the EVA midsole. The main raw material to manufacture TPU is thermoplastic polyurethane or polyurethane, a material that combines the best properties of both rubber and hard materials such as plastic or metal.
The main raw material to manufacture TPR is thermoplastic rubber, a rubber material with thermoplastic characteristics.
Production of semi-processed raw materials
Fenghua produces its own pellets for the manufacturing of EVA soles. While other sole producers need to be
supplied with granules of EVA, Fenghua can mix the respective raw materials (including colouring) on its own
and hence be more flexible in its production. As regards the RB production, Fenghua can produce RB panels out
of raw materials, so that it does not depend on suppliers for raw rubber.
Production
The production of soles is divided into several phases: granulation of raw materials, production of components,
assembly or fusing of components and quality control. Moulds are acquired for the production which are ordered
externally.
Sourcing of moulds
The production of moulds is not part of Fenghua's production process. Moulds are sourced from specialised
supplies of moulds. A mould is the form used for the components of the sole. Each Sole requires a unique mould
for each size. The minimum order to make a new mould is 10,000 shoe soles. 70 % of the moulds are selfdeveloped, while the rest are produced jointly with customers or provided directly by customers.
Fenghua provides the mould production companies the design and sample of the sole. The mould production
company retains the master moulds and delivers sets of moulds for different sizes, with more moulds for more
common sizes (see: “Business – Supply and Outsourcing”).
Both the master moulds and mould sets are made from aluminium. Production usually takes around 20 days, and
installing moulds is instantaneous. A set of moulds usually costs between RMB 150,000 and RMB 200,000.
They are considered as tangible assets amortised over five years.
Granulation of raw materials for EVA
EVA pellets are formed by mixing over 10 raw materials, including colouring. The formulation needs to be adjusted according to the functionality, form and colours of the sole. The materials are mixed, formed into a paste
and afterwards granulated into pellets.
Mixing of raw materials (over 10 raw
materials)
Turbine
mixing
Granulation
Packing of EVA
pellets
106
Production of soles and components
The production of soles and components of soles differs between a sole manufactured in the EVA MD1 process
and the EVA MD2 process. The components of a sports shoe sole (usually) are an upper layer made of EVA,
some TPE-U or PU or other material components (e.g. a cushion in the heel or a decorative item) and usually a
base or lower layer made of rubber. In some cases, also polyvinyl chloride (“PVC”) is used as a component.
EVA MD1
EVA MD1 components are formed by using 70-90 grams of EVA pellets per pair of soles, and moulding it using
either stamping moulding whereby the granules are put in the necessary quantity in the mould which is then
stamped under heat (lasting 5 to 6 minutes) or injection moulding whereby the granules are preheated and injected in liquid form into the mould under heat (lasting only 4 to 5 minutes) at 180°C. These are then stabilised in a
thermostatic oven. Excess parts are manually trimmed. In the case of injection moulding, excess material is recycled.
Fenghua has currently six production lines for EVA MD1 components.
Thermostatic
oven
Portioning of EVA pellets
(about 70~90 grams
per pair of sole)
Stamping moulding
at 180°C
Manual trimming
or
Injection moulding
at 180°C
Inspection and
packing
EVA MD2
EVA MD2 components are formed in a similar way to EVA MD1, but using two moulding steps. For each pair
of soles, 70-100 grams of EVA pellets are used to form an intermediate component using injection moulding
(with a foaming machine) whereby the preheated liquid raw material is injected into the mould, which is then in
a second step compressed through stamping the mould. This enables the production of soles with better properties and more complex designs.
Fenghua currently has 14 production lines for EVA MD2 components.
Portioning of EVA pellets
(about 70~90 grams per pair
of sole)
Injection moulding
(thicker intermediate
component)
Stamping moulding
(final component)
RB components
RB components such as the base layer are mixed from 30 % latex from Vietnam, 30 % synthetic rubber and
other components. They are mixed in powder form, heated, formed into panels and cut.
The pieces cut are afterwards further cut or stamped in moulds for components or in moulds for entire RB soles.
Fenghua currently has 8 production lines to manufacture RB components.
107
Mixing of raw materials
in powder form
Sheet formation and
treatment
Stamping /
further cutting
/ moulding
Cutting
TPU/TPR/TPE/PU Components
Fenghua has 28 production lines for the mixing of raw materials and formation of TPU, TPR, TPE or PU components. The TPU/TPR/TPE or PU components are produced by using a similar technique as for the EVA production: The preheated raw materials are injected into moulds for the respective components and afterwards
trimmed.
Mixing of raw materials
in powder form
Injection into
moulds
Trimming
Assembly methods and Quality control
Assembly of moulds is done by overmoulding and final assembly.
This is performed by washing and irradiating the components first, applying glue and combining the pieces and
then compressing them together with a special press. The pieces are then inspected, trimmed and packed.
Washing
and irradiation
Applying
glue
Assembling
pieces
Compressing pieces with press
Inspection, final touches
and packing
Fenghua has seven lines for the assembly and fusion of components.
The final step is the quality control. Fenghua’s dedicated quality control team consisted of 80 members as of 30
June 2014, who are responsible for various quality inspection and testing procedures at each stage of the production process in accordance with Fenghua’s quality control standards. A pilot production is carried out prior to
any mass production of new products in order to retain quality. Before Fenghua’s products are delivered to its
distributors, a series of quality control sample testing is undertaken to ensure product specifications are met and
the product quality is consistent with applicable national standards.
Production Capacity
Prod. capacity
- EVA MD1
- EVA MD2
- RB
Prod. output
- EVA MD1
- EVA MD2
- RB**
Utilisation rate
2011
Mil. pairs
2012
Mil. pairs
2013
Mil. pairs
14.7
26.2
7.2
48.1
14.7
26.2
7.2
48.1
14.7
26.2
7.2
48.1
13.1
23.4
0.5
37.0
11.3
20.0
1.1
32.4
12.1
22.5
2.3
36.9
76.9 %
67.4 %
76.7 %
**RB- RB machines are mostly for producing RB components.
108
In 2013, Fenghua has outsourced 33.9 % of the total sales volume to contract manufacturers, which includes
EVA MD1 or EVA MD2 and final assembly.
On 6 July 2012 Fenghua obtained a certificate according to the ISO14001:2004 standard which includes the
proof of the effectiveness of the environmental management system pursuant to such norm.
Supply and Outsourcing
Selection of Qualified Suppliers
Fenghua acquires around 30 different raw materials for the production of its shoe soles. The principal raw materials used are EVA, SBR, PR, TPR pellets, polyethylene and elastomer. Supply of these raw materials is organised through a network of suppliers based in Jinjiang or the neighbouring Quanzhou cities, each of which has
been contracted on the basis of a framework agreement on a year-by-year basis. Such framework agreement
enables Fenghua to order raw materials on pre-agreed terms. Prices of raw materials may vary, but such variations are passed on to customers. Inventories are kept low as Fenghua has a just-in-time supply system. Although
the same supplier can usually provide Fenghua with several raw materials such as EVA and RB, Fenghua normally orders the same raw materials from different suppliers to avoid dependency.
Fenghua purchases its moulds from mould suppliers, who produce such moulds based on the design and sample
delivered by Fenghua. The mould suppliers retain the master mould and deliver sets of moulds in the requested
sizes to Fenghua.
Since 1 February 2013 Fenghua has implemented a procurement policy for the purchase of raw materials and
other production-related goods (the “Procurement Policy”). According to the Procurement Policy, selection of
suppliers is subject to a point-based evaluation and assessment process, which mainly takes into account the
suppliers' business size, strength, reputation, service and product quality. The procurement department is responsible for the pre-evaluation of suppliers via research, interviews or on-site visit. Pilot production of samples will
then be conducted based on the pre-evaluation and the production department will assess the product quality of
the relevant suppliers. Once a particular supplier meets the selection requirements, the management shall add it
to the “list of qualified suppliers” (the “Qualified Suppliers”). Before entering into new framework agreements
for the purchase of raw materials, Fenghua will compare the quality, price and delivery schedules of at least two
Qualified Suppliers and choose the most suitable supplier. As of 30 June 2014, Fenghua has maintained a list of
approximately three to four Qualified Suppliers for each principal raw materials.
Each of the Qualified Suppliers is subject to an annual review based on factors such as service and product quality and costs. Fenghua regularly monitors the performance of the Qualified Suppliers by checking each batch of
products delivered and working with the relevant suppliers to resolve any product quality problems on a timely
basis.
Top Five Suppliers
In 2011, 2012, 2013 and in the first six months of 2014, Fenghua had 58, 64, 62 and 62 raw material suppliers,
respectively. In 2011, 2012, 2013 and in the first six months of 2014, Fenghua’s five largest raw material suppliers collectively accounted for approximately 43.6 %, 32.5 %, 37.0 % and 21.7 %, respectively, of the total value
of Fenghua’s raw material purchases for its production. During the same period, Fenghua’s largest raw material
supplier individually accounted for approximately 10.5 %, 7.6 %, 8.9 % and 4.6 %, respectively, of the total
value of Fenghua’s raw materials purchases for its production during such period. Fenghua has developed and
maintained stable relationships with its major suppliers and has not experienced any material dispute with such
supplies which resulted in disruptions of Fenghua’s business.
The following table, which is based on Fenghua’s internal accounting information, shows the development of its
top five suppliers in the first six months of 2014 with comparative figures for 2011, 2012 and 2013, respectively.
109
As a percentage of Fenghua's cost of raw materials ( %)
Supplier (anonymised)
2011
2012
2013
Jan – June 2014
Supplier 1
8.9 %
7.5 %
8.7 %
6.5 %
Supplier 2
5.3 %
6.8 %
8.3 %
6.4 %
Supplier 3
7.5 %
6.3 %
5.1 %
5.6 %
Supplier 4
6.4 %
6.1 %
6.8 %
5.9 %
Supplier 5
10.1 %
5.5 %
6.8 %
6.1 %
Fenghua contracts with its suppliers based on a framework agreement that is valid for one calendar year. The
details of each order are indicated in the order (quantity, price, delivery details).
Contract manufacturers
Fenghua outsources parts of its production of shoe soles to contract manufacturers by providing them with the
relevant design, sole sample as well as relevant raw materials and components. Fenghua enters into framework
agreements with its contract manufacturers pursuant to which individual orders will be placed on varying prices.
As of 30 June 2014, Fenghua has outsourced 33.9 % of its customer orders to three contract manufacturers, all of
which are shoe sole manufacturers based in Jinjiang. Fenghua selects its contract manufacturers based on similar
policies and criteria as for suppliers, namely, production capacity, reputation, service and product quality. The
contract manufacturers will produce the EVA sole component, while Fenghua delivers the raw materials, moulds
and the other components necessary for the sole to the contract manufacturer, such as RB lower layer soles, TPU
or PU components. The contract manufacturer will assemble such components with the EVA soles it produces
and deliver the finished soles to Fenghua. Contract manufacturers are regularly inspected by Fenghua. Moreover,
Fenghua’s quality control staff is stationed at each of its contract manufacturers to ensure their products meet
Fenghua’s quality standards. The following table, which is based on Fenghua’s internal accounting information,
shows the development of its contract manufacturers in the first six months of 2014 with comparative figures for
2011, 2012 and 2013, respectively.
As a percentage of Fenghua's cost of sales ( %)
Contract manufacturers
(anonymised)
2011
2012
2013
Jan – June 2014
Contract manufacturer 1
–
9.1 %
0.9 %
-
Contract manufacturer 2
–
6.9 %
9.8 %
7.0 %
Contract manufacturer 3
–
–
10.6 %
8.0 %
Fenghua enters into framework agreements with its contract manufacturers on a yearly basis.
Distribution and Marketing
Fenghua utilises direct channels of distribution through its own sales and marketing team in order to source for
new customers and strengthen the existing customer relationships. The sales department consisted of 35 dedicated staff as of 30 June 2014. Fenghua's sales team attends footwear exhibitions and trade fairs on a yearly basis to
promote its products and gain market exposure.
110
Fenghua's products are sold in China only. To maintain close relationships with its customers, the sales and marketing team makes regular visits to customers’ premises, and invites existing and potential customers to
Fenghua's factory premises and product show room. Such interactions also allow Fenghua to fine-tune its shoesole designs for customers’ specific requirements, and obtain feedback on product quality. In addition, when new
ODM products are designed, the R&D team together with the sales and marketing team will visit the customers
to promote these new products
The strategy of having its own sales and marketing team also enables Fenghua to keep abreast of domestic and
international market trends, as the sales and marketing team is also tasked with monitoring market developments
and Fenghua's competitors’ products and pricing range. This serves as an invaluable source of market intelligence for Fenghua's management and R&D team. Sales and marketing expenditures were RMB 2,017 thousand
in 2011, RMB 2,102 thousand in 2012 and RMB 2,060 thousand in 2013, which were mainly salaries.
Customers
Top Five Customers
Almost all of Fenghua's customers are OEM sports shoes manufacturing companies which commonly produce
for domestic and international brands, many of which are widely known and renowned in China. A small fraction of customers are domestic distributors of soles.
As of 30 June 2014 Fenghua served over 392 mid to high-end OEM sports and other shoe manufacturers in China, of which 338 are located in the Fujian Province. These OEMs supply tier 1 Chinese sports brands and tier 2
and 3 international sports brands.
As of 30 June 2014, Fenghua had 111 customers, each of which has been contracted on the basis of a framework
agreement on a year-by-year basis.
The following table, which is based on Fenghua's internal accounting information, shows the development of its
top five customers in the first six months of 2014 with comparative figures for 2011, 2012 and 2013 respectively.
As a percentage of Fenghua's revenues ( %)
Customer (anonymised)
2011
2012
2013
Jan – June 2014
Customer 1
2.8 %
3.0 %
2.7 %
2.4 %
Customer 2
2.7 %
2.8 %
2.4 %
1.5 %
Customer 3
2.7 %
2.7 %
2.7 %
1.3 %
Customer 4
2.6 %
2.5 %
2.6 %
2.3 %
Customer 5
2.5 %
2.7 %
2.6 %
2.5 %
Fenghua's revenue is not dependent upon its top customers as its largest customer for the first half year of 2014
accounted for less than 3 % of the total revenue sales for the same period.
Orders
Fenghua plans its production according to orders it receives from customers. Fenghua's customers usually place
their one quarter in advance. Therefore, Fenghua normally has a visibility on order sizes of about six months in
advance. Oder sizes range from 1,000 to several millions pairs of shoe soles. All orders include different sizes of
shoe soles of the same design. Customers usually provide Fenghua with the relevant designs of the shoe soles,
although Fenghua can also propose its own designs. Customers' orders can be categorized as follows:

Small orders: these orders range from 1,000 to 10,000 pairs. Fenghua usually only accepts small orders
from long-term customers if the moulds for the relevant shoe soles are already available.

Average orders: these orders range from more than 10,000 to several hundreds of thousands of shoe soles.
Average orders are mainly from Fenghua's regular customers for moderate popular designs.
111

Large orders: these orders can reach two to three million pairs of shoe soles of the same design, divided
into several production cycles. Large orders are mainly from Fenghua's regular customers for more popular designs.
Fenghua requires 20 days to order new sets of moulds. If moulds are available for placed orders, Fenghua can
deliver most orders within seven to ten days. For average orders exceeding 100,000 pairs or large orders,
Fenghua usually delivers orders for EVA MD 1 soles within 15 days, and EVA MD 2 soles within 20 days.
Fenghua's customers place their orders based on the respective framework agreements, and each order specifies
the details of such order, including the quantity, price, delivery date, etc.
Design/R&D
Fenghua has a strong focus on inhouse design creating and R&D. Fenghua’s R&D team consisted of 29 people
as of 30 June 2014. They develop a number of ODM designs, which add up to the vast number of OEM designs
produced. Furthermore, the R&D activities have led to a number of utility models (see Business – Intellectual
Property – Utility Model). As of 30 June 2014, Fenghua developed about 103 sports shoe-soles designs, of
which 70 designs were added to its product line, bringing the number of ODM (self-produced) designs in use to
408, compared to a number of OEM designs (designed by clients) of 167. Fenghua has annual expenditures of
RMB 1,448 thousand in 2011 (EUR 161 thousand), of RMB 1,450 thousand in 2012 (EUR 179 thousand) and of
RMB 1,523 thousand in 2013 (EUR 185 thousand) and of RMB 668 thousand (EUR 79 thousand) in the first six
months of 2014 for its R&D Department.
Business Locations, Property, Plant and Equipment
Fenghua operates its main business premises in Jinjiang, Fujian Province in the PRC, which include two production facilities, one office building and one employee dormitory. It also operates administrative offices in Frankfurt am Main, Germany.
Business Locations in Jinjiang
Land use rights
Fenghua has the following land use rights which cover land plots with a total area of 9,437 sqm. All of the numbers below are subject to rounding adjustments.
No.
Serial No. of Land Use
Right Certificate
Usage of Land
Land Area
(in sqm)
The expiry
Date of Use
Right
The Corresponding Building
1
Jin Guo Yong (2012)
No. 2015082
Industrial
5,934.00
19 June 2062
Jin Fang Chendai
Zi 201210278
2
Jin Guo Yong (2012)
No. 2015081
Industrial
432.00
19 June 2062
Jin Fang Chendai
Zi 201210279
3
Jin Guo Yong (2012)
No. 2015080
Industrial
2,938.00
19 June 2062
Jin Fang Chendai
Zi 201210280
4
Jin Guo Yong (2012)
No. 2015083
Industrial
133.00
19 June 2062
Jin Fang Chendai
Zi 201210281
None of the above land use rights is mortgaged.
112
Buildings
No.
Serial No. of
Certificate of
Building Ownership
Floor
Area
Way of obtaining
Usage
(in sqm)
The Corresponding Certificate of State-owned
Land Use Right
1
Jin Fang Chendai
Zi 201210278
18,954.23
self-built
houses
Workshop building &
Living quarters for
staff and workers
Jin Guo Yong (2012)
No.2015082
2
Jin Fang Chendai
Zi 201210279
1,711.48
self-built
houses
Office building
Jin Guo Yong (2012) No.
2015081
3
Jin Fang Chendai
Zi 201210280
2,151.55
self-built
houses
Workshop building
Jin Guo Yong (2012) No.
2015080
4
Jin Fang Chendai
Zi 201210281
809.63
self-built
houses
Living quarters for
staff and workers
Jin Guo Yong (2012) No.
2015083
The usage of the buildings is rented out from Fenghua Jinjiang to Fenghua Fujian for a term of ten years ending
on 1 April 2023.
Business Premises in Germany
Fenghua leases office space in Frankfurt am Main, Germany for the administration of its German holding company and management of the Fenghua Group.
Equipment
The following table summarises the material equipment owned by Fenghua as of 30 June 2014:
Department
Description
RB
One small mixing mill for rubber and plastic, one cutting machine, three distribution
switchboards, one production line, eight hydraulic machines (with production capacity of approximately 7,188,000 pairs), one Banbury mixer, three open mills, two coldwater machines, one slitting machine, two automatic punching machines, one abrasion resistance tester, one folding endurance tester
TPR\TPU
Twenty-eight TPU/TPR injection moulding machines, five agitating vessels, six
grinding mills, four rotary automatic injection moulding machines, three cooling
towers, three cold-water machines
Factory
Transformer
EVA MD 2
Four EVA foaming machines, ten EVA MD 2 moulding machines (with production
capacity of approximately 18,720,000 pairs), four moulding machines (with production capacity of approximately 7,488,000 pairs)
R&D
One sample production line, one point-pressing machine
EVA MD 1
Two moulding machines (with production capacity of approximately 2,995,000
pairs), one EVA injection moulding machine and ancillary equipment, one constant
temperature machine, three moulding machines (with production capacity of approximately 9,734,000 pairs), three distribution switchboards
113
Department
Description
Granulation
One granulation machine (plastic extruding machine), one granulation Banbury mixer, one vibration machine, two agitating vessels, one large open mixing mill for rubber and plastic, one small mixing mill, four distribution switchboards, two air compressors
Assembly
One elevator, twenty drilling mills, one production line (material preparation), five
walled sole pressing machines, two production lines, four flat pressing machines,
four gluing production lines, one water washing line, four irradiation production
lines, twelve point-pressing machines, two flat pressing machines, one production
line, two high-speed grinding wheels, five gluing machines
114
Intellectual Property
Utility Models
Fenghua has registered the following utility models as of 30 June 2014:
No.
Title
Type
Filing Date
Patent No.
Grant Date
Inventor(s)
1.
Comfortable
shoes
Utility
Model
20 April
2012
201220170087.3
5 December
2012
Zhuang Minggang
2.
Sucker-type
soles
Utility
Model
6 December 2012
201220664665.9
18 September
2013
Lin Jiajian; Lin Weijie
3.
Bouncing
running shoe
soles
Utility
Model
6 December 2012
201220664223.4
18 September
2013
Lin Jiajian; Lin Weijie
4.
Damping
shoe soles
Utility
Model
6 December 2012
201220664202.2
18 September
2013
Lin Jiajian; Lin Weijie
5.
Light swaying shoe
soles
Utility
Model
6 December 2012
201220664686.0
18 September
2013
Lin Jiajian; Lin Weijie
6.
Breathable
shoe soles
Utility
Model
6 December 2012
201220664522.8
17 July 2013
Lin Jiajian; Lin Weijie
7.
Outdoor
antiskid
track shoe
soles
Utility
Model
6 December 2012
201220664251.6
28 August
2013
Lin Jiajian; Lin Weijie
8.
Shock absorption
shoes
Utility
Model
20 April
2012
201220170097.7
12 December
2012
Zhuang Minggang
Trademarks
Fenghua has applied for the registration of the following trademark as of 30 June 2014:
No.
1
Trademark
Application No.
Date of Applications
Status
12619664
21st May 2013
Pending for approval
115
Domain Names
Fenghua has registered the following internet domains as of 30 June 2014:

www.Fhsole.cn

风华鞋材.中国

风华鞋材.cn

风华鞋材.com
Employees
Overview
As at 31 December 2013 and 30 June 2014, Fenghua employed a total of 1,807 and 1,822 employees, respectively. No material change has occurred in the number of employees in the period until the date of this Prospectus.
Fenghua does not employ temporary contract workers.
The table below provides a breakdown of the number of employees as at 31 December 2011, 31 December 2012,
31 December 2013 and 30 June 2013, respectively:
Category of employees
2011
2012
2013
30 June 2014
Administrative and management
26
30
31
31
Sales and marketing
36
35
35
35
Research and Development
30
30
29
29
Production
1,676
1,689
1,712
1,727
Total employees
1,768
1,784
1,807
1,822
Working Conditions
The workers work in two shifts per day on a 24 hour basis. A shift is either a day or a night shift. Workers are
entitled to two days of compulsory vacation per month, which is on the first and the 15th of each month. In addition, the workers are granted breaks and holidays in an amount which is common in Quanzhou. There is no
workers' union established at Fenghua. The wages of the workers depend on the output, which is common in the
industry, and leads to average monthly wages of RMB 2,600 (EUR 309) to RMB 3,600 (EUR 428) for the first
six months of 2014.
Social Security Contribution
According to PRC regulations on social insurance and housing funds, Fenghua is required to make contributions
for the social insurance including housing funds to their employees. Before 2014, the social insurance contribution made by Fenghua has not been made correctly. The contributions for pension, medical insurance, unemployment insurance, work-related injury insurance and maternity insurance have not met the legally prescribed
quantum. The Company cannot quantify the exact amount of potentially outstanding contribution payments. The
contributions for the housing fund have not been made at all as the workers do not want it because they are, as
migrant workers, not interested in local housing. Fenghua has never been imposed with any penalties due to the
breach of relevant labour and social security laws. On 22 May 2014, Mr. Weijie Lin issued a letter of undertaking under which he undertook that if Fenghua is requested to make up the payment of social insurance and housing fund and to pay the compensation, fines, costs and fees by an effective arbitration award or court decision in
respect of the dispute with their employee(s) due to the above reasons or by the written notice of the government
authorities, he shall, within the stipulated period of time prescribed in the arbitration award, court decision or the
written notice of the government authorities, make these payments within the limit of the relevant provisions of
Fenghua regarding the payment claim of social insurance allocated. (see: “Risk Factors – Risks Relating to
Fenghua's Business and Fenghua's Industry – Fenghua may be required to make additional payments for social
insurance and housing funds”)
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Insurance
Fenghua has taken out a comprehensive property insurance for its buildings, machines and equipment, raw materials, products and semi-manufactured products and others from the China Ping An Property Insurance Co., Ltd.
Limited with a term of 12 months from 27 July 2013 to 26 July 2014. The insurance has been prolonged from 27
July 2014 to 26 July 2015. According to the insurance policy, the sums insured varies, it is e.g. RMB 24,000,000
for buildings, and RMB 68,473,297 for machinery and equipment. However, significant uninsured damage to
any of Fenghua's production facilities, office buildings or other assets, whether as a result of “Acts of God” or
other causes, could have a material adverse effect on Fenghua's results of operations. Further, similar to many
Chinese companies, Fenghua does not have a business interruption insurance to offset these potential losses and
any interruption in Fenghua's production and business operations. (see: “Risk Factors – Risks Relating to
Fenghua's Business and Fenghua's Industry – Fenghua's insurance coverage may be inadequate to protect
Fenghua against losses”)
Fenghua does not have a product liability insurance coverage for bodily injuries and property damage caused by
Fenghua's products. Fenghua does not carry a liability insurance for potential liabilities that may arise in the
ordinary course of Fenghua's business.
Investments
Investments in the periods under review
Fenghua has made no material investments in the periods under review.
Ongoing Investments
Fenghua has no ongoing material investments.
Future Investments
Fenghua has no future material investments planned except for the extension of its production facilities (see:
“Reasons for the Offering, Use of Proceeds, Costs and Interests of Third Parties involved in the Offering – Use
of Proceeds and Costs”).
Material Agreements
Fenghua has not entered into any agreements that are material to its business.
Legal and Arbitration Proceedings
There has been no governmental, legal or arbitration proceedings (including any such proceedings which are
pending or threatened of which Fenghua is aware), during a period covering at least the previous twelve months
which may have, or have had in the recent past significant effects on Fenghua or its financial position or profitability.
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REGULATORY ENVIRONMENT
PRC Company Law
On 27 October 2005, the Standing Committee of the PRC National People's Congress adopted amendments to
the PRC Company Law. The amendments introduced substantial changes, including enhanced corporate governance, greater protection of shareholders and an easing of restrictions on the management and operation of companies registered in the PRC. The PRC Company Law applies to all companies registered in the PRC, including
foreign-invested enterprises (“FIE”), to the extent not provided in FIE Regulations (see: “Regulatory Environment – Laws and Regulations Relating to Foreign Investment”). The PRC Company Law was further amended
on 28 December 2013 and became effective on 1 March 2014. It refers to changes of the capital contribution of
companies in the PRC with the aim to ease the financial burdens on investors for establishing companies in the
PRC.
There are two types of companies in the PRC: limited liability companies and joint stock companies. Fenghua's
PRC subsidiaries are limited liability companies. The main governing bodies of a limited liability company are
its shareholders' meeting, the board of directors, the legal representative and the supervisor. The shareholders'
meeting of a limited liability company, inter alia, has the following functions and powers:

decisions on the business policy and investment plans;

election and replacement of directors and supervisors, and decisions on matters relating to their remuneration;

approval of the company's proposed annual financial budgets and final accounts;

approval of the company's profit distribution plans and plans for making up losses;

resolving on the increase or reduction of the company's registered capital;

resolving on the issuance of corporate bonds;

resolving on important restructuring measures such as the merger, division, dissolution or liquidation of
the company;

amendment of the articles of association.
The board of directors is responsible to the shareholders' meeting and, inter alia, has the following functions and
powers:

convening of shareholders' meetings and reporting to the shareholders' meeting;

implementing of the resolutions of the shareholders' meeting;

preparation of the business plans and the investment plans;

preparation of the proposed annual financial budgets and final accounts;

preparation of the profit distribution plans and plans for making up losses;

preparation of plans for the increase or reduction of the registered capital or for the issue of corporate
bonds;

preparation of plans for restructuring measures such as mergers, divisions, and dissolution of the company;

organizing of the company's internal management organisation;

engagement or dismissal of the general manager, deputy general manager, financial officer of the company and matters relating to their remuneration.
The legal representative of a company is the officer of the company with the legal power to represent, and enter
into binding obligations on behalf of the company. A legal representative's acts, acting in his or her capacity as
the legal representative of a company when concluding a contract, are binding on the company, even where
made ultra vires (i.e. beyond the authorised scope), unless the counterpart knew, or should have known, that the
legal representative was exceeding his or her powers when entering into the contract. A PRC company must
have a “chop” which is, normally, in the custody of the legal representative. Many important corporate documents and contracts require to being affixed by the company chop and signed by the legal representative.
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The supervisors of a company are responsible for examining the financial affairs of the company, and for supervising the activities of the directors and senior managers. They may participate at board meetings as non-voting
participants and may institute legal proceedings against directors.
According to the PRC Company Law, directors and supervisors shall be loyal and diligent towards the company.
In the event that a director, supervisor or senior manager violates laws, administrative regulations or the company's Articles of Association in the course of performing its duties, it shall be liable for damages. A shareholder
may institute legal proceedings against the unlawful acts of a director, supervisor, senior manager or third party
that has harmed the interests of the company or the shareholder.
Laws and Regulations Relating to Foreign Investment
In the PRC, the establishment of foreign-invested enterprises is subject to approval by the Ministry of Commerce
(“MOFCOM”) or its local counterpart depending on the respective total amount of investment. For certain industries, the approval of the ministry with responsibility for that industry is required as a prerequisite to apply for
the approval of the MOFCOM or its local counterpart. After the establishment, any material corporate changes in
the foreign-invested enterprise, such as capital increase or reduction, change of business scope, share transfer, or
other, are also subject to approval by the MOFCOM or its local counterpart. In addition, the establishment of a
foreign-invested enterprise as well as all corporate changes must be registered with the competent registration
authority which is the State Administration for Industry and Commerce (“SAIC”) or its local counterpart, in
order to be valid.
Provisions on the Total Amount of Investment of Foreign Invested Enterprises
For foreign invested enterprises, PRC foreign investment law distinguishes between the registered capital and the
total amount of investment and stipulates a specific ratio between the two depending on the total amount of investment. The concept of total amount of investment of a company refers to all capital that under PRC law may
theoretically be invested in a company, including equity capital and debt capital. When an investor intends to set
up a foreign invested enterprise, it has to forecast the required funds, i.e. the total amount of investment for the
project. Depending on the total amount of investment, the minimum registered capital that the investor has to
contribute will be determined. If the total amount of investment is USD 3 million or under, the registered capital
must amount to at least 70 % of the total investment. If the total amount of investment is between USD 3 million
and USD 10 million, the registered capital must be at least 50 %. If the total amount of investment is between
USD 10 million and USD 30 million, the registered capital must be at least 40 %. If the total amount of investment exceeds USD 30 million, the registered capital must be at least 1/3 of the total amount of investment. By
stipulating minimum requirements for the percentage of the registered capital depending on the total amount of
investment, PRC law thus limits the amount of loans that may be taken out by foreign invested enterprises.
Guideline Catalogue of Industries for Foreign Investment
Pursuant to the Guideline Catalogue of Industries for Foreign Investment (the “Guideline Catalogue”), industrial sectors are divided into the following four categories: industries, in which foreign investment is encouraged,
industries, in which foreign investment is permitted, industries, in which foreign investment is restricted and
industries, in which foreign investment is prohibited.
It is beneficial for a foreign investment project to fall into the encouraged category, since e.g. foreign invested
production companies which fall into the encouraged category benefit from the exemption from import duties if
they import machines and equipment for self-use up to their total amount of investment.
On 24 December 2011, the National Development and Reform Commission and the MOFCOM jointly issued
the 2011 Guideline Catalogue. The 2011 Guideline Catalogue took effect on 30 January 2012. The business of
Fenghua is not mentioned in the Catalogue and as such it is deemed as being permitted.
Regulations on Overseas Listings
On 8 August 2006, six PRC regulatory agencies, including the MOFCOM, and the China Security Regulatory
Commission (the “CSRC”), jointly adopted the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors known as, or the New M&A Provisions which became effective on 8 September
2006. The New M&A Provisions were further amended on 22 June 2009. The New M&A Provisions, among
other things, requires an offshore special purpose vehicle, or SPV, formed for the purpose of listing the SPV’s
securities on an offshore securities exchange and controlled directly or indirectly by PRC companies or individuals, to obtain the approval of the CSRC prior to such offshore listing and trading. On 21 September 2006, the
CSRC published on its official website procedures specifying documents and materials required to be submitted
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to it by SPVs seeking CSRC approval of their overseas listings. However, substantial uncertainty remains regarding the scope and applicability of the New M&A Provisions to overseas listings of offshore SPVs.
Regulations on Foreign Exchange
Foreign currency exchange regulations in China are primarily governed by the following rules:

the Foreign Exchange Administration Rules (1996), as amended (1997 and 2008), or the “Exchange
Rules”; and

the Administration Rules of the Settlement, Sale and Payment of Foreign Exchange (1996), or the “Administration Rules”.
Under the Exchange Rules, the Renminbi is convertible for current account items, including the distribution of
dividends, interest payments, trade and service-related foreign exchange transactions. Conversion of Renminbi
for capital account items, such as direct investment, loans, investment for securities and repatriation of investment, however, is still subject to the approval of the State Administration of Foreign Exchange (“SAFE”) or its
local counterparts.
Under the Administration Rules, foreign-invested enterprises in China, may only buy, sell and/or remit foreign
currencies at those banks authorised to conduct foreign exchange business after providing valid commercial
documents and, in the case of capital account item transactions, obtaining approval from the SAFE or its local
counterparts. Capital investments by foreign-invested enterprises outside of China are also subject to limitations,
which include approvals by the SAFE and other relevant government authorities.
SAFE Regulations relating to Offshore Investment by PRC Residents
On 4 July 2014, SAFE issued the Notice on the Administration of Foreign Exchange Involved in Overseas Investment, Financing and Round-Trip Investment Conducted by Domestic Residents through Special-Purpose
Vehicles, or “Notice No. 37”, which became effective as of its issuance date.
Pursuant to Notice No.37, prior to making capital contribution to an offshore company with assets or equity
interests in an onshore enterprise in the PRC or offshore for the purpose of financing or investment, each PRC
resident who has ultimate control, whether an individual or a legal entity, must complete the overseas investment
foreign exchange registration procedures with the relevant local SAFE branch. An amendment to the registration
with the local SAFE branch is required to be filed by any PRC resident that directly or indirectly holds interests
in that offshore company upon either the establishment of foreign invested enterprise in the PRC through direct
investment or acquisition, or the completion of any overseas fundraising by such offshore company. An amendment to the registration with the local SAFE branch is also required to be filed by such PRC resident in case of
(a) change of such basic information of the offshore company as PRC resident individual shareholder, company
name and operation term, etc., or (b) an increase or decrease in its capital, a transfer or swap of shares or a merger or division in relation to any PRC resident individual shareholder.
Under Notice No. 37, failure to comply with the registration procedures set forth in Notice No. 37 may result in
restrictions being imposed on the foreign exchange activities of the relevant onshore company, including the
payment of dividends and other distributions to its offshore parent or affiliate and the capital inflow from the
offshore entity, and may also subject relevant PRC residents to penalties under PRC foreign exchange administration regulations.
SAFE Notice No. 142 on Conversion of Foreign Capital in Foreign-Invested Enterprises
On 29 August 2008, SAFE issued the Circular on Issues Concerning Improvement of the Administration of
Payment and Settlement of Foreign Currency Capital of Foreign Invested Enterprises, or “Notice No. 142”,
which restricts the use of the registered capital of foreign-invested enterprises, settled in Renminbi and converted
from foreign currencies. Notice No. 142 is one of a number of measures implemented by China's regulators in
recent years to prevent the registered capital of foreign-invested enterprises from being used in China in businesses and investments not within its approved business scope. Notice No. 142 may have significant impacts for
foreign investors because of its potential impact on acquisitions and investments in China conducted through
foreign-invested enterprises. A significant proportion of foreign-invested enterprises in China denominates their
registered capital in a foreign currency and typically converts their registered capital into Renminbi for use in
developing their business in China. According to Notice No. 142, the use of RMB converted from foreign capital
to make equity investments in PRC companies is prohibited, unless such equity investment is within the approved business scope of the foreign-invested enterprise, or “has been otherwise provided for”. Further, Notice
No. 142 prohibits the purchase of domestic real estate by using RMB converted from foreign capital other than
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for the foreign invested enterprise's own use, unless the enterprise is licensed as a real estate enterprise. In M&A
transactions, settlement of the purchase consideration denominated in foreign currency must be effected through
an exclusive foreign currency account approved by the local branch of SAFE. In addition, the use of such registered capital settled in RMB may not be changed without SAFE's approval, and may not in any case be used to
repay Renminbi loans if the proceeds of such loans have not been used.
Dividend Distribution of Wholly Foreign-Owned Enterprises
The principal regulations governing distribution of dividends paid by wholly foreign-owned enterprise include:

the Wholly Foreign Owned Enterprise Law (1986), as amended in 2000;

the Wholly Foreign Owned Enterprise Law Implementation Rules (1990), as amended in 2001 and 2014.
Under these regulations, foreign-invested enterprises in China may pay dividends only out of their accumulated
profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, foreigninvested enterprises in China are required to set aside 10 % of the profit after tax as reported in its PRC statutory
financial statements to the statutory common reserve fund in each year, except where the fund has reached 50 %
of theirs registered capital, and certain amounts out of their accumulated profits each year for bonus and welfare
funds. These funds are not distributable as cash dividends.
Pursuant to the Enterprise Income Tax Law (“EIT Law”), which came into effect on 1 January 2008, dividend
payment from foreign invested enterprises (“FIEs”) to their foreign shareholders is subject to a 10 % withholding tax unless the country where the foreign shareholder is incorporated has concluded a tax treaty with China
that provides for a lower withholding tax rate. According to Article 10 Subsection 2 of the Mainland-Hong Kong
Double Taxation Arrangement (the “DTA”), if the beneficiary of dividends is a Hong Kong tax resident company which holds directly at least 25 % equity interests in a tax resident enterprise in China, the dividends distributed by the tax resident enterprise in the mainland to its Hong Kong shareholder shall be subject to taxes in China at a rate not higher than 5 %. Therefore, the dividend distributed by Fenghua Fujian to Fenghua Hong Kong
may be subject to such DTA and therefore be subject to a withholding tax in China at a rate not higher than 5 %.
On 27 October 2009, the State Administration of Taxation has issued the Tax Circular Guoshuihan [2009] No.
601 to provide a better understanding of the term “beneficiary” for DTA purposes. According to the Circular, a
“conduit company” shall not be regarded as a “beneficiary”. A “conduit company” is defined as a company set
up solely for the purpose of reducing tax and normally does not conduct any manufacturing, trading or management activities. If Fenghua Hong Kong is considered as a conduit company by the responsible tax authorities,
there might be a risk that dividends distributed by Fenghua Fujian to Fenghua Hong Kong may not be taxed at
the lower withholding tax rate of 5 % under the DTA but at a withholding tax rate of 10 % under the EIT Law
and its Implementing Rules.
The EIT Law has introduced the concept of tax resident enterprise (“TRE”) defined as an enterprise which is
established in the PRC under the PRC laws and regulations, or which is established under the laws of a foreign
country (region), but has its de facto management body in the PRC. TREs are subject to PRC Enterprise Income
Tax for their worldwide income, including income received from its subsidiaries. However, dividends (derived
from direct equity interest) received by one TRE from another TRE (excluding listed shares in the Chinese stock
market with holding period less than 12 months) are exempted from EIT. According to Article 4 of the Implementing Rules, “de facto management body” refers to the management body that exercises essential management
and control over the enterprise. As a result, if a holding company located outside the PRC was actually managed
by a management body in China, the overseas company would be regarded as a TRE and subject to PRC Enterprise Income Tax for its worldwide income. According to the interpretation of Article 4 of the Implementing
Rules given by the Chinese State Administration of Taxation (“SAT”) on its website, the location of the de facto
management body shall be determined by a substance-over-style method. In particular, mere off-shore board
meetings shall not be sufficient for the de facto management body being located outside of the PRC.
According to the Tax Circular [2009] No. 82 issued by the SAT, a company is considered a TRE if all of the
following conditions are met:

The senior management responsible for the company's day-to-day productions and business operations is
mainly located in the PRC;

Strategic management over the company's finances and personnel is located in the PRC, or requires the
approval from the establishments or individuals located in the PRC;

The company's major assets, accounting records, company seals and minutes of board of directors and
shareholder meetings are located or maintained in the PRC; and
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
50 % or more of the board members of the company with voting rights or senior management habitually
reside in the PRC.
In addition to the above conditions, the Tax Circular [2009] No. 82 further stipulates that the principle of substance-over-style shall be adopted when determining the TRE status. However, the above conditions apply to
foreign companies controlled by PRC enterprises. There is no comparable set of criteria for foreign companies
not controlled by PRC enterprises. Therefore, it remains uncertain how the PRC tax authorities will treat foreign
companies like Fenghua Hong Kong that are owned by other foreign companies and are ultimately controlled by
PRC individuals.
Since the management of Fenghua Hong Kong is mainly based in the PRC as well as the members of the Company's management board, there is a risk that Fenghua Hong Kong and/or the Company are regarded as a TRE.
In case Fenghua Hong Kong is regarded as a TRE, while the Company is not, on one hand, the dividends received by Fenghua Hong Kong from the PRC are exempted from PRC withholding Enterprise Income Tax. On
the other hand, the dividends received by the Company from Fenghua Hong Kong shall be subject to withholding tax at 10 % in the PRC pursuant to the Mainland-Germany Double Taxation Agreement.
However, if Fenghua Hong Kong and the Company are all regarded as TREs, the dividends the Company receives from Fenghua Hong Kong shall also be exempted from PRC withholding Enterprise Income Tax. In such
case, the withholding tax is triggered only when the Company distributes its dividends to its non TRE shareholders. When the Company distributes China-sourced dividends derived from earnings to its non TRE shareholders,
such dividends received by an enterprise shareholder since 1 January 2008 shall be subject to a PRC income tax
at 10 %, while such dividends received by an individual shareholder shall be subject to a PRC income tax at
20 %. A lower withholding tax rate may apply, if the residing country of the non TRE shareholders and China
conclude a double taxation agreement which provides a lower rate.
Similarly, if Fenghua Hong Kong and the Company are all considered TREs, any gain realised on the transfer of
shares in the Company by non TRE shareholders may also be subject to a PRC income tax at 10 % (for an enterprise shareholder) or 20 % (for an individual shareholder) respectively, if such gain is regarded as income derived from sources within China. Again, a lower withholding tax rate may apply, if the residing country of the
non TRE shareholders and China conclude a double taxation agreement which provides a lower rate. (See “Risk
Factors – Risks related to Fenghua's Business – Shareholders may be subject to taxation under PRC tax laws”)
Taxation of Dividends received from the PRC in Hong Kong
In Hong Kong, no tax is imposed on dividends under the Inland Revenue Ordinance (Cap 112). Therefore no tax
is payable in Hong Kong in respect of the dividends paid to a Hong Kong corporation, whether the dividends
have a source in Hong Kong or outside of Hong Kong. Dividends distributed to the shareholders of a Hong Kong
corporation are not subject to Hong Kong withholding tax.
Patent and Trademark Protection
Patents
Patent Law
The PRC Patent Law was promulgated on 12 March 1984 and amended on 27 December 2008. The New
Amendment of the PRC Patent Law became effective on 1 October 2009. The responsible authority is the State
Intellectual Property Office (“SIPO”) in Beijing. The Implementing Rules of the PRC Patent Law were amended
on 9 January 2010 and took effect on 1 February 2010 (“Implementing Rules”). The PRC Patent Law provides
for three types of patents: invention patents, utility model patents, and design patents.
Invention patents refer to new technical solutions relating to a product, a process or an improvement thereof.
They are required to be of novelty, creativity and practical applicability. An invention patent is valid for 20 years
from the date on which the patent application was filed.
Utility model patents refer to new technical solutions that are suitable for utilisation and that relate to the shape
or structure of a product or a combination thereof. Utility model patents are required to be of novelty, creativity
and practical applicability. A patent for a utility model is valid for ten years from the initial date on which the
patent application was filed.
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Design patents refer to any new design of a product's shape, pattern or a combination thereof, as well as the
combination of the colour and the shape or pattern of a product, which creates an aesthetic feeling and is fit for
industrial application. In order to be eligible for a design patent, the design must not consist of a prior design. A
design patent is valid for ten years from the initial date on which the patent application was filed.
Patent Filing
Patent applications must be filed to the SIPO in Beijing. The Chinese patent system adopts the principle of priority of time. This means that if more than one person has filed a patent application for the same invention, a patent
is only granted to the person who first filed the application. In addition, the PRC requires absolute novelty in
order for an invention to be patentable. Pursuant to this requirement, any prior written or oral publication,
demonstration or use within the territory of the PRC and outside the PRC before filing the patent application
prevents an invention from being patented in the PRC.
For filing a patent application outside the PRC for an invention or utility model completed within the territory of
the PRC, the applicant is required to apply to the SIPO for a confidential review of the applied invention or utility model. If the aforesaid patent application has not been submitted for a confidential review before being filed
in other countries, the SIPO will not grant the patent when it is applied for patent in the PRC later.
Patent Enforcement
A patent holder who believes its patent is being infringed may either file a civil lawsuit or file an administrative
complaint with a provincial or municipal office of SIPO. A PRC court may issue preliminary injunctions upon
the application of the patent holder or an interested party. Damages for infringement are calculated as either the
loss suffered by the patent holder arising from the infringement or the benefit gained by the infringing party from
the infringement. If it is difficult to ascertain damages in this manner, and if previously there has been a license
agreement between the claimant and the defendant, damages may be determined at a reasonable amount based
on a multiple of previously paid license fees. If damages cannot be determined, statutory damages may be
awarded ranging from RMB 10,000 to RMB 1,000,000 may be requested. As in other jurisdictions, with one
notable exception, the patent holder in the PRC has the burden of proving that the patent has been infringed.
However, if the holder of an invention patent relating to manufacture of a new products alleges infringement of
such patent, the alleged infringing party has the burden of proving that there has been no infringement.
Patents issued in the PRC are not enforceable in Hong Kong, Taiwan or Macau, as each has independent patent
systems.
Compulsory License
Under the Patent Law, where a person possesses the means to utilise a patented technology but cannot obtain a
license from the patent holder on reasonable terms within a reasonable period of time, the SIPO may grant a
compulsory license for the patented inventions and patented utility models in the following circumstances:

where the patentee fails to exploit or fully exploit its patent three years following the date of grant of the
patent and four years following the date of application for the patent;

where the patentee's exercise of the patent is deemed by law to constitute monopoly behaviour;

where a national emergency or any extraordinary state of affairs occurs or where the public interest so
requires; or

where public health so requires.
Exhaustion Doctrine
After the patented product has been sold by the patentee or its licensees, the patentee cannot claim its patent
rights of this patented product when it is re-sold, used, offered to sell, sold and imported.
International Patent Treaties
The PRC is a signatory to all major intellectual property conventions, including the Paris Convention for the
Protection of Industrial Property, the Madrid Agreement on the International Registration of Marks and Madrid
Protocol, the Patent Cooperation Treaty (“PCT”), Budapest Treaty on the International Recognition of the Deposit of Micro-organisms for the Purposes of Patent Procedure and the Agreement on Trade-Related Aspects of
Intellectual Property Rights (“TRIPs”).
Although patent rights are national rights, there is a large degree of international co-operation under the PCT.
Under the PCT, applicants in one country can seek patent protection for an invention simultaneously in a number
of other member countries by filing a single international patent application.
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Trademarks
The PRC Trademark Law was promulgated in 1982, followed by the PRC Trademark Implementing Regulations
in 1988, and was amended on 27 October 2001and 30 August 2013. As noted above, the PRC is a signatory to
the Madrid Agreement and the Madrid Protocol. These agreements provide a mechanism whereby an international registration has the same effect as an application for registration of the mark made in each of the countries
designated by the applicant.
The PRC Trademark Office is responsible for the registration and administration of trademarks throughout the
country. As with patents, the PRC has adopted a “first-to-file” principle with respect to trademarks. The term of
a registered trademark is ten years from the date of the approval of the registration and is renewable for every ten
years.
PRC law provides that the following acts constitute infringement of the exclusive right to use a registered trademark:

use of a trademark that is identical with a registered trademark in respect of the same commodities without the authorization of the trademark registrant;

use of a trademark that is similar to a registered trademark in relation to identical goods, or use of a
trademark that is identical with or similar to a registered trademark in relation to similar goods, without
the consent of the owner of the registered trademark, and liable to create confusion;

sale of commodities infringing upon the exclusive right to use the trademark;

counterfeiting or making, without authorization, images of a registered trademark of another person, or
sale of such images of a registered trademark as were counterfeited, or made without authorization;

changing a registered trademark and putting commodities on which the changed registered trademark is
used into the market without the consent of the trademark registrant;

intentionally providing facilities to a person who infringes the exclusive right to use a registered trademark so as to help the person to execute an infringement on the exclusive right to use the registered
trademark; or

otherwise infringing upon the exclusive right of another person to use a registered trademark.
The amended PRC Trademark Law which became effective on 1 May 2014 provides for the following circumstances under which an infringer is exempt from compensation:

where a party unknowingly offers for sale goods that infringe a trademark, but is able to prove that he has
obtained the goods lawfully and can identify the supplier, and

where a defendant raises a non-use defence, the court may request the plaintiff to submit evidence proving its actual use of the registered trademark in the past three years. If the plaintiff can neither prove the
actual use nor prove the existence of other damages, the defendant can be exempted from compensating
any damages to the plaintiff.
In the PRC, a trademark owner who believes its trademark is being infringed has to provide its trademark registration certificate and other relevant evidence to the State or Local Administration for Industry and Commerce
(the “AIC”) which may, at its discretion, launch an investigation. The AIC may take such actions as ordering the
infringing party to immediately cease the infringing behaviour, seizing and destroying the infringing goods and
the tools mainly used to manufacture the infringing goods and forge the representations of the registered trademarks and imposing a fine. If the trademark owner is dissatisfied with the AIC’s decision, it may apply to have
the decision reconsidered.
The trademark owner may institute civil proceedings directly with the court. Civil redress for trademark infringement includes:

injunctions;

requiring the infringing party to take steps to eliminate the negative impact (e.g., print notices in newspapers);

damages (i.e. compensation for the economic loss and injury to reputation as a result of trademark infringement suffered by the trademark holder).
Under the amended PRC Trademark Law which became effective on 1 May 2014, the amount of actual damages
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for trademark infringement can be the benefits gained by the infringer or the losses suffered by the right holder
during the period of infringement. If both the above-mentioned benefits and losses are difficult to calculate, the
court may determine the amount of the damages based on the multiple of the trademark license fees. If the latter
is also difficult to calculate, the court may at its discretion award statutory damages. Under the amended PRC
Trademark Law, the maximum amount of the statutory damages is increased from RMB 500,000 to RMB
3,000,000.
If the case is so serious as to constitute a crime, the trademark owner may lodge a complaint with the relevant
judicial body.
Copyright Law
The PRC Copyright Law was promulgated on 7 September 1990 and amended on 26 February 2010 and has
come into effect on 1 April 2010. Regulations implementing the PRC Copyright Law were enacted on 30 May
1991 and amended on 2 August 2002.
Copyright law applies to works including literary, artistic, natural science, social science and engineering technology works, etc., that are created in any of the following forms:

written works;

oral works;

musical works, operatic and dramatic works, works of quyi, choreographic works and acrobatic works;

works of fine art and architectural works;

photographic works;

cinematographic works and works created by a process analogous to cinematography;

graphics works such as drawings of engineering designs, drawings of product designs, maps, schematic
drawings, etc. and model works;

computer software;

other works as stipulated in laws and administrative regulations.
A copyright holder who believes that its copyright is being infringed may file a civil lawsuit. For some infringements that prejudice the public interest, the copyright holder may also file an administrative complaint with the
competent copyright administration authority. Upon the copyright holder's request, the PRC court may issue a
preliminary injunction. Compensation for infringement must be paid in accordance with the actual loss arising to
the copyright holder from the infringement. Where the actual losses are difficult to calculate, compensation shall
be paid in accordance with the sum of illegal income generated by the infringing party as a result of the infringement. If neither the actual losses nor the illegal income can be determined, Chinese courts may determine
compensation of up to RMB 500,000 (EUR 61,300) depending on the circumstances of the individual infringement. The compensation also includes reasonable expenses of the copyright holder for deterring the infringement.
The PRC is also a party to the Berne Convention for the Protection of Literary and Artistic Works (“Berne Convention”) and the Agreement on Trade Related Aspects of Intellectual Property Rights (“TRIPS”). According to
the Berne Convention and TRIPS, products protected in the PRC enjoy protection in all countries that are a party
to the Berne Convention and vice versa.
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Anti-unfair Competition Law
The Anti-unfair Competition Law of the PRC (the “Anti-unfair Competition Law”) was promulgated on 2
September 1993 and came into effect on 1 December 1993. The Anti-unfair Competition Law provides that
business operators shall not undermine their competitors by engaging in the following improper market activities:

infringement of trademark rights or confidential business information;

false publicity through advertising or other means, or forgery and dissemination of false information that
infringes upon the goodwill of competitors or the reputation of their products; and

other improper practices, including commercial bribery, cartels, dumping sales at below-cost prices, and
offering prices as sales rebates illegally.
Violations of the Anti-unfair Competition Law may result in fines and confiscation of illegal income and, in
serious cases, revocation of the business license of the business operator as well as criminal liabilities.
Product Quality Law
The Product Quality Law of the PRC (the “Product Quality Law”), which was promulgated on 22 February
1993 and amended on 8 July 2000, is applicable to all activities of production and sale of any product within the
territory of the PRC, and the producers and sellers shall be liable for product quality in accordance with the
Product Quality Law.
According to the Product Quality Law, products must satisfy the following requirements:

being free from unreasonable dangers to the personal or property safety, and confirming to the national or
industrial standards for safeguarding the health and personal or property safety;

possessing the functions for use that the product ought to possess, except for those with directions stating
the defects in the functions of the product; and

conforming to the product standards marked on the product or on the package thereof, and to the quality
conditions indicated by way of product directions and product sample.
The producers and sellers are liable for product quality. If a personal injury or damage to a property other than
the defective product itself is caused due to the defect of a product, the producer shall be liable for the injury or
damage. If a personal injury or damage to a property is caused by the product's defect resulted from the fault of
the seller, the seller shall be liable for the injury or damage. If the defect of a product causes personal injury or
damage to a property, the injured or damaged person may claim compensation from the producer of the product
of may also claim compensation from the seller of the product. If the producer was responsible for a defect in a
product but the seller of the product has made the compensation, the seller of the product has the right to seek
compensation from the producer. If the seller was responsible for a defect in a product but the producer has made
the compensation, the producer has the right to seek the compensation from the seller of the product.
Consumer Protection Law
The principal legal provisions for the protection of consumer interests are set out in the Consumer Protection
Law of the PRC (the “Consumer Protection Law”), which was promulgated on 31 October 1993 and amended
on 25 October 2013. The rights and interests of the consumers who buy or use commodities for the purposes of
daily consumption or those who receive services are protected under the Consumer Protection Law. The consumers have the right to obtain true information of the commodities they purchase or services they receive, including, without limitation, prices, producers, functions, standards, term of validity, and after sale services. All
distributors and producers involved in provision of commodities and services must ensure that the commodities
and services will not cause damage to persons or properties. Distributors must guarantee that the commodities
and services they provide meet the requirements for personal or property safety. They must also give the consumers truthful explanation and explicit warnings as well as instructions on ways of using to the commodities or
receiving from the services that may harm personal or property safety. In addition, consumers have the right to
form public organisations for the maintenance of their own legitimate rights and interests. Consumer associations
and other consumer organisations, as non-profitable organisations, are public organisations formed according to
the Consumer Protection Law to exercise social supervision over commodities and services and to protect the
legitimate rights and interests of consumers.
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Laws and Regulations Relating to PRC System
All land in the PRC is either state-owned or collectively owned, depending on the location of the land. All land
in urban areas of a city or town is state-owned, and all land in rural areas of a city or town and all rural land are,
unless otherwise specified by law, collectively owned. The state has the right to reclaim land in accordance with
law if required for the benefit of the public. Although all land in the PRC is owned by the state or by collectives,
private individuals and businesses and other organisations are permitted to hold, lease and develop land for
which they are granted land use rights.
National Legislation on Land
In April 1988, the constitution of the PRC was amended by the National People's Congress to allow for the transfer of land use rights for value. In December 1988, the Land Administration Law of the PRC was amended to
permit the transfer of land use rights for value.
Under the Interim Regulations of the People's Republic of China on Grant and Transfer of the Right to Use
State-owned Urban Land (“Interim Regulations on Grant and Transfer”) promulgated in May 1990, local
governments at or above county level have the power to grant land use rights for specific purposes and for a
definite period to a land user pursuant to a contract for the grant of land use rights against payment of a grant
premium.
Under the Interim Regulations on Grant and Transfer, all local and foreign enterprises are permitted to acquire
land use rights unless the law provides otherwise. The state may not reclaim lawfully granted land use rights
prior to expiration of the term of grant. If the public interest requires repossession by the state of the land under
special circumstances during the term of grant, compensation is paid by the state. A land grantee may lawfully
transfer, mortgage or lease its land use rights to a third party for the remainder of the term of grant.
Upon expiration of the term of grant, renewal is possible subject to the execution of a new contract for the grant
of land use rights and payment of a premium. If the term of the grant is not renewed, the land use rights and
ownership of any buildings erected on the land will revert to the state without compensation.
Transfer and Lease of State-owned Land Use Rights
After land use rights relating to a particular area of land have been granted by the state, the party to whom such
land use rights have been granted may transfer, lease or mortgage such land use rights, unless a restriction is
imposed, for a term not exceeding the term which has been granted by the state. The difference between a transfer and a lease is that a transfer involves the vesting of the land use rights by the transferor in the transferee during the term for which such land use rights are vested in the transferor. A lease, on the other hand, does not involve a transfer of such rights by the lessor to the lessee. Furthermore, a lease, unlike a transfer, does not usually
involve the payment of a premium. Instead, rent is payable during the term of the lease. Land use rights cannot
be transferred, leased or mortgaged if the provisions of the land grant contract, with respect to the prescribed
period and conditions of investment, development and use of the land, have not been complied with. In addition,
different areas of the PRC have different conditions which must have been fulfilled before the respective land
use rights can be transferred, leased or mortgaged.
All transfers, mortgages and leases of land use rights must be evidenced by a written contract registered with the
relevant local land bureau at municipality or county level. Upon a transfer of land use rights, all rights and obligations contained in the contract pursuant to which the land use rights were originally granted by the state are
deemed to be incorporated as part of the terms and conditions of such transfer, depending on the nature of the
transaction.
Under Article 38 of the PRC Law on Administration of Urban Real Estate (the “Urban Real Estate Law”), real
property that has not been registered and a title certificate which has not been obtained in accordance with the
law cannot be transferred. Under Article 39 of the Urban Real Estate Law, if land use rights are acquired by
means of grant, the following conditions must have been met before the land use rights may be transferred: (i)
the premium for the grant of land use rights must have been paid in full in accordance with the land grant contract and a land use rights certificate must have been obtained; (ii) investment or development must have been
made or carried out in accordance with terms of the land grant contract; (iii) more than 25 % of the total amount
of investment or development must have been made or completed; and (iv) where the investment or development
involves a large tract of land, conditions for use of the land for industrial or other construction purpose have been
confirmed.
127
Laws and Regulations Relating to Expansion of Production Capacity
Pursuant to the Tentative Measures for the Administration of the Verification of Foreign Invested Projects (the
“Verification Measures”) issued by the National Development and Reform Commission (the “NDRC”) on
9 October 2004, foreign investment projects for the expansion of production capacity are subject to an assessment and verification by the NDRC or, as the case may be, its local counterparts. If the expansion of production
capacity results in the increase of registered capital and the so called “total amount of investment” by the applicant, such capital increase is subject to the additional approval by the competent authority, that means the
MOFCOM or its local counterpart, and to the registration with the competent Administration of Industry and
Commerce under the relevant laws or regulations governing foreign invested enterprises.
The expansion of production capacity also requires approval by the Ministry of Environmental Protection (the
“MEP”) or its local counterpart under the Regulations on Administration of Environmental Protection of Construction Projects. On the basis of an environmental impact study, MEP or its local counterpart shall assess the
environmental impacts of the project and, based on the results of this assessment, decide on its approval. The
parts of the facility that serve the purpose of environmental protection shall be designed, established and commissioned simultaneously with the remaining part of the expansion project. The production can only commence
upon final inspection and acceptance of the environmental protection facilities by MEP or its local counterpart.
In case the expansion of production capacity requires the acquisition of additional land and the construction of
new plants, such acquisition and construction has to be approved, in particular, by the Chinese land authorities,
planning authorities, construction authorities and real estate authorities.
Laws and Regulations Relating to Discharge of Waste
In relation to the treatment of air pollutants and waste effluents created during the production process, Fenghua
has to comply with the Environmental Protection Law of the PRC, the regulations of the State Council issued
thereunder, the Law of the PRC on the Prevention and Treatment of Water Pollution, the Law of the PRC on the
Prevention and Treatment of Air Pollution, the Law of the PRC on the Prevention and Control of Environmental
Pollution by Solid Wastes and the environmental rules promulgated by the local government of Fujian Province
where Fenghua's production facilities are located
In China, MEP implements unified supervision and management of national environmental protection. The environmental protection bureaus at or above the county level are responsible for the environmental administration
within their respective jurisdictions. According to the national environmental laws, MEP sets national standards
for pollutants emission and local environmental protection bureaus may set stricter local standards. Enterprises
are required to comply with the stricter of the two standards.
Enterprises that cause pollution and other public hazards shall adopt environmental protection measures and
implement an environment protection system. Such enterprises shall also take effective measures to prevent and
control the pollution and harms caused to the environment by waste gas, waste water, waste residues, dust, malodorous gases, radioactive substances, noise, vibration and radiation generated in the course of production, construction or other activities. Enterprises discharging pollutants shall apply for registration and for issuance of
waste discharge permits with the competent environment protection bureaus. Enterprises discharging pollutants
in excess of the nationally or locally prescribed standards is fined according to state provisions.
The PRC government may, according to the circumstances and the extent of the pollution, impose administrative
penalties of different types and degrees on the violators (enterprises or individuals) of the relevant national environmental laws. Such penalties include warnings, fines, orders to make rectification within a specific period,
orders to suspend production, orders to reinstall and put to use pollution treatment facilities that have been dismantled or left idle without prior approval, administrative sanctions on relevant responsible personnel and orders
to close the business. The PRC government may also impose fines together with any of the abovementioned
administrative penalties.
Laws and Regulations Relating to Employment
PRC Labour Contract Law
The PRC Labour Contract Law (the “Labour Contract Law”) was amended on 28 December 2012 and came
into force on 1 July 2013. The Labour Contract Law has certain impact on all existing and future employment
relationships under PRC law.
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The Labour Contract Law emphasizes the conclusion of employment contracts in written form by means of imposing more severe consequences for non-compliance. If the employer fails to conclude a written employment
contract with an employee for one month to one year after the actual commencement of work, the employer must
pay the employee double salary for the relevant months. If the employer fails to conclude a written employment
contract with an employee for more than one year after the actual commencement of work, an unfixed-term of
contract is deemed to have been concluded.
The Labour Contract Law also provides that an employer and an employee may include in their employment
contract provisions on confidentiality concerning commercial secrets of the employer and confidential issues
relating to intellectual property. Also a non-competition obligation for up to two years after termination or expiration of the contract may be included in the employment contract or a confidentiality agreement, if the employee is senior manager, senior technician or is subject to a confidentiality obligation and if the parties agree on a
compensation. The employer shall pay economic compensation to the employee on a monthly basis during the
non-competition obligation period.
Furthermore, additional reasons for the termination of employment contracts are introduced by the PRC Labour
Contract Law. For example, the employee may now terminate the employment if the employer fails to pay social
insurance premiums for the employee, if the rules and regulations for the employee are in breach of laws and
regulations, which damage the employee's rights and interests, or if the contract was concluded due to a deception by the employer. In addition, the regulations on business-related dismissal have been concretised and, for
the first time, social criteria regarding the question as to which employees shall be dismissed are introduced by
the PRC Labour Contract Law.
In case of termination by mutual agreement, compensation must be paid only if the agreement was proposed by
the employer. In case of expiration of a fixed-term employment contract, compensation must also be paid now
under the PRC Labour Contract Law except for the case that the employee does not agree to renew the contract
even when the employer proposes to keep or improve the conditions stipulated in the current contract. The
amount of the compensation shall be one month's salary per year of employment with a maximum “monthly
salary” of three times the average monthly salary as determined by the competent local government and a maximum of twelve years of employment. Before the effectiveness of the PRC Labour Contract Law, there was no
cap on the amount of “monthly salary” for the purpose of calculation of compensation.
The PRC Labour Contract Law also provides that if an employer terminates an employment contract in violation
of laws and an employee demands to continue to perform such a contract, the employer shall continue to perform
the employment contract. If the employee does not want to continue to perform the employment contract or the
performance of the employment contract has become impossible, the employer shall pay the employee damages
in the amount of twice the severance payment.
Laws and Regulations Relating to Social Welfare
China has established a social security system providing people with social security services. China's social security system includes social insurance, social welfare, a special care and placement system, social relief and housing services. The core of the social security system, the social insurance, is composed of five parts: pension contribution, unemployment insurance, basic medical insurance, work-related injury insurance and maternity insurance (details of which vary with the legal requirements in different regions). In addition, the housing funds are
also required to pay for all employees. Pension contribution, unemployment insurance and basic medical insurance shall be borne by both the employer and the employee. Work-related injury insurance and maternity insurance are solely the employer's responsibility. The employer has to pay for his own contributions and deduct the
applicable contributions of the employees from their salaries and remit them to the responsible institutions.
In recent years, China has improved the legal system of social security by promulgating a variety of new laws
and regulations, including the PRC Labour Law, PRC Labour Contract Law, PRC Social Insurance Law and
Regulations on Housing Funds Administration.
The PRC Social Insurance Law became effective on 1 July 2011 and confirms the right of an individual employee to claim damages against the employer at the labour arbitration commission or the People's Court if the employer fails to pay social insurance contributions for him/her according to law. Any employer who fails to pay its
social insurance contributions and housing funds or withhold payment of the employee's portion may be ordered
by the PRC labour, tax and/or housing funds administration authority to make the required payments within a
designated period, and may be liable for penalties. The employee may terminate the employment if the employer
fails to pay social insurance premiums or housing fund contributions, for the employee.
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Laws and Regulations Relating to Production Safety
The PRC Production Safety Law became into effect on 1 November 2002 and amended on 27 August 2009 with
the aim of strengthening supervision and administration of production safety, preventing and reducing safety
accidents, defending the safety of people’s life and property and promoting the development of economy. The
PRC Production Safety Law applies to the enterprises engaged in the production and business operation activities within the territory of the PRC. The enterprises engaged in the production activities must meet national or
industry standards regarding safety production and provide relevant working conditions as required by the laws,
administrative rules and the national or industry standards.
Enterprises must undertake necessary measures to set up and maintain appropriate equipment, monitor the safety
of production procedures, assign designated personnel, conduct workplace training and undertake all other
measures required by the law to ensure the safety of employees and the general public. The failure to comply
with the safety production regulations may result into the imposition of fines, confiscation of illegal gains, suspension of the production and criminal offence.
PRC Tax Laws
Enterprise Income Tax (“EIT”)
The PRC EIT law (“EIT Law”), which came into effect on 1 January 2008, provides for a unified tax rate of
25 % for both foreign-invested and domestically owned companies. Under the EIT Law and the Implementing
Rules of the EIT Law (the “Implementing Rules”), enterprises established under the laws of or within the territory of the PRC, or established under the laws of a foreign country (region), but whose de facto management
body is located in the PRC are treated as resident enterprises for PRC tax purposes. If an enterprise is treated as a
resident enterprise for PRC tax purposes, it shall be subject to PRC tax on its worldwide income at the 25 %
unified tax rate.
Tax Resident Enterprises (“TREs”)
The EIT Law has introduced the concept of tax resident enterprise defined as an enterprise which is established
in the PRC under the PRC laws and regulations, or which is established under the laws of a foreign country (region), but has its de facto management body in the PRC. TREs are subject to PRC Enterprise Income Tax for
their worldwide income, including income received from its subsidiaries. However, dividends (derived from
direct equity interest) received by one TRE from another TRE (excluding listed shares in the Chinese stock market with holding period less than 12 months ) are exempted from EIT. According to Article 4 of the Implementing Rules of the EIT Law (the “Implementing Rules”), “de facto management body” refers to the management
body that exercises essential management and control over the enterprise. As a result, if a holding company
located outside the PRC was actually managed by a management body in China, the overseas company would be
regarded as a TRE and subject to EIT for its worldwide income. According to the interpretation of Article 4 of
the Implementing Rules given by the Chinese State Administration of Taxation (“SAT”) on its website, the location of the de facto management body shall be determined by a substance-over-style method. In particular, mere
off-shore board meetings shall not be sufficient for the de facto management body being located outside of China.
According to Tax Circular [2009] No. 82 issued by the SAT, a company is considered a TRE if all of the following conditions are met:

The senior management responsible for the Company's day-to-day productions and business operations is
mainly located in the PRC;

Strategic management over the Company's finances and personnel is located in the PRC, or requires the
approval from the establishments or individuals located in the PRC;

The Company's major assets, accounting records, company seals and minutes of board of directors and
shareholder meetings are located or maintained in the PRC; and

50 % or more of the board members of the Company with voting rights or senior management habitually
reside in the PRC.
In addition to the above conditions, SAT Tax Circular [2009] No. 82 further stipulates that the principle of substance-over-style shall be adopted when determining the TRE status. However, the above conditions apply to
foreign companies controlled by PRC enterprises. There is no comparable set of criteria for foreign companies
not controlled by PRC enterprises. Therefore it remains uncertain how the PRC tax authorities will treat foreign
130
companies like Fenghua Hong Kong that are owned by other foreign companies and are ultimately controlled by
PRC individuals. Similarly, according to the above, there is also a risk that the PRC tax authority may treat the
Company as a PRC TRE for tax purposes.
Value Added Tax (“VAT”)
Pursuant to the PRC Provisional VAT Regulations effective as of 1 January 2009, VAT is payable by all unites
and individuals which are engaged in sales of goods, the provision of taxable services (processing, repair and
maintenance) or importation of goods within the territory of the PRC.
In the PRC, VAT has an input-output mechanism. For a general taxpayer, VAT payable equals to the output
VAT minus the input VAT. The “output VAT” is calculated on the basis of turnover derived from sales of goods
or provision of taxable services by applying a given VAT rate. The “input” VAT is the amount paid on the purchases of goods or taxable services as indicated on the VAT invoices issued with the purchases. The standard
VAT rate is 17 %. However, the PRC VAT regulations also provide a reduced tax rate of 13 % for sales or import of prescribed products. Fenghua Group is mainly engaged in manufacturing of shoe materials, plastic granules and soles and distribution of shoe materials. Therefore, 17 % VAT rate shall apply.
Tax refund is granted to taxpayers who export goods from China, with few exceptions, so that the amount of the
overall tax burden for exported goods is limited. Generally speaking, for export of goods, a zero tax rate applies,
which means there shall be no VAT incurred upon exported goods. In addition, the taxpayers can apply for a
VAT refund in relation to the purchase or manufacture of the exported goods. This is known as VAT refund on
exportation.
There are two different export VAT refund calculation methods. The so-called “Exemption, Credit and Refund”
method (“ECR”) is applicable to self-produced goods or goods deemed as self-produced exported by a manufacturing company. The so-called “Exemption and Refund” method (“ER”) applies to traded goods exported by a
trading company. Where VAT refund applies to the exported goods, the VAT incurred in relation to the purchase
or manufacture of the exported goods is refunded depending on the VAT refund rate stipulated by the Ministry
of Finance (“MOF”) and the SAT. In case the VAT refund rate is lower than the applicable VAT rate, the input
VAT incurred related to the exported goods will not be fully recoverable and will partially become a real cost for
the exporter.
In addition to the above, starting from 1 November 2012, Business Tax (“BT”) / VAT reform has been launched
in Fujian Province. Under the BT/VAT reform, certain services have been gradually shifted from BT system to
the VAT system, including transportation services, postal services, leasing of tangible movable assets, and certain modern services (i.e. R&D and technical services, information technology services, culture creation services, logistics services, certification and consultation services, and radio and television services). The standard
VAT rate for transportation and postal services is 11 %, for leasing of tangible movable assets is 17 %, and for
other modern services is 6 %. Starting from 1 June 2014, telecommunication services will also be coved by the
BT/VAT reform with 11 % VAT rate for basic telecommunication services and 6 % VAT rate for value-added
telecommunication services.
Business Tax (“BT”)
Pursuant to the PRC Provisional BT Regulations effective as of 1 January 2009, BT is payable by all unites and
individuals which are engaged in the provision of taxable services (other than those covered by the VAT system), transfer of intangible assets (other than those covered by the VAT system) or sales of immovable properties within the territory of the PRC. BT is calculated at applicable rates (ranging from 3 % – 20 %) of the relevant turnover. For most taxable services, transfer of intangible assets and sales of immovable properties, the BT
rate is 5 %.
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SHAREHOLDER STRUCTURE (PRIOR TO THE OFFERING AND UPON COMPLETION OF THE OFFERING)
The following table provides an overview of the shareholding structure and the participation of the shareholders
in the share capital of the Company prior to the Offering and upon completion of the Offering.
Before the Offering
Name of shareholder
Capital Mobilier Inc1
Following the completion of
the Offering
in %
Ordinary
bearer shares
Ordinary
bearer shares
in %
6,750,000
67.500
6,750,000
60.27
Commerce Union (Malta) Investment
Ltd.2
487,500
4.875
487,500
4.35
Midasi (Malta) Investment Ltd. 3
475,000
4.750
475,000
4.24
LGT Capital (Malta) Ltd.4
498,750
4.988
498,750
4.45
Financier Inc.5
407,500
4.075
407,500
3.64
Rosy Frontier Investments Ltd.6
450,000
4.500
450,000
4.02
Mr. Thomas Tan Hock Nieh7
481,250
4.813
481,250
4.30
Ms. Yeap Soon Mooi8
450,000
4.500
450,000
4.02
0
0
1,200,000
10.71
10,000,000
100
11,200,000
100
Free Float
Total
1
Capital Mobilier Inc. (“CMI”), a company incorporated in Anguilla under register no. 2261732 with the Registrar of Companies of
Anguilla, whose registered address is Intertrust Building, The Valley, Anguilla, British West Indies and whose ultimate shareholder is
Mr. Weijie Lin, a Philippine national and Chinese resident, the company's CEO, a related party.
2
Commerce Union (Malta) Investment Ltd. (“CUM”), a company incorporated in Malta under register no. C65267 with the Registrar
of Companies of Malta, whose registered address is 260, Triq San Albert, Gzira, Malta and whose ultimate shareholder is Mr. Shize
Lin, a Chinese national and resident, a related party.
3
Midasi (Malta) Investment Ltd. (“MMI”), a company incorporated in Malta under register no. C65268 with the Registrar of Companies of Malta, whose registered address is 260, Triq San Albert, Gzira, Malta and whose ultimate shareholder is Mr. Yuzhu Ye, a Chinese national and resident.
4
LGT Capital (Malta) Ltd. (“LGT”), a company incorporated in Malta under register no. C65097 with the Registrar of Companies of
Malta, whose registered address is 260, Triq San Albert, Gzira, Malta and whose ultimate shareholder is Ms. Lim Geok Tin, a Singaporean national and resident.
5
Financier Inc. (“FI”), a company incorporated in Anguilla under register no. 2260225 with the Registrar of Companies of Anguilla,
whose registered address is Intertrust Building, The Valley, Anguilla, British West Indies and whose ultimate shareholder is Ms. Nor
Fazlina Binti Mohd Ghouse, a Malaysian national and resident.
6
Rosy Frontier Investments Ltd. (“RFI”) a company incorporated in the British Virgin Islands under register no. 1818330 with the
Registrar of Corporate Affairs of the British Virgin Islands, whose registered address is P.O. Box 957, Offshore Incorporations Centre,
Road Town, Tortola, British Virgin Islands and whose ultimate shareholder is Ms. Jingrong Zhuang, a Chinese national and resident.
7
Mr. Thomas Tan Hock Nieh (“Mr. Tan”) is a Malaysian national and resident.
8
Ms. Yeap Soon Mooi (“Ms. Yeap”) a Malaysian national and resident.
CMI, CUM, MMI, LGT, FI, RFI, Mr. Tan and Ms Yeap are together referred to as the “Founding Shareholders” and each a “Founding
Shareholder”.
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GENERAL INFORMATION ON THE COMPANY
Formation, Business Name, Legal Seat, Financial Year and Term of the Company
The Company is a German stock corporation (Aktiengesellschaft) operating under German law. The Company
was founded by CMI, CUM, MMI, LGT, FI, RFI, Mr. Tan and Ms. Yeap by means of a notarial deed of formation (Gründungsurkunde; Roll of Deeds No. 105 of the notary Dr. Jochen Schlotter) dated 22 July 2014. On 7
August 2014, CMI, CUM, MMI, LGT, FI, RFI, Mr. Tan and Ms. Yeap (the “Founding Shareholders”) entered
into a share contribution agreement (Einbringungsvertrag) for the formation of Fenghua SoleTech AG. Under
the share contribution agreement, the Founding Shareholders subscribed for the entire newly issued shares in the
Company against contributions of all of its shares in Fenghua Hong Kong.
The proportion of the contribution for each Founding Shareholder is as follows:
Founding Shareholder
Number of contributed
shares in Fenghua Hong
Kong
CMI
Number of issued
Existing Shares
Share Participation
in Company in %
5,400
6,750,000
67.5000
CUM
390
487,500
4.8750
MMI
380
475,000
4.7500
FI
326
407,500
4.0750
RFI
360
450,000
4.5000
LGT
399
498,750
4.9875
Mr. Tan
385
481,250
4.8125
Ms. Yeap
360
450,000
4.5000
The completion (Durchführung) of the formation became legally effective and Fenghua SoleTech AG was incorporated by registration in the commercial register of the local court of Frankfurt on 2 October 2014. The
Share participation in the Company upon effectiveness of the Company's formation can be seen from the above
table.
The legal and business name (Firma) of the Company is “Fenghua SoleTech AG”. The legal seat (Satzungssitz)
of the Company is in Frankfurt am Main, Germany. The Company is registered with the commercial register
(Handelsregister) of the local Court (Amtsgericht) in Frankfurt am Main, Germany under registration number
HRB 100395. The Company has its business address at Fenghua SoleTech AG, Mainzer Landstrasse 41, Frankfurt am Main, 60329 Frankfurt, Germany (telephone number: +49 69 95925484). The Company's financial year
is the calendar year (that means 1 January through 31 December). The first financial year is a short financial year
(Rumpfgeschäftsjahr). The Company has been established for an unlimited period of time.
Business Purpose of the Company
The Company's business purpose (Unternehmensgegenstand) as set forth in § 2 of the Company's Articles of
Association (Satzung) is the production, sale, distribution and marketing of shoe soles (including shoe sole components) of various material and for various shoes (including the production, sole, distribution and marketing of
raw materials and other materials which are necessary for the production of shoe soles for various kinds of shoes
as well as the research and development of such products, by the company itself or indirectly by its subsidiaries
and for affiliated companies as well as all businesses and services in connection therewith and services for its
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subsidiaries and affiliated companies. The Company may only engage in affiliated companies if their business
purpose corresponds in whole or in concluding parts to the Company's business purpose.
Notices, Paying and Depositary Agent
In accordance with its Articles of Association (Satzung), notices of the Company will be made in the German
Federal Gazette (Bundesanzeiger). Publications required by stock exchange laws will be made in a national journal designated for such purposes by the Frankfurt Stock Exchange.
Notices in connection with the approval of the Prospectus or regarding amendments to the Prospectus will be
made in accordance with the provisions of the German Securities Prospectus Act (Wertpapierprospektgesetz)
and will be published in the form intended for prospectuses, that means on the Internet website of Fenghua SoleTech AG with a printed version available at the offices of Fenghua SoleTech AG and the Underwriter.
The paying and depositary agent is BNP Paribas Securities Services, Europa-Allee 12, 60327 Frankfurt am
Main, Germany.
Group Structure and Corporate Developments
Overview
As at the date of this Prospectus, the Company holds 100 % of the shares of Hong Kong Mou Lung Holding
Company Ltd. (“Fenghua Hong Kong”), a company incorporated under Hong Kong law which acts as intermediate holding company and holds 100 % of the equity interests in Fujian Maolong Shoe Materials Co. Ltd.
(“Fenghua Fujian”), a company incorporated in the PRC acting as intermediate holding company which in turn
holds 100 % of the shares of Jinjiang Fenghua Shoe Material Co. Ltd. (“Fenghua Jinjiang”), a company incorporated in the PRC. The operative business of Fenghua is being carried out by Fenghua Jinjiang (see: “General
Information on the Company – Group Structure and Corporate Developments – Fenghua Fujian “).
The corporate structure of Fenghua as at the date of the incorporation of Fenghua SoleTech AG is shown in the
chart below:
Fenghua SoleTech AG, Germany (“Fenghua
SoleTech AG”)
100 %
Hong Kong Mou Lung Holding Company
Ltd., Hong Kong (“Fenghua Hong Kong”)
100 %
Fujian Maolong Shoe Materials Co. Ltd.,
China (“Fenghua Fujian”)
100 %
Jinjiang Fenghua Shoe Material Co., Ltd.,
China (“Fenghua Jinjiang”)
Fenghua SoleTech AG
Fenghua SoleTech AG is top holding company of Fenghua (see: “General Information on the Company – Formation, Business Name, Legal Seat, Financial Year and Term of the Company”).
The Founding Shareholders of the Company are CMI, CUM, MMI, FI, RFI, LGT, Mr. Tan and Ms. Yeap which
hold in total 100 % of the Company's shares.
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Fenghua Hong Kong
Fenghua Hong Kong is the intermediate holding company of the Fenghua Group.
Fenghua Hong Kong was incorporated on 28 March 2012 by Mr. Weijie Lin as a limited liability company under
Hong Kong Law and is registered with the company register in Hong Kong under the registration number
1720903. Its registered office is 2nd Floor, Queen’s Centre, 60 Queen’s Road East, Wanchai, Hong Kong.
The registered capital of Fenghua Hong Kong is HKD 8,000 and is divided into 8,000 shares with no par value.
The share capital is fully paid up. Mr. Weijie Lin is the sole director of Fenghua Hong Kong.
On 28 March 2012 (i.e. the date of incorporation of the Company), Mr. Lin Weijie subscribed for 1 ordinary
share at a par value of HKD 1.00 each in the Company. On 25 March 2013, CMI subscribed for and was allotted
180 ordinary shares at a par value of HKD 1.00 each in the Company at a consideration of HKD 1.00 each.
On 25 March 2013, Commerce Union Ltd. subscribed for and was allotted 15 ordinary shares, Righton Investments Ltd. 50 ordinary shares, Leadtime Limited 10 ordinary shares and Feng Hua International Holdings Co.,
Ltd, Thailand, 744 ordinary shares, at a par value of HKD 1.00 each in the Company at a consideration of
HKD 1.00 each.
On 28 March 2013, Mr. Lin Weijie transferred the 1 ordinary share in the Company standing in his name to CMI
at a consideration of HKD 1.00. The total shareholding of CMI was 181 ordinary shares.
On 14 June 2013, the following transfers to Feng Hua International Holdings Co., Ltd. have taken place: (i) CMI
transferred the 181 ordinary shares in the Company in consideration of 158,907,500 ordinary shares with a par
value of Thailand Baht 1.00 each in Feng Hua International Holdings Co., Ltd; (ii) Commerce Union Ltd. transferred the 15 ordinary shares in the Company in consideration of 13,500,000 ordinary shares with a par value of
Thailand Baht 1.00 each in Feng Hua International Holdings Co., Ltd.; (iii) Righton Investments Ltd. transferred
the 50 ordinary shares in the Company in consideration of 43,492,500 ordinary shares with a par value of Thailand Baht 1.00 each in Feng Hua International Holdings Co., Ltd., and (iv) Leadtime Limited. transferred the 10
ordinary shares in the Company standing in its name in consideration of 9,000,000 ordinary shares with a par
value of Thailand Baht 1.00 each in Feng Hua International Holdings Co., Ltd.
On 6 June 2014, CMI., CUM, MMI, LGT, FI., RFI, Mr. Tan and Ms. Yeap each subscribed for and were allotted
4,400, 390, 380, 399, 326, 360, 385 and 360 ordinary shares in the Company. On 10 July 2014, the former sole
shareholder, Feng Hua International Holdings Co., Ltd., Thailand, transferred all its 1,000 shares in Fenghua
Hong Kong to CMI at a consideration of HKD 1,000. The number of shares allotted is described in the table
below. After such transaction, the share capital of Fenghua Hong Kong was HKD 8,000 divided into
8,000 shares.
Founding Shareholder
Number of shares allotted
Total number of shares
CMI
4,400
5,400
CUM
390
390
MMI
380
380
FI
326
326
RFI
360
360
LGT
399
399
Mr. Tan
385
385
Ms. Yeap
360
360
For the purposes of the formation of Fenghua SoleTech AG, the Founding Shareholders of Fenghua Hong Kong,
which together held 100 % in Fenghua Hong Kong, each transferred all shares in Fenghua Hong Kong to
Fenghua SoleTech AG under a contribution agreement dated 7 August 2014 against allotment of shares in the
Company (see: “Shareholder Structure (Prior to the Offering and Upon Completion of the Offering”).
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Pursuant to section 135 of the Companies Ordinance (Chapter 622), with effect from 3 March 2014, the issuance
of any new share of Fenghua Hong Kong will not be subject to nominal value or par value requirement and any
issued share of Fenghua Hong Kong outstanding as of 3 March 2014 and any share newly issued thereafter will
be identified as shares without nominal value or par value.
Fenghua Fujian
Fenghua Fujian is another intermediate holding company of the Fenghua Group.
Fenghua Fujian was incorporated on 24 August 2012 by Fenghua Hong Kong in the form of a wholly foreign
owned enterprise as a limited liability company under Chinese laws and is registered with the Quanzhou Administration of Industry and Commerce under the registration number 350500400058539. Its registered office is
Chendai Xixiamei Village, Jinjiang City, Fujian, China and it has a term of 30 years.
The registered capital of Fenghua Fujian is HKD 5,000,000. The share capital is paid up in the amount of
HKD 5,000,000. Mr. Weijie Lin is the sole executive director of Fenghua Fujian.
Fenghua Jinjiang
Fenghua Jinjiang was incorporated on 2 January 2004 with a term of 10 years. The term has been prolonged until
1 January 2024. Its registered capital is RMB 70,000,000. The registered address of Fenghua Jinjiang is Industry
District, Chendai Xixiamei Village, Jinjiang City, Fujian, China. The business scope of Fenghua Jinjiang is
manufacturing of shoe materials (mesh fabric), plastic granules, soles, distribution of shoe materials (free of
hazardous chemicals). Fenghua Jinjiang is registered under no. 350582100034367 of the Jinjiang Administration
of Industry and Commerce (the “Jinjiang AIC”).
Initially the registered capital of Fenghua Jinjiang was RMB 4,000,000, of which Mr. Weijie Lin, the Company's
CEO contributed RMB 2,000,000 in kind and Mr. Bingcan Lin, Mr- Weijie Lin's father, contributed RMB
2,000,000 in kind as well. On 28 February 2005, the Jinjiang AIC registered a capital increase of Fenghua Fujian
to RMB 8,000,000 from RMB 4,000,000 by contributions in kind, according to which Mr. Weijie Lin held 50 %
of the equity interests and Mr. Bingcan Lina another 50 %.
On 28 January 2007, the Jinjiang AIC registered the capital increase of Fenghua Fujian to RMB 15,000,000 from
RMB 8,000,000 by contributions in kind (RMB 1,400,000 of Mr. Weijie Lin and RM 3,500,000 of Mr. Bingcan
Lin) and in cash (RMB 2,100,000 of Mr. Weijie Lin), according to which Mr. Weijie Lin held 50 % of the equity
interests and Mr. Bingcan Lina another 50 %.
On 10 December 2009, the Jinjiang AIC registered the capital increase of Fenghua Fujian to RMB 30,000,000
from RMB 15,000,000 by contributions in cash, according to which Mr. Weijie Lin held 50 % of the equity
interests and Mr. Bingcan Lina another 50 %.
On 24 July 2012, Mr. Bingcan Lin transferred his entire shares in Fenghua Jinjiang to Mr. Weijie Lin for a contribution of RMB 15,000,000. On 15 October 2012, Mr. Weijie Lin transferred the entire shares in Fenghua
Jinjiang to Fenghua Fujian against payment of RMB 30,000,000.
On 8 March 2014, the Jinjiang AIC registered the capital increase of Fenghua Fujian to RMB 70,000,000 from
RMB 30,000,000 by contributions in cash of its sole shareholder, Fenghua Fujian.
Fenghua Jinjiang has a sole executive director, Mr. Weijie Lin (general manager) and one supervisor, Mr. Bingcan Lin.
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INFORMATION ON THE SHARE CAPITAL OF THE COMPANY AND
APPLICABLE PROVISIONS
Share Capital and Shares
As at the date of this Prospectus, the registered share capital of the Company (gezeichnetes Grundkapital)
amounts to EUR 10,000,000.00 and is divided into 10,000,000 shares with a notional amount of the share capital
of EUR 1.00 each. The Company's registered share capital is fully paid up.
In connection with the Offering, up to 1,200,000 New Shares are expected to be issued out of the authorised
capital based on a resolution of the Management Board expected on 27 October 2014. The application for registration of the resolution on the capital increase is expected to be filed with the commercial register of the local
court of Frankfurt on 28 October 2014. It is expected that registration will take place and the capital increase will
become legally effective on the same date. Assuming that the maximum number of New Shares will be issued,
the share capital of the Company after the Offering will amount to EUR 1,200,000 consisting of 1,200,000 no
par value bearer shares with a notional amount of EUR 1.00 per share.
Each share carries one vote at the Company's General Shareholders' Meeting. There are no restrictions on voting
rights. The shares carry full dividend entitlement for the short financial year 2014 and all subsequent financial
years. In the event that the Company is dissolved, the Company's assets remaining after settlement of its liabilities will be distributed among the shareholders in proportion of their share of the share capital.
The Company's Management Board (Vorstand) determines the form of the share certificates as well as the dividend coupons and renewal coupons with the consent of the Company's Supervisory Board (Aufsichtsrat). Global
share certificates may be issued.
The Company's current share capital is represented by one global share certificates without dividend coupons,
which is deposited with Clearstream Banking AG, Eschborn, Germany. The New Shares will be represented by
an additional global certificate which will also be deposited with Clearstream Banking AG.
All shares of the Company have been and will be created under the laws of Germany.
Authorised Share Capital
As at the date of this Prospectus, the authorised capital of the Company amounts to EUR 5,000,000 (the “Authorised Capital 2014”). Based on the Authorised Capital 2014, the Company's Management Board (Vorstand)
is authorised to increase the share capital of the Company with the consent of the Company's Supervisory Board
(Aufsichtsrat) by up to EUR 5,000,000 by issue of up to 5,000,000 shares in consideration of contributions in
cash or in kind.
In case of a capital increase based on the Authorised Capital 2014, the Company's Management Board
(Vorstand) is further authorised, in each case with the consent of the Company's Supervisory Board (Aufsichtsrat), to provide that the pre-emptive rights of the shareholders are excluded. An exclusion of the pre-emptive
rights, however, is only admitted in the following cases:

if the new shares are issued to acquire enterprises, shares in enterprises or parts of an enterprise;

for fractional amounts;

for granting shares to employees and members of the management of the Company or of a connected
enterprise in connection with employees' participation programs;

if the shares are issued in consideration of contributions in cash at an issue price which is not substantially
below the stock exchange price and the exclusion of the pre-emptive rights is only applied to new shares
that represent not more than 10 % of the share capital; for the calculation of the 10 % limitation any other
exclusion of the pre-emptive-rights according to Section 186, paragraph 3, sentence 4 of the Stock Cooperation Act (Aktiengesetz) has to be taken into account;

to list shares of the Company or certificates representing shares of the Company on domestic or foreign
stock exchanges where they are not listed yet;

to the extent necessary to grant holders of convertible bonds, convertible profit participation rights (Genussrechten), or stock options pre-emptive rights that they would have in case they became shareholders.
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A capital increase where the pre-emptive rights are excluded may not exceed 10 % of the share capital existing at
the time when this authorisation is made use of, if such capital increase serves for an employees' participation
programme.
The Company's Management Board (Vorstand) decides with the consent of the Company's Supervisory Board
(Aufsichtsrat) on the rights to and the conditions of issuance of new shares to be generated through the Authorised Capital 2014.
General Provisions Relating to Profit Allocation and Dividend Payments
Under German law, the participation of the Company's shareholders in profits is determined on the basis of their
respective interests in the share capital, unless the Articles of Association (Satzung) provide for another profit
allocation.
The adoption of resolutions regarding the distribution of dividends on the Company's shares for a given financial
year is the responsibility of the General Shareholders' Meeting (Hauptversammlung) held during the following
financial year, which resolves on the utilisation of the Company's distributable profits on the basis of the nonbinding proposal of the Company's Management Board (Vorstand) and the Supervisory Board (Aufsichtsrat). If
the Founding Shareholders hold an effective or, depending on their presence at the General Shareholders' Meeting of the Company, a factual majority of the voting rights present or represented at the General Shareholders'
Meeting, they may exercise further influence on the utilisation of the Company's profits and/or the dividends'
policy.
Under German law a resolution concerning dividends and the utilisation of distributable profits may be adopted
only on the basis of a balance sheet profit (Bilanzgewinn) shown in the Company's adopted annual individual
financial statement (festgestellter Jahresabschluss) to be prepared in accordance with generally accepted German accounting principles, i. e. the accounting provisions of the German Commercial Code (Handelsgesetzbuch
/HGB). In determining the balance sheet profit available for distribution, the annual net income
(Jahresüberschuss) or annual net loss (Jahresfehlbetrag) of the respective year must be adjusted for profits and
losses carried forward from the previous year and for deposits into or withdrawals from reserves. Certain reserves are to be created by law and must be deducted, where applicable, when calculating the balance sheet profits available for distribution. In a resolution regarding the utilisation of balance sheet profits, the General Shareholders' Meeting can include further amounts in retained earnings or carry them forward as profit.
Future dividend distributions will depend on the results of operations of the Company, its financial condition, its
need for cash and the legal, tax and regulatory environment, as well as other factors. If the Company's (individual) annual financial statements (Jahresabschluss) prepared under German GAAP, i.e. the accounting provisions
of the German Commercial Code (Handelsgesetzbuch, HGB), in the future show balance sheet profits
(Bilanzgewinn), the Company's Management Board (Vorstand) and Supervisory Board (Aufsichtsrat) intend to
propose a profit distribution of an amount between 20 % and 30 % of the profit for the fiscal year 2012 according to the consolidated IFRS financial statements of the Company, if and to the extent the Company's (individual) annual financial statement accounts for a respective balance sheet profit. The remaining profits will be
booked as retained earnings and be used to finance the further development of Fenghua's business.
Dividends resolved by the Company's General Shareholders' Meeting are paid annually, shortly after the General
Shareholders' Meeting, in compliance with the rules of the respective clearing system. In accordance with the
general provisions of sections 195 and 199 para. 1 of the German Civil Code (Bürgerliches Gesetzbuch, BGB)
dividend claims become time-barred three years after the end of the year in which the General Shareholders'
Meeting has taken the respective resolution on the distribution of profits (Gewinnverwendungsbeschluss). After
expiry of this period, the Company may refuse payment of the respective dividend to a shareholder. Notifications
concerning the distribution and payment of dividends will be published in the electronic version of the Federal
Gazette (elektronischer Bundesanzeiger) and in at least one official national publication for statutory stock market notices approved by the Frankfurt Stock Exchange.
General Provisions Relating to a Liquidation of the Company
Apart from liquidation as a result of insolvency proceedings and other reasons as set forth in the German Stock
Corporation Act (Aktiengesetz), the Company may be liquidated only upon resolution of the General Shareholders' Meeting (Hauptversammlung) to be adopted with a majority of at least 75 % of the share capital represented
at the General Shareholders' Meeting at which such resolution is adopted. In such a case, the assets remaining
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following fulfilment of all of the Company's liabilities will be distributed among the shareholders according to
their respective shares in the share capital and in accordance with the German Stock Corporation Act.
General Provisions Governing Changes in Share Capital
Under the German Stock Corporation Act (Aktiengesetz), the share capital of a German stock corporation (Aktiengesellschaft) may be increased in return for contributions (Kapitalerhöhungen gegen Einlagen) on the basis
of a resolution by the General Shareholders' Meeting passed with a majority of at least three-quarters of the share
capital represented at the time the resolution is adopted.
In addition to the capital increase against contributions, the shareholders may also create authorised capital
(genehmigtes Kapital) or conditional capital (bedingtes Kapital). In the case of authorised capital, the Management Board (Vorstand) is authorised by the means of a respective provision in the articles of association or a
resolution of the General Shareholders' Meeting, upon the approval of the Supervisory Board (Aufsichtsrat) to
increase the share capital one time or several times up to an amount of not more than 50 % of the issued share
capital at the time the authorisation is granted against contributions in cash by issuing new shares within a period
of no more than five years. The shareholders' resolution creating the authorised capital requires a majority of
three-quarters of the share capital represented at the time the resolution is adopted. The General Shareholders'
Meeting may also create conditional capital (bedingtes Kapital) for the purpose of issuing (i) shares to holders of
convertible bonds or other securities conferring pre-emptive rights on company shares, (ii) shares that serve as
consideration in the event of a merger with another company, or (iii) shares offered to senior managers and employees. The resolution of approval to be adopted by the General Shareholders' Meeting requires a majority of
three-quarters of the share capital represented at the time of the resolution. The nominal amount of the conditional capital may not exceed 50 % of the share capital or, if the conditional capital is created for the purpose of
issuing shares to senior managers and employees, 10 % of the existing share capital at the time the resolution is
adopted.
A resolution to decrease the amount of the share capital requires a majority of three-quarters of the share capital
represented at the time of the resolution.
General Provisions Relating to Pre-Emptive Rights
The German Stock Corporation Act provides that, in the case of a capital increase – with the exception of a conditional capital increase – shareholders are, in principle, entitled by law to pre-emptive rights regarding new
shares to be issued in the course of a capital increase in accordance with their current equity quota (gesetzliches
Bezugsrecht). The same applies to the issuance of convertible bonds, income bonds, profit participation rights or
bonds with warrants as well as in respect of the sale of treasury shares. Pre-emptive rights are freely transferable
and the Company may determine that the pre-emptive rights may be traded on a German stock exchange during
a fixed period prior to the expiry of the subscription period.
The General Shareholders' Meeting (Hauptversammlung) may partially or completely exclude the pre-emptive
rights by means of a resolution passed with a majority of at least three-quarters of the share capital represented at
the time the resolution is adopted. The Management Board (Vorstand) must present a written report to the shareholders' meeting justifying the exclusion of the pre-emptive rights. An exclusion of pre-emptive rights is permissible if the Company's interest in excluding the pre-emptive rights outweighs the shareholders' interest in the
conferral of the pre-emptive rights. In the absence of such justification, pre-emptive rights may only be excluded
in the case of a capital increase if such capital increase has been effected in return for cash contributions, the
amount of the capital increase does not exceed 10 % of the existing share capital, and the issue price of the new
shares is not substantially below the stock exchange price of the shares already trading on the stock exchange.
Reporting and Notification Requirements in Relation to Share Ownerships
German law provisions
Upon the admission of its shares to the official market of the Frankfurt Stock Exchange (see: “The Offering –
General and Specific Information on the Shares – Admission to Trading and Listing of Shares”) the Company, as
a publicly listed company, is subject to the provisions of the German Securities Trading Act (Wertpapierhandelsgesetz) (“WpHG”). The WpHG requires that every shareholder who reaches, exceeds or falls below, through
purchase, sale or any other manner, 3 %, 5 %, 10 %, 15 %, 20 %, 25 %, 30 %, 50 % or 75 % of the voting rights
in a listed company must, without undue delay but within four trading days at the latest, submit written notifica-
139
tions to the relevant company and to the German Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht) stating that it has reached, exceeded, or fallen below the aforementioned thresholds
and indicating its share of the voting rights. Upon receipt of a notification submitted in this manner, the Company must publish this notification without undue delay, but within three trading days at the latest, in a national
journal designated for such purposes by a stock exchange and without undue delay, but not before publication
notification, transfer this notification to the enterprise register (Unternehmensregister). Further, according to the
WpHG a shareholder who reaches or exceeds 10 %, 15 %, 20 %, 25 %, 30 %, 50 % or 75 % of the voting rights
in a listed company is obliged to inform the company within 20 stock exchange trading days about (i) the financing sources for such investment and (ii) its investment purposes, unless this obligation has been dispensed with
in the Articles of Association of the Company, which is not the case in the Company's Articles of Association.
In connection with this requirement, the WpHG contains various rules that aim to ensure that share ownership is
attributed to the party that actually controls the voting rights attached to the shares. For example, shares belonging to a third company are attributed to another company if the latter controls the former. Similarly, shares held
by a company for the account of another company or a company it controls are also attributed to that first company. If the respective notification is not made, the shareholder is excluded from exercising all rights related to
the shares (including voting rights and the receipt of dividends) for the duration of the non-compliance. In addition, in the event of non-compliance with the notification obligation, a fine may be imposed.
On 22 September 2010 the German Government passed a draft “Protection of Investors Act” (Gesetz zur
Stärkung des Anlegerschutzes und Verbesserung der Funktionsfähigkeit des Kapitalmarkts) which the German
Parliament approved on 11 February 2011. The Federal Council consented to this on 18 March 2011. All provisions of this act entered into force up to now except for, which is otherwise provided therein, the provisions
introducing new qualification standards (“skilled” and “reliable”) for compliance officers, employees in investment consulting or distribution. These provisions will enter into force on 1 November 2012. The remaining act
being in force extends reporting obligations for financial instruments which grant a right to acquire shares by
adding a reporting obligation for “other instruments”. Consequently, repayment claims from securities loans and
repurchase claims from so-called repo-transactions, which were previously not included, will become subject to
reporting in the future. There will also be a new reporting obligation for instruments which, due to their structure, “make it possible” for the respective holder or a third party to acquire shares which have already been issued. The act provides for two non-exhaustive rule examples for the constituent element of “making it possible”.
According to the first rule example such instruments shall be subject to the reporting obligation, in respect of
which the risks of the respective counter party due to holding shares of the company concerned, can be excluded
or limited. The second rule example covers instruments which establish either a right or an obligation to acquire
shares. Investors who, at the time of coming into effect, hold such instruments which entitle them to acquire at
least 5 % of the voting rights of a listed company have to notify the German Federal Financial Supervisory Authority (BaFin) and the issuer thereof within 30 business days at the latest. The act provides for an aggregation of
such hypothetical voting rights subject to reporting obligations and the other shareholdings subject to reporting
obligations.
Polish law provisions
Reporting obligations
Reporting obligations will arise upon the admission of the Shares of the Company to trading on the WSE. Germany is the home EU member state, whereas Poland will become a host EU member state. The scope of current
and periodic information disclosure obligations and their dates needs to be determined on the basis of the home
EU member state’s regulations, i.e. German law. The information must be disclosed to KNF and the WSE, as
well as to the public by the intermediary of a Polish press agency at the Company’s discretion, and must also be
published on the Company’s website.
Notifications of substantial holdings of Shares
According to the Polish Act on Public Offering publicly traded companies are subject to the following requirements.
Anyone who acquired or sold shares and as a consequence achieved or exceed the threshold of 5 %, 10 %,15 %,
20 %, 25 %, 33 %, 33⅓ %, 50 %, 75 % or 90 % of the total number of votes exercisable in the Company is required to promptly notify KNF and the Company accordingly about that fact but no later than: (i) four business
days from the date the respective shareholder became aware of the change in the proportion of the total number
of voting rights or could have been aware by acting with diligence, or (ii) in the event of a change due to a purchase of the shares on the regulated market – no later than within six trading days following the transaction.
The reporting obligation also applies to shareholders who:
140

hold more than 10 % of the total number of voting rights and whose shareholding changed at least by 2 %
of the total number of voting rights;

hold more than 33 % of the total number of voting rights and whose shareholding changed at least by 1 %.
In accordance with the Polish Act on Public Offering, after having received a respective notice a company is
required to promptly and simultaneously publish the notice and submit it to KNF as well as the WSE. The reporting duty does not apply if following the settlement by the securities deposit of several transactions executed
on the regulated market during one day, a change in the given shareholder’s share in the total number of votes in
the company as at the settlement date does not result in the threshold triggering the reporting duty being reached
or exceeded.
Other restrictions
Persons who are members of a company’s management and supervisory boards, company’s proxies and other
persons who hold management positions in the company which have permanent access to confidential information related to the company’s development and economic prospects shall notify the KNF and the company of
any transactions executed by them or by persons related to them and for their own account, hereby they acquire
or dispose of any company's shares, derivative rights attached thereto and other financial instruments related to
the issuer's securities admitted or sought to be admitted to trading on a regulated market.
Moreover, Polish law prohibits the use of confidential information in trading. Pursuant to Polish law, inside
information is any information of a precise nature, relating, whether directly or indirectly, to one or more issuers
of financial instruments, one or more financial instruments, or acquisition or disposal of such instruments, which
has not been made public and which, if made public, would be likely to have a significant effect on the prices of
financial instruments or related derivative financial instruments.
Use of confidential information shall consist in acquisition or disposal of financial instruments for one’s own
account or for the account of a third party effected on the basis of inside information held by a given person, or
any other legal transaction undertaken for one’s own account or for the account of a third party which leads or
might lead to disposal of such financial instruments. Restricted periods are:

the period between the obliged person gains a confidential information regarding the company and the
time when such information is made public;

in the case of an annual report – the period of two months preceding the publication of such report or, if
shorter, the period between the end of a given financial year and the publication of such report.

in the case of a semi-annual report – the period of one month preceding the publication of such report or,
if shorter, the period between the end of a given half year and the publication of such report.

in the case of a quarterly report – the period of two weeks preceding the publication of such report or, if
shorter, the period between the end of a given quarter and the publication of such report.
Public Takeovers
German provisions
Pursuant to the German Securities Acquisition and Takeover Act (Wertpapiererwerbs- und Übernahmegesetz)
(the “Takeover Act”), the Company as a stock corporation (Aktiengesellschaft) listed on a regulated market
within the meaning of Article 4, paragraph 1, No. 14 of the European Union-Directive 2004/39/EC is considered
a so-called target company (Zielgesellschaft) in the event of a publicly launched offer for the acquisition of a part
or all of the Company's shares (“Public Offer”). Pursuant to the Takeover Act, if a person intends to make a
Public Offer to purchase shares of a company listed on a stock exchange, it needs to publish this intention and
within four weeks submit a so-called offer document (“Offer Document”, Angebotsunterlage) to BaFin for its
approval. After approval by BaFin, the Offer Document must also be published. The Offer Document needs to
contain comprehensive information about the Public Offer, including information about the bidder, the offered
compensation to be paid to the shareholders accepting the public offer, and the financial means and reasons for
the public offer.
In the event of a Public Offer for the acquisition of at least 30 % of a listed company's shares (“Takeover Offer”), even stricter requirements apply. The Takeover Act contains comprehensive provisions setting out requirements for an adequate compensation based on the average trading price of the shares, and requires that a
Takeover Offer may not be limited to only some of the shares of the target company (prohibition of partial takeover offers). In addition, the management board and the supervisory board of the target company have to publish
141
a substantiated statement on the Takeover Offer. The management board of the target company must not take
any actions that could result in frustrating the Takeover Offer.
According to the Takeover Act any party whose share of the voting rights reaches or exceeds 30 % of the voting
shares of the Company after admission to trading is required to publish this fact, including the percentage of the
voting rights held, within seven calendar days via Internet and by means of an electronic system for the dissemination of financial information, and subsequently, unless an exemption from this requirement is granted, to submit a mandatory Takeover Offer to all shareholders of the Company.
Polish provisions
According to the Polish Act on Public Offering, in the case of an acquisition of such a number of shares that
increases the respective shareholder’s participation in the total number of voting rights by (i) more than 10 % in
a period of less than 60 days – if a shareholder holds less than 33 % of the total number of voting rights, or
(ii) more than 5 % within a period of 12 months – if a shareholder holds 33 % or more of the total number of
voting rights, the acquisition may only take place by way of a tender offer announced to subscribe for the sale or
exchange of the shares in a number of no less than 10 % and/or 5 % of the total number of voting rights respectively.
The investor may exceed 33 % of the aggregate number of voting rights in the Company solely as a result of the
announcement of a tender offer to subscribe for the sale and/or exchange of shares concerning a number of
shares which confers the right to at least 66 % of the total vote, except where exceeding 33 % of the total number
of voting rights will take place as a result of an announcement for all outstanding shares.
If a shareholder exceeds the 33 % threshold as a result of an indirect acquisition of shares (e.g. becoming a parent entity in another company or other legal entity which holds shares in a company or legal entity which is a
parent entity of the company), a subscription for shares pursuant to a new issue, an acquisition of shares as part
of a public offering or as a non-cash contribution to a company, a merger or demerger of a company, amendments to the company’s articles of association, expiry of preference rights attached to shares, or otherwise as a
result of a legal occurrence other than an act in law (for example due to unjust enrichment or inheritance), the
shareholder or entity acquiring shares indirectly shall, within three months from exceeding the 33 % threshold:
1.
announce a tender offer to subscribe for sales or exchange of the company shares, concerning a number of
shares conferring the right to at least 66 % of the total vote, or
2.
dispose of a sufficient number of shares as to hold shares conferring the right to not more than 33 % of the
total vote,
unless within that period the share of such shareholder or of the entity who has indirectly acquired shares decreases to no more than 33 % of the total vote as a result of a share capital increase, amendment of the company's articles of association, or expiry of preference rights attached to shares, respectively.
A tender offer shall be announced and carried out through the intermediation of an entity conducting investment
activities in Poland, which shall, no later than within 14 business days before the opening of the subscription
period, simultaneously notify the KNF and the company operating the regulated market on which given shares
are listed, of the intent to announce the tender offer. A copy of the tender offer must also be published.
The tender offer shall be announced after collateral is created for not less than 100 % of the value of the shares
covered by the tender offer. Moreover, a tender offer may not be abandoned, unless another entity announces a
tender offer for the same shares after the first tender offer is announced. A tender offer for remaining shares in a
given company may be abandoned only, if another entity announces a tender offer for remaining shares in the
company at a price not lower than the price of the first tender offer.
An entity obliged to announce a tender offer may not until its completion, directly or indirectly, acquire or take
up shares of the company, if it has exceeded a relevant threshold of the number of shares.
The applicable regulations set out detailed terms in connection with a public tender offer, including without
limitation the rules of determining the tender offer price, required security and settlement.
Squeeze-Out of Minority Shareholders and Integration
German provisions
Pursuant to the German Stock Corporation Act, the shareholders' meeting of a German stock corporation (Aktiengesellschaft) can, at the request of a shareholder holding 95 % of the share capital (“Principal Shareholder”), resolve to transfer the shares of the remaining minority shareholders to the Principal Shareholder in return
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for payment of a suitable cash settlement (so-called “squeeze-out” of minority shareholders). The amount of the
cash settlement to be paid to the minority shareholders must reflect the company's situation at the time the resolution is passed by the shareholders' meeting. The amount of the cash settlement is based on the full value of the
Company, which is determined using the capitalised earnings value calculation. Upon registration of the resolution of the General Shareholders' Meeting on the squeeze-out with the commercial register, the shares of the
minority shareholders are automatically transferred to the Principal Shareholder.
According to the Takeover Act, there is a further possibility of a squeeze-out of minority shareholders after a
public takeover offer. According to the Takeover Act, a bidder that holds 95 % of the voting share capital of a
target company after a public takeover offer may within a period of three months following the expiration of the
offer period file an application with the local court in Frankfurt to issue a court order to transfer the remaining
voting shares against an adequate compensation. A resolution of the General Shareholders' Meeting is not required. The consideration offered has to correspond to the consideration offered in connection with the takeover
or mandatory bid and a cash consideration has to be offered alternatively. Shareholders also have the right to
request acquisition of their shares.
The general shareholders' meeting of a stock corporation may resolve on the integration (Eingliederung) of a
corporation if at least 95 % of the shares of the company to be integrated are held by the future principal company. The former shareholders of the integrated company can claim a suitable settlement that generally must be
granted in the form of shares of the remaining company. The amount of the settlement is calculated using a
“merger value ratio” between the two companies, i.e., the exchange ratio that would be deemed to be appropriate
in the event of a merger of the two companies.
Furthermore, within three months after the signing of a merger agreement between a transferring stock corporation (Aktiengesellschaft) and an acquiring company, a squeeze-out resolution can be adopted at the General
Shareholders Meeting of the transferring stock corporation at the request of the acquiring company when the
minimum shareholding of the acquiring company in the transferring stock corporation amounts to or exceeds
90 % of the share capital of the transferring stock corporation. As a prerequisite, the acquiring company must be
in the legal form of a stock corporation or a partnership limited by shares (Kommanditgesellschaft auf Aktien).
Polish provisions
Pursuant to Article 82 of the Polish Act on Public Offering, a shareholder in a company that, on its own or together with its subsidiaries or parent companies or with companies which are parties to an agreement regarding
the purchase of shares, voting in concert at the shareholders meeting or conducting long-term policy against the
company, reaches or exceeds 90 % of the overall number of votes in the company, may demand, within three
months from the date on which such shareholder reaches or exceeds of the relevant threshold, that the remaining
shareholders sell all the shares held by them to such shareholder.
Pursuant to Article 83 of the Polish Act on Public Offering, a shareholder in a company may demand that another shareholder, which has reached or exceeded 90 % of the total number of votes, purchases from it the shares it
holds in the company. The demand is made in writing within three months from the date on which such shareholder reaches or exceeds the relevant threshold.
The applicable regulations set detailed terms in connection with a squeeze-out and sell-out, including without
limitation the rules of determining the price, required security and settlement.
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CORPORATE BODIES AND MANAGEMENT
The corporate bodies of the Company are the Management Board (Vorstand), the Supervisory Board (Aufsichtsrat) and the General Shareholders' Meeting (Hauptversammlung). The powers of these governing bodies are
determined by the provisions of the German Stock Corporation Act (Aktiengesetz), the Company's Articles of
Association (Satzung), and the respective rules of procedure of the Management Board and the Supervisory
Board (Geschäftsordnungen für den Vorstand und den Aufsichtsrat).
The Management Board conducts the Company's business in accordance with the relevant statutes, the Company's Articles of Association and the Management Board's respective rules of procedure. It represents the Company in dealings with third parties.
The Management Board is responsible for ensuring that appropriate risk management and risk monitoring systems are in place to provide early warning of any developments that might jeopardise the Company's continuing
existence. The Management Board also has an obligation to report regularly on at least a quarterly basis to the
Supervisory Board on the status of business, in particular any developments affecting revenues, and on the situation of the Company and its subsidiaries. In the last Supervisory Board meeting of each financial year, the Management Board must report on business policy and other key issues relating to corporate planning and present the
budget for the following financial year, as well as present its mid-term strategy. The Management Board is also
required to report to the Supervisory Board in a timely fashion on any transactions that may be significant with
respect to the Company's profitability or liquidity, in order to give the Supervisory Board the opportunity to
express its opinion on such transactions prior to their implementation. The Management Board must further
report any important matters to the Chairman of the Supervisory Board (Vorsitzender des Aufsichtsrats), including any matter involving subsidiaries and/or affiliates that could have a material effect on the Company's position. In the case of stock corporations, under German law no member of the Management Board may serve concurrently on the Supervisory Board. A concurrent membership limited to no more than one year is however possible by delegating a member of the Supervisory Board to the Management Board. During such period of time,
the delegated member cannot engage in any activities in the Supervisory Board.
The Supervisory Board appoints the members of the Management Board and is entitled to dismiss them for good
cause. The Supervisory Board advises the Management Board on managing the Company and supervises its
management activities. Pursuant to the German Stock Corporation Act, the Supervisory Board may not engage in
management activities. However, under the Articles of Association or the Management Board's respective rules
of procedure, the Management Board must obtain the Supervisory Board's approval for certain transactions,
usually prior to the implementation of such measures or transactions.
Members of the Management Board and Supervisory Board owe a duty of care and loyalty to the Company. In
all their actions, members of these governing bodies must consider a wide number of interests, including those of
the Company, its shareholders, its employees and its creditors. The Management Board must also take into consideration the right of shareholders to equal treatment and equal information. Should members of the Management or Supervisory Boards breach these duties, they are jointly and severally liable to the Company for compensation.
Under currently applicable German law, a shareholder has no possibility of taking direct action against members
of the Management Board or the Supervisory Board if it is of the opinion that they have breached their fiduciary
duties and that, as a result, the Company has suffered damages. Under normal circumstances only the Company
itself is entitled to claim compensatory damages against the members of the Management Board or the Supervisory Board. The Company will be represented by the Management Board in the case of claims against members
of the Supervisory Board and by the Supervisory Board in the case of claims against members of the Management Board. Based on a decision by the German Supreme Court, the Supervisory Board is obligated to pursue
enforceable claims for compensatory damages expected to be enforceable against the Management Board, unless
significant reasons related to the Company's welfare make the enforcement of a claim unadvisable and these
reasons outweigh or are at least on balance with the reasons supporting the pursuit of a claim.
If the respective governing body entitled to represent decides not to pursue a claim, the German Stock Corporation Act, requires that claims for compensatory damages of the Company must be enforced against members of
governing bodies if the General Shareholders' Meeting so resolves with a simple majority. Shareholders whose
aggregate shareholdings equal or exceed 10 % of the share capital or a notional value of the share capital of
EUR 1,000,000 may request that a representative be appointed to enforce claims for compensatory damages.
Furthermore, shareholders whose aggregate shareholdings at the time of the request equal or exceed 1 % of the
share capital or a notional value of the share capital of EUR 100,000 may request in their own name that a law
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suit be admitted before the Regional Court (Landgericht) at the Company's registered domicile for enforcement
of claims for compensation brought by the Company. Among other things, a prerequisite for admission of the
action is that the shareholders of the Company have unsuccessfully requested to bring an action, after setting an
appropriate deadline, and facts exist that justify the suspicion that the Company has incurred damages due to
impropriety or gross violation of the law or the Company's Articles of Association (Satzung). The Company is
entitled at any time to enforce its claim for compensatory damages itself. The bringing of an action by the Company makes a pending approval procedure or action by the shareholders inadmissible.
The Company may not waive or settle any such claim until three years have elapsed since the vesting of such
claims, and then only if the General Shareholders' Meeting so resolves by simple majority, provided further that
no minority of shareholders, holding in the aggregate 10 % or more of the registered share capital, raises a written objection in the minutes of the meeting.
Under German law, neither shareholders nor any other individual may attempt to influence members of the Management or Supervisory Boards to act in a manner that would harm the Company. Shareholders who have a
controlling influence may not use such influence to cause the Company to act against its interest, unless the
resulting damage is compensated for. Any person who uses its influence to cause a member of the Management
or Supervisory Board, a commercial attorney in fact (Prokurist) or any person holding a commercial power of
attorney to act in a manner that harms the Company or its shareholders may be obliged to compensate the Company and its shareholders for the resulting damage. In addition, the members of the respective Supervisory and
Management Boards may be jointly and severally liable for breach of their duties.
Management Board
General Provisions on the Management Board
The Supervisory Board determines the size of the Management Board which, under the Company's Articles of
Association, must have at least one member. The Supervisory Board may appoint one Management Board member as chairman or spokesman and another member as deputy chairman or spokesman. Furthermore, the Supervisory Board may appoint further members of the Management Board.
Members of the Management Board are appointed by the Supervisory Board for a maximum term of five years.
Reappointment or extension of the term, for a maximum of five years in each case, is permissible upon a resolution of the Supervisory Board that may be adopted not earlier than one year prior to the expiration of the current
term of office. The Supervisory Board may revoke the appointment of a Management Board member prior to the
expiration of its term for good cause, such as for gross breach of fiduciary duties or if the General Shareholders'
Meeting adopts a no-confidence resolution in relation to the Management Board member in question.
The Supervisory Board, or, if the Supervisory Board has not done so, the Management Board with the approval
of the Supervisory Board, may issue rules of procedure for the Management Board (Geschäftsordnung für den
Vorstand). For specific types of transactions of the Company or controlled and affiliated companies, in particular
those that fundamentally change the Company's earnings prospects or its risk exposure, the respective rules of
procedure must specify that such transactions require the prior consent of the Supervisory Board.
According to its Articles of Association, the Company is legally represented by the members of the Management
Board acting jointly or by one member of the Management Board acting jointly with one commercial attorney in
fact, and, if only one person is appointed to the Management Board, that person is entitled to represent the Company solely. The Supervisory Board can grant sole power of representation to individual members or to all members of the Management Board and exempt individual members or all members of the Management Board from
the prohibition against multiple representations (Section 181, second alternative, German Civil Code), Section
112 of the German Stock Corporation Act not being hereby affected. The Supervisory Board has granted Mr.
Weijie Lin sole power of representation and exemption from the restrictions of Section 181, second alternative,
of the German Civil Code by means of a resolution dated 22 July 2014. The resolutions of the Management
Board are adopted by a simple majority of its members unless other majorities are prescribed by law, the Company's Articles of Association or the Management Board's respective rules of procedure.
Rules of Procedure for the Management Board
The Supervisory Board of the Company intends to issue rules of procedure for the Management Board. According to the rules of procedure, certain transactions (for example, capital expenditure projects above a specific
145
amount, the acquisition and disposal of companies and of real property above a specific amount) will require the
prior consent of the Supervisory Board.
Members of the Management Board
The Management Board of the Company currently comprises three members. The members of the Management
Board as at the date of this Prospectus are set out below:
Date of birth
Initially
appointed in
Appointed
until
Mr. Weijie Lin
14 November 1977
2014
2019
Chief Executive Officer (CEO)
Mr. Shiau Wuee Yong
11 August 1974
2014
2019
Chief Financial Officer (CFO)
Mr. Jia Jian Lin
06 October 1977
2014
2019
Chief Operations Officer (COO)
Name
Responsibilities
There are no family relationships between the members of the Management Board amongst each other or with
the members of the Supervisory Board.
Mr. Weijie Lin
Active in the shoe materials industry since 1996, he established Jinjiang Fenghua Shoe Material Co., Ltd. in
2004. With a deep understanding of the market, he built up a professional team with strong experience in the
market for shoe materials, developing Fenghua into the second largest manufacturer of sports shoe soles in China.
Over the last five years, Mr. Weijie Lin has been a partner in the following partnerships or a member of administrative, management or supervisory bodies of the following companies outside of Fenghua:
Current:

None
Past:

Xingpeng Shareholding Co., Ltd., China, Chairman cum General Manager
Mr. Shiau Wuee Yong
He graduated with a Bachelor of Commerce, major in Accounting from The Flinders University of South Australia, Australia in 1998. He qualified as a Certified Practicing Accountant, Australia in 2003. In 2004, he qualified as a Chartered Accountant, Malaysia. After graduation, he gained experience working for local accounting
firms. In 2002, he joined Meiban Technologies Inc. (Malaysia) as Accountant and subsequently was promoted as
Finance Manager. In 2010, he moved on to join Multi Sports Holdings Ltd. a company listed on Bursa Malaysia,
as Chief Financial Officer, before joining Fenghua in August 2012.
Over the last five years, Mr. Shiau Wuee Yong has been a partner in the following partnerships or a member of
administrative, management or supervisory bodies of the following companies outside of Fenghua:
Current:

None
Past:

Multi Sports Holdings Ltd, Bermuda, CFO
Mr. Jia Jian Lin
Mr. Jia Jian Lin has been active in the sports shoe industry since 1992. He has been Deputy-General Manager
then General Manager of Fenghua since its foundation in 2004. He participated in an MBA course at Quanzhou
Huaqiao University between 2009 and 2010.
146
Over the last five years, Mr. Weijie Lin has been a partner in the following partnerships or a member of administrative, management or supervisory bodies of the following companies outside of Fenghua:
Current:

None
Past:

Xingpeng Shareholding Co., Ltd., China, director
Compensation of Management Board Members
Mr. Weijie Lin received a total compensation of RMB 290,246 (EUR 35,294) for his services in the last full
financial year 2013. Based on his service agreement, he is entitled to an annual fixed salary of RMB
264,000(EUR 32,102).
Mr. Shiau Wuee Yong received a total compensation of RMB 650,000 (EUR 79,040) for his services in the last
full financial year 2013. Based on his service agreement, he is entitled to an annual fixed salary of RMB 600,000
(EUR 72,960) and an annual wage supplement of RMB 50,000 (EUR 6,080).
Mr. Jia Jian Lin received a total compensation of RMB 199,246 (EUR 24,228) for his services in the last full
financial year 2013. Based on his service agreement, he is entitled to an annual fixed salary of RMB 180,000
(EUR 21,888).
Except for the compensation arrangements set out above, the service agreements of the Management Board
members do not provide for performance-related or other variable salary components or benefits upon termination of employment.
Shareholding and Options
As at the date of this Prospectus, Mr. Weijie Lin indirectly holds 67.5 % of the shares in the Company.
Otherwise, the members of the Management Board do not hold any shares or options on shares in the Company.
Conflicts of Interest
Potential conflicts of interest may arise from the direct or indirect shareholdings of the Management Board
member Mr. Weijie Lin in the Company (see: “Shareholder Structure” and “Corporate Bodies and Management
– Management Board – Shareholdings and Options”) since he has personal interests in the development of the
value of their shares of the Company and their respective stake. This interest can conflict with the interests of the
Company as well as their duties to the Company. Such duties include the duty to act in the best interest of the
Company and all its shareholders and other stakeholders, including employees.
Otherwise, there are no other conflicts or potential conflicts of interest between any of the duties of the members
of the Management Board to the Company and their private interests or other duties.
Supervisory Board
General Provisions on the Supervisory Board
Pursuant to the Company's Articles of Association the Supervisory Board is composed of three members who are
appointed by the General Shareholders' Meeting. The term of a Supervisory Board member may not exceed a
period after annual General Shareholders' Meeting that formally approves the actions of the Supervisory Board
members for the fourth financial year following the commencement of the respective member's term of office,
not including the financial year in which the respective term of office has commenced. Supervisory Board members may be re-elected.
Any Supervisory Board member may be removed by means of a resolution of the General Shareholders' Meeting
with a simple majority of the votes cast by the shareholders in the General Shareholders' Meeting. In addition,
according to the Articles of Association, any Supervisory Board member as well as any substitute member (Ersatzmitglied) may resign for any reason by serving at least one month's prior written notice to the Chairman of
the Supervisory Board and to the Management Board. With the consent of the Chairman of the Supervisory
Board, this notice period can be waived. The resignation may take immediate effect if good cause is present.
147
When electing a member of the Supervisory Board, the General Shareholders' Meeting may simultaneously elect
substitute members who become members of the Supervisory Board if the appointed member resigns before the
end of his or her term in office.
The Supervisory Board appoints a Chairman and a Deputy Chairman from among its members. The Chairman
or, if unable to attend, the Deputy Chairman, is obligated to convene and conduct the meetings of the Supervisory Board.
According to the provisions of the Company's Articles of Association, the Supervisory Board has a quorum if
half of its members, however at least three members, are present. Unless required otherwise by law or by the
Company's Articles of Association, resolutions of the Supervisory Board are passed by a simple majority of
votes cast.
Supervisory Board Committees
Due to its small size with only three members, the Supervisory Board has not set up any committees, in particular, it does not have an audit committee or a remuneration committee.
Rules of procedure for the Supervisory Board
The Supervisory Board of the Company intends to adopt rules of procedure for the Supervisory Board (Geschäftsordnung für den Aufsichtsrat).
The Members of the Supervisory Board
The current members of the Company's Supervisory Board are set out below:
Name
Date of birth
Initially
appointed in
Term expires in (1)
12 September 1977
2014
2015
Chairman of the
Supervisory Board
Mr. Jaroslaw Dariusz Dabrowski 11 October 1964
2014
2015
Deputy Chairman of the
Supervisory Board
Ms. Shen Cheng
2014
2015
Member of the
Supervisory Board
Mr. Mircle Ching Chai Yap
27 September 1981
Function
(1) Term of office expires after the General Shareholders' Meeting that formally approves (entlastet) the actions of the members of the
Supervisory Board of the financial year 2014.
There are no family relationships between the members of the Supervisory Board amongst each other or with the
members of the Management Board.
Mr. Mircle Ching Chai Yap
Mr. Mircle Ching Chai Yap is a Malaysian national. He graduated with a Bachelor of Business Administration in
Strategic Operations Management and a Bachelor of Business Administration in Human Resources Management
from Georgia Southern University, USA, in 1998. He graduated with a Master degree in Business Management
from Phoenix International University in New Zealand in 2003 and received a Certificate of Management from
the New Zealand Institute of Management in 2003. Mr. Yap has over eleven years' experience in the finance
industry, primarily in South East Asia as a director and investment adviser. Mr. Yap currently works as a strategic investment adviser for One Capital Group Investment Ltd. where he is responsible for developing strategies
and implementing the organisation's financial plans. Prior to working at One Capital Group Investment Mr. Yap
was a strategic investment adviser at Quarto Capital LLC from 2007 to 2011. He was an executive director at
Exalt Global Investment & Co. In recognition of his contribution to society, Mr. Yap has recently received the
state title award of Knight Companion from The Esteemed Order of the Crown of Pahang, Malaysia.
Over the last five years, Mr. Mircle Ching Chai Yap has been a partner in the following partnerships or a member of administrative, management or supervisory bodies of the following companies outside of Fenghua:
148
Current:

Camkids Group PLC, United Kingdom, non-executive director

JJ Auto AG, Germany, supervisory board member

JQW PLC United Kingdom, non-executive director

Feike AG, Germany, member of the supervisory board
Past:

None
Mr. Jaroslaw Dariusz Dabrowski
Mr. Jaroslaw Dariusz Dabrowski is an independent investment banking professional, active as a financial advisor. He is founder and CEO of Dabrowski Finance Sp. z o.o., Poland, founded in 2009, a corporate finance advisory services company. He advises on various debt and equity projects, on restructuring and on other strategic
investments. Before working with Dabrowski Finance Mr. Dabrowski has been president of the board of DnB
NORD Bank Polska S.A and of BISE Bank S.A. As such, he was responsible for the entire activity of the Bank,
including strategy and business development. He was the supervisor of the financial division, human resources,
legal and marketing departments as well as internal audit and compliance. Before 2004, Mr. Dabrowski has been
working for Raiffeisen Bank Polska S.A., partly as vice president and member of the board. Older employments
include National Investment Fund Progress S.A., Raiffeisen Atkins Fund Management Consortium S.A., Raiffeisen Centrobank S.A., the Polish Council of Ministers Office, and the law firm Finryan International Ltd.,
Poland. Mr. Dabrowski is holder of a Master's Degree in Law and of an MBA from the University of Warsaw
and of an AMP from the University of Navarra.
Over the last five years, Mr. Dabrowski has been a partner in the following partnerships or a member of administrative, management or supervisory bodies of the following companies outside of Fenghua:
Current:

Dabrowski Finance Sp. z o.o., Poland, Partner

Peixin International Group N.V., Netherlands, Supervisory Board Member
Past:

None
Ms. Shen Cheng
Ms. Shen Cheng is a certified public accountant under the CICPA (Chinese Institute of Certified Public Accountants). She studied at the Shanghai University of Finance and Economics from 2000 to 2004 and received a
bachelor degree in business administration (majoring in accounting) and a bachelor degree in law (minoring in
international economic law). Ms. Cheng worked from 2004 to 2011 at PricewaterhouseCoopers Shanghai where
she was responsible for the annual auditing of several Chinese companies, including companies listed in China
or overseas and Sino-foreign joint ventures. Since 2012 until the date hereof, Ms. Cheng has been working as the
chief financial officer of NetDragon Websoft Inc., a HK-listed company.
Over the last five years, Ms. Cheng has been a partner in the following partnerships or a member of administrative, management or supervisory bodies of the following companies outside of Fenghua:
Current:

NetDragon Websoft Inc., China, Financial Controller
Past:

None
Compensation of Supervisory Board Members
In accordance with German Stock Corporation Law, the Supervisory Board members do not have service agreements with the Company. As the members of the Company's Supervisory Board are the first members of the
Supervisory Board within the meaning of § 30 of the German Stock Corporation Act, according to § 113 para. 2
149
sentence 1 of the German Stock Corporation Act their remuneration can only be determined by the General
Shareholder's Meeting that approves their actions, which will be held in 2015. The members of the Management
Board and Supervisory Board intend to propose to that General Shareholders' Meeting to adopt the following
remuneration for the Supervisory Board members:
Function
Fixed annual remuneration in EUR
Chairman of the Supervisory Board
40,000
Deputy Chairman of the Supervisory Board
30,000
Ordinary member of the Supervisory Board
20,000
Every member of the Supervisory Board is entitled to reimbursement for expenses incurred for the purpose of his
office. The Supervisory Board members are not entitled to any special benefits upon termination of their office.
Certain Information on the Members of the Management Board and Supervisory Board
Over the last five years, no member of the Company's administrative, management or supervisory bodies, in
particular, no member of the Management Board and Supervisory Board:

was convicted in relation to fraudulent offences;

was associated with any bankruptcies, receiverships or liquidations in his or her capacity as a member of
administrative, management, or supervisory bodies, or senior manager who is relevant to establishing that
an issuer has the appropriate expertise and experience for the management of the issuer's business; was
publicly incriminated and/or sanctioned by statutory or regulatory authorities (including designated professional bodies);

has been disqualified by a court from acting as a member of the administrative, management or supervisory bodies of an issuer or from acting in the management or conduct of the affairs of any issuer.
At present, the Company has not granted sureties or loans to members of the Management Board and the Supervisory Board nor has it assumed any guarantees for them.
Members of the Management Board and the Supervisory Board may be contacted at the Company's business
address at Fenghua SoleTech AG, Mainzer Landstrasse 41, Frankfurt am Main, 60329 Frankfurt
There are no family relationships between the members of the Management Board and members of the Supervisory Board amongst each other.
Shareholding and Options
None of the members of the Supervisory Board holds directly or indirectly shares in the Company or options on
shares in the Company.
Conflicts of Interest
There are no conflicts or potential conflicts of interest between any of the duties of the members of the Supervisory Board to the Company and their private interests or other duties.
General Shareholders' Meeting
General Shareholders' Meetings, including the Annual General Meeting (Jahreshauptversammlung) and Extraordinary Shareholders' Meetings (außerordentliche Hauptversammlung), may be held at the Company's registered offices or at the seat of a German stock exchange. The General Shareholders' Meeting must be convened at
least 30 days before the end of the day on which the shareholders must register their attendance at the meeting.
Shareholders of the Company who have registered for the General Shareholders' Meeting in due time and have
proven their eligibility to attend are entitled to attend and exercise their voting rights in the General Shareholders' Meeting. Registration must be received by the Management Board at the Company's registered offices, or at
another location announced in the convocation, in the form of a letter, telex, and fax or by other electronic means
150
to be specified by the Company in greater detail in the invitation, no later than the seventh calendar day before
the meeting. The shareholders document their eligibility to participate in the General Shareholders' Meeting by
certification of their shareholding, prepared in text format by the depository institution (Section 126b of the
German Civil Code) in German and referring to the start of the 21st day before the day of the General Shareholders' Meeting. This certification must be received at the place announced in the invitation at the Company's registered offices by no later than seven days before the day of the annual General Shareholders' Meeting. Further
details concerning registration, proof of eligibility for participation and the issue of the admission tickets must be
announced in the convocation. Each ordinary no par value bearer share confers one vote at the General Shareholders' Meeting. Voting rights may be exercised by proxy.
Unless otherwise provided by the Company's Articles of Association or law, the resolutions of the General
Shareholders Meeting are adopted by a simple majority of the votes cast and, insofar as the law requires a majority of the share capital as well as a voting majority, by a simple majority of the share capital represented at the
time the resolution is adopted.
According to the German Stock Corporation Act, certain resolutions of fundamental importance require a vote of
no less than three-quarters of the registered capital represented at the meeting. Such resolutions include:

amendments to the Company's Articles of Association;

capital increases;

capital reductions;

the creation or amendment of authorised or conditional capital;

the transfer of the company's entire assets (Übertragung des ganzen Gesellschaftsvermögens) and any
reorganisations as set forth in the German Transformation Act (Umwandlungsgesetz) such as mergers
(Verschmelzungen), spin-offs (Spaltungen), transfer of the company's assets (Vermögensübertragungen)
and type-changing transformations (Formwechsel);

the conclusion of agreements establishing contractual corporate groups (such as domination and profitand-loss-transfer agreements); and

the dissolution of the Company.
The convening of General Shareholders' Meetings may be initiated by the Management Board, the Supervisory
Board or, under certain circumstances, by shareholders holding an aggregate of 5 % of the registered share capital. The Supervisory Board must call a General Shareholders' Meeting whenever the interests of the Company
require. The Annual General Shareholders' Meeting must be held during the first eight months of each financial
year.
According to the Stock Corporations Act, the company must publish the invitation to the General Shareholders'
Meeting at least 30 days before the day of the meeting or 30 days before notice of attendance has to be given in
the electronic version of the Federal Gazette (elektronischer Bundesanzeiger). To participate in the General
Shareholders' Meetings, shareholders must give due notice of their attendance. The deadline for giving the notice
of attendance for the General Shareholders' Meeting is published with the invitation but must expire earlier than
seven days prior to the General Shareholders' Meeting.
Corporate Governance
The German Corporate Governance Code in its current version of 13 May 2013 (the “Code”) contains recommendations and suggestions for managing and supervising German companies listed on a stock exchange. The
Code contains provisions relating to shareholders and the General Shareholders Meetings, the Management
Board, the Supervisory Board, to transparency, accounting policies and auditing. There is no obligation to comply with the recommendations and suggestions of the Code. However, the German Stock Corporations Act in
Section 161 requires the Management Board and Supervisory Board of listed companies to make an annual declaration to the effect whether the company follows the recommendations of the Code or which of the recommendations were or will not be followed, and why they were or will not be followed (Entsprechenserklärung) (the
“Declaration of Compliance”). The Declaration of Compliance must be published on the company's website.
The Company has not intentionally complied with the recommendations and suggestions contained in the Code
yet because it has so far not been listed on any stock exchange and therefore the Code did not apply to the Company.
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After the Offering and admission to trading of the Company's shares on the Regulated Market of the Frankfurt
Stock Exchange, the Company will annually issue and publish a Declaration of Compliance, and to make it continuously available on its website. The Management Board and Supervisory Board of the Company identify with
the goals of the Code to foster responsible and transparent corporate management and control, oriented to a sustained increase in company value. The Management Board and Supervisory Board will be largely following the
recommendations and suggestions of the Code. Details will be agreed upon between the Management Board and
the Supervisory Board.
Corporate governance in Poland
The Best Practises provide for a “comply or explain” rule. The Best Practices are a set of corporate governance
rules for public companies whose securities are listed on the WSE. If a specific corporate governance rule contained in the Best Practices is not complied with by the Company on a permanent basis or is breached incidentally, the Company will be obliged to publish a current report specifying under what circumstances and for what
reasons a rule has not been complied with, as well as how the Company intends to remove effects, if any, of not
having complied with a given rule or what steps it intends to take to mitigate the risk of the corporate governance
rules not being complied with in the future. The report should be published at the Company’s official website
and in the same way like current reports. The obligation to publish the report should be performed as soon as the
Company becomes reasonably convinced that a given rule will not be complied with at all or will be breached
incidentally, in any case promptly after violation of the principles of the Best Practices. The Company will also
have to include summary information on non-compliance with the Best Practices for each annual report.
Upon admitting the Company's shares to trading on the WSE, the Company intends to take the necessary steps to
comply with the rules set out in the Best Practices to the extent permitted by German law and subject to the
Company's corporate structure.
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RELATED PARTY TRANSACTIONS
This section describes the material transactions between Fenghua and related parties concluded in the period
between 1 January 2011 and the date of this Prospectus. Related parties to Fenghua include members of the
Management Board and the Supervisory Board, including their close family members and companies on which
members of the Management Board or Supervisory Board of Fenghua or their family members may exercise
considerable influence or in which they hold a substantial amount of the voting rights. In addition, related parties
include companies in which Fenghua holds an investment that enables Fenghua to exercise considerable influence over the business policies of Fenghua in which it holds such investment. Finally, also the major shareholders of Fenghua, including their affiliates are related parties.
The following related parties have concluded material transactions with Fenghua within the periods under review:
Related Party (Natural Persons)
Relation to Fenghua
Mr. Weijie Lin
Chief Executive Officer of Fenghua
Mr. Bingcan Lin
Mr. Lin Weijie’s father
Related Party (Legal Entities)
Relation to Fenghua
Jinjiang Yingchao Shoe Materials Co.,
Ltd.
wholly owned by Mr. Shize Lin, who holds 4.35- % shares of
Fenghua
Capital Mobilier Inc.
wholly owned by Mr. Weijie Li, the Chief Executive Officer of
Fenghua
Credit Guarantees
Related parties have provided guarantees for certain of Jinjiang Fenghua’ bank loans:

Mr. Weijie Lin and four non-affiliated parties provided a joint and several guarantee to secure a loan taken
out by Jinjiang Fenghua from Fujian Jinjiang Rural Cooperative Bank Meiling Sub-branch in the amount of
2 million RMB and with a term from 26 February 2010 to 25 February 2011. Such loan has been repaid.

Mr. Weijie Lin and four non-affiliated parties provided a joint and several guarantee to secure a loan taken
out by Jinjiang Fenghua from Fujian Jinjiang Rural Cooperative Bank Meiling Sub-branch in the amount of
3.5 million RMB and with a term from 28 April 2010 to 27 April 2011. Such loan has been repaid.

Mr. Weijie Lin and six non-affiliated parties provided a joint and several guarantee to secure a loan taken
out by Jinjiang Fenghua from Fujian Jinjiang Rural Cooperative Bank Meiling Sub-branch in the amount of
5 million RMB and with a term from 26 November 2010 to 25 November 2011. Such loan has been repaid.

Mr. Weijie Lin and four non-affiliated parties provided a joint and several guarantee to secure a loan taken
out by Jinjiang Fenghua from Fujian Jinjiang Rural Cooperative Bank Meiling Sub-branch in the amount of
12 million RMB and with a term from 6 January 2011 to 5 January 2012. Such loan has been repaid.

Mr. Weijie Lin and four non-affiliated parties provided a joint and several guarantee to secure a loan taken
out by Jinjiang Fenghua from Fujian Jinjiang Rural Cooperative Bank Meiling Sub-branch in the amount of
1.5 million RMB and with a term from 4 March 2011 to 3 March 2012. Such loan has been repaid.

Mr. Weijie Lin and four non-affiliated parties provided a joint and several guarantee to secure a loan taken
out by Jinjiang Fenghua from Fujian Jinjiang Rural Cooperative Bank Meiling Sub-branch in the amount of
3.5 million RMB and with term from 4 May 2011 to 3 May 2012. Such loan has been repaid.

Mr. Weijie Lin and four non-affiliated parties provided a joint and several guarantee to secure a loan taken
out by Jinjiang Fenghua from Fujian Jinjiang Rural Cooperative Bank Meiling Sub-branch in the amount of
5 million RMB and with term from 1 December 2011 to 30 November 2012. Such loan has been repaid.
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
Mr. Weijie Lin and four non-affiliated parties provided a joint and several guarantee to secure a loan taken
out by Jinjiang Fenghua from Fujian Jinjiang Rural Cooperative Bank Meiling Sub-branch in the amount of
12 million RMB and with term from 7 January 2012 to 6 January 2013. Such loan has been repaid.

Mr. Lin Weijie, Mr. Lin Bingcan and two non-affiliated parties provided a joint and several guarantee in a
ceiling amount of 10 million to secure a loan taken out by Jinjiang Fenghua from China Industrial Bank
Jinjiang Chendai Sub-branch in the amount of 10 million and with term from 3 June 2011 to 2 June 2012.
Such loan has been repaid.

Mr. Lin Weijie, Mr. Lin Bingcan and two non-affiliated parties provided a joint and several guarantee to
secure a financing and factoring contract concluded between Jinjiang Fenghua and China Industrial Bank
Jinjiang Chendai Sub-branch in the amount of 10 million and with term from 28 September 2011 to 27 September 2012. The performance of the financing and factoring contract has been completed.

Mr. Lin Weijie, Mr. Lin Bingcan and two non-affiliated parties provided a joint and several guarantee in a
ceiling amount of 35 million to secure a loan taken out by Jinjiang Fenghua from China Industrial Bank
Jinjiang Chendai Sub-branch in the amount of 10 million and with term from 1 June 2012 to 31 May 2013.
Such loan has been repaid.

Mr. Lin Weijie, Mr. Lin Bingcan and two non-affiliated parties provided a joint and several guarantee in a
ceiling amount of 25 million to secure a loan taken out by Jinjiang Fenghua from China Industrial Bank
Jinjiang Chendai Sub-branch in the amount of 10 million and with term from 15 June 2012 to 14 June 2013.
Such loan has been repaid.

Mr. Lin Weijie, Mr. Lin Bingcan and two non-affiliated parties provided a joint and several guarantee to
secure an agreement establishing banker’s acceptance bill concluded between Jinjiang Fenghua and China
Industrial Bank Jinjiang Chendai Sub-branch in the amount of 20 million and with term from 25 November
2011 to 25 May 2012. Jinjiang Fenghua also provided deposit guarantee for such agreement. The performance of the agreement establishing banker’s acceptance bill has been completed.

Mr. Lin Weijie, Mr. Lin Bingcan and two non-affiliated parties provided a joint and several guarantee to
secure an agreement establishing banker’s acceptance bill between Jinjiang Fenghua and China Industrial
Bank Jinjiang Chendai Sub-branch in the amount of 5 million and with term from 7 December 2011 to 7
June 2012. Jinjiang Fenghua also provided deposit guarantee for such agreement. The performance of the
agreement establishing banker’s acceptance bill has been completed.

Mr. Weijie Lin and four non-affiliated parties provided a joint and several guarantee to secure a loan taken
out by Jinjiang Fenghua from Fujian Jinjiang Rural Commercial Bank Meiling Sub-branch in amount of 1.5
million RMB and with a term from 7 March 2012 to 6 March 2013. Such loan has been repaid.
No transactions have been entered into with Capital Mobilier Inc. except for the contribution agreement by
which the holding structure was formed.
Transfer of Equity Interests in Jinjiang Fenghua
On 24 July 2012, Mr. Weijie Lin and Mr. Bingcan Lin concluded an equity transfer agreement, pursuant to
which Mr. Lin Bingcan transferred 50 % of the equity interests in Jinjiang Fenghua to Mr. Lin Weijie for the
considerations of respectively RMB 15,000,000.
On 15 October 2012, Mr. Weijie Lin and Fujian Fenghua concluded an equity transfer agreement, pursuant to
which Mr. Lin Weijie transferred 100 % of the equity interests in Jinjiang Fenghua to Fujian Fenghua for the
considerations of respectively RMB 30,000,000.
Transactions between Jinjiang Fenghua and Jinjiang Yingchao Shoe Materials Co., Ltd.
Jinjiang Yingchao Shoe Materials Co., Ltd. supplied the TPR, PVC and TPU granules to Jinjiang Fenghua in the
amount of RMB 7,667,282 in year 2011, RMB 12,764,840.2 in year 2012 and RMB 12,680,723 in year 2013
and RMB 8,357,602 as of 30 June 2014.
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Guarantee Relating to Social Security and Housing Fund Payments
On 22 May 2014, Mr. Weijie Lin issued a letter of undertaking under which he undertook to bear, with the limitation of his own property, all liabilities and obligations arising from Jinjiang Fenghua’s failure to make social
insurance contributions in full. If Jinjiang Fenghua has suffered any losses or assumed any liabilities arising from
the social insurance contributions issues (including but not limited to making-up outstanding social insurance
contributions and any fines, losses and etc. incurred therefrom), he would have to provide sufficient compensation to Jinjiang Fenghua to ensure that Jinjiang Fenghua would be reinstated to the economic condition as if it
had not sustained such losses or assumed such liabilities. He also undertook to be liable for any making-up obligations and any penalties or losses sustained by the Company arising from Jinjiang Fenghua’s failure to provide
housing fund to its employees. Mr. Lin further warrants that he would provide sufficient compensation to Jinjiang Fenghua to ensure that Jinjiang Fenghua would be reinstated to the economic condition as if it had not
sustained such losses or assumed such liabilities.
Guarantee Relating to Insurance
On 22 May 2014, Mr. Weijie Lin issued a letter of undertaking under which he undertook to bear liability for
Jinjiang Fenghua’s undertaking to renew its property insurance which will expire on 26 July 2014.
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TAXATION IN GERMANY
The following section describes certain material German tax principles that may become relevant when acquiring, holding or transferring shares. This section is not a comprehensive or complete description of all German tax
aspects that may be relevant for shareholders. It is based on the German tax laws applicable as of the date of this
Prospectus and on the provisions of double taxation treaties entered into between Germany and other countries
as of this date. In both areas the law, double taxation treaties and the opinion of the tax authorities may change,
possibly also with retroactive effect.
Potential purchasers of the Company's shares should consult their tax advisors with respect to the tax consequences of acquiring, holding and transferring shares and with respect to the procedure to be complied with to
obtain a refund of German withholding tax paid (Kapitalertragsteuer). The specific tax situation of each shareholder can only be addressed adequately by means of individual tax advice.
Taxation of the Company
In Germany, corporations are generally subject to corporate income tax at a rate of 15 % plus a 5.5 % solidarity
surcharge (Solidaritätszuschlag) thereon (in total 15.825 %). In addition, German corporations are subject to
trade tax (Gewerbesteuer) with their income from permanent establishments in Germany subject to certain adjustments for trade tax purposes, the trade taxable income (Gewerbeertrag). The trade tax depends on the municipalities in which the corporation maintains permanent establishments. Trade tax is levied at approx. 7 to 18 %
(corresponds to 400 % municipal multiplier) of the trade taxable income depending in each case on the trade tax
rate of the relevant municipality.
Interest expenses that exceed interest earning are only deductible in the event the Company is in compliance with
the so-called interest barrier (Zinsschranke). The interest barrier restricts the deductibility of interest expenses
exceeding the interest earnings of the relevant financial year (“Net Interest Expenses”) to 30 % of the earnings
before interest, taxes, depreciation and amortisation (“EBITDA”) determined for corporate income tax and trade
tax purposes. The non-deductible part of the interest expenses can be carried forward to future fiscal years and
might reduce the taxable profit of the Company in the future if the interest expenses in such period are deductible
under the interest barrier. There is a risk that the non-deductible part of interest expenses might be forfeited, e.g.
in case of restructurings if more than 25 % of the shares will be acquired by one person or a group of persons
with contingent interest or in case of the termination of the business. The interest barrier will not apply if the Net
Interest Expenses are less than EUR 3 million or in the event the Company complies with the so-called “escape
clause” or if the Company is not part of a group, provided there is no harmful shareholder debt financing. The
escape clause stipulates the complete deductibility of interest expenses in the event that the Company's equity
ratio is not lower than that of the group. For this purpose the equity ratios of the financial statements at the end of
the preceding business year are relevant. Only in case that there is no harmful shareholder debt financing, the
escape clause will be applicable. A harmful shareholder debt financing is existing if the shareholder (holding
directly or indirectly more than 25 % of the shares) or any related party hereto or any third party who has a right
of recourse against the shareholder or a related party hereto receives interest exceeding 10 % of the negative
interest balance (difference between interest income and interest expenses) from the respective corporation or
from another affiliated company. For trade tax purposes 25 % of the interest expenses have to be added back to
the trade earnings.
Dividend income that the Company receives from corporations domiciled outside Germany such as Fenghua
Hong Kong is generally exempt from corporate income tax. However, 5 % of the tax exempt dividend income is
deemed to be a non-deductible business expense for corporate income tax purposes, and as a result is subject to
corporate income tax (plus solidarity surcharge).
Dividend income of the Company derived from its shares in Fenghua Hong Kong will be, in principle, subject to
trade tax. However, such dividend income of the Company will be exempt from trade tax but for 5 %, if specific
preconditions are fulfilled (Section 9 No. 7 of the Trade Tax Act).
Corporate income tax losses incurred by the Company in one year may be carried back to the immediately preceding assessment period up to an amount of EUR 1,000,000. Trade tax losses cannot be carried back. Any remaining losses regarding corporate income tax and trade tax may only be offset within certain restrictions
against profits from future years (so-called “minimum taxation”). Up to an amount of EUR 1 million taxable
profits may be offset against existing tax loss carry forwards without limitation. Taxable profits in excess of
EUR 1 million may be offset against existing tax loss carry forwards for corporate income and trade tax purposes
156
only by 60 %. Unused tax loss carry forwards may, in principle, be carried forward indefinitely unless there will
be a harmful share acquisition (e.g. if more than 25 % of the shares will be acquired by one person or a group of
persons with contingent interest).
Unused tax loss and interest carry-forwards are no longer deductible entirely if more than 50 % of the share
capital or the voting rights in the Company are transferred directly or indirectly to a purchaser or related person
or a group of purchasers with the same interests within five years. Where more than 25 % and up to 50 % of the
share capital or the voting rights in the Company is transferred or there is a similar detrimental acquisition of
shares, the unused tax loss and interest carry-forwards are proportionally to the amount of the transferred quota
no longer deductible.
Taxation of Shareholders
Shareholders are subject to tax in particular in connection with the holding of shares (taxation of dividends), the
disposal of shares (taxation of capital gains) and the gratuitous transfer of shares (inheritance and gift tax).
Taxation of Dividends
Withholding Tax
Generally, the Company must withhold tax on its dividend distributions at a rate of 25 % plus a 5.5 % solidarity
surcharge thereon (in total 26.375 %) and is thus responsible for withholding amounts corresponding to such
taxation at source.
Such withholding tax is levied and withheld irrespective of whether and to what extent the dividend distribution
is taxable at the level of the shareholder and whether the shareholder resides inside or outside Germany. Certain
exceptions may apply to corporations in another EU Member State to which the EU Parent/Subsidiary Directive
(2011/96/EU of 30 November 2011) applies. A partial exemption may also be available under a respective double taxation treaty. In these cases the restrictive preconditions according to Section 50d (3) Income Tax Act have
to be fulfilled. Application forms may be obtained from the German Federal Tax Office (Bundeszentralamt für
Steuern), An der Kuppe 1, 53225 Bonn, Germany (www.bzst.bund.de) as well as from German embassies and
consulates.
The Company will not withhold tax in the event the shares (i) are allowed for collective deposit in the meaning
of section 5 of the German Securities Deposit Act and are held by a bank or central depository of securities
(Wertpapiersammelbank) in Germany (ii) are kept by way of individual safe custody (Sonderverwahrung) in the
meaning of section 2 of the German Securities Deposit Act or (iii) the dividends are paid in exchange for a dividend coupon. For all these cases, the German credit or financial institution (including a German branch of a
foreign credit of financial institution) or German securities trading company or German security trading bank (all
institutions mentioned before together “Paying Agent”) which keeps or administrates the shares or carries out
the sale of the shares and pays or credits the capital income will withhold the German withholding tax plus solidarity surcharge (in total 26.735 %). In this event the paying agent or the bank for central depository of securities
which pays dividends to a foreign agent is responsible for withholding amounts.
The Company does not assume responsibility for withholding of taxes at the source in Germany or Poland.
The shareholder is the person liable to withholding tax. The debtor of the capital income and the Paying Agent
are liable for the withholding tax which they are obliged to withhold and remit to the German tax authorities,
unless they prove that they did not breach their duties on purpose or negligently. The withholding tax can be
claimed from the shareholder, if (i) the dividends have not been shortened correctly, if (ii) the shareholder knows
that the withholding tax has not been withheld correctly and he did not disclose this to the competent tax authority immediately, if (iii) the dividends have been wrongfully distributed without withholding the withholding tax.
Dividends to a corporation domiciled outside of Germany are subject to a reduced withholding tax (irrespective
of any double taxation treaties) in the event the shares do not constitute an asset of a permanent establishment in
Germany nor an asset for which a permanent representative has been appointed in Germany. In this case, 2/5 of
the withholding tax will be refunded upon application. The refund requires that the corporation fulfils the preconditions of Section 50 d (3) Income Tax Act. Refund application forms may be obtained from the German
Federal Central Tax Office (Bundeszentralamt für Steuern), An der Kuppe 1, 53225 Bonn, Germany
(www.bzst.bund.de) as well as from German embassies and consulates. A further reduction or refund under an
applicable double taxation treaty is possible.
157
For shareholders resident in Germany (i.e., shareholders whose residence, habitual abode, management, or domicile is located in Germany) holding their shares as business assets as well as for shareholders residing outside
Germany (foreign shareholders) holding their shares in a permanent establishment or a fixed base in Germany, or
as assets for which a permanent representative has been appointed in Germany, the tax withheld is credited
against the shareholders' personal income tax or corporate income tax liability. Any tax withheld in excess of the
shareholders' personal tax liability is refunded. The same principles apply to the solidarity surcharge.
In case of church tax the taxpayer may choose between withholding at source or declaring the church tax in the
assessment procedure. With respect to 2014, the taxpayer has to use the official application forms if the church
tax shall be withheld by the Paying Agent. Beginning 1 January 2015 an application for withholding of church
tax regarding dividends subject to withholding tax will no longer be required. The withholding and remittance to
the religious community raising tax will be performed automatically. For capital income received after beginning
1 January 2015 the paying agent will once a year ask about the church tax duty by way of an automatic data
transfer with the German Central Tax Office. In general, the church tax will be withheld at source. The taxpayer
may contradict this procedure using the official application forms or electronically via the online portal of the
Federal Central Tax Office. Consequently, he has to declare the church tax in the assessment procedure taking
into account the dividends. If the church tax will be withheld together with the withholding tax, the withholding
tax will be reduced by 25 % of the church tax levied on the withholding tax.
The Paying Agent which keeps or administrates the shares and pays or credits the capital income has to create so
called pots for the loss set off (Verlustverrechnungstöpfe) to allow for setting off of negative capital income with
current and future positive capital income. A set off of negative capital income at a Paying Agent with positive
capital income at a different Paying Agent is not possible and can only be achieved in the course of the income
tax assessment. In this case the taxpayer has to apply for a certificate confirming the amount of losses not offset
with the Paying Agent where the pots for the loss set off exists. The application is irrevocable and has to reach
the Paying Agent until 15th December of the respective year. Otherwise the losses will be carried forward to the
following year by the Paying Agent.
It will be refrained from withholding tax if the taxpayer provides the Paying Agent with an application for exemption (Freistellungsauftrag) insofar as capital income does not exceed the annual lump sum allowance
(Sparerpauschbetrag) of EUR 801 (EUR 1,602 for married couples filing jointly) as outlined on the application
for exemption. It will also be refrained from withholding tax if the taxpayer provides the Paying Agent with a
non-assessment certificate (Nichtveranlagungsbescheinigung) which can be applied for with the competent tax
authority.
Taxation of Dividend Income of Investors Resident in Germany Holding their Shares as Private Assets
For individual shareholders resident in Germany holding their shares as private assets dividends are subject to
the final flat tax (Abgeltungsteuer). Under this regime dividend income of private investors will be taxed at the
principal final flat tax rate of 25 % plus a 5.5 % solidarity surcharge thereon (aggregate tax burden: 26.375 %)
and church tax if applicable. Except for an annual lump sum allowance (Sparerpauschbetrag) of EUR 801
(EUR 1,602 for married couples filing jointly), private investors will not be entitled to deduct expenses incurred
in connection with the capital investments from their dividend income. Inter alia if the flat tax results in a higher
tax burden as opposed to the private investor's individual tax rate the investor may opt for taxation at his individual tax rate (Günstigerprüfung). This option may only be exercised consistently for all capital income and be
exercised jointly in case of married couples filing jointly. The withholding tax will be credited against the income tax. Private investors are not entitled to deduct expenses incurred in connection with the capital investments from their income except of the annual lump sum allowance even if they opt for taxation at their individual tax rate. This option may be exercised only for all capital income from capital investments received in the
relevant assessment period uniformly and married couples filing jointly may only jointly exercise the option.
Taxation of Dividend Income of Investors Resident in Germany Holding their Shares as Business Assets
If shares are held as business assets of a shareholder, the taxation depends on whether the shareholder is a corporation, a sole proprietor, or a partnership (Mitunternehmerschaft):
Corporations. Dividend distributions to corporate shareholders are generally exempt from corporate income tax.
However, 5 % of the tax-exempt dividend income is deemed to be a non-deductible business expense for tax
purposes and is therefore subject to corporate income tax (plus solidarity surcharge) and trade tax. By way of
derogation from that dividends will not be 95 % tax exempt if the shareholder does not hold at least 10 % of the
share capital of the Company (Streubesitzbeteiligung) at the beginning of the calendar year. Acquisitions of at
158
least 10 % of the share capital during the year are deemed to be made at the beginning of the calendar year.
Business expenses actually incurred in connection with the shares are entirely tax deductible. 95 % of dividend
income must be added back when determining the trade taxable income and is therefore subject to trade tax unless the investor holds at least 15 % of the share capital of the Company at the beginning of the relevant assessment period. Special rules for banks, financial services institutions, financial enterprises, life and health insurance companies, and pension funds, are described below.
Sole Proprietors. For sole proprietors holding their shares as business assets, generally 60 % of the dividend
distributions are taxable. Correspondingly, 60 % of the business expenses related to the dividend income are
deductible for tax purposes (subject to any other restrictions on deductibility). In addition, dividends are entirely
subject to trade tax if the shares are held as a business asset of a permanent establishment in Germany and if the
shareholder does not hold at least 15 % of the share capital of the Company at the beginning of the relevant assessment period. The trade tax levied – depending on the municipal trade tax rate and the individual tax situation
– is partly or entirely credited against the shareholder's personal income tax liability.
Partnerships. If shares are held by a partnership, personal income tax or corporate income tax is levied only at
the level of the partners. If a partner is subject to corporate income tax, dividends are generally tax-exempt to
95 % (see: “Taxation of Shareholders – Taxation of Dividend Income by Investors Resident in Germany Holding
their Shares as Business Assets – Corporations”). If the partner is subject to personal income tax, 60 % of the
dividends are taxable and 60 % of the business expenses related to dividend income are deductible (see: “Taxation of Shareholders – Taxation of Dividend Income by Investors Resident in Germany Holding their Shares as
Business Assets – Sole Proprietors”). At the level of a partnership which is liable to trade tax, the entire dividends are subject to trade tax if the partnership does not hold at least 15 % of the share capital of the Company at
the beginning of the relevant assessment period. However, depending on the applicable municipal trade tax rate
and individual circumstances, the trade tax paid at the level of a partnership may partly or entirely be credited
against the personal income tax liability of the partners if the partners are natural persons.
If the partnership holds 15 % of the share capital of the Company at the beginning of the relevant assessment
period, only 5 % of the dividends are subject to trade tax in the event the partners are corporations or the dividends are trade tax exempt in the event the partners are individuals.
Special rules for banks, financial services institutions, financial enterprises, life and health insurance companies,
and pension funds, are described below.
Taxation of Dividend Income of Investors not Resident in Germany
For foreign shareholders who do not hold their shares in a permanent establishment or a fixed base in Germany,
or as an asset for which a permanent representative has been appointed in Germany, the German tax liability is,
in principle, satisfied upon deduction of withholding tax (possibly reduced by way of a refund under a double
taxation treaty or EU Parent/Subsidiary Directive (2011/96/EU of 30 November 2011) or 2/5 of the withholding
tax may be refunded in some cases.)
However, shareholders who hold their shares in a permanent establishment or a fixed base in Germany, or as
business assets for which a permanent representative has been appointed in Germany, are subject to the same
rules described above for shareholders resident in Germany.
Taxation of Dividend Income of Investors not Resident in Germany
For foreign shareholders who do not hold their shares in a permanent establishment or a fixed base in Germany,
or as an asset for which a permanent representative has been appointed in Germany, the German tax liability is,
in principle, satisfied upon deduction of withholding tax (possibly reduced by way of a refund under a double
taxation treaty or EU Parent/Subsidiary Directive (2011/96/EU of 30 November 2011) or 2/5 of the withholding
tax may be refunded in some cases.)
However, shareholders who hold their shares in a permanent establishment or a fixed base in Germany, or as
business assets for which a permanent representative has been appointed in Germany, are subject to the same
rules described above for shareholders resident in Germany.
159
Taxation of Capital Gains
Taxation of Capital Gains of Investors Resident in Germany Holding their Shares as Private Assets
Any gains from the sale or redemption of the shares will be subject to a final flat tax (Abgeltungsteuer) of 25 %
plus a solidarity surcharge of 5.5 % thereon resulting in an aggregate tax burden of 26.375 % and church tax if
applicable. Except for an annual lump sum allowance (Sparerpauschbetrag) of EUR 801 (EUR 1,602 for married couples filing jointly) private investors will not be entitled to deduct expenses incurred in connection with
the capital investments from their capital gain. If the flat tax results in a higher tax burden as opposed to the
private investor's individual tax rate the investor may opt for taxation at his individual tax rate (Günstigerprüfung). This option may only be exercised consistently for all capital income and be exercised jointly in
case of married couples filing jointly. Private investors are not entitled to deduct expenses incurred in connection
with the capital investments from their income except for the annual lump sum allowance even if they opt for
taxation at their individual tax rate. The option may only be exercised for all capital gains and income from capital investments received in the relevant assessment period uniformly and married couples filing jointly may only
exercise the option jointly.
The Company does not assume responsibility for the withholding of taxes at the source in Germany or Poland.
The shareholder is the person liable to withholding tax. The debtor of the capital income and the Paying Agent
are liable for the withholding tax which they are obliged to withhold and remit to the German tax authorities,
unless they prove that they did not breach their duties on purpose or negligently. The withholding tax can be
claimed from the shareholder, if (i) the dividends have not been shortened correctly, if (ii) the shareholder knows
that the withholding tax has not been withheld correctly and he did not disclose this to the competent tax authority immediately, if (iii) the dividends have been wrongfully distributed without withholding the withholding tax.
Losses from the disposition of the shares may only be offset against other capital gains resulting from the disposition of shares in the Company and in other stock corporations. Offsetting of overall losses with other income
(e.g. business or rental income) and other capital income is not possible. Such losses are to be carried forward
and to be offset against positive capital gains deriving from the sale of shares in future years.
The general flat tax will not apply if the seller of the shares or, in case of gratuitous transfer, its legal predecessor
has held, directly or indirectly, at least 1 % of the share capital of the Company at any time during the five years
prior to the disposal. 60 % of the capital gains are taxed upon this disposal. Correspondingly, only 60 % of related expenses are deductible for tax purposes.
Capital gains are principally subject to withholding tax of 25 % plus 5.5 % solidarity surcharge thereon (in total
26.375 %) in the event a Paying Agent stores or administrates or carries out the sale of the shares and pays or
credits the capital income. If data related to the acquisition is not reported in connection with a transfer between
depository accounts (Depotwechsel), withholding tax is calculated on 30 % of the sale proceeds.
The rules regarding the creation of pots for the loss set off (Verlustverrechnungstöpfe) and church tax as outlined
in the chapter regarding the taxation of dividends apply correspondingly with the exception that the Paying
Agent has to create another pot for the loss set off regarding capital losses on shares because capital losses from
the sale of shares can only be set off against capital gains from the sale of shares.
Taxation of Capital Gains of Investors Resident in Germany Holding their Shares as Business Assets
If shares are held as business assets of a shareholder, the taxation of capital gains realised upon disposal depends
on whether the shareholder is a corporation, a sole proprietor, or a partnership:
Corporations. Capital gains realised by a corporate shareholder upon disposal of shares are generally exempt
from corporate income tax and trade tax. Capital gains for this purpose is the amount by which the selling price
or the equivalent value after deduction of selling costs exceeds the tax base at the time of disposal. However,
5 % of the capital gain is deemed to be a non-deductible business expense and is therefore subject to corporate
income and trade tax. Losses incurred upon the disposal of shares or other impairments of the shares' value are
not tax deductible. A reduction of profit is also defined as any losses incurred in connection with a loan or security in the event the loan or the security is granted by a shareholder or by a related person thereto or by a third
person with the right of recourse against the before mentioned persons and the shareholder holds directly or
indirectly more than 25 % of the share capital of the Company.
Sole Proprietors. If the shares are held by sole proprietors, 60 % of the capital gains realised upon disposal are
subject to income tax and solidarity surcharge. Correspondingly, 60 % of the business expenses related to such
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capital gains and 60 % of any losses incurred upon disposal of shares are tax deductible. In addition, 60 % of the
capital gains are subject to trade tax if the sole proprietor is subject to trade tax. However, trade tax is partly or
entirely credited against the shareholder's personal income tax liability depending on the applicable municipal
trade tax rate and individual circumstances.
Partnerships. If the shareholder is a partnership, taxation depends on whether the partners are subject to personal income tax or corporate income tax: If the partners are subject to corporate income tax, any capital gains are
generally tax exempt in amount of 95 % (see: “Taxation of Shareholders – Taxation of Capital Gains of Investors Resident in Germany Holding Their Shares as Business Assets – Corporations”). If the partners are subject
to personal income tax, 60 % of the capital gains are taxable (see: “Taxation of Shareholders – Taxation of Capital Gains of Investors Resident in Germany Holding Their Shares as Business Assets – Sole Proprietors”). For
information on the deductibility of business expenses relating to capital gains and disposal losses for partners
who are subject to corporate income tax see also “Taxation of Shareholders – Taxation of Capital Gains of Investors Resident in Germany Holding Their Shares as Business Assets – Corporations” and see above “Taxation
of Shareholders – Taxation of Capital Gains of Investors Resident in Germany Holding Their Shares as Business
Assets – Sole Proprietors” for information with respect to partners who are subject to personal income tax. In
addition, 60 % of the capital gains are subject to trade tax at the level of a partnership if the partnership is liable
to trade tax and the partners are individuals and 5 % of the capital gains are subject to trade tax if partners are
corporations. However, the trade tax paid at the level of a partnership may partly or entirely be credited – depending on the applicable municipal trade tax rate and individual circumstances – against the personal income
tax liability of the partners who are individuals.
Special rules for banks, financial services institutions, financial enterprises, life and health insurance companies,
and pension funds, are described below.
For capital gains of a corporation, no withholding tax is assessed. This applies also to capital gains attributable to
German business assets if additional documentation requirements are met.
Taxation of Capital Gains of Shareholders Resident outside Germany
Capital gains realised upon disposal of shares by a shareholder resident outside Germany are only subject to
German income tax (plus solidarity surcharge) in the event (i) the shares are held in a permanent establishment
or through a fixed base in Germany, or held as assets for which a permanent representative has been appointed in
Germany or (ii) the shareholder or, in case of a gratuitous transfer, its legal predecessor has held, directly or
indirectly, at least 1 % of the share capital of the Company at any time during the five year period prior to the
disposal. In this case:

5 % of the capital gain is subject to corporate income tax and solidarity surcharge, if the shareholder is a
corporation; and

60 % of the capital gain is taxed in all other cases.
However, some of the German double taxation treaties provide for a complete exemption from German taxation
(except in case (i)) in such cases and assign the right to tax to the shareholder's State of residence. In this case, no
withholding tax is assessed upon the sale provided sufficient proof of the foreign tax status is given. Otherwise,
withholding tax of 25 % plus 5.5 % solidarity surcharge thereon (in total 26.375 %) may be levied in the event a
German paying agent stores or administrates or carries out the sale of the shares and pays or credits the capital
income unless capital gains are attributed to German business assets and additional documentation requirements
are met. In these cases, for foreign corporations, withholding tax may be refunded by 2/5 if certain preconditions
are met.
Capital gains realised upon disposal of shares held in a permanent establishment or through a fixed base in Germany, or held as assets for which a permanent representative has been appointed in Germany, are subject to the
same rules as described above for shareholders resident in Germany.
Special Rules for Banks, Financial Services Institutions, Financial Institutions, Life and Health Insurance
Companies, and Pension Funds
To the extent banks and financial services institutions hold shares that are attributable to their trading book pursuant to Section 1a of the German Banking Act (Kreditwesengesetz) neither the standard tax exemption for corporations nor the part-income system applies to dividend income received or to capital gains or losses realised
upon the disposal of shares, i.e. dividend income and capital gains are fully subject to corporate income tax or
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personal income tax and, if applicable, in principle to trade tax. The same applies to shares that were acquired by
financial institutions within the meaning of the German Banking Act in order to realise short-term proprietary
trading gains (this applies to banks, financial services institutions and financial institutions domiciled in another
Member State of the European Community or another contracting party to the EEA Agreement).
The standard tax exemption for corporations neither applies to dividends received nor to capital gains or losses if
the shares are attributable to the capital investments (Kapitalanlagen) of life and health insurance companies or
pension funds. The aforementioned exceptions do not apply to dividends within the scope of the EU Parent/Subsidiary Directive (2011/96/EU of 30 November 2011).
Inheritance and Gift Tax
The transfer of shares by way of gift or succession is, in principle, subject to German inheritance and gift tax in
particular if one of the following criteria is met:
(i)
The testator, donor, heir, donee, or any other beneficiary has his or her residence or habitual abode,
registered domicile or place of management in Germany at the time of the transfer or is a German Citizen who has not stayed abroad for more than five years without having a residence in Germany;
(ii)
Irrespective of these personal circumstances, the shares are held as business assets for which a permanent establishment is maintained or a permanent representative is appointed in Germany; or
(iii)
At the time of succession or donation, the testator or donor held, either alone or with other closely related persons, directly or indirectly, at least 10 % of the registered share capital of the Company. In some
cases participation under 10 % may also lead to German inheritance and gift tax.
The few double taxation treaties on inheritance and gift tax which Germany has entered into generally provide
that German inheritance or gift tax is levied only in case (i) and, with certain restrictions, in case (ii). Special
provisions apply to certain German expatriates and former German Citizens.
Other Taxes
No German capital transfer tax, value-added tax, stamp duty, or similar tax is levied on the acquisition, sale, or
other forms of transferring shares. However, an entrepreneur may opt for value-added tax being levied on a
transaction that is normally tax-exempt if the transaction is executed for the enterprise of another entrepreneur.
Net wealth tax (Vermögenssteuer) and financial transactions tax (Finanztransaktionssteuer) is currently not
levied in Germany.
Please note that certain EU member states including Germany agreed to levy financial transactions tax beginning
from 1 January 2016 and are currently drafting the legal basis within the legislative procedure. Furthermore,
there are attempts to reintroduce the net wealth tax into German legislation. Currently it cannot be foreseen
whether and to what extent a wealth tax will be levied in Germany. Nevertheless, there is a risk that wealth tax
will be reintroduced in Germany and that the assets in Germany might be subject to this wealth tax.
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TAXATION IN POLAND
The following section describes certain material Polish tax principles that may become relevant when acquiring,
holding or transferring shares. This section is not a comprehensive or complete description of all Polish tax aspects that may be relevant for shareholders. It is based on the Polish tax laws applicable as of the date of this
Prospectus and on the provisions of double taxation treaties entered into between Poland and Germany as of this
date. In both areas the law, the double taxation treaty and the opinion of the tax authorities may change, possibly
also with retroactive effect.
Potential purchasers of the Company's shares should consult their tax advisors with respect to the tax consequences of acquiring, holding and transferring shares. The specific tax situation of each shareholder can only be
addressed adequately by means of individual tax advice.
Taxation of Shareholders
Shareholders are subject to tax in particular in connection with the holding of shares (taxation of dividends), the
disposal of shares (taxation of capital gains) and the gratuitous transfer of shares (inheritance and gift tax).
Taxation of Dividends
Polish Corporate Investors
Generally, gains on dividends are taxed at a flat rate of 19 %, subject to exemptions available under the Polish
CIT Act and certain double tax treaties. In accordance with article 20 sec. 1 of the Polish CIT Act, the income of
legal entities that are Polish residents and that also generate income outside the territory of the Republic of Poland, which is taxable in another country, must be aggregated with the income generated in the Republic of Poland, provided that the circumstances specified in article 17 sec. 1 item 3 of the Polish CIT Act do not prevail. In
such an event, the amount of tax paid in other country is deducted from the tax calculated on the aggregate
amount of income. However, the amount to be deducted may not exceed the portion of tax computed before
deduction, which corresponds to the income obtained in the other country.
Pursuant to article 20 sec. 3 of the Polish CIT Act, an income tax exemption applies to dividends and other revenue, earned on holding shares in companies whose seats or management offices are outside Poland, by Polish
companies whose worldwide income is subject to CIT in Poland, if all of the following conditions are met:
(i)
the entity which distributes the dividends and other revenue earned on shares is a company whose worldwide income (regardless of where the source of income is located) is subject to income tax in an EU Member State other than Poland, or in another member state of the European Economic Area;
(ii) a Polish company directly holds no less than 10 % of shares in the capital of the company referred to in
item (i) for an uninterrupted period of at least two years; and
(iii) the Polish company referred to in item (ii) does not benefit from tax exemption with respect to its worldwide income.
The Polish CIT Act expressly provides that in order to benefit from the above exemption, the two-year holding
period requirement may also be met after the dividend is paid, provided that a given taxpayer actually satisfies
that requirement later on. Otherwise, taxpayers, who do not meet the two-year holding period requirement,
would be obligated to pay the due income tax along with penalty interest.
The above exemption will not apply, however, if distributions are made upon liquidation of a company.
Under article 10 of the German/Polish Double Tax Treaty, dividends paid by a company that is resident in Germany to legal entities that are residents of Poland, may be taxed in Poland. Such dividends may also be taxed in
Germany, according to the laws of Germany. However, if a Polish legal entity is the beneficial owner of the
dividends, the tax charged in Germany may not exceed:

5 % of the gross amount of dividends, if the beneficial owner is a company (other than a partnership) that
directly holds at least 10 % of capital of the company paying the dividends;

15 % of the gross amount of the dividends in all other cases.
Following article 24 sec. 2 letter b) of the German/Polish Double Tax Treaty in connection with article 20 sec. 1
of the Polish CIT Act, if a resident of Poland derives income from dividends that may be taxed in Germany,
Poland shall allow an amount equal to the income tax paid in Germany to be deducted from the tax on the aggre-
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gate amount of income of such Polish entity. This deduction may not, however, exceed that part of the tax as
calculated before the deduction is made, which corresponds to the income obtained in Germany.
However, if the beneficial owner of the dividends, being a resident of Poland, (i) conducts business in Germany
through a permanent establishment situated in Germany or (ii) performs independent personal services in Germany from a fixed base situated in Germany, the above regulations will not apply. In the circumstances described above, if the holding of shares in respect of which the dividends are paid is effectively connected with
such permanent establishment or fixed base situated in Germany, such dividends shall be subject to the provisions of article 7 or article 14 of the German/Polish Double Tax Treaty.
Polish Individual Investors
Dividends received by individuals who are Polish tax residents are subject to the flat rate of 19 % personal income tax in Poland, regardless of whether such dividends are obtained in Poland or abroad (article 30a sec. 1
point 4 of the Polish PIT Act).
In accordance with article 30a sec. 11 of the Polish PIT Act, Polish individuals who receive dividends distributed
by entities that are subject to taxation on their worldwide income (regardless of where the source of income is
located) outside of Poland, are obliged to submit a tax return, to calculate and to pay the tax due to the competent
tax office by the respective deadline, which is the end of April of the year following the year in which the income was derived.
Under article 10 of the German/Polish Double Tax Treaty, dividends paid by a company that is resident in Germany to individuals who are Polish residents may be taxed in Poland. However, such dividends may also be
taxed in Germany, according to the laws of Germany, but if a Polish legal entity is the beneficial owner of the
dividends, the tax so charged in Germany may not exceed 15 % of the gross amount of the dividends.
Pursuant to article 24 sec. 2 letter b) of the German/Polish Double Tax Treaty in connection with article
30a sec. 9 of the Polish CIT Act, if a resident of Poland derives income from dividends that may be taxed in
Germany, Poland shall allow an amount equal to the income tax paid in Germany to be deducted from the tax on
the aggregate amount of income of such Polish resident. This deduction may not, however, exceed that part of
the tax as calculated before the deduction is made, which corresponds to the income obtained in Germany.
However, if the beneficial owner of the dividends, being a resident of Poland, (i) conducts business in Germany
through a permanent establishment situated in Germany or (ii) performs independent personal services in Germany from a fixed base situated in Germany, the above regulations will not apply. In the circumstances described above, if the holding of shares in respect of which the dividends are paid is effectively connected with
such permanent establishment or fixed base situated in Germany, such dividends will be subject to the provisions
of article 7 or article 14 of the German/Polish Double Tax Treaty.
Taxation of Capital Gains
Taxation of Capital Gains of Corporate Investors
Any gains from the disposal of shares are taxed at a flat rate of 19 % (article 19 of the Polish CIT Act). The
taxable income on the disposal of shares obtained by a taxpayer in any fiscal year is the difference between the
aggregate gains on the disposal of shares and the cost incurred to obtain such gains (in general, expenditures
relating to the acquisition of shares as described in the Polish CIT Act).
Legal entities disposing of shares shall, in accordance with article 25 sec. 1 of the Polish CIT Act, settle the tax
due on the income obtained (loss incurred) from the beginning of the tax year. The advance tax payment must be
made by the 20th day of each calendar month for the preceding month. The advance tax payment is calculated as
the difference between tax due computed on the income obtained from the beginning of the fiscal year and the
total amount of advance payments made for the preceding months.
If the value of shares expressed in the price specified in the agreement on the disposal of shares differs materially
from the market value of the shares without a legitimate reason, this may be challenged by the tax authorities.
Generally, pursuant to the provisions of article 13 sec. 5 of the German/Polish Double Tax Treaty, income from
the disposal of shares obtained in Germany by Polish corporate investors is subject to taxation only in Poland.
However, pursuant to the provisions of article 13 sec. 2 of the German/Polish Double Tax Treaty, income from
disposal of shares in a German company, whose property consists directly or indirectly mainly of immovable
property located in Germany or rights from such immovable property, may be subject to taxation in Germany.
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Taxation of Capital Gains of Individual Investors
Gains on disposals of shares are taxed at a flat rate of 19 % (article 30b sec. 1 of the Polish PIT Act). They may
not be combined with the income obtained by a taxpayer from other sources of income. The taxable income on
the disposal of shares obtained by a taxpayer in any fiscal year is the difference between the aggregate gains on
the disposal of shares and the costs incurred to obtain such gains (in general, expenditures relating to the acquisition of shares, as described in the Polish PIT Act). For capital gains on share disposal, there is no obligation for
tax advance payments to be made in the course of the year, the taxpayer settles the tax due in his or her annual
tax return. Both the return and the tax are due by April 30, of the year following the relevant tax year (calendar
year).
The above is not applicable if a Polish individual investor holds shares within the scope of his or her business
activity. If this is the case, such income should be classified as business income. Taxation of such business income depends on the form of taxation chosen by the given individual (i.e. progressive tax rates. 18 % or 32 %
(depending on the amount of income) or a flat rate of 19 %).
If the value of shares expressed in the price specified in the agreement on the disposal of shares differs materially, without a legitimate reason, from the market value of the shares, this may be challenged by the tax authorities.
Generally, pursuant to the provisions of article 13 sec. 5 of the German/Polish Double Tax Treaty, income from
the disposal of shares obtained in Germany by Polish Individual Investors is subject to taxation only in Poland.
However, under article 13 sec. 2 of the German/Polish Double Tax Treaty, income from disposal of shares in a
German company, whose property consists directly or indirectly mainly of immovable property located in Germany or rights from such immovable property, may be subject to taxation in Germany.
Inheritance and Gift Tax
Polish inheritance and gift tax can only be imposed on individuals. Such tax may arise on a gift or an inheritance
from the shares in a Germany company, where the heir or the donee is a Polish resident. The amount of tax depends on the relationship of the donor/deceased to the donee/heir.
The law also provides for an exemption from tax in the case of inheritance or donations taking place between
those closes relatives and husband or wife (subject to certain statutory conditions) and in cases when the value of
the inheritance or donation does not exceed the amounts specified in the law.
Tax on Civil Law Actions (“TCLA”)
The TCLA is levied on agreements providing for a sale or exchange of rights, if these rights are either executed
in Poland or abroad, under the conditions that the purchaser is a Polish tax resident and the transaction is effected
in Poland.
The tax rate on the sale and the exchange of shares is 1 % of their market value and should be paid within 14
days of the date on which the tax obligation arises (i.e. the date on which the sale or exchange agreement is executed), unless the sale of shares and the exchange of shares agreements are concluded in the form of a notary
deed. In such case, the due TCLA should be collected by the notary public acting as a tax remitter. The purchaser
of shares is liable for paying the due TCLA. In the case of an exchange of share, the liability for paying the due
tax is borne jointly and severally by the parties to the exchange of share transaction.
Exemptions from the TCLA apply, without limitation, to transactions concerning the sale of financial instruments (including shares) to investment companies or to foreign investment companies or, by their intermediation, the sale of such instruments of a regulated market, as well as the sale of such instruments made by investment companies or foreign investment companies outside of a regulated market, provided that such instruments
were acquired by those companies within a regulated market, as defined by the Polish Act on Trading in Financial Instruments.
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UNDERWRITING
Underwriting Agreement
Subject to the fulfilment of certain terms and conditions set out in the underwriting agreement entered into on
10 October 2014 (the “Underwriting Agreement”) between the Company, the Company's subsidiaries, the
Founding Shareholders and the Underwriter, the Company has agreed to offer for subscription of the New Shares
at the notional value of EUR 1.00 per New Share to the Underwriter in its own name but for the account of the
Joint Lead Managers, and the Underwriter has agreed to procure purchasers for the New Shares. After the Offering, the Underwriter will pay the difference between the offer price for the New Shares and their notional value
(less agreed commissions and expenses) to the Company at the time of delivery of the New Shares.
The following table shows the underwriting commitment of the Underwriter in connection with the Offering in
accordance with the Underwriting Agreement, and subject to the fulfilment and occurrence of certain conditions
precedent:
Underwriter
ACON
Addresses
Heimeranstraße 37,
80339 München, Germany
Underwriting Commitments as a
Percentage
100 %
Commissions
The Company will pay the Joint Lead Managers a commission of 5 % of the gross proceeds from the Offering.
The gross proceeds from the Offering will be calculated by multiplying the number of New Shares actually sold
by the offer price.
Termination/Indemnity
The Underwriting Agreement provides that the Underwriter may terminate the Underwriting Agreement under
certain circumstances, even after the shares have been allocated and listed, up to delivery and settlement. Such
circumstances include in particular an adverse change or prospective adverse change in the assets, financial condition or results of operations or an impairment of the business of the Company or one of its subsidiaries, a material change in the management structure of the Company a complete or partial suspension of trading on the
Frankfurt, London or New York Stock Exchanges or an adverse change in the national or international financial,
political, industrial, economic or legal conditions or capital markets conditions or currency exchange rates or an
outbreak or escalation of hostilities or terrorist activities.
If the Underwriting Agreement is terminated, the Offering will not take place. In such case, New Shares which
have already been allocated to investors will be invalidated and investors will have no claim for delivery. Claims
relating to any subscription fees paid and costs incurred by any investor in connection with the subscription are
governed solely by the legal relationship between the investor and the institution to which the investor submitted
its purchase order. Investors who have engaged in short sales of shares will bear the risk of not being able to
fulfil their delivery obligations in connection with such sale.
The Company and its subsidiaries have agreed in the Underwriting Agreement to indemnify and hold harmless
the Underwriter and its directors, officers, partners and employees, any affiliate of the Underwriter and each
person who may be deemed to control the Underwriter (each an “Indemnified Person”) against any losses,
claims, damages, liabilities, charges, expenses or demands (or actions in respect thereof) (“Losses”) to which
such Indemnified Person may become subject and which arise out of, or in relation to, or in connection with (i)
any breach by the Company or the subsidiaries of their representations and warranties pursuant to the Underwriting Agreement or (ii) any untrue statement of a material fact contained in the Prospectus or any omission to state
therein a material fact required to be stated therein necessary to make the statements therein not misleading. In
each such case, the Company and the subsidiaries will in addition reimburse each Indemnified Person for any
properly documented legal or other expenses (together with any amount equal to VAT, if applicable) incurred by
such Indemnified Person in connection with investigation or defending any such action or claim including with
respect to an alleged breach, alleged untrue statements, or an alleged omission as such expenses are incurred.
166
Other Relationships
Some of the Joint Lead Managers or their affiliates may, from time to time, engage in transactions or perform
services for Fenghua in the ordinary course of business.
Selling and Transfer Restrictions
General
The Offering consists of public Offerings in Germany and Poland and private placements outside Germany,
Poland and the United States to institutional investors. The shares have not been and will not be registered under
the U.S. Securities Act of 1933, as amended, and are only being offered outside the United States in reliance on
Regulation S under the Securities Act. This Prospectus does not constitute an offer, solicitation or invitation to
subscribe for shares in any jurisdiction in which such offer, solicitation or invitation is unlawful or is not authorised or to any person to whom it is unlawful to make such offer, solicitation or invitation. No action has been or
will be taken under the requirements of the legislation or regulations of, or of the legal or regulatory authorities
of, any jurisdiction, except for the filing and/or registration of this Prospectus in Germany and Poland in order to
permit a public offering of the shares and the public distribution of this Prospectus in Germany and Poland. The
distribution of this Prospectus and the offering of the shares in certain jurisdictions may be restricted by the relevant laws in such jurisdictions. Persons who may come into possession of this Prospectus are required by the
Company and the Underwriter to inform themselves about, and to observe and comply with, any such restrictions at their own expense and without liability to the Company or the Underwriter. Persons to whom a copy
of this Prospectus has been issued shall not circulate the same to any other person or reproduce or otherwise
distribute this Prospectus or any information herein for any purpose whatsoever nor permit or cause the same to
occur.
European Economic Area
The Underwriter has represented and warranted, severally and not jointly, to the Company that with respect to
each member state of the EEA that has implemented the Prospectus Directive (each a “Relevant Member
State”) the shares which are the subject of the Offering described in this Prospectus have not been and will not
be publicly offered in such Relevant Member State other than in connection with a public Offering in Germany
and Poland once the Prospectus has been approved by the German Federal Financial Supervisory Authority
(Bundesanstalt für Finanzdienstleistungsaufsicht, “BaFin”), published in compliance with the German Securities
Prospectus Act and notified to the KNF. The New Shares may, however, be publicly offered at any time in each
Relevant Member State pursuant to the following exceptions set forth in the Prospectus Directive, provided that
these exceptions have been implemented in the Relevant Member State:

offerings to legal entities which are authorised or regulated to operate in the financial markets or whose
sole corporate purpose is to invest in securities;

offerings to any legal entity, which in accordance with its last financial statements or consolidated financial statements, meet at least two of the following criteria: (i) an average of at least 250 employees in the
last financial year, (ii) a balance sheet total exceeding EUR 43 million and (iii) an annual net turnover exceeding EUR 50 million;

offerings to fewer than 150 natural or legal persons (other than qualified investors within the meaning of
the Prospectus Directive) subject to obtaining the prior consent of the Joint Global Coordinators for any
such offer; or

in all other circumstances falling within Article 3(2) of the Prospectus Directive.
The foregoing exceptions apply only on the condition that such offer for the sale of shares does not require the
publication of a prospectus by the Company or the Underwriter pursuant to Article 3 of the Prospectus Directive.
For purposes of this provision, the term “public offering” of the shares offered in any Relevant Member State
means a communication to the public in any form and by any means presenting sufficient information on the
terms and conditions of the Offering and the shares to be offered so as to enable an investor to decide to purchase
any shares. With respect to the interpretation of this definition, the measures taken to implement the Prospectus
Directive in the Member State in which the New Shares are being offered shall prevail. “Prospectus Directive”
means Directive 2003/71/EC including any relevant implementing measures in each Relevant Member State.
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United Kingdom
In addition, the Underwriter has represented and warranted that (i) it has only communicated or caused to be
communicated and will only communicate or cause to be communicated invitations or inducements to engage in
investment activities within the meaning of Article 21 of the Financial Services and Markets Act (“FSMA”) in
connection with the offer or sale of the New Shares under circumstances in which Article 21 of the FSMA does
not apply to the Company and (ii) it has complied and will comply with all applicable provisions of the FSMA
with respect to all of its activities in connection with the New Shares in, from or otherwise involving, the United
Kingdom.
Hong Kong
The Underwriter (i) has not offered or sold, and will not offer or sell, in Hong Kong, by means of any document,
any shares other than to persons whose ordinary business is to buy or sell shares or debentures, whether as principal or agent, or in circumstances which do not constitute an offer to the public within the meaning of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Chapter 32) of Hong Kong, and (ii) except as
permitted under the securities laws of Hong Kong, has not issued, and will not issue, in Hong Kong any document, invitation or advertisement relating to the shares other than with respect to shares which are intended to be
disposed of two persons outside Hong Kong or only to persons whose business involves the acquisition, disposal
or holding of securities, whether as principal or agent.
Japan
The shares have not been and will not be registered under the Securities and Exchange Law of Japan and may
not be offered or sold, directly or indirectly, in Japan or to, or for the account or benefit of, any resident of Japan
(which term as used herein means any person resident in Japan, including any corporation or other entity organised under the laws of Japan) or to, or for the account or benefit of, any person for reoffering or resale, directly or
indirectly, in Japan or to, or for the account or benefit of, any resident of Japan, except (i) pursuant to an exemption from the registration requirements of, or otherwise in compliance with, the Securities and Exchange Law of
Japan and (ii) in compliance with any other relevant laws and regulations of Japan.
Singapore
This Prospectus has not been registered as a prospectus or information memorandum with the Monetary Authority of Singapore. Accordingly, no advertisement may be made with regard to the Offering or calling attention to
an offer or intended offer of the shares to the public in Singapore. The Underwriter will not offer or sell shares,
and will not make shares the subject of an invitation for subscription or purchase, and will not circulate or distribute this prospectus or any other document or material in connection with the offer or sale, or invitation for
subscription or purchase, of shares, whether directly or indirectly, to the public or any member of the public in
Singapore other than:

to an institutional investor or other person specified in Section 274 of the Securities and Futures Act 2001
of Singapore;

to a sophisticated investor, and in accordance with the conditions, specified in Section 275 of the Securities and Futures Act; or

otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the
Securities and Futures Act.
People's Republic of China
The Underwriter has not circulated and will not circulate or distribute this Prospectus in the PRC and the Underwriter has not offered or sold, and will not offer or sell to any person for re-offering or resale, directly or
indirectly, any shares to any resident of the PRC except pursuant to applicable laws and regulations of the PRC.
For the purposes of this paragraph, PRC does not include Hong Kong, Macau and Taiwan.
168
RECENT DEVELOPMENTS AND OUTLOOK
No significant changes in the financial or trading position of Fenghua have occurred from 30 June 2014 until
the date of this Prospectus.
To mitigate the impact of slow economic recovery across the globe, the Chinese government continues to
implement economic reforms and adopt urbanisation plan as well as loosen its one child policy. China maintained steady GDP growth at 7.4 % in the first half year of 2014, while the ongoing expansion in domestic
demand drove an increase in total retail sales of consumer goods. Per capita annual disposable income of
urban residents continue to rise at 7.1 % as a result of the implementation of policies aimed to narrow the
income gap, improve livelihoods and spur consumption.
Fenghua aims to be present on both domestic and export sports footwear markets. In the past, Chinese consumers rarely distinguished between types of sport shoes. This is now changing fast as Chinese consumers
start to acquire sport specific sport shoes. As a result, Fenghua believes that the current sports shoe market,
suffering from high inventories, should recover soon, with a higher emphasis on performance oriented and
function-specific sport shoes.
The Company intends to expand its busines in China via i) enlarging and renovating existing production
facilities to meet strong demand, ii) acquiring new machines & equipment to double the production capacities
and iii) enhancing production development capabilities (prototyping, advanced moulding and testing). In the
middle term future, the Company aims to be more innovative in function specific sport shoes soles and benefit from bigger production capacities and economies of scale in order to become the leading sport shoe sole
manufacturer in China.
O-1
FINANCIAL SECTION
Content
Page
AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF HONG KONG
MOU LUNG HOLDING COMPANY LIMITED IN ACCORDANCE WITH IFRS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2011, 2012 and 2013
F-2
o
Consolidated Statement of Financial Position
F-3
o
Consolidated Statement of Profit or Loss and Other Comprehensive Income
F-4
o
Consolidated Statement of Changes in Equity
F-5
o
Consolidated Statement of Cash Flows
F-7
o
Notes to the Consolidated Financial Statements
F-9
o
Auditors' Report
F-29
UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL
STATEMENTS OF HONG KONG MOU LUNG HOLDING COMPANY
LIMITED IN ACCORDANCE WITH IFRS AS OF AND FOR THE FIRST SIX
MONTHS OF 2014
F-31
o
Condensed Consolidated Interim Statement of Financial Position
o
Condensed Consolidated Interim Statement of Profit or Loss and Other
Comprehensive Income
o
Condensed Consolidated Interim Statement of Changes in Equity
o
Condensed Consolidated Interim Statement of Cash Flows
o
Notes to the Condensed Consolidated Interim Financial Statements
o
Auditors' Report
IFRS OPENING STATEMENTS OF FINANCIAL POSITIONS AS OF 8TH
SEPTEMBER 2014 OF FENGHUA SOLETECH AG IN FOUNDATION (IN
GRÜNDUNG), FRANKFURT A.M.
o
IFRS Opening Statements of Financial Positions
o
Auditors' Report
o
Additional Information on the IFRS Opening Statements of Financial Positions
as of 8th September 2014
F-32
F-33
F-34
F-35
F-36
F-46
F-47
F-48
F-49
F-50
F-1
AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF HONG KONG MOU
LUNG HOLDING COMPANY LIMITED IN ACCORDANCE WITH IFRS AS OF
AND FOR THE YEARS ENDED
DECEMBER 31, 2011, 2012 AND 2013
F-2
HONG KONG MOU LUNG HOLDING COMPANY LIMITED
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
FOR THE FINANCIAL YEARS ENDED
DECEMBER 31, 2011, 2012 AND 2013
(EUROS IN THOUSANDS)
Note
2013
EUR'000
2012
EUR'000
2011 #
EUR'000
ASSETS
Non-current assets
Property, plant and equipment
Land use rights
7
8
6,798
390
7,188
6,786
401
7,187
7,178
7178
Current assets
Inventories
Trade receivables
Cash and cash equivalents
9
10
11
890
13,086
26,493
40,469
47,657
1,377
12,392
19,210
32,979
40,166
907
10,552
22,095
12
13
*
40,153
40,153
*
22,021
22,021
*
16,745
16,745
14
15
5,596
14
1,894
7,504
7,620
3,895
1,413
5,217
18,145
11,208
3,941
1,673
7,165
23,987
47,657
40,166
40,732
Total assets
EQUITY AND LIABILITY
Capital and Reserves
Share capital
Reserves
Total equity
Current liabilities
Trade and other payables
Amount owing to a director
Current tax payable
Interest-bearing bank borrowings
16
Total equity and liability
33,554
40,732
Note:
# The financial statements of the subsidiaries have been consolidated using the merger method of accounting.
Accordingly, the results of the Group incorporated the results of the subsidiary from 1 January 2011 to 31
December 2011.
* Represents an amount less than EUR1,000.
Approved and signed by the director:
LIN WEI JIE
DIRECTOR
F-3
HONG KONG MOU LUNG HOLDING COMPANY LIMITED
CONSOLIDATED STATEMENT OF PROFIT OR LOSS
AND OTHER COMPREHENSIVE INCOME
FOR THE FINANCIAL YEARS ENDED
DECEMBER 31, 2011, 2012 AND 2013
2013
2012 #
2011 #
Note
EUR'000
EUR'000
EUR'000
Revenue
17
90,056
83,581
59,218
Cost of sales
18
(64,826)
(61,470)
(42,665)
Gross profit
25,230
22,111
16,553
Other income
568
150
63
Selling and distribution expenses
19
(250)
(259)
(224)
Administrative and other expenses
20
(568)
(756)
(435)
(137)
(593)
(344)
24,843
20,653
15,613
(6,093)
(5,164)
(3,903)
18,750
15,489
11,710
Finance cost
Profit before taxation
Income tax expense
21
Profit after taxation
Other comprehensive (expense)/income:
Items that may be reclassified subsequently to
profit or loss
Foreign currency translation differences
(618)
Total comprehensive income
(358)
1,186
18,132
15,131
12,896
18,750
15,489
11,710
18,132
15,131
12,896
18.13
15,131
12,896
Profit after taxation attributable to:
Owners of the Company
Total comprehensive income attributable to:
Owners of the Company
Earnings per share
22
Note:
# The financial statements of the subsidiaries have been consolidated using the merger method of accounting.
Accordingly, the results of the Group incorporated the results of the subsidiary from 1 January 2011 to 31
December 2011 and from 1 January 2012 to 28 March 2012 (date of incorporation of the Company).
Approved and signed by the director:
LIN WEI JIE
DIRECTOR
F-4
HONG KONG MOU LUNG HOLDING COMPANY LIMITED
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE FINANCIAL YEARS ENDED
DECEMBER 31, 2011, 2012 AND 2013
Note
Share
Capital
Statutory
Reserve
Foreign
Currency
Translation
Reserve
EUR'000
EUR'000
EUR'000
EUR'000
EUR'000
-
*
Retained
Profits
Total
Equity
Balance at 28 March 2012
(Date of incorporation)
*
-
-
Acquisition of a
subsidiary
-
3,610
1,186
11,949
16,745
Profit after taxation
-
-
-
15,489
15,489
- Foreign currency
translation differences
-
-
(358)
Total comprehensive
income for the financial
year
-
-
(358)
15,489
Transfer to statutory
reserves
-
1,549
-
(1,549)
-
-
-
-
(9,855)
(9,855)
Balance at 31 December
2012/1 January 2013
*
5,159
828
16,034
22,021
Profit after taxation
-
-
-
18,750
18,750
- Foreign currency
translation difference
-
-
(618)
Total comprehensive
income for the financial
year
-
-
(618)
Transfer to statutory
reserves
-
244
-
(244)
-
- Issuance of shares
*
-
-
-
-
Balance at 31 December
2013
*
5,403
210
Other comprehensive
expense:
-
(358)
15,131
Contributions by and
distribution to owners of
the Company:
- Dividend declared by a
subsidiary to former
shareholders
23
Other comprehensive
expense:
-
18,750
(618)
18,132
Contributions by and
distributions to owners of
the Company:
34,540
40,153
F-5
Note:
* Represents an amount less than EUR1,000.
Approved and signed by the director:
LIN WEI JIE
DIRECTOR
F-6
HONG KONG MOU LUNG HOLDING COMPANY LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE FINANCIAL YEARS ENDED
DECEMBER 31, 2011, 2012 AND 2013
2013
2012
2011 #
EUR'000
EUR'000
EUR'000
Cash flows from operating activities
Profit before taxation
24,843
20,653
15,613
1,122
1,134
1,068
Amortisation of land use rights
8
1
-
Property, plant and equipment written off
4
230
1
Interest income
(80)
(150)
(63)
Interest expense
137
593
344
Inventories written back
(1)
-
-
Gain on disposal of property, plant and equipment
(2)
-
-
(485)
-
-
25,546
22,461
16,963
488
(495)
304
(827)
(2,024)
(3,141)
(Decrease)/Increase in trade and other payables
(1,998)
(3,543)
6,512
Cash generated from operations
23,209
16,399
20,638
Income tax paid
(5,589)
(5,409)
(3,118)
Interest received
80
150
63
(137)
(593)
(344)
17,563
10,547
17,239
(1,246)
(1,052)
(1,803)
-
(413)
-
46
-
-
Net cash for investing activities
(1,200)
(1,465)
(1,803)
Balance carried forward
16,363
9,082
15,436
Balance brought forward
16,363
9,082
15,436
*
-
-
(3,448)
4
272
Adjustments for:
Depreciation of property, plant and equipment
Waiver of debts
Operating profit before working capital changes
Decrease/(Increase) in inventories
Increase in trade receivables
Interest paid
Net cash from operating activities
Cash flows for investing activities
Acquisition of property, plant and equipment
Acquisition of land use rights
Proceeds from disposal of property, plant and
equipment
Cash flows for financing activities
Proceeds from issuance of shares
(Repayment to)/Advances from a director
F-7
Dividend paid
2013
2012
2011 #
EUR'000
EUR'000
EUR'000
-
(9,855)
(6,665)
Net repayment of bank borrowings
(5,287)
(1,910)
4,054
Net cash for financing activities
(8,735)
(11,761)
(2,339)
Net increase in cash and cash equivalents
7,628
(2,679)
13,097
Foreign exchange translation reserve
(345)
(206)
1,719
Cash and cash equivalents at beginning of the
year
19,210
22,095
7,279
Cash and cash equivalents at end of the year
26,493
19,210
22,095
Note:
# The financial statements of the subsidiaries have been consolidated using the merger method of accounting.
Accordingly, the results of the Group incorporated the results of the subsidiary from 1 January 2011 to 31
December 2011.
* Represents an amount less than EUR 1,000.
Approved and signed by the director:
LIN WEI JIE
DIRECTOR
F-8
HONG KONG MOU LUNG HOLDING COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEARS
ENDED DECEMBER 31, 2011, 2012 AND 2013
1.
GENERAL INFORMATION
The Company is a private company limited by shares and is incorporated under the Companies Ordinance,
(Chapter 32 of the Laws of Hong Kong). The domicile of the Company is Hong Kong. The registered office
and principal office of business are as follows:
Registered office:
Principal place of business:
2nd Floor, Queen’s Centre,
60 Queen’s Road East,
Wanchai, Hong Kong.
Xixiamei Industrial District,
Chendai Town, Jinjiang City,
Fujian Province, PRC.
The consolidated financial statements were authorised for issue by the director dated May 28, 2014.
2.
GROUP STRUCTURE
Hong Kong Mou Lung Holding Company Limited (“HKML” or the "Company”) has a wholly owned
subsidiary, namely Fujian Maolong Shoe Materials Co., Ltd. (“FML”). FML is a company established as
a wholly foreign owned enterprise (‘’WFOE’’) in the People’s Republic of China (“PRC”) and FML has
a wholly owned subsidiary, namely Jinjiang Fenghua Shoe Materials Co., Ltd. (“JF”). JF is a company
established in the PRC. The Company, FML and JF are hereinafter referred to as “the Group”.
The immediate and ultimate holding companies of HKML are Fenghua International Holdings Public
Co., Ltd and Capital Mobilier Inc., respectively. The immediate holding company is incorporated in
Thailand while the ultimate holding company is incorporated in British West Indies.
3.
PRINCIPAL ACTIVITIES
The Company is principally engaged in the business of investment holding. The principal activities of the
subsidiaries are stated below. There have been no significant changes in the nature of these activities
during the financial years.
Name of
Company
FML
JF
Issued and Paid-Up Capital
2013
EUR'000
495
8,302
2012
EUR'000
-*
3,412
2011
EUR'000
-*
3,412
Effective Equity
Interest
2013
2012 2011
100%
100%
100%
100%
-^
-#
Principal Activities
Investment holding.
Manufacturing and
distributing shoe
materials.
Note:
* FML was incorporated on 15 July 2012 and as at 31 December 2012, there is no injection of share capital
of FML.
^ The Company incorporated FML on 15 July 2012 and injected HK$5 million into FML which
represented the entire approved registered capital of FML on 6 March 2013.
# FML acquired entire equity of JF on 15 October 2012 for a total consideration of RMB30 million. On 8
March 2013, FML increased the registered capital of JF from RMB 30 million to RMB70 million.
4.
FINANCIAL INSTRUMENTS
The Group’s activities are exposed to a variety of market risks (including foreign currency risk, interest
rate risk and price risk), credit risk, liquidity and cash flow risks, and capital risk management. The
Group’s overall financial risk management policy focuses on the unpredictability of financial markets and
seeks to minimise potential adverse effects on the Group’s financial performance.
F-9
4.1
Financial Risk Management Policies
The Group’s policies in respect of the major areas of treasury activity are as follows:(i)
Market Risk
(a)
Foreign Currency Risk
The Group does not have significant exposure to foreign currency risks as most of
its transactions and balances are denominated in Chinese Renminbi. Hence, the
Group is exposed to minimal foreign currency risk.
As at the end of the reporting periods, the Group has immaterial balances that are
denominated in foreign currency.
(b)
Interest Rate Risk
Interest rate risk is the risk that the fair value or future cash flows of a financial
instrument will fluctuate because of changes in market interest rates. The Group’s
exposure to interest rate risk arises mainly from bank deposits placed with the
financial institutions and interest-bearing financial liabilities. Information relating to
the Group’s exposure to the interest rate risk of the financial liabilities is disclosed
in Note 4.1(iii) to the consolidated financial statements.
The Group’s policy is to obtain the most favourable interest rates available. The
Group constantly monitors its interest rate risk and does not utilise forward contracts
or other arrangements for trading or speculative purposes. As at the end of the
reporting periods, there were no such arrangements, interest rate swap contracts or
other derivative instruments outstanding.
Interest Rate Risk Sensitivity Analysis
A change in 100 basis points (“bp”) in the interest rate at the end of the reporting
periods, with all the other variables held constant, would increase/(decrease) in
profit after taxation/equity by the amount shown below:
2013
Increase/
(Decrease)
EUR'000
2012
Increase/
(Decrease)
EUR'000
2011
Increase/
(Decrease)
EUR'000
Effect on profit after taxation
Increase of 100 bp
Decrease of 100 bp
-
39
(39)
54
(54)
-
39
(39)
54
(54)
Effect on equity
Increase of 100 bp
Decrease of 100 bp
The sensitivity analysis above has been determined based on the exposure to interest
rates for non-derivative instruments at the end of the reporting periods and the
stipulated change taking place at the beginning of the financial years and held
constant throughout the reporting periods in the case of instruments that have
floating rates. A 100 basis points increase or decrease is used when reporting
interest rate risk internally to key management personnel and represents
management’s assessment of the possible change in interest rates.
F-10
(c)
Price Risk
The Group does not have any quoted investments and hence is not exposed to equity
price risk.
(ii)
Credit Risk
The Group exposure to credit risk, or the risk of counterparties defaulting, arises mainly
from trade and other receivables. The Group manages its exposure to credit risk by the
application of credit approvals, credit limits and monitoring procedures on an ongoing
basis. For other financial assets (including cash and bank balances), the Group minimises
credit risk by dealing exclusively with high credit rating counterparties.
The Group establishes an allowance for impairment that represents its estimate of incurred
losses in respect of the trade and other receivables as appropriate. The main components of
this allowance are a specific loss component that relates to individually significant
exposures and a collective loss component established for groups of similar assets in
respect of losses that have been incurred but not yet identified. Impairment is estimated by
management based on prior experience and the current economic environment.
(a)
Credit risk concentration profile
The Group does not have any major concentration of credit risk related to any
individual customer or counterparty.
(b)
Exposure to credit risk
As the Group does not hold any collateral, the maximum exposure to credit risk is
represented by the carrying amount of the financial assets at the end of the reporting
periods.
The exposure of credit risk for trade receivables by geographical region is not
provided as the Group’s activities are all in the PRC.
(c)
Ageing analysis
The ageing analysis of the Group’s trade receivables at the end of the reporting
periods are as follows:2013
EUR'000
2012
EUR'000
2011
EUR'000
Not past due and not impaired
Past due but not impaired:
- less than 60 days
13,086
12,378
10,552
13,086
14
12,392
10,552
Trade receivables that are past due but not impaired
The Group believes that no impairment allowance is necessary in respect of these
trade receivables. They are substantially companies with good collection track
record and no recent history of default.
Trade receivables that are neither past due nor impaired
A significant portion of trade receivables that are neither past due nor impaired are
regular customers that have been transacting with the Group. The Group uses ageing
analysis to monitor the credit quality of the trade receivables. Any receivables
having significant balances past due or more than 60 days, which are deemed to have
higher credit risk, are monitored individually.
F-11
(iii)
Liquidity Risk
Liquidity and cash flow risks arise mainly from general funding and business activities.
The Group practises prudent risk management by maintaining sufficient cash balances and
the availability of funding through certain committed credit facilities.
The following table sets out the maturity profile of the financial liabilities as at the end of
the reporting periods based on contractual undiscounted cash flows (including interest
payments computed using contractual rates or, if floating, based on the rates at the end of
the reporting periods):
2013
%
Carrying
Amounts
Contractual
Undiscounted
Cash flows
Within
1 year or
on demand
EUR'000
EUR'000
EUR'000
Trade and other
payables
-
5,596
5,596
5,596
Amount owing to
a director
-
14
14
14
5,610
5,610
5,610
-
7,620
7,620
7,620
7.63
5,217
5,615
5,615
-
3,895
3,895
3,895
16,732
17,130
17,130
-
11,208
11,208
11,208
7.41
7,165
7,696
7,696
2012
Trade and other
payables
Interest-bearing
bank borrowings
Amount owing to
a director
2011
Trade and other
payables
Interest-bearing
bank borrowings
Amount owing to
a director
4.2
Weighted
Average
Effective
Rate
-
3,941
3,941
3,941
22,314
22,845
22,845
Capital Risk Management
The Group manages its capital by maintaining an optimal capital structure so as to support their
businesses and maximise shareholder’s value. To achieve this objective, the Group may make
adjustments to the capital structure in view of changes in economic conditions, such as adjusting
the amount of dividend payment, returning of capital to shareholders or issuing new shares.
The Group manages its capital based on debt-to-equity ratio. The Group’s strategies were
unchanged since date of incorporation. The debt-to-equity ratio is calculated as net debt divided
by total equity. Net debt is calculated as interest bearing borrowings.
F-12
The debt-to-equity ratio of the Group during the financial years was as follows:
2013
EUR'000
Net debt
- Interest-bearing bank borrowings
Total equity
5,217
7,165
40,153
22,021
16,745
-
0.24
0.43
Classification of Financial Instruments
2013
EUR'000
Financial Asset
Loan and Receivables
Trade receivables
Cash and cash equivalents
Financial Liability
Other Financial Liabilities
Trade and other payables
Interest-bearing bank borrowings
Amount owing to a director
4.4
2011
EUR'000
-
Debt-to-equity ratio
4.3
2012
EUR'000
13,086
26,493
39,579
5,596
14
5,610
2012
EUR'000
2011
EUR'000
12,392
19,210
31,602
10,552
22,095
32,647
7,620
5,217
3,895
16,732
11,208
7,165
3,941
22,314
Fair Values of Financial Instruments
The financial assets and financial liabilities maturing within the next 12 months approximated
their fair values due to the relatively short-term maturity of the financial instruments.
4.5
Fair Value Hierarchy
At the end of the reporting periods, there were no financial instruments carried at fair values.
5.
BASIS OF PREPARATION
The financial statements of the subsidiaries have been consolidated using the merger method of
accounting as disclosed in Note 6.2 of the consolidated financial statements. Accordingly, the results of
the Group incorporated the results of the subsidiary, FH, from 1 January 2011 to 31 December 2011.
The consolidated financial statements of the Group for the financial period ended 31 December 2012 are
prepared on the assumption that the Group had been in existence from 1 January 2011 to 31 December
2011 and as at 31 December 2011.
This consolidated financial statements are the first consolidated financial statements in which the Group
adopts International Financial Reporting Standards (“IFRS”). The Group has adopted all EU IFRS that
were effective before 1 January 2014.
The consolidated financial statements of the Group are prepared under the historical cost convention and
modified to include other bases of valuation as disclosed in other sections under significant accounting
policies and in compliance with IFRS.
F-13
The Group has not applied in advance the following accounting standards and interpretations (including
the consequential amendments, if any) that have been issued by the International Accounting Standards
Board (“IASB”) but are not yet mandatory for the current financial year:
IFRSs and IC Interpretations
(Including The Consequential Amendments)
Effective Date
Endorsed by EU until
31 December 2013
IFRS 9 (2009) Financial Instruments
1 January 2015
No
IFRS 9 (2010) Financial Instruments
1 January 2015
No
IFRS 14 Regulatory Deferred Accounts
1 January 2016
No
Amendments to IFRS 9 and IFRS 7: Mandatory Effective
Date of IFRS 9 and Transition Disclosures
1 January 2015
No
Amendments to IFRS 10, IFRS 12 and IAS 27:
Investment Entities
1 January 2014
No
1 July 2014
No
Amendments to IAS 32 Financial Instruments:
Presentation – Offsetting Financial Assets and Financial
Liabilities
1 January 2014
No
Amendments to IAS 36 Impairment of Assets –
Recoverable Amount Disclosures for Non-Financial
Assets
1 January 2014
No
Amendments to IAS 39: Novation of Derivatives and
Continuation of Hedge Accounting
1 January 2014
No
IFRIC 21 Levies
1 January 2014
No
Amendments to IAS 19: Defined Benefit Plans –
Employee Contributions
The director anticipates that the adoption of the above IFRSs and interpretations do not have a material
financial impact on the consolidated financial statements. It will only impact the content of disclosures
presented in the consolidated financial statements.
6.
SIGNIFICANT ACCOUNTING POLICIES
6.1
Critical accounting estimates and judgments
Estimates and judgements are continually evaluated by the director and management and are based
on historical experience and other factors, including expectations of future events that are believed
to be reasonable under the circumstances. The estimates and judgements that affect the application
of the Group’s accounting policies and disclosures, and have a significant risk of causing a
material adjustment to the carrying amounts of assets, liabilities, income and expenses are
discussed below:Depreciation of Property, Plant and Equipment
The estimates for the residual values, useful lives and related depreciation charges for the property
and equipment are based on commercial and production factors which could change significantly
as a result of technical innovations and competitors’ actions in response to the market conditions.
Changes in the expected level of usage and technological development could impact the economic
useful lives and the residual values of these assets, therefore future depreciation charges could be
revised.
Impairment of Receivables
An impairment loss is recognised when there is objective evidence that a financial asset is
impaired. Management specifically reviews its loans and receivables financial assets and analyses
historical bad debts, customer concentrations, customer creditworthiness, current economic trends
and changes in the customer payment terms when making a judgment to evaluate the adequacy of
the allowance for impairment losses. Where there is objective evidence of impairment, the amount
and timing of future cash flows are estimated based on historical loss experience for assets with
similar credit risk characteristics. If the expectation is different from the estimation, such
difference will impact the carrying value of receivables.
F-14
Write-down of Inventories
Reviews are made periodically by management on damaged, obsolete and slow-moving
inventories. These reviews require judgement and estimates. Possible changes in these estimates
could result in revisions to the valuation of inventories.
Income Taxes
There are certain transactions and computations for which the ultimate tax determination may be
different from the initial estimate. The Group recognises tax liabilities based on its understanding
of the prevailing tax laws and estimates of whether such taxes will be due in the ordinary course of
business. Where the final outcome of these matters is different from the amounts that were
initially recognised, such difference will impact the income tax and deferred tax provisions in the
years in which such determination is made.
Impairment of Non-financial Assets
When the recoverable amount of an asset is determined based on the estimate of the value-in-use
of the cash-generating unit to which the asset is allocated, the management is required to make an
estimate of the expected future cash flows from the cash-generating unit and also to apply a
suitable discount rate in order to determine the present value of those cash flows.
6.2
Summary significant accounting policies
Basis of Consolidation
The consolidated financial statements include the financial statements of the Company and its
subsidiaries made up to the end of the reporting periods.
A subsidiary is defined as a company in which the Group has the power, directly or indirectly, to
exercise control over its financial and operating policies so as to obtain benefits from its activities.
Subsidiaries are consolidated from the date on which control is transferred to the Group up to the
effective date on which control ceases, as appropriate.
Intragroup transactions, balances, income and expenses are eliminated on consolidation. Where
necessary, adjustments are made to the consolidated financial statements of subsidiaries to ensure
consistency of accounting policies with those of the Group.
Merger accounting for common control business combinations
The acquisitions resulted in a business combination involving common control entities and
accordingly the accounting treatment is outside the scope of IFRS 3. The merger accounting is
used by the Group to account for such common control business combinations.
A business combination involving entities under common control is a business combination in
which all the combining entities or subsidiaries are ultimately controlled by the same party and
parties both before and after the business combination and that control is not transitory.
Subsidiaries acquired which have met the criteria for pooling of interest are accounted for using
merger accounting principles. Under the merger method of accounting, the results of the
subsidiaries are presented as if the merger had been effected throughout the financial year.
The assets and liabilities combined are accounted for based on the carrying amounts from the
perspective of the common control shareholder at the date of transfer. No amount is recognised in
respect of goodwill and excess of the acquirer’s interest in the net fair value of the acquiree’s
identifiable assets and liabilities and contingent liabilities over cost at the time of the common
control business combination to the extent of the continuation of the controlling party and parties’
interests.
Basis of Consolidation (Cont’d)
When the merger method is used, the cost of investment in the Company’s books is recorded at the
nominal value of shares issued. The difference between the carrying value of the investment and
the nominal value of the shares of the subsidiaries is treated as a merger deficit or merger reserve
as applicable. The results of the subsidiaries being merged are included for the full financial year.
F-15
Financial Instruments
Financial instruments are recognised in the consolidated statements of financial position when the
Group has become a party to the contractual provisions of the instruments.
Financial instruments are classified as liabilities or equity in accordance with the substance of the
contractual arrangement. Interest, dividends, gains and losses relating to a financial instrument
classified as a liability, are reported as an expense or income. Distributions to holders of financial
instruments classified as equity are charged directly to equity.
Financial instruments are offset when the Group has a legally enforceable right to offset and
intends to settle either on a net basis or to realise the asset and settle the liability simultaneously.
A financial instrument is recognised initially, at its fair value plus, in the case of a financial
instrument not at fair value through profit or loss, transaction costs that are directly attributable to
the acquisition or issue of the financial instrument.
Financial instruments recognised in the consolidated statements of financial position are disclosed
in the individual policy statement associated with each item.
Financial Assets
On initial recognition, financial assets are classified as either financial assets at fair value through
profit or loss, held-to-maturity investments, loans and receivables financial assets, or available-forsale financial assets, as appropriate.
(i)
Financial Assets at Fair Value through Profit or Loss
Financial assets are classified as financial assets at fair value through profit or loss when the
financial asset is either held for trading or is designated to eliminate or significantly reduce
a measurement or recognition inconsistency that would otherwise arise. Derivatives are also
classified as held for trading unless they are designated as hedges.
Financial assets at fair value through profit or loss are stated at fair value, with any gains or
losses arising on remeasurement recognised in profit or loss. Dividend income from this
category of financial assets is recognised in profit or loss when the Group’s right to receive
payment is established.
As at the end of the reporting periods, there were no financial assets classified under this
category.
(ii)
Held-to-maturity Investments
Held-to-maturity investments are non-derivative financial assets with fixed or determinable
payments and fixed maturities that the management has the positive intention and ability to
hold to maturity. Held-to-maturity investments are measured at amortised cost using the
effective interest method less any impairment loss, with revenue recognised on an effective
yield basis
As at the end of the reporting periods, there were no financial assets classified under this
category.
(iii)
Loans and Receivables Financial Assets
Trade receivables and other receivables that have fixed or determinable payments that are
not quoted in an active market are classified as loans and receivables financial assets. Loans
and receivables financial assets are measured at amortised cost using the effective interest
method, less any impairment loss. Interest income is recognised by applying the effective
interest rate, except for short-term receivables when the recognition of interest would be
immaterial.
(iv)
Available-for-sale Financial Assets
Available-for-sale financial assets are non-derivative financial assets that are designated in
this category or are not classified in any of the other categories.
After initial recognition, available-for-sale financial assets are remeasured to their fair
values at the end of each reporting period. Gains and losses arising from changes in fair
F-16
value are recognised in other comprehensive income and accumulated in the fair value
reserve, with the exception of impairment losses. On derecognition, the cumulative gain or
loss previously accumulated in the fair value reserve is reclassified from equity into profit
or loss.
Dividends on available-for-sale equity instruments are recognised in profit or loss when the
Group’s right to receive payments is established.
Investments in equity instruments whose fair value cannot be reliably measured are
measured at cost less accumulated impairment losses, if any.
As at the end of the reporting periods, there were no financial assets classified under this category.
Financial Liabilities
All financial liabilities are initially measured at fair value plus directly attributable transaction
costs and subsequently measured at amortised cost using the effective interest method other than
those categorised as fair value through profit or loss.
Fair value through profit or loss category comprises financial liabilities that are either held for
trading or are designated to eliminate or significantly reduce a measurement or recognition
inconsistency that would otherwise arise. Derivatives are also classified as held for trading unless
they are designated as hedges.
Equity Instruments
Instruments classified as equity are measured at cost and are not remeasured subsequently.
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new
ordinary shares or options are shown in equity as a deduction, net of tax, from proceeds. Dividends
on ordinary shares are recognised as liabilities when approved for appropriation.
Statutory Reserve
The Group is required to maintain certain statutory reserves for subsidiary in PRC by appropriating
from profit after taxation in accordance with the relevant laws and regulations in the PRC and articles
of association of the subsidiary before declaration or payment of dividends. The reserves form part of
the equity of the Group.
The appropriation to the statutory surplus reserve represents 10 percent of the profit after taxation of
the subsidiary. In accordance with the laws and regulations in the PRC, the appropriations to statutory
reserve cease when the balances of the reserve reach 50 percent of the registered capital of the
subsidiary. The statutory reserve is not distributable by way of dividends. However, the subsidiary can
continue to transfer to statutory reserve on voluntarily basis upon it reaches 50 percent of the
registered capital.
The statutory reserve fund upon approved by the relevant authority can be used to increase the
registered capital and eliminate future losses of the subsidiary, but it cannot be distributed to
shareholders except in the event of a solvent liquidation of the subsidiary. When the statutory reserve
used to increase the registered capital and eliminate future losses of the subsidiary, such balance of
statutory reserve must be maintained at a minimum of 25% of the capital of the Group after such
usages.
Functional and Foreign Currencies
Functional and Presentation Currency
The individual financial statements of each entity in the Group are presented in the currency of the
primary economic environment in which the entity operates (the functional currency).
The financial statements of the Company are presented in Hong Kong Dollar (“HKD”) and the
financial statements of the subsidiaries are presented in Chinese Renminbi (“RMB”).
The Group conducts its business predominately in the PRC and hence its presentation currency shall
be in RMB.
F-17
The consolidated financial statements of the Group are presented in EUR'000 for purpose of the
intended IPO numbers are converted to EUR, and therefore the consolidated financial statements
has been translated from HKD to RMB and RMB to EUR at the following rates:
31 December 2013
31 December 2012
31 December 2013
31 December 2012
31 December 2011
Period end rates
RMB 1.00 = HKD 1.2687
RMB 1.00 = HKD 1.2287
Period end rates
EUR 1.00 = RMB 8.4146
EUR 1.00 = RMB 8.3378
EUR 1.00 = RMB 8.2339
Average rates
RMB 1.00 = HKD 1.2522
RMB 1.00 = HKD 1.2291
Average rates
EUR 1.00 = RMB 8.2270
EUR 1.00 = RMB 8.1171
EUR 1.00 = RMB 9.0026
The figures presented in the consolidated financial statements have been rounded to the nearest
EURO (“EUR”) thousand.
The results and financial positions in functional currency are translated into the presentation
currency for purpose of presentation in the listing prospectus of its intended ultimate legal parent
as follows:
(a)
Assets and liabilities for each statement of financial position presented are translated at the
closing rate at the date of that end of the reporting period;
(b)
Income and expenses for each statement of profit or loss and other comprehensive income
are translated at average exchange rate (unless this average is not a reasonable
approximation of the cumulative effect of the rates prevailing on the transaction dates, in
which case income and expenses are translated at the dates of the transaction); and
(c)
All resulting exchange differences are recognised in translation reserve, a separate
component of equity.
Foreign Currency Transactions
Transactions in foreign currencies are translated at foreign exchange rates ruling at the dates of the
transactions. Monetary assets and liabilities denominated in foreign currencies at the end of the
reporting periods are translated into RMB at foreign exchange rates ruling at those dates. Nonmonetary assets and liabilities measured at cost in a foreign currency are translated using
exchange rates that existed when the values were determined. Foreign exchange differences
arising from translation are recognised in profit or loss.
Property, Plant and Equipment
Property, plant and equipment, are stated at cost less accumulated depreciation and impairment
losses, if any.
Depreciation is calculated under the straight-line method to write off the depreciable amount of
the assets over their estimated useful lives. Depreciation of an asset does not cease when the asset
becomes idle or is retired from active use unless the asset is fully depreciated. The principal
annual rates used for this purpose are:Buildings
Plant and machinery
20 years
5 - 10 years
Office equipment, furniture and fixtures
5 years
Motor vehicles
5 years
The depreciation method, useful lives and residual values are reviewed, and adjusted if
appropriate, at the end of each reporting period to ensure that the amounts, method and periods of
depreciation are consistent with previous estimates and the expected pattern of consumption of the
future economic benefits embodied in the items of the property, plant and equipment.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as
appropriate, only when the cost is incurred and it is probable that the future economic benefits
associated with the asset will flow to the Group and the cost of the asset can be measured reliably.
The carrying amount of parts that are replaced is derecognised. The costs of the day-to-day
servicing of property, plant and equipment are recognised in profit or loss as incurred. Cost also
F-18
comprises the initial estimate of dismantling and removing the asset and restoring the site on
which it is located for which the Group is obligated to incur when the asset is acquired, if
applicable.
An item of property, plant and equipment is derecognised upon disposal or when no future
economic benefits are expected from its use. Any gain or loss arising from derecognition of the
asset is recognised in profit or loss.
Impairment of Financial Assets
All financial assets (other than those categorised at fair value through profit or loss), are assessed
at the end of each reporting periods whether there is any objective evidence of impairment as a
result of one or more events having an impact on the estimated future cash flows of the asset.
An impairment loss in respect of held-to-maturity investments and loans and receivables financial
assets is recognised in profit or loss and is measured as the difference between the asset’s
carrying amount and the present value of estimated future cash flows, discounted at the financial
asset’s original effective interest rate.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be
related objectively to an event occurring after the impairment was recognised, the previously
recognised impairment loss is reversed through profit or loss to the extent that the carrying
amount of the investment at the date the impairment is reversed does not exceed what the
amortised cost would have been had the impairment not been recognised.
Impairment of Non-Financial Assets
The carrying values of assets, other than those to which IAS 36 - Impairment of Assets does not
apply, are reviewed at the end of each reporting periods for impairment when there is an indication
that the assets might be impaired. Impairment is measured by comparing the carrying values of the
assets with their recoverable amounts. The recoverable amount of the assets is the higher of the
assets' fair value less costs to sell and their value in use, which is measured by reference to
discounted future cash flow.
An impairment loss is recognised in profit or loss immediately.
In respect of assets other than goodwill, and when there is a change in the estimates used to
determine the recoverable amount, a subsequent increase in the recoverable amount of an asset is
treated as a reversal of the previous impairment loss and is recognised to the extent of the carrying
amount of the asset that would have been determined (net of amortisation and depreciation) had no
impairment loss been recognised. The reversal is recognised in profit or loss immediately.
Land Use Rights
All land in the PRC are owned by the State or collectives. Individuals and companies are
permitted to acquire land use rights for general or specific purposes. In the case when land is
used for industrial purposes, the land use rights are granted for a period of 50 years. The rights
may be renewed at the expiration of the initial and any subsequent terms according to the
relevant Chinese laws. Granted land use rights are transferable and may be used as security for
borrowings and other obligations.
The cost of acquisition of land use rights is capitalised and amortised on a straight-line basis
over the lease term of the land of 50 years. The amortisation expense is recognised in profit or
loss.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is determined on the weighted
average basis.
Cost of raw materials comprises the original cost of purchase plus costs of bringing the inventories to
their present location and condition.
The cost of finished goods and work in progress include the cost of raw materials, direct labour and a
proportion of manufacturing overheads based on normal operating capacity of the production
facilities.
F-19
Net realisable value represents the estimated selling price less the estimated costs of completion and
the estimated costs necessary to make the sale.
Income Taxes
Income tax for the year comprises current and deferred tax.
Current tax is the expected amount of income taxes payable in respect of the taxable profit for the
year and is measured using the tax rates that have been enacted or substantively enacted at the end
of the reporting period.
Deferred tax is provided in full, using the liability method, on temporary differences arising
between the tax bases of assets and liabilities and their carrying amounts in the consolidated
financial statements.
Deferred tax liabilities are recognised for all taxable temporary differences other than those that
arise from goodwill or excess of the acquirer’s interest in the net fair value of the acquiree’s
identifiable assets, liabilities and contingent liabilities over the business combination costs or from
the initial recognition of an asset or liability in a transaction which is not a business combination
and at the time of the transaction, affects neither accounting profit nor taxable profit.
Deferred tax assets are recognised for all deductible temporary differences, unused tax losses and
unused tax credits to the extent that it is probable that future taxable profits will be available against
which the deductible temporary differences, unused tax losses and unused tax credits can be utilised.
The carrying amounts of deferred tax assets are reviewed at the end of each reporting period and
reduced to the extent that it is no longer probable that sufficient future taxable profits will be available
to allow all or part of the deferred tax assets to be utilised.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period
when the asset is realised or the liability is settled, based on the tax rates that have been enacted or
substantively enacted at the end of the reporting period.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current
tax assets against current tax liabilities and when the deferred income taxes relate to the same taxation
authority.
Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss.
Deferred tax items are recognised in correlation to the underlying transactions either in other
comprehensive income or directly in equity and deferred tax arising from a business combination is
included in the resulting goodwill or excess of the acquirer’s interest in the net fair value of the
acquiree’s identifiable assets, liabilities and contingent liabilities over the business combination costs.
Value-Added Tax
The Group’s sale of goods in the PRC are subjected to Value-Added Tax (“VAT”) at the
applicable tax rate of 17% for the PRC domestic sales. Input VAT on purchases can be deducted
from output VAT. The net amount of VAT recoverable from, or payable to, the taxation authority
is included as part of “receivables” or “payables” in the statement of financial position as
applicable.
Revenues, expenses and assets are recognised net of the amount of VAT except where:

VAT incurred on the purchase of assets or services is not recoverable from the taxation
authority, in which case VAT is recognised as part of the cost of acquisition of the asset or
as part of the expense item as applicable; and

receivables and payables include with the amount of VAT due.
Cash and Cash Equivalents
Cash and cash equivalents comprise cash in hand, bank balances, demand deposits, deposits pledged
with financial institutions, bank overdrafts and short-term, highly liquid investments that are readily
convertible to known amounts of cash and which are subject to an insignificant risk of changes in
value.
F-20
Employee Benefits
Wages, salaries, paid annual leave and sick leave, bonuses and non-monetary benefits are recognised
in profit or loss in the period in which the associated services are rendered by employees of the Group.
Pursuant to the relevant regulations of the PRC government, the Group participates in a local
municipal government retirement benefits scheme (the “Scheme”), whereby the Group is required
to contribute a certain percentage of the basic salaries of its employees to the Scheme to fund their
retirement benefits. The local municipal government undertakes to assume the retirement benefits
obligations of all existing and future retired employees of the Group. The only obligation of the
Group with respect to the Scheme is to pay the ongoing required contributions under the Scheme
mentioned above. Contributions under the Scheme are accounted for on an accrual basis and
recognised to profit or loss when incurred.
Related Parties
A party is related to an entity (referred to as the ‘reporting entity) if:(a)
(b)
A person or a close member of that person’s family is related to a reporting entity if that
person:(i)
has control or joint control over the reporting entity;
(ii)
has significant influence over the reporting entity; or
(iii)
is a member of the key management personnel of the reporting entity or of a parent of
the reporting entity.
An entity is related to a reporting entity if any of the following conditions applies:(i)
The entity and the reporting entity are members of the same group (which means that
each parent, subsidiary and fellow subsidiary is related to the others).
(ii)
One entity is an associate or joint venture of the other entity (or an associate or joint
venture of a member of a group of which the other entity is a member).
(iii)
Both entities are joint ventures of the same third party.
(iv)
One entity is a joint venture of a third entity and the other entity is an associate of the
third entity.
(v)
The entity is a post-employment benefit plan for the benefit of employees of either the
reporting entity or an entity related to the reporting entity. If the reporting entity is itself
such a plan, the sponsoring employers are also related to the reporting entity.
(vi)
The entity is controlled or jointly controlled by a person identified in (a) above.
(vii)
A person identified in (a)(i) above has significant influence over the entity or is a
member of the key management personnel of the entity (or of a parent of the entity).
Close members of the family of a person are those family members who may be expected to
influence, or be influenced by, that person in their dealings with the entity.
Recognition of Revenue
Sale of goods
Revenue from the sales of goods is measured at fair value of consideration received or receivables,
net of returns and trade discounts where applicable. Revenue is recognised upon delivery of goods
when the significant risks and rewards of ownership have been transferred to the buyer, recovery
of the consideration is probable, the associated costs and possible return of goods can be estimated
reliably.
Interest income
Interest income is recognised on an accrual basis using the effective interest method.
F-21
Borrowing Costs
Borrowing costs, directly attributable to the acquisition and construction of property, plant and
equipment are capitalised as part of the cost of those assets, until such time as the assets are ready for
their intended use or sale. Capitalisation of borrowing costs is suspended during extended periods in
which active development is interrupted
All other borrowing costs are recognised in profit or loss as expenses in the period in which they
incurred.
Operating Segments
An operating segment is a component of the Group that engages in business activities from which
it may earn revenues and incur expenses, including revenues and expenses that relate to
transaction with any of the Group’s other components. An operating segment’s operating results
are reviewed regularly by the chief operating decision maker to make decisions about resources to
be allocated to the segment and assess its performance, and for which discrete financial
information is available.
7.
PROPERTY, PLANT AND EQUIPMENT
Buildings
EUR'000
Office
equipment,
Plant and
furniture
machinery and fixtures
EUR'000
EUR'000
Motor
vehicles
EUR'000
Total
EUR'000
At Cost:
At 1January 2011
Additions
Written off
Foreign exchange difference
At 31 December 2011/
1 January 2012
Additions
Written off
Foreign exchange difference
At 31 December 2012/
1 January 2013
Additions
Written off
Disposal
Foreign exchange difference
At 31 December 2013
Accumulated Depreciation
At 1 January 2011
Depreciation charge
Written off
Foreign exchange difference
At 31 December 2011/
1 January 2012
Depreciation charge
Written off
Foreign exchange difference
At 31 December 2012/
3,335
952
315
6,977
851
(12)
553
8
1
557
(30)
35
10,877
1,803
(42)
904
4,602
(57)
8,369
835
(327)
(118)
9
60
(3)
(2)
562
157
(116)
(8)
13,542
1,052
(446)
(185)
4,545
(41)
4,504
8,759
1,246
(108)
9,897
64
(1)
63
595
(87)
(181)
1
328
13,963
1,246
(87)
(181)
(149)
14,792
505
155
48
4,087
842
(11)
355
7
1
307
71
(28)
25
4,906
1,068
(39)
429
708
221
(15)
5,273
838
(158)
(84)
8
6
(3)
-
375
69
(56)
(5)
6,364
1,134
(217)
(104)
F-22
1 January 2013
Depreciation
Written off
Disposal
Foreign exchange difference
At 31 December 2013
Buildings
EUR'000
914
218
(13)
1,119
Plant and
machinery
EUR'000
5,869
854
(72)
6,651
Office
equipment,
furniture
and fixtures
EUR'000
11
8
19
3,894
3,631
3,385
3,096
2,890
3,246
1
53
44
Motor
vehicles
EUR'000
383
42
(83)
(137)
205
Total
EUR'000
7,177
1,122
(83)
(137)
(85)
7,994
187
212
123
7,178
6,786
6,798
Net Book Value
At 31 December 2011
At 31 December 2012
At 31 December 2013
All property, plant and equipment held by the Group are located in the PRC.
Motor vehicles with the following net book value were held in trust by the director, key management
personnel of the Group and friends of the director. The ownership of the asset will be transferred to the
Group at a time to be directed by the Group.
2013
EUR'000
Motor vehicles
8.
2012
EUR'000
-
2011
EUR'000
161
188
LAND USE RIGHTS
2013
EUR'000
Cost
At 1 January
Additions
Foreign exchange difference
At 31 December
Accumulated amortisation
At 1 January
Amortisation charges
Foreign exchange difference
At 31 December
Net book value
*
2012
EUR'000
2011
EUR'000
413
(11)
402
-
1
8
*
9
1
*
1
-
390
401
-
402
(3)
399
Represents an amount less than EUR1,000.
All the land use rights of the Group are located in the PRC.
F-23
9.
INVENTORIES
2013
EUR'000
At cost:
Raw materials
Work-in-progress
Finished goods
2012
EUR'000
247
478
165
890
2011
EUR'000
326
854
197
1,377
174
480
253
907
None of the inventories were stated at net realisable value.
10.
TRADE RECEIVABLES
The Group’s normal trade credit terms range from 30 to 60 days. All the trade receivables are
denominated in RMB.
11.
CASH AND CASH EQUIVALENTS
2013
EUR'000
Cash in hand
Cash at banks
Deposits pledged with banks for bills payable
2012
EUR'000
2
26,491
26,493
2011
EUR'000
10
19,200
19,210
7
19,004
3,084
22,095
The Chinese Renminbi is not freely convertible into foreign currencies. Under the PRC Foreign
Exchange Regulations and Administration of Settlement, Sales and Payment of Foreign Exchange
Regulations, the subsidiary of the Company established in the PRC is permitted to exchange RMB for
foreign currencies through banks that are authorised to conduct foreign exchange business.
Deposits with financial institution had maturity period of 6 months. Deposits bore a weighted effective
interest rate of 3.05% per annum at the end of the reporting period.
Deposits were pledged for bills payable (Note 14) facilities granted.
Cash and cash equivalents are denominated in the following currencies:
2013
EUR'000
Chinese Renminbi
Hong Kong Dollar
*
12.
2012
EUR'000
26,493
*
26,493
2011
EUR'000
19,210
*
19,210
22,095
22,095
Represents an amount less than EUR1,000.
SHARE CAPITAL
The Company is authorised to issue 10,000 shares with a par value of HKD1.00.
The movement in the issued and paid-up share capital of the Company is as follows:
2013
EUR'000
At 1 January 2013/2012/Date of
incorporation
- acquisition of subsidiaries
Issuance of shares
2012
EUR'000
*
*
*
2011
EUR'000
*
*
*
*
*
# The share capital of the Company as at 31 December 2011 is presented on the assumption that the Group had
been existence as at 31 December 2011.
* Represents an amount less than EUR1,000.
F-24
13.
RESERVES
2013
EUR'000
Statutory reserves
Foreign exchange translation reserves
Retained profits
(i)
5,403
210
34,540
40,153
2012
EUR'000
5,159
828
16,034
22,021
2011
EUR'000
3,610
1,186
11,949
16,745
Statutory Reserves
In accordance with the relevant laws and regulations of the PRC, the subsidiary of the Company
established in the PRC are required to transfer 10% of its profit after taxation prepared in
accordance with the accounting regulation of the PRC to the statutory reserve.
(ii)
Foreign Exchange Translation Reserves
Foreign currency translation reserve represents the foreign currency translation difference arising
from the translation of the consolidated financial statements of the Group from its functional
currency to the presentation currency and is the component of other comprehensive income.
14.
TRADE AND OTHER PAYABLES
2013
EUR'000
Trade payables
Bills payable
VAT and other tax payable
Salary payable
Other payables and accruals
3,862
769
962
3
5,596
2012
EUR'000
5,935
839
846
7,620
2011
EUR'000
1,795
7,286
993
1,134
11,208
The Group’s trade payables generally have credit terms ranging from 30 to 60 days.
The bills payable were transferrable, secured by bank deposits pledged (Note 11) and had a maturity
period of six months.
Trade and other payables are denominated in the following currencies:
2013
EUR'000
Chinese Renminbi
Hong Kong Dollar
15.
5,593
3
5,596
2012
EUR'000
7,620
7,620
2011
EUR'000
11,208
11,208
AMOUNT OWING TO A DIRECTOR
Amount owing to a director is non-trade in nature, unsecured, interest-free and repayable on demand.
The amount owing is to be settled in cash.
Amount owing to a director are denominated in the following currencies:
2013
EUR'000
Chinese Renminbi
Hong Kong Dollar
16.
14
14
2012
EUR'000
3,894
1
3,895
2011
EUR'000
3,941
3,941
INTEREST-BEARING BANK BORROWINGS
The interest bearing bank borrowings had maturity period of one year and were guaranteed by the director
of the Group and certain related parties
F-25
17.
REVENUE
Revenue represents the invoiced value of goods sold, after allowances for returns and trade discounts.
18.
COST OF SALES
Cost of sales comprise purchasing materials, labour costs for personnel employed in production,
depreciation of non-current assets used for production purposes, factory utilities, maintenance charges and
other production overheads.
The following table shows a breakdown of costs of sales for the period under review for each category:
2013
EUR'000
Material costs
Salaries and related costs
Depreciation of property, plant and
equipment
Others
19.
37,800
9,986
963
27,852
9,799
955
17,125
64,826
12,721
61,470
4,059
42,665
SELLING AND DISTRIBUTION EXPENSES
Salaries and related costs
Depreciation of property, plant and
equipment
Others
2012
EUR'000
2011
EUR'000
241
9
244
15
203
17
250
259
4
224
ADMINISTRATIVE AND OTHER EXPENSES
2013
EUR'000
Director’s non fee emoluments
Salaries and related costs
Depreciation of property, plant and
equipment
Plant and equipment written off
Amortisation of land use rights
Others
21.
2011
EUR'000
36,119
10,605
977
2013
EUR'000
20.
2012
EUR'000
2012
EUR'000
2011
EUR'000
35
184
136
36
210
156
29
154
96
4
8
201
568
230
1
123
756
1
155
435
INCOME TAX EXPENSE
2013
EUR'000
Current tax expense
6,093
2012
EUR'000
5,164
2011
EUR'000
3,903
F-26
A reconciliation of income tax expense applicable to the profit before taxation at the statutory tax rate to
income tax expense at the effective tax rate of the Group is as follows:
2013
EUR'000
Profit before taxation
2012
EUR'000
2011
EUR'000
24,843
20,653
15,613
Tax at the applicable tax rate of 25%
6,210
5,163
3,903
Tax effects of:Non-deductible expenses
Non-taxable gain
Income tax
4
(121)
6,093
1
5,164
3,903
The provision for the PRC income tax is calculated based on statutory income tax at a rate of 25% for the
financial years ended 31 December 2011, 2012 and 2013 in accordance with the relevant the PRC income tax
rules and regulations for the relevant periods. Taxes are not related to other comprehensive income.
22.
EARNINGS PER SHARE
2013
Profit attributable to owners of the Company
(EUR'000)
Number of ordinary shares at 31 December
Earnings per share (EUR'000)
2012
2011
18,132
15,131
12,896
1,000
18.13
1
15,131
1
12,896
The diluted earnings per share is not disclosed as there is no dilutive potential ordinary share.
23.
Dividend
During the financial years, the subsidiary of the Company declared the following dividend:
2013
EUR'000
Dividend
24.
2012
EUR'000
-
2011
EUR'000
9,855
6,665
Related Party Transactions
(a)
Identities of related parties
The Group has related party relationships with its director, key management, entities of which the
director and/or by management have significant financial interest and companies within the
Group.
(b)
In addition to the transactions and balances detailed elsewhere in this report, the Group had the
following transactions with the related parties as disclosed below:
2013
EUR'000
Dividend paid to shareholder
Waiver of debts from the director
Key management personnel compensation:
Directors’ remuneration:
salaries and bonuses
social security insurance
2012
EUR'000
2011
EUR'000
-
9,855
6,665
485
-
-
35
*
35
35
1
36
28
1
29
F-27
2013
EUR'000
Other key management personnel:
salaries and bonuses
social security insurance
2012
EUR'000
89
2
91
126
107
3
110
146
2011
EUR'000
98
2
100
129
During the financial year ended 31 December 2011, 2012 and 2013, there was a non-cash
accommodation benefits provided to the director of the Company.
25.
CONTINGENT LIABILITIES
Before 31 December 2013, the social insurance and housing funds contribution made by the subsidiaries
of the Company did not cover the full contribution as required under the law of the PRC. The director of
the Company has issued a letter of undertaking under which he undertook the payment of the social
insurance, housing funds and the related payment if the subsidiaries are requested to make up the
payment.
26.
Operating Segments
Operating segments are prepared in a manner consistent with the internal reporting provided to the
management as its chief operating decision maker in order to allocate resources to segments and to assess
their performance.
Information on business segments is not presented as the Group operates primarily in the manufacturing
and sale of shoe sole and all its assets and operations are in the PRC.
27.
CAPITAL COMMITMENT
2013
EUR'000
Approved and contracted for:
Investment in a foreign subsidiary, FML
28.
2012
EUR'000
-
2011
EUR'000
482
-
AVERAGE HEADCOUNTS AND EMPLOYEES BENEFITS
2013
Administrative department
Production department
Production management
Research and development department
Sales/Marketing department
Total
Year Ended 31 December
2012
2011
31
1,551
161
29
35
1,807
30
1,528
161
30
35
1,784
26
1,517
159
30
36
1,768
Year Ended 31 December
2013
2012
2011
EUR'000
EUR'000
EUR'000
Salaries and related costs
Social security insurance
29.
10,099
930
11,029
9,608
832
10,440
9,435
721
10,156
SUBSEQUENT EVENTS
There are no other significant non-adjusting events or any significant events to report between the
reporting date and the date of preparation of these consolidated financial statements.
F-28
30.
COMPARATIVE FIGURES
The comparative figures of the Group were presented based on consolidated of the financial statements of
a subsidiary, FH, from 1 January 2011 to 31 December 2011. The financial statements of the subsidiaries
have been consolidated using the merger method of accounting, as the subsidiaries were under common
control by the same party both before and after the acquisition by the Company, and that control is not
transitory.
F-29
AUDITORS' REPORT
To Hong Kong Mou Lung Holding Company Limited
We have audited the consolidated financial statements prepared by Hong Kong Mou Lung Holding Company
Limited, Hong Kong - comprising consolidated statements of financial position, consolidated statements of
comprehensive income, consolidated statements of changes in equity, consolidated statements of cash flows
and notes to the consolidated financial statements for the financial year from 1 January to 31 December 2011,
2012 and 2013. The preparation of the consolidated financial statements in accordance with the International
Financial Reporting Standards (IFRS), as adopted by the EU, is the responsibility of the parent company’s
management. Our responsibility is to express an opinion on the consolidated financial statements based on
our audit.
We conducted our audit of the consolidated financial statements in accordance with paragraph 317 HGB
German Commercial Code and German generally accepted standards for the audit of financial statements
promulgated by the Institut der Wirtschaftsprüfer Institute of Public Auditors in Germany (IDW). Those
standards require that we plan and perform the audit such that misstatements materially affecting the
presentation of the net assets, financial position and results of operations in the consolidated financial
statements in accordance with the applicable financial reporting framework are detected with reasonable
assurance. Knowledge of the business activities and the economic and legal environment of the Group and
expectations as to possible misstatements are taken into account in the determination of audit procedures. The
effectiveness of the accounting-related internal control system and the evidence supporting the disclosures in
the consolidated financial statements are examined primarily on a test basis within the framework of the
audit. The audit includes assessing the annual financial statements of those entities included in consolidation,
the accounting and consolidation principles used and significant estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements. We believe that our audit
provides a reasonable basis for our opinion.
Our audit has not led to any reservations.
In our opinion, based on the findings of our audit, the consolidated financial statements of Hong Kong Mou
Lung Holding Company Limited, Hong Kong and its subsidiaries for the financial years from 1 January to
31 December 2011, 2012 and 2013 comply with IFRS, as adopted by the EU, and give a true and fair view of
the net assets, financial position and results of operations of the group in accordance with these requirements.
Munich, 30 May 2014
Crowe Kleeberg GmbH, Wirtschaftsprüfungsgesellschaft
Prechtl
Schmidt
Wirtschaftsprüfer
German Public Auditor
Wirtschaftsprüfer
German Public Auditor
F-30
UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL
STATEMENTS OF HONG KONG MOU LUNG HOLDING COMPANY LIMITED
IN ACCORDANCE WITH IFRS AS OF AND FOR THE FIRST SIX MONTHS OF
2014
F-31
HONG KONG MOU LUNG HOLDING COMPANY LIMITED
CONDENSED CONSOLIDATED INTERIM STATEMENT OF FINANCIAL POSITION
AS AT JUNE 30 2014 (EUROS IN THOUSANDS)
Note
30.6.2014
Unaudited
EUR
31.12.2013
Audited
EUR
ASSETS
Non-current assets
Property, plant and equipment
Land use rights
10
11
6,255
386
6,641
6,798
390
7,188
Current assets
Inventories
Trade receivables
Cash and cash equivalents
12
13
14
2,509
12,014
38,034
52,557
59,198
890
13,086
26,493
40,469
47,657
15
16
*
49,778
49,778
*
40,153
40,153
17
18
7,631
18
1,771
9,420
5,596
14
1,894
7,504
59,198
47,657
Total assets
EQUITY AND LIABILITY
Capital and Reserves
Share capital
Reserves
Total equity
Current liabilities
Trade and other payables
Amount owing to a director
Current tax payable
Total equity and liability
Note:
* Represents an amount less than EUR1,000.
F-32
HONG KONG MOU LUNG HOLDING COMPANY LIMITED
CONDENSED CONSOLIDATED INTERIM STATEMENT OF PROFIT OR LOSS AND OTHER
COMPREHENSIVE INCOME
FOR THE FINANCIAL PERIOD ENDED 1 JANUARY 2014 TO 30 JUNE 2014
(EUROS IN THOUSANDS)
Note
19
20
Revenue
Cost of sales
Gross profit
1.1.2014
to
30.6.2014
Unaudited
EUR'000
1.1.2013
to
30.6.2013
Unaudited
EUR'000
42,467
(29,423)
37,407
(27,089)
13,044
10,318
Other income
Selling and distribution expenses
Administrative and other expenses
Finance cost
21
22
64
(114)
(263)
-
531
(117)
(279)
(133)
Profit before taxation
Income tax expense
Profit after taxation
23
12,731
(3,184)
9,547
10,320
(2,461)
7,859
Other comprehensive income:
Items that may be reclassified subsequently to
profit or loss
Foreign currency translation differences
Total comprehensive income
78
9,625
923
8,782
Profit after taxation attributable to:Owners of the Company
9,547
7,859
9,625
9.55
8,782
7.86
Total comprehensive income attributable to:Owners of the Company
Earnings per share
24
F-33
HONG KONG MOU LUNG HOLDING COMPANY LIMITED
CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY
FOR THE FINANCIAL PERIOD ENDED 1 JANUARY 2014 TO 30 JUNE 2014
(EUROS IN THOUSANDS)
Share
Capital
Note EUR'000
Statutory
Reserve
Foreign
Currency
Translation
Reserve
Retained
Profits
Total
Equity
EUR'000
EUR'000
EUR'000
EUR'000
Balance at 1 January 2013
*
5,159
828
16,034
22,021
Profit after taxation
-
-
-
7,859
7,859
-
-
923
-
923
-
-
923
7,859
8,782
Transfer to statutory reserves
-
244
-
(244)
-
Balance at 30 June 2013 (Unaudited)
*
5,403
1,751
23,649
30,803
Balance at 1 January 2014
*
5,403
210
34,540
40,153
Profit after taxation
-
-
-
9,547
9,547
Other comprehensive income:
- Foreign currency translation difference
Total comprehensive income for
the financial period
Other comprehensive income:
- Foreign currency translation difference
Total comprehensive income for
the financial period
-
-
78
-
78
-
-
78
9,547
9,625
Contributions by and distributions to
owners
of the Company:
- Issuance of share capital
Balance at 30 June 2014 (Unaudited)
*
*
5,403
288
44,087
49,778
Note:
* Represents an amount less than EUR1,000.
F-34
HONG KONG MOU LUNG HOLDING COMPANY LIMITED
CONDENSED CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS
FOR THE FINANCIAL PERIOD ENDED 1 JANUARY 2014 TO 30 JUNE 2014
(EUROS IN THOUSANDS)
1.1.2014
to
30.6.2014
Unaudited
EUR'000
Cash flows from operating activities
Profit before taxation
Adjustments for:
Depreciation of property, plant and equipment
Amortisation of land use rights
Property, plant and equipment written off
Interest income
Interest expense
Inventories written back
Gain on disposal of property, plant and equipment
Waiver of debts
Operating profit before working capital changes
Increase in inventories
Decrease in trade receivables
Increase/(Decrease) in trade and other payables
Cash generated from operations
Income tax paid
Interest received
Interest paid
Net cash from operating activities
Cash flows for investing activities
Acquisition of property, plant and equipment
Proceeds from disposal of property, plant and equipment
Net cash for investing activities
Balance carried forward
Balance brought forward
Cash flows from/(for) financing activities
Proceeds from issuance of shares
Advances from/(Repayment to) a director
Net repayment of bank borrowings
Net cash from/(for) financing activities
Net increase/(decrease) in cash and cash equivalents
Foreign exchange translation reserve
Cash and cash equivalents at beginning of the period
Cash and cash equivalents at end of the period
Note:
* Represents an amount less than EUR1,000.
F-35
1.1.2013
to
30.6.2013
Unaudited
EUR'000
12,731
10,320
551
4
(64)
13,222
(1,615)
1,090
2,024
14,721
(3,309)
64
11,476
552
4
4
(36)
133
(1)
(2)
(492)
10,482
(298)
2,707
(2,370)
10,521
(2,525)
36
(133)
7,899
11,476
11,476
(542)
46
(496)
7,403
7,403
*
3
3
11,479
62
26,493
38,034
(3,454)
(4,694)
(8,148)
(745)
664
19,210
19,129
HONG KONG MOU LUNG HOLDING COMPANY LIMITED
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE FINANCIAL PERIOD ENDED 1 JANUARY 2014 TO 30 JUNE 2014
1.
GENERAL INFORMATION
.
The Company is a private company limited by shares and is incorporated under the Companies
Ordinance, (Chapter 32 of the Laws of Hong Kong). The domicile of the Company is Hong Kong. The
registered office and principal office of business are as follows:Registered office
:
2nd Floor, Queen’s Centre,
60 Queen’s Road East,
Wanchai, Hong Kong.
Principal place of business
:
Xixiamei Industrial District,
Chendai Town, Jinjiang City,
Fujian Province, PRC.
The condensed consolidated interim financial statements for the financial period ended 30 June 2014
were authorised for issue by the director dated 22 August 2014.
2.
GROUP STRUCTURE
Hong Kong Mou Lung Holding Company Limited (“HKML” or “the Company”) has a wholly owned
subsidiary, namely Fujian Maolong Shoe Materials Co., Ltd. (“FML”). FML is a company established
as a wholly foreign owned enterprise (‘’WFOE’’) in the People’s Republic of China (“PRC”) and
FML has a wholly owned subsidiary, namely Jinjiang Fenghua Shoe Materials Co., Ltd. (“JF”). JF is a
company established in the PRC. The Company, FML and JF are hereinafter referred to as “the
Group”.
The holding company of HKML is Capital Mobilier Inc., a company incorporated in British West
Indies.
3.
PRINCIPAL ACTIVITIES
The Company is principally engaged in the business of investment holding. The principal activities of
the subsidiaries are stated below. There have been no significant changes in the nature of these
activities during the financial period.
Name of
Company
FML
JF
4.
Issued and Paid-Up Capital
30.6.2014
31.12.2013
Unaudited
Audited
EUR'000
EUR'000
Effective Equity Interest
30.6.2014
31.12.2013
Unaudited
Audited
495
495
100%
100%
8,302
8,302
100%
100%
Principal Activities
Investment holding.
Manufacturing and
distributing shoe
materials.
FINANCIAL INSTRUMENTS
The Group’s financial risk management objectives and policies and risk profile are consistent with
those disclosed in the annual consolidated financial statements as at and for the financial year ended
31 December 2013.
5.
BASIS OF PREPARATION
The financial statements of the subsidiaries have been consolidated using the merger method of
accounting.
The condensed consolidated interim financial statements of the Group for the financial period ended
30 June 2014 are prepared in accordance with IAS 34 Interim Financial Reporting.
F-36
The condensed consolidated financial statements do not include all the information and disclosures
required in the annual financial statements, and should be read in conjunction with the Group’s annual
consolidated financial statements as at 31 December 2013.
The condensed consolidated interim financial statements of the Group are presented in EUR'000 for
purpose of the intended IPO numbers are converted to EUR, and therefore the condensed consolidated
interim financial statements has been translated from HKD to RMB and RMB to EUR at the following
rates:
30 June 2014
31 December 2013
30 June 2013
Period end rates
RMB 1.00 = HKD 1.2591
RMB 1.00 = HKD 1.2687
RMB 1.00 = HKD 1.2547
Average rates
RMB 1.00 = HKD 1.2629
RMB 1.00 = HKD 1.2522
RMB 1.00 = HKD 1.2427
30 June 2014
31 December 2013
30 June 2013
Period end rates
EUR 1.00 = RMB 8.4024
EUR 1.00 = RMB 8.4146
EUR 1.00 = RMB 8.0529
Average rates
EUR 1.00 = RMB 8.4197
EUR 1.00 = RMB 8.2270
EUR 1.00 = RMB 8.2023
The figures presented in the condensed consolidated interim financial statements have been rounded
to the nearest EURO (“EUR”) thousand.
(a)
During the current financial period, the Group has adopted the following new accounting
standards and interpretations (including the consequential amendments, if any):
IFRSs and IC Interpretations (Including the Consequential Amendments)
Amendments to IFRS 10, IFRS 12 and IAS 27: Investment Entities
Amendments to IAS 32 Financial Instruments: Presentation – Offsetting Financial Assets and
Financial Liabilities
Amendments to IAS 36 Impairment of Assets – Recoverable Amount Disclosures for NonFinancial Assets
Amendments to IAS 39: Novation of Derivatives and Continuation of Hedge Accounting
IFRIC 21 Levies
The adoption of the above accounting standards and interpretations (including the
consequential amendments) did not have any material impact on the condensed consolidated
interim financial statements of the Group.
(b)
The Group has not applied in advance the following accounting standards and interpretations
(including the consequential amendments, if any) that have been issued by the International
Accounting Standards Board (“IASB”) but are not yet mandatory for the current financial
period:
IFRSs and IC Interpretations (Including the
Consequential Amendments)
Effective Date
Endorsed by EU until
30 June 2014
IFRS 9 Financial Instruments (Issued on 12
November 2009) and subsequent amendments
(amendments to IFRS 9 and IFRS 7: Mandatory
Effective Date and Transition Disclosures issued on
16 December 2011; Hedge Accounting and
amendments to IFRS 9, IFRS 7 and IAS 39 issued
on 19 November 2013)
-
No
IFRS 14 Regulatory Deferral Accounts (issued on 30
January 2014)
1 January 2016
No
Amendments to IAS 16 and IAS 38: Clarification of
Acceptable Methods of Depreciation and
Amortisation (issued on 12 May 2014)
1 January 2016
No
Amendments to IFRS 11: Accounting for
1 January 2016
No
F-37
IFRSs and IC Interpretations (Including the
Consequential Amendments)
Acquisitions of Interests in Joint Operations (issued
on 6 May 2014)
Effective Date
Endorsed by EU until
30 June 2014
Defined Benefit Plans: Employee Contributions
(Amendments to IAS19)
1 July 2014
No
Annual Improvements to IFRSs 2010-2012 Cycle
1 July 2014
No
Annual Improvements to IFRSs 2011-2013 Cycle
1 July 2014
No
The director anticipates that the adoption of the above IFRSs and interpretations do not have a material
financial impact on the condensed consolidated interim financial statements. It will only impact the
content of disclosures presented in the condensed consolidated interim financial statements.
6.
SIGNIFICANT ACCOUNTING POLICIES
The accounting policies applied by the Group in these condensed consolidated interim financial
statements are the same as those applied by the Group in their annual consolidated financial
statements as at and for the financial year ended 31 December 2013.
7.
ESTIMATES
The preparation of these condensed consolidated interim financial statements requires management to
make judgements, estimates and assumptions that affect the application of accounting policies and the
reported amounts of assets, liabilities, income and expenses. Actual results may differ from these
estimates.
In preparing these condensed consolidated interim financial statements, the significant judgements
made by management in applying the Group’s accounting policies and the key sources of estimation
uncertainty were the same as those that applied to the annual consolidated financial statements as at
and for the financial year ended 31 December 2013.
8.
UNUSUAL ITEMS DUE TO THEIR NATURE, SIZE OR INCIDENCE
There were no unusual items affecting assets, liabilities, equity, net income or cash flows during the
financial period ended 30 June 2014.
9.
SEASONALITY OF OPERATIONS
There is no seasonal impact on the operations of the Group.
F-38
10.
PROPERTY, PLANT AND EQUIPMENT
Office
equipment,
furniture
Plant and
machinery and fixtures
EUR'000
EUR'000
Buildings
EUR'000
At Cost:
At 1 January 2013
Additions
Written off
Disposal
Foreign exchange
difference
At 31 December 2013
(Audited)/1 January 2014
1 January 2014
Foreign exchange
difference
At 30 June 2014
(Unaudited)
Accumulated
Depreciation
At 1 January 2013
Depreciation charge
Written off
Disposal
Foreign exchange
difference
At 31 December 2013
(Audited)
1 January 2014
Depreciation charge
Foreign exchange
difference
At 30 June 2014
(Unaudited)
Net Book Value
At December 31
(Audited)
At 30 June 2014
(Unaudited)
*
Motor
vehicles
EUR'000
4,545
-
8,759
1,246
-
64
-
(41)
(108)
(1)
1
(149)
4,504
9,897
63
328
14,792
6
14
*
1
4,510
9,911
63
329
14,813
914
218
-
5,869
854
-
11
8
-
383
42
(83)
(137)
7,177
1,122
(83)
(137)
(13)
(72)
*
*
(85)
1,119
106
6,651
423
19
4
205
18
7,994
551
3
10
*
*
1,228
7,084
23
223
3,385
3,246
44
123
6,798
3,282
2,827
40
106
6,255
Represents an amount less than EUR1,000.
All property, plant and equipment held by the Group are located in the PRC.
F-39
595
(87)
(181)
Total
EUR'000
13,963
1,246
(87)
(181)
21
13
8,558
11.
LAND USE RIGHTS
30.6.2014
Unaudited
EUR'000
31.12.2013
Audited
EUR'000
Cost
At 1 January
Additions
Foreign exchange difference
At 30 June/31 December
399
*
399
402
(3)
399
Accumulated amortisation
At 1 January
Amortisation charges
Foreign exchange difference
At 30 June/31 December
9
4
*
13
1
8
*
9
386
390
Net book value
*
Represents an amount less than EUR1,000.
All the land use rights of the Group are located in the PRC.
12.
INVENTORIES
30.6.2014
Unaudited
EUR'000
31.12.2013
Audited
EUR'000
828
1,343
338
2,509
247
478
165
890
At cost:
Raw materials
Work-in-progress
Finished goods
None of the inventories were stated at net realisable value.
13.
TRADE RECEIVABLES
The Group’s normal trade credit terms range from 30 to 60 days. All the trade receivables are
denominated in RMB.
14.
CASH AND CASH EQUIVALENTS
30.6.2014
Unaudited
EUR'000
Cash in hand
Cash at banks
7
38,027
38,034
31.12.2013
Audited
EUR'000
2
26,491
26,493
The Chinese Renminbi is not freely convertible into foreign currencies. Under the PRC Foreign
Exchange Regulations and Administration of Settlement, Sales and Payment of Foreign Exchange
Regulations, the subsidiary of the Company established in the PRC is permitted to exchange RMB for
foreign currencies through banks that are authorised to conduct foreign exchange business.
F-40
Cash and cash equivalents are denominated in the following currencies:
30.6.2014
Unaudited
EUR'000
Chinese Renminbi
Hong Kong Dollar
*
15.
38,034
*
38,034
31.12.2013
Audited
EUR'000
26,493
*
26,493
Represents an amount less than EUR1,000.
SHARE CAPITAL
The Company is authorised to issue 10,000 shares with a par value of HKD1.00.
The movement in the issued and paid-up share capital of the Company is as follows:
30.6.2014
Unaudited
EUR'000
At 1 January 2014/2013
Issuance of shares
At 30 June 2014/31 December 2013
*
Represents an amount less than EUR1,000.
16.
*
*
*
31.12.2013
Audited
EUR'000
*
*
*
RESERVES
30.6.2014
Unaudited
EUR'000
Statutory reserves
Foreign exchange translation reserves
Retained profits
(i)
5,403
288
44,087
49,778
31.12.2013
Audited
EUR'000
5,403
210
34,540
40,153
Statutory Reserves
In accordance with the relevant laws and regulations of the PRC, the subsidiary of the
Company established in the PRC are required to transfer 10% of its profit after taxation
prepared in accordance with the accounting regulation of the PRC to the statutory reserve.
(ii)
Foreign Exchange Translation Reserves
Foreign currency translation reserve represents the foreign currency translation difference
arising from the translation of the condensed consolidated interim financial statements of the
Group from its functional currency to the presentation currency and is the component of other
comprehensive income.
17.
TRADE AND OTHER PAYABLES
30.6.2014
Unaudited
EUR'000
Trade payables
VAT and other tax payable
Salary payable
Other payables and accruals
31.12.2013
Audited
EUR'000
6,139
3,862
415
769
1,026
962
51
3
7,631
5,596
The Group’s trade payables generally have credit terms ranging from 30 to 60 days.
F-41
Trade and other payables are denominated in the following currencies:
30.6.2014
Unaudited
EUR'000
Chinese Renminbi
Hong Kong Dollar
18.
7,630
1
7,631
31.12.2013
Audited
EUR'000
5,593
3
5,596
AMOUNT OWING TO A DIRECTOR
Amount owing to a director is non-trade in nature, unsecured, interest-free and repayable on demand.
The amount owing is to be settled in cash.
Amount owing to a director is denominated in Hong Kong Dollar.
19.
REVENUE
Revenue represents the invoiced value of goods sold, after allowances for returns and trade discounts.
20.
COST OF SALES
Cost of sales comprise purchasing materials, labour costs for personnel employed in production,
depreciation of non-current assets used for production purposes, factory utilities, maintenance charges
and other production overheads.
The following table shows a breakdown of costs of sales for the period under review for each
category:
1.1.2014
to
30.6.2014
Unaudited
EUR'000
Material costs
Salaries and related costs
Depreciation of property, plant and
equipment
Others
21.
1.1.2013
to
30.6.2013
Unaudited
EUR'000
18,005
5,716
483
16,240
4,987
477
5,219
29,423
5,385
27,089
SELLING AND DISTRIBUTION EXPENSES
1.1.2014
to
30.6.2014
Unaudited
EUR'000
Salaries and related costs
Depreciation of property, plant and
equipment
F-42
1.1.2013
to
30.6.2013
Unaudited
EUR'000
111
3
112
5
114
117
22.
ADMINISTRATIVE AND OTHER EXPENSES
1.1.2014
to
30.6.2014
Unaudited
EUR'000
Director’s non fee emoluments
Salaries and related costs
Depreciation of property, plant and
equipment
Plant and equipment written off
Amortisation of land use rights
Others
23.
1.1.2013
to
30.6.2013
Unaudited
EUR'000
16
75
65
16
87
70
4
103
263
4
4
98
279
1.1.2014
to
30.6.2014
Unaudited
EUR'000
3,184
1.1.2013
to
30.6.2013
Unaudited
EUR'000
2,461
INCOME TAX EXPENSE
Current tax expense
A reconciliation of income tax expense applicable to the profit before taxation at the statutory tax rate to
income tax expense at the effective tax rate of the Group is as follows:1.1.2014
to
30.6.2014
Unaudited
EUR'000
Profit before taxation
1.1.2013
to
30.6.2013
Unaudited
EUR'000
12,731
10,320
Tax at the applicable tax rate of 25%
3,183
2,580
Tax effects of:Non-deductible expenses
Non-taxable gain
Income tax
*
Represents an amount less than EUR1,000.
1
*
3,184
4
(123)
2,461
The provision for the PRC income tax is calculated based on statutory income tax at a rate of 25% in
accordance with the relevant the PRC income tax rules and regulations for the relevant periods. Taxes are
not related to other comprehensive income.
24.
EARNINGS PER SHARE
1.1.2014
to
30.6.2014
Unaudited
Profit attributable to owners of the
Company (EUR'000)
Number of ordinary shares at 30 June
Earnings per share (EUR'000)
9,547
1,000
9.55
F-43
1.1.2013
to
30.6.2013
Unaudited
7,859
1,000
7.86
The diluted earnings per share is not disclosed as there is no dilutive potential ordinary share.
25.
Related Party Transactions
(a)
Identities of related parties
The Group has related party relationships with its director, key management, entities of which
the director and/or by management have significant financial interest and companies within the
Group.
(b)
In addition to the transactions and balances detailed elsewhere in this report, the Group had the
following transactions with the related parties as disclosed below:
1.1.2014
to
30.6.2014
Unaudited
EUR'000
Waiver of debts from the director
Key management personnel compensation:
Directors’ remuneration:
salaries and bonuses
social security insurance
Other key management personnel:
salaries and bonuses
social security insurance
1.1.2013
to
30.6.2013
Unaudited
EUR'000
-
(492)
16
*
16
16
*
16
40
1
41
57
41
1
42
58
During the financial period ended 30 June 2014, there was a non-cash accommodation benefits
provided to the director of the Company.
26.
CONTINGENT LIABILITIES
Before 30 June 2014, the social insurance and housing funds contribution made by the subsidiaries of
the Company did not cover the full contribution as required under the law of the PRC. The director of
the Company has issued a letter of undertaking under which he undertook the payment of the social
insurance, housing funds and the related payment if the subsidiaries are requested to make up the
payment.
27.
Operating Segments
Operating segments are prepared in a manner consistent with the internal reporting provided to the
management as its chief operating decision maker in order to allocate resources to segments and to
assess their performance.
Information on business segments is not presented as the Group operates primarily in the
manufacturing and sale of shoe sole and all its assets and operations are in the PRC.
F-44
28.
AVERAGE HEADCOUNTS AND EMPLOYEES BENEFITS
1.1.2014
1.1.2013
to
to
30.6.2014
30.6.2013
Unaudited
Unaudited
Headcounts
Administrative department
Production department
Production management
Research and development department
Sales/Marketing department
Total
31
1,563
164
29
35
1,822
31
1,551
161
30
35
1,808
Employees Benefits
EUR'000
EUR'000
Salaries and related costs
Social security insurance
29.
5,424
494
5,918
4,748
454
5,202
SUBSEQUENT EVENTS
There are no other significant non-adjusting events or any significant events to report between the
reporting date and the date of preparation of these condensed consolidated interim financial
statements.
F-45
REVIEW REPORT
To Hong Kong Mou Lung Holding Company Limited, Hong Kong:
We have reviewed the condensed interim financial statements, comprising the statement of financial
position, the statement of comprehensive income, the statement of changes in equity, the statement of
cash flows and notes to the condensed interim financial statements, of Hong Kong Mou Lung Holding
Company Limited, for the period from 1 January 2014 to 30 June 2014. The preparation of the
condensed interim financial statements in accordance with those IFRS applicable to interim financial
reporting, as adopted by the EU, is the responsibility of the company's management. Our responsibility
is to issue a report on the condensed interim financial statements based on our review.
We conducted our review of the condensed interim financial statements in accordance with the German
generally accepted standards for the review of financial statements promulgated by the Institut der
Wirtschaftsprüfer Institute of Public Auditors in Germany. Those standards require that we plan and
perform the review such that we can preclude through critical evaluation, with a certain level of
assurance, that the condensed interim financial statements have not been prepared, in material respects,
in accordance with the IFRS applicable to interim financial reporting as adopted by the EU. A review is
limited primarily to inquirer of company employees and analytical assessments and therefore does not
provide the assurance attainable in a financial statement audit. Since, in accordance with our
engagement, we have not performed a financial statement audit, we cannot issue an auditor's report.
Based on our review no matters have come to our attention that cause us to believe that the condensed
interim financial statements have not been prepared, in material respects, in accordance with those IFRS
applicable to interim financial reporting as adopted by the EU.
Munich, 26 August 2014
Crowe Kleeberg GmbH
WIRTSCHAFTSPRÜFUNGSGESELLSCHAFT
Prechtl
Wirtschaftsprüfer
(German Public Auditor)
F-46
Schmidt
Wirtschaftsprüfer
(German Public Auditor)
IFRS OPENING STATEMENTS OF FINANCIAL POSITIONS AS OF
8TH SEPTEMBER 2014 OF FENGHUA SOLETECH AG IN FOUNDATION (IN
GRÜNDUNG), FRANKFURT A.M.
F-47
IFRS OPENING STATEMENTS OF FINANCIAL POSITIONS
Fenghua SoleTech AG in foundation (in Gründung), Frankfurt am Main
IFRS opening statements of financial positions as of 8th september 2014
ASSETS
EQUITY AND LIABILITIES
8-Sep-14
EUR
8-Sep-14
EUR
Longterm Assets
Equity
Issued capital to execute the foundation
Financial and other assets
Other financial assets
Balance sheet loss
10,000,000.00
-89,000.00
10,000,000.00
9,911,000.0
Deferred tax assets
41,000.00
Liabilities
10,041,000.00
Shortterm liabilities
Trade and other payables
Other provisions
58,093.36
71,906.64
130,000.00
Total
10,041,000.00
Total
F-48
10,041,000.00
AUDITORS’ REPORT
To Fenghua SoleTech AG in foundation (in Gründung), Frankfurt a.M.:
We have audited the opening statement of financial position together with the bookkeeping system of
Fenghua SoleTech AG in foundation (in Gründung) for the opening date of 8. September 2014. The
maintenance of the books and records and the preparation of the opening statement of financial position in
accordance with IFRS as adopted by the EU are the responsibility of the Company’s management. Our
responsibility is to express an opinion on the opening statement of financial position, together with the
bookkeeping system, based on our audit.
We conducted our audit of the opening statement of financial position in accordance with German generally
accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer
(Institute of Public Auditors in Germany) (IDW). Those standards require that we plan and perform the audit
such that misstatements materially affecting the presentation of the net assets and the financial position in the
opening statement of financial position in accordance with the applicable financial reporting framework are
detected with reasonable assurance. Knowledge of the business activities and the economic and legal
environment of the Company and expectations as to possible misstatements are taken into account in the
determination of audit procedures. The effectiveness of the accounting-related internal control system and the
evidence supporting the disclosures in the books and records and the opening statement of financial position
are examined primarily on a test basis within the framework of the audit. The audit includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the opening statement of financial position. We believe that our audit provides a reasonable
basis for our opinion.
Our audit has not led to any reservations.
In our opinion, based on the findings of our audit, the opening statement of financial position comply with
IFRS as adopted by the EU and show the true recognition of the net assets and the financial position of the
Company in accordance with these requirements.
Munich, 1. October 2014
Crowe Kleeberg GmbH
Wirtschaftsprüfungsgesellschaft
Prechtl
Wirtschaftsprüfer
German Public Auditor
F-49
Schmidt
Wirtschaftsprüfer
German Public Auditor
ADDITIONAL INFORMATION ON THE IFRS OPENING STATEMENTS OF FINANCIAL
POSITIONS AS OF 8TH SEPTEMBER 2014
1
Details on the company and valuation principles
1.1
Company operations and legal relationships
Fenghua SoleTech AG in foundation (in Gründung), Frankfurt am Main, Mainzer Landstr. 41, 60329
Frankfurt am Main, Germany (hereinafter referred to as the “Company”) was established on 22nd July 2014.
The registered office of the Company is in Frankfurt. The documents for the registration of the Company
were submitted to the German commercial register (Handelsregister) on 8th September 2014. The opening
statements were likewise drawn up on 8th September 2014.
In the future, the Company shares are to be traded on the regulated market of the Frankfurt stock exchange. A
stock exchange prospectus is currently being drawn up for this purpose.
At the 8th of September 2014, the Company holds 100% of the shares of the Hong Kong Mou Lung Holding
Company Ltd., Hong Kong. The shares of the Hong Kong Mou Lung Holding Company Ltd. were
transferred to the Company on 28th August 2014 by means of a non-cash capital contribution.
Disclosure of the IFRS opening statements of financial positions as of 8th September 2014 was approved by
resolution of the management board on 1st October 2014.
2
Basis for the preparation of the statements
2.1
Principles and assumptions in the preparation of the statements
Operating environment and assumption of going concern
The present opening statements of the Company were prepared under the assumption of going concern of the
Company (going concern principle), which assumes a feasibility of the assets that are tied up in the Company
and a repayment of outstanding payables as part of the usual course of business.
Accounting according to the International Financial Reporting Standards (IFRS)
The opening statements are prepared according to the International Financial Reporting Standards (IFRS)
respectively the International Accounting Standards (IAS) as applied in the EU, and in accordance with the
supplementary applicable commercial law regulations in section 315 a, para. 1 of the German Commercial
Code (HGB). All relevant interpretations of the International Financial Reporting Interpretations Committee
(IFRIC) for the financial year of 2014 as well as the previous interpretations of the Standing Interpretations
Committee (SIC) were considered.
The opening statements are generally prepared by following the costs principle.
2.2
Fundamental accounting and valuation methods
Financial instruments
Shares in subsidiaries, joint ventures and associated companies can be accounted for at costs in the separate
financial statement pursuant to IAS 27.38 or accounted for in accordance with IAS 39. As of 8th September
2014, the Company holds 100% of the shares of Hong Kong Mou Lung Holding Company Ltd., Hong Kong.
These are recognised at costs under “Other financial assets” in the “Financial and other assets” section.
Accounting (recognition) and valuation of the financial assets and liabilities is done according to IAS 39
(Financial Instruments: Recognition and Measurement). According to this, financial assets and liabilities are
recognised in the statement of financial positions if the Company has a contractual right to receive payments
or other financial assets from another party or to discharge liabilities to another party.
As of the date of the opening statements (8th September 2014), the Company had financial assets available
for sale (100% shares in Hong Kong Mou Lung Holding Company Ltd., Hong Kong). These are recognised
as “Other financial assets” under the “Financial and other assets” section.
Financial liabilities
The Company determines the classification of its financial liabilities in the initial recognition. The financial
liabilities will be valued initially at fair value.
The Company’s financial liabilities comprise trade and other payables only.
F-50
Provisions
Provisions shall be recognized if the entity has a present obligation (legal or constructive) as a result of a
past event, it is probable that an outflow of resources embodying economic benefits will be required to settle
the obligation and a reliable estimate can be made of the amount of the obligation. The provisions are shown
under liabilities.
All provisions are short-term.
Contingent liabilities and assets
Contingent liabilities are not recognised. They are disclosed in the notes, unless the possibility of an outflow
of resources embodying economic benefits is remote. Contingent assets are not recognised in the financial
statements. They are disclosed in the notes where an inflow of economic benefits is probable.
The Company did not have any contingent liabilities and assets as of the date of the opening statements (8th
September 2014).
Uncertainties in the valuation
Considerable judgement must be taken when applying the accounting and valuation methods. Information
about the assumptions it makes about the future and other major sources of estimation uncertainty that exist
at the reporting date that have a significant risk of resulting in a material adjustment to the carrying amounts
of assets and liabilities within the next financial year are explained in the following:
There were no uncertainties in the valuation for the Company as of the date of the opening statements (8th
September 2014).
Deferred tax liabilities and assets
Current tax assets and tax liabilities for the current and prior period are measured at the amount expected to
be paid to or recovered from the taxation authorities. The calculation of the amount is based on the tax rates
and tax laws that have been enacted or substantively enacted by the end of the reporting period.
Current taxes that relate to items that are recognised directly as equity or other comprehensive income are not
recognised in the statement profit and loss account, rather under equity or other comprehensive income.
In accordance with IAS 12 (Income Taxes), deferred tax liabilities and assets are accrued for all temporary
differences between the carrying amount of an asset or liability in the statement of financial position and its
tax base. Excluded from this are differences that according to IAS 12.15 arise from the initial recognition of
goodwill or the initial recognition of an asset or a liability in a transaction which is not a business
combination and at the time of the transaction affects neither account profit nor taxable profit (tax loss). A
deferred tax asset is recognised for all deductible temporary differences to the extend that it is probable that
taxable profit will be available against which the deductible temporary difference can be utilised. The
assessment and valuation of deferred tax assets are reviewed again on the end of the reporting period, taking
the current estimates into account in accordance with IAS 12.37 and IAS 12.56.
Deferred tax assets on benefits from as of yet unused accumulated loss carried forward are capitalised to the
extent that it can be assumed with sufficient probability that the respective entity can achieve enough taxable
income in the future.
The deferred tax assets and liabilities are measured in accordance with IAS 12.47 on the basis of the tax rates
that are expected to apply to the period when the asset is realised or the liability is settled, based on the tax
rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.
Deferred taxes are recognised as tax benefits or tax expenses in the profit and loss account, unless they relate
to items recognised directly as equity or other comprehensive income; in such a case, the deferred taxes are
recognised as equity or other comprehensive income.
The calculation of the deferred taxes are based on the German corporation tax rate of 15.0% plus a solidarity
surcharge of 5.5% on the corporation tax and the German trade tax rate (Frankfurt) of 15.75%.
On the date of the opening statements (8th September 2014), active deferred taxes on the founding costs
amounting to EUR 41.000,00 were accrued.
F-51
3
Explanatory notes on the recognised assets
3.1
Financial and other assets
The financial and other assets as of 8th September 2014 (other financial assets) amounting to EUR
10.000.000,00 refer to 100% of the shares of Hong Kong Mou Lung Holding Company Ltd. The acquisition
of these shares (8.000 Company shares out of 8.000 Company shares) was executed on the 28th August 2014
as a non-cash capital formation with a nominal value of EUR 10.000.000,00, respectively an issue price of
EUR 10.000.000,00, but had not yet been registered in the German commercial register as of 8th September
2014. A value adjustment on 8th September 2014 was not initiated. The non-cash capital contribution was
assumed by the owner of Hong Kong Mou Lung Holding Company Ltd.
An expert opinion from an auditing company regarding the Company’s fulfilment of the requirements of
section 33a, para. 1, no. 2 of the German Stock Corporation Act (AktG) as of 6th August 2014 is available
for the acquisition date of 28th August 2014, which sufficiently confirms the value of these shares.
3.2
Deferred tax assets
Deferred tax assets amounting to EUR 41.000,00 were recognised on 8th September 2014. These relate to
deferred taxes on the founding costs.
4
Explanatory notes on the recognised equity and liabilities
4.1
Issued capital to execute the foundation
In the course of founding the Company, a formation on the basis of non-cash capital contributions was
decided. A formation on the basis of non-cash capital contributions was carried out through a subscription of
new shares and by contributing a non-cash capital contribution (100% of the shares of Hong Kong Mou Lung
Holding Company Ltd.). Registration of the formation on the basis of non-cash capital contributions in the
German commercial register is still pending on 1st October 2014. From the amount shown under “Issued
capital to execute the foundation” (EUR 10.000.000,00), EUR 10.000.000,00 are attributable to nominal
capital.
4.2
Balance loss
The balance loss as of 8th September 2014 (EUR 89.000,00) relates to founding costs (EUR 130.000,00) less
the associated deferred income tax benefits (EUR 41.000,00).
4.3
Long-term liabilities
Long-term liabilities were not recognised as of 8th September 2014.
4.4
Short-term liabilities
Short-term liabilities are sub-divided into “Trade and other payables” and “Other provisions”.
All short-term liabilities have a duration of less than 1 year.
Trade and other payables
As of 8th September 2014, the trade and other payables amount to EUR 58.093,36.
Other provisions
The other provisions (EUR 71.906,64) relate to the founding costs, for which there are currently no invoices
available.
The remaining short-term provisions are generally short-term and are used within one year.
5
Additional details
5.1
Management board
The management board (Vorstand) of the Company consist of the following persons:
Mr Wei Jie Lin, Jinjiang City, Fujian Province, People’s Republic of China,
Mr Shiau Wuee Yong, Johor, Bahru, Malaysia
Mr Jia Jian Lin, Jinjiang City, Fujian Province, People’s Republic of China
5.2
Supervisory board
The supervisory board (Aufsichtsrat) of the Company consists of following persons:
F-52
Mr Mircle Ching Chai Yap, Chairman, Investment Advisor
Mr Jaroslaw Dariusz Dabrowski, Vice Chairman, Business Person
Ms Shen Cheng, Accountant
6
Approval for disclosure according to IAS 10.17
The opening statements as of 8th September 2014 were signed on 1st October 2014 and approved for passing
on to the supervisory board.
Frankfurt, 1st October 2014
Fenghua SoleTech AG in foundation (in Gründung), Frankfurt am Main, Germany
Wei Jie Lin
Shiau Wuee Yong
Jia Jian Lin
F-53
GLOSSARY
ACON or Underwriter ..............
ACON Actienbank AG
AIC .............................................
State or Local Administration for Industry and Commerce in the PRC.
Authorised Capital 2014 ...........
The authorised capital of the Company at the date of this Prospectus
amounting to EUR 5,000,000.
BaFin ..........................................
Bundesanstalt für Finanzdienstleistungsaufsicht, the German Federal Financial Supervisory Authority
Best Practices .............................
“Best Practices for WSE Listed Companies”, adopted by the supervisory
board of the WSE on 21 November 2012 and effective as of 1 January 2013
CAGR .........................................
Compound Annual Growth Rate
CEO ............................................
Chief Executive Officer (Mr. Weijie Lin)
CFO ............................................
Chief Financial Officer (Mr. Shiau Wuee Yong)
China or PRC.............................
The People's Republic of China, which, for the purpose of this Prospectus,
excludes Hong Kong, Macau and Taiwan.
CMI.............................................
Capital Mobilier Inc., a company incorporated in Anguilla under register no.
2261732 with the Registrar of Companies of Anguilla, whose registered
address is Intertrust Building, The Valley, Anguilla, British West Indies and
whose ultimate shareholder is Mr. Weijie Lin, a Philippine national and
Chinese resident, the company's CEO.
Company or Fenghua SoleTech
AG ...............................................
Fenghua SoleTech AG
Consolidated Financial Statements ...........................................
The consolidated financial statements of Fenghua Hong Kong as at and for
the years ended 31 December 2011, 31 December 2012 and 31 December
2013 under IFRS.
COO ............................................
Chief Operations Manager (Mr. Jia Jian Lin)
Crowe..........................................
Crowe Kleeberg GmbH Wirtschaftsprüfungsgesellschaft, Augustenstrasse
10, 80333 Muenchen, Germany
CSRC ..........................................
The China Securities and Regulatory Commission
CUM ............................................
Commerce Union (Malta) Investment Ltd., a company incorporated in Malta under register no. C65267 with the Registrar of Companies of Malta,
whose registered address is 260, Triq San Albert, Gzira, Malta and whose
ultimate shareholder is Mr. Shize Lin, a Chinese national and resident.
DF Capital
Dom Maklerski DF Capital Sp. z o.o.
EBITDA......................................
The earnings before interest, taxes, depreciation and amortisation. EBITDA
is calculated as net income less interest income plus interest expense plus tax
payable less tax refund plus/less investment income plus depreciation and
amortisation.
EEA .............................................
The European Economic Area
G-1
EIT Law .....................................
Enterprise Income Tax Law
EM Report or Report ................
The report of Euromonitor International
EU ...............................................
European Union
EUR ............................................
Euro, the official currency of the Eurozone and the EU institutions
Euromonitor or EM ..................
Euromonitor International
EVA ............................................
Ethylene vinyl acetate
EVA MD 1 ..................................
EVA model one
EVA MD 2 ..................................
EVA model two
Existing Shares ..........................
The current share capital of 10,000,000 no par value ordinary bearer shares.
Fenghua Fujian ..........................
Fujian Maolong Shoe Materials Co. Ltd.
Fenghua Hong Kong .................
Hong Kong Mou Lung Holding Company Ltd.
Fenghua Jinjiang .......................
Jinjiang Fenghua Shoe Material Co. Ltd.
Fenghua or Fenghua Group .....
Fenghua SoleTech AG, Frankfurt, Germany and its direct and indirect subsidiaries.
FI .................................................
Financier Inc., a company incorporated in Anguilla under register no.
2260225 with the Registrar of Companies of Anguilla, whose registered
address is Intertrust Building, The Valley, Anguilla, British West Indies and
whose ultimate shareholder is Ms. Nor Fazlina Binti Mohd Ghouse, a Malaysian national and resident.
Founding Shareholders ..............
CMI, CUM, MMI, LGT, FI, RFI, Mr. Tan and Ms. Yeap
GDP ............................................
Gross domestic product
German/Polish Double Tax
Treaty .........................................
The Convention between the Republic of Poland and the Federal Republic
of Germany for the avoidance of double taxation with respect to taxes on
income and on capital dated 14 May 2003 (Journal of Laws of 2005, No. 12,
item 90).
HKD ...........................................
Hongkong-Dollar, the currency in Hongkong
IFRS ............................................
International Financial Reporting Standards
Interim Condensed Consolidated Financial Statements ............
The unaudited interim condensed consolidated financial statements of
Fenghua Hong Kong as at and for the six-month-period ended 30 June 2014
under IFRS with comparative information as at and for the six-month-period
ended 30 June 2013.
IPO ..............................................
Initial Public Offering
Joint Global Coordinators or
Joint Lead Managers.................
ACON and DF Capital
KNF ............................................
The Polish Financial
Fonansowego)
Supervisory
Authority
(Komisja
Nadzoru
G-2
LGT ............................................
LGT Capital (Malta) Ltd., a company incorporated in Malta under register
no. C65097 with the Registrar of Companies of Malta, whose registered
address is 260, Triq San Albert, Gzira, Malta and whose ultimate shareholder is Ms. Lim Geok Tin, a Singaporean national and resident.
Management Board ...................
The Management Board of Fenghua SoleTech AG
MMI ............................................
Midasi (Malta) Investment Ltd., a company incorporated in Malta under
register no. C65268 with the Registrar of Companies of Malta, whose registered address is 260, Triq San Albert, Gzira, Malta and whose ultimate
shareholder is Mr. Yuzhu Ye, a Chinese national and resident.
MOFCOM ..................................
Ministry of Commerce of the People's Republic of China.
Mr. Tan ......................................
Mr. Thomas Tan Hock Nieh, a Malaysian national and resident.
Ms. Yeap.....................................
Ms. Yeap Soon Mooi, a Malaysian national and resident.
NDS .............................................
Polish National Depository for Securities (Krajowy Depozyt Papierów
Wartościowych S.A.)
New Shares .................................
1,200,000 new shares
ODM ...........................................
Original design manufacturing
OEM ...........................................
Original equipment manufacturing
Offering ......................................
The initial public offering of 1,200,000 new shares in Fenghua SoleTech AG
and collectively with its direct and indirect subsidiaries.
PLN .............................................
Polish Zloty, the currency of Poland.
Polish Act on Public Offering ...
The Act on Public Offering and the Conditions of Introducing Financial
Instruments to an Organised Trading System and on Public Companies
(amended and restated text Dz. U. of 2009, No. 185, item 1439, as amended).
Procurement Policy ...................
Since 1 February 2013 Fenghua has implemented a procurement policy for
the purchase of raw materials and other production-related goods.
Prospectus ..................................
The prospectus for the purposes of the public offerings in Germany and
Poland and the listing of the shares on the regulated market of the Frankfurt
Stock Exchange and on WSE.
PU ...............................................
Polyurethane
PVC.............................................
Polyvinyl chloride
Qualified Suppliers ....................
The list of qualified suppliers
R&D ............................................
Research and development
RB ...............................................
Natural or artificial rubber
Report .........................................
Adult Shoe Sole Market in Mainland China, Euromonitor International 2012
RFI ..............................................
Rosy Frontier Investments Ltd., a company incorporated in the British Virgin Islands under register no. 1818330 with the Registrar of Corporate Affairs of the British Virgin Islands, whose registered address is P.O. Box 957,
Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands
G-3
and whose ultimate shareholder is Ms. Jingrong Zhuang, a Chinese national
and resident.
RMB............................................
Renminbi, the currency of China
SAIC ...........................................
State Administration for Industry and Commerce
Shares .........................................
Collectively, the New Shares and the Existing Shares
SS Study .....................................
An in-depth study conducted by Sealand Securities Co., Ltd. on the footwear
market in China dated 14 August 2012.
Supervisory Board .....................
The Supervisory Board of Fenghua SoleTech AG
TCLA ..........................................
Tax on Civil Law Activities as defined in Polish CLAT Law.
TPE ..............................................
Thermoplastic elastomer
TPE-U or TPU ...........................
Thermoplastic polyurethane
TPR .............................................
Thermoplastic rubber
Underwriting Agreement ..........
The underwriting agreement entered into on 10 October 2014 between the
Company, the Company's subsidiaries, the Founding Shareholders and the
Underwriter.
United States ..............................
United States of America
USD .............................................
United States Dollar, the currency in the United States
VAT ............................................
Value Added Tax
WSE ............................................
Warsaw Stock Exchange (Giełda Papierów Wartościowych w Warszawie
S.A.)
WTO ...........................................
World Trade Organisation
G-4
SIGNATURES
Frankfurt, 10 October 2014
_____________________________________
Fenghua SoleTech AG
signed by Mr. Weijie Lin
Chairman of the Management Board and CEO
(Vorstandsvorsitzender)
_____________________________________
Fenghua SoleTech AG
signed by Mr. Shiau Wuee Yong
Chief Financial Officer
(Finanzvorstand)
S-1
Frankfurt, 10 October 2014
____________________________________
ACON Actienbank AG
signed by Dr. Jürgen Rotter
Member of the Board of Directors
(Vorstandsmitglied)
_____________________________________
ACON Actienbank AG
signed by Ernst Philipp Melzer
S-2
Frankfurt, 10 October 2014
_____________________________________
Dom Maklerski DF Capital Sp. z o.o.
signed by Jarosław Dąbrowski
CEO & Managing Partner
S-3

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