By Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.
(Incorporated in Bermuda with limited liability)
(Stock code: 00336)
ClarifiCation announCement reSumption of trading
This announcement is published by the Company to clarify
commentaries made in the Relevant
Reports.
At the request of the Company, trading in its shares on the
Stock Exchange was suspended from
9:00 a.m. on 25 April 2012, pending the release of this
announcement which is considered to be price-sensitive. The
Company has applied to the Stock Exchange for resumption of
trading in its shares on the Stock Exchange with effect from
9:00 a.m. on 4 May 2012.
a. reSumption of trading
At the request of Huabao International Holdings Limited (the "Company"), trading in its shares on the main board of The Stock Exchange of Hong Kong Limited (the "Stock Exchange") was suspended from 9:00 a.m. on 25 April 2012, pending the release of this announcement which is considered to be price-sensitive. The Company has applied to the Stock Exchange for resumption of trading in its shares on the Stock Exchange with effect from 9:00 a.m. on 4 May 2012.
B. ClarifiCation on the releVant reportS
The board of directors (the "Board") of the Company notes that there were negative reports (collectively, the "Relevant Reports") against the Company in the market recently, and hereby emphasizes that the shareholders of the Company and investors should exercise extreme caution in reading the Relevant Reports, and the substances of the Relevant Reports are misleading with facts referred therein being distorted. Therefore, the Company would like to clarify as follows:
1. Explain the reason for resignation of Deloitte Touche Tohmatsu ("DTT") and appointment of PricewaterhouseCoopers ("PwC") as the auditor in 2006.
Prior to the very substantial acquisition of its flavours and
fragrances business, DTT was the auditor of the Company. DTT
resigned in late March 2006 because the Company and DTT could
not reach a consensus on the audit fees for the financial
year ending 31 March 2006. DTT had also confirmed that there
was no disagreement between it and the Company when it
resigned.
1
The Company then convened a special general meeting, at which
a proposal of appointing PwC as the auditor of the Company
was approved. For details, please refer to the announcement
of the Company issued on 28 March 2006.
PwC remains to be the Company's auditor to-date since its
appointment on 18 April 2006. PwC did not express any
qualified opinion on the Group's consolidated financial
statements prepared in accordance with Hong Kong Financial
Reports Standards ("HKFRS") for the financial years from
2005/06 to 2010/11.
To the best knowledge of the Company, only persons having the
authority from the relevant company(ies) are entitled to
obtain copies of information filed with the State
Administration for Industry & Commerce of the PRC ("SAIC")
under normal circumstances. The Company confirms that our
subsidiaries in PRC have never provided any authorization to
any person(s) outside of the Company for the purposes of
obtaining the SAIC filings.
Under relevant laws, administrations, regulations and rules
in the PRC, all corporate legal entities operating businesses
in the PRC are required to report their annual filing
materials for the previous full year (from 1 January to 31
December) to the local offices of the SAIC, of which includes
the financial statements prepared and audited under the PRC
Generally Accepted Accounting Principles ("GAAP"), where
those financial statements were reported in Renminbi ("RMB").
Given that the consolidated financial statements of the
Company and its subsidiaries (the "Group") are prepared based
on the Company's financial year which represents the 12
months commencing from 1 April each year to 31 March of the
following year, they differ from the audited financial
statements of such domestic subsidiaries in terms of
difference in reporting periods and GAAP, in addition to the
Group's consolidated financial statements were reported in
Hong Kong dollars ("HKD").
On 26 April and 27 April 2012, the Company had dispatched
delegates to the respective local offices of the SAIC to
verify the financial information for the year of 2010 (i.e.
for the 12 months ended 31 December 2010) of all of the
Company's 28 domestic subsidiaries filed thereat (the
"Financial Information"). According to the Financial
Information, the sum of the profit after tax for the year
ended 31 December 2010 of the Company's 28 domestic
subsidiaries is RMB1,131,827,000, (equivalent to
HKD1,311,017,000, where applicable exchange rate was used to
convert into HKD according to the Hong Kong Accounting
Standards ("HKAS")), plus the profit after tax of the
Company's subsidiaries located outside mainland China, and
adjusted for the differences in reporting periods and GAAP as
listed in Table 1 below in details. This adjusted sum is the
same as the audited consolidated profit after tax for the
year ended 31 March 2011 of HKD1,631,858,000 as listed in the
Company's
2010/11 annual report.
Further, the yearly research and development ("R&D") expense
published in the Company's notes to consolidated financial
statements have been included in the expenses of the
Company's subsidiaries' financial statements prepared in
accordance with PRC accounting standards, and deducted from
profit after tax thereafter.
2
table 1: reconciliation of profit and loss statement
(Applicable exchange rate for the 2010-11 financial year: 1HKD to RMB0.86332)
profit after tax as shown by SaiC for the period from 1 Jan 2010 to 31 dec 2010 hKd equivalents profit after tax included in the consolidated financial statements of the group*RMB '000 HKD'000 RMB '000 HKD'000
28 prC principal subsidiaries in aggregate 1,131,827 1,311,017 1,099,080 1,273,085 amount shown on the relevant report 1,200,000Plus: Huabao Flavour & Fragrances (HK) Limited 58,174 67,384
F&G (Botswana) (Proprietary) Limited ("F&G") 2,065 2,392
total net profit on the books of principal subsidiaries 1,159,319 1,342,861 adjustments:1 | Provision of investment loss regarding Maoming Kebi Flavour & Fragrances Limited ("Maoming Kebi") recognized by Wuxi Hua Hai Flavour Co., Ltd ("Wuxi Hua Hai") in its PRC statutory accounts for the year ended 31 December 2010 was reversed in the Group's consolidated financial statements since there was no impairment on this investment (explanation: Maoming Kebi was acquired through the Group's subsidiary Wuxi Hua Hai and was accounted as an investment asset of Wuxi Hua Hai. The business of Maoming Kebi has been transferred through integration from Maoming Kebi to the Group's other subsidiaries after acquisition, thus arising an investment loss in the PRC statutory accounts of Wuxi Hua Hai which was reversed in the consolidated financial statements as there was no impairment on such investment asset). | 115,849 |
2 | Exchange gain recognized by Hong Kong subsidiaries for the year ended 31 March 2011 (explanation: exchanged gain recognized on dividend receivable by Hong Kong subsidiaries regarding profit allocation from PRC subsidiaries was due to appreciation of RMB. It was disclosed in note 22 to the consolidated financial statements on page 153 of the Company's 2010-11 Annual Report). | 55,712 |
3 | Effect of unrealized gross profit arised from internal sales of the Group (explanation: sales among subsidiaries of corporations will become unrealized gross profit, which will be compared with that at the end of last year and the net impact will be adjusted to the Group's net profit when preparing the consolidated financial statements). | 85,000 |
4 | The amount of profit for the quarter from January to March 2011 increased when comparing with the same period of last year. | 73,816 |
5 | Loss in book of the Company and other subsidiaries located outside PRC not included in the principal subsidiaries above (the exchange gain mentioned in item 2 above have been deducted). | -25,973 |
6 | Discrepancies of GAAP and other adjustments in the consolidated financial statements. | -15,407 |
* Profits after tax before acquisition of the Company's newly acquired subsidiaries during the year were deducted.
3
3. The Relevant Reports claimed that 150 calls had been made to the Company's tobacco customers by certain parties, among which, two major tobacco customers acknowledged that the Company has provided a tiny portion of their materials. Moreover, a website of the domestic subsidiary of the Company contained information that they offered products to its US customers. Upon enquiries by relevant parties, those US customers replied over phone that they did not use any fragrance made in China.
The Company is unable to verify or offer any comments on
which tobacco customers the relevant parties had called or
whom they spoke with through telephone. Meanwhile, the
Company believes that upon receipt of such anonymous
inquiries and in circumstances where the identities of the
calls were not verified, it is reasonable to believe that
tobacco customers would be reluctant to comment or reveal the
truth so as to preserve the interests of business
counterparties.
In fact, the Company is committed to achieving comprehensive
cooperation with its customers, and has maintained long-term
cooperation with major customers for over 10 years. Its
products are also well recognized by customers. The Company
hereby reiterates that the Company's transactions with its
tobacco customers are genuine, with the support of legitimate
sale invoices. Shareholders are welcome to view the relevant
documents. For details of such arrangement, please refer to
the section headed "Other Matters for Attention" in this
announcement.
The Relevant Reports mentioned that the products shown on the
web-page(s) ("H&K Website") of Shanghai H&K Flavours &
Fragrances Company Limited, a subsidiary of the Company in
the PRC, are products that are used by the Company's
customers. The Company hereby clarifies that those products
(the "Relevant Products") are merely recommended products
included in the section headed "Market" (the "Section") on
H&K Website. Information set out in the Section is acquired
from third parties for the purpose of providing market
direction, which is intended to assist the customers,
research staff and sales staff of the Company to find out the
current popular foods in domestic and overseas markets, and
upon which the Company can use as a base for developing the
corresponding products. The flavours involved in the Relevant
Products as depicted in the Section are not products of the
Company, the manufacturers of which are also not the
Company's customers. The Company has no intention whatsoever,
whether expressly or by implication, to indicate that those
products are the Company's products. In addition, details of
the products belonging to the Company are available in the
section headed "Products" on H&K Website. We have made
improvements with reference to the comments accordingly.
Currently, the Company has already adjusted the wording used
on H&K Website. To be more precise in the expression,
extensive attention will be paid to ensure the accuracy of
information contained in contents on the websites and the
appropriateness of application of information from third
parties that may give rise to any potential confusion or
association by the public.
The Company acquired the production base F&G located in the
Republic of Botswana in the south of Africa in November 2009.
For details, please refer to the announcement of the Company
issued on 20 November 2009.
4
According to the disclosure by the Company in the aforesaid
announcement, the major reasons for acquiring F&G was that
the acquisition collaborated with the future development of
Group's business in new tobacco materials and in the
exploration of new products mainly made up with natural raw
materials. The Group would thus be able to capture the
promising business opportunities in tobacco industry arising
from the development trend of reduction in tar content and
its harm. Following completion of the acquisition, the
Company becomes the only end customer of F&G. For the year
ended 31 December 2010, F&G's audited sales revenue and net
profit were 13,684,000 Pula and 2,012,000 Pula respectively.
The aforesaid amount represented approximately 0.55% and
0.14% of the Group's consolidated sales revenue and
consolidated net profit after tax respectively in the
financial year of 2010/11.
F&G is located in the Republic of Botswana, next to Zimbabwe,
which is famous of planting quality tobacco leaves. Because
of its geographical advantage, F&G is principally engaged in
the production of natural tobacco extracts. The technology of
extracting quality natural tobacco leaves of F&G will
effectively improve the quality and competitiveness of the
Company's reconstituted tobacco leaves. The reasons for
choosing the Republic of Botswana, but not directly in
Zimbabwe, for establishing its plant were primarily based on
the risk concern over operating environment, volatile
fluctuation in foreign exchange rates, etc., as well as the
long-term political instability of Zimbabwe.
A photo of F&G was published in the Company's 2009/2010
Annual Report. However, its address was not shown on the
photo due to commercial secrecy and the fact that F&G was
then one of the very few Chinese companies establishing
factories in the Republic of Botswana. In addition, given the
long-term instability of public security in the Republic of
Botswana and its surrounding regions, the Company considered
such measure at that time was to assist in protecting the
personal safety of F&G's Chinese employees then working
there, since Chinese employees of F&G had in fact been robbed
before. Other than the few Chinese employees stationed there,
F&G mainly hired local people as employees. The Company has
also published a picture of part of the then employees in its
2009/2010 Annual Report.
The Company is deeply disappointed about the unwarranted
allegation made by the Relevant Reports, suspecting that F&G
was engaged in business other than natural tobacco extracts
manufacturing.
The Company's overseas R&D centre in Germany (the "R&D
Centre"), named Aromascape Development Centre GmbH, is
located in a small town, being Neuhaus Town, in Holzmiden
County, Germany. The business registered address of the R&D
Centre is at Hackelbergstrase
1, Schlob Neuhaus 37603 Holzminden, and the R&D Centre's
rental area is approximately
665 square meters.
5
The R&D Centre commenced operation in January 2007. As
disclosed in the 2006/2007
Annual Report of the Company, the R&D Centre employed 4
foreign technicians, with photos attached (please refer to
page 18 of the 2006/2007 Annual Report of the Company).
Currently, the R&D Centre employs 7 foreign technicians.
Research staff mainly engages in data collection such as
industry data, technology and upcoming trend, etc., and to
follow closely the latest development of the industry in the
international market, so as to capture speedily the
technology for key raw materials and develop appropriate
products and technologies that meet with market requirements
(please refer to page 23 of the 2008/2009 Annual Report of
the Company). The German research staff travels to China for
providing the Company's R&D staff with technical support and
communication and the Company's customers with services, and
also in the Company's various domestic research centers
performing R&D related work.
To the best of the Company's knowledge, belief and
information, no official report concerning sales amount and
production costs of the industry has ever been released by
the PRC tobacco industry. The Company noted as claimed in the
Relevant Reports, flavours and fragrances account for 2.4% of
the cost of the China tobacco industry and its hypothetical
calculations. Since the Company is not aware of the basis of
such hypothesis, nor does it concur with the reasonableness
of the calculations, as such, the Company is not prepared to
offer any comment.
The Company has never provided any data in its published
documents that the Company accounted for approximately 2.4%
of the aggregate cigarette sales in the PRC. The Company is
unable to offer any comment to the issue as the Company is
not aware of the relevancy or especially the meaning of
comparison between the data in the Relevant Reports based on
the research documents, the "Cost analysis of options for
Self-extinguishing Cigarettes", prepared for the American
National Standards Institute in 1987 and those of the current
PRC tobacco industry.
The Company believes that the reports about injection of
assets with inflated value are misleading. The Company hereby
clarifies that all the connected transactions between the
Company and its controlling shareholders stated in the
Relevant Reports were in compliance with the requirements of
relevant laws and regulations, including the approval of the
relevant transactions by independent shareholders of the
Company, where applicable. Summary of acquisition items is
listed in the table below.
6
1. Win New Group Limited and its
subsidiaries
HKD652,337,000 Approximately
RMB631,300,000
- 30 July 2007 (page 2) 6 September 2007 No benefit obtained by the substantial shareholder
2. Wealthy King Investments Limited and
its subsidiaries
HKD870,550,000 Approximately HKD401,067,041 cash plus the stock equivalent to approximately HKD451,230,000 (HKD6.5 per share
X 69,420,000 shares) totaling HKD852,297,041 (please refer to page 1
of the announcement dated 26 March 2008
for details)
The difference of HKD18,252,959 is the interest of HKD470,550,000 calculated based on the
9-month HIBOR per annum for the delayed payment
of the remaining consideration for the acquisition
7 July 2008 (page 2) 7 August 2008 No benefit obtained by the substantial shareholder
3. F&G HKD29,267,000, based on the net asset value as at 31
October 2009
- 20 November 2009 Pursuant to Rule
14.07 of the Listing Rules for calculation of relevant percentage ratios in connection with the acquisition, the acquisition is only
subject to the reporting and announcement requirements as set out in Rules 14A.45 and 14A.47 of the Listing Rules
and is exempt from the independent shareholders'
approval requirements.
No benefit obtained by the substantial shareholder
who conducted transfer with net asset value
The Company's funds mainly derive from its operating profit
and bank loans, and it maintains a relatively adequate cash
position. Its dividend payout arrangement always considers a
basic dividend payout ratio of 30% as a direction. Taking
into account the factors like the application of cash flows
and business development of the Company in the future, an
additional special dividend may be paid to reciprocate its
shareholders. According to the data, the annual dividend
payout ratios of the Company did not fall below 30% for the
past few years, and special dividends have been paid for four
times, with the consolidated payout ratios ranging from 30%
to 50%.
7
The Company did not declare a special dividend in the
financial year of 2010/2011 as the internal fund in the total
sum of HKD1,329,763,000 had been applied towards the
acquisition of Guangdong Province Jinye Reconstituted Tobacco
Leaves Technology Development Company Limited and its
subsidiaries and affiliated companies during that year. As
the Company has maintained a healthy cash flow, the Company
has made special dividend payment again in the first half of
the financial year of 2011/2012, after making payment for the
aforesaid acquisition. Its aggregate dividend payout ratios
are above 50%, therefore, the allegations that the Company
has recently terminated its high dividend payout ratio policy
in the Relevant Reports are groundless.
The Company's R&D costs relative to the sales amount are low as compared to the peers in the international market, which is mainly due to the fact that the R&D team comprises mainly Chinese members and research centers are mainly based in China, less foreign experts were employed by the Company for its R&D team. During the past few years, the Company has been increasing input in R&D, increasing from 2.7% of sales amount in 2008/2009 to 4.3% in 2010/2011, while the absolute amounts of R&D cost increased from approximately HKD52 million in 2008/2009 to approximately HKD122 million in 2010/2011. Such figures indicated that the Company has been relentlessly increasing its input in R&D.
9. Explain the resignation of an independent non-executive director in August 2011.
Reference is made to the Annual General Meeting Circular (the
"Circular") issued by the Company on 29 June 2011, among
others, Mr. Mak Kin Kwong ("Mr. Mak"), would retire by
rotation at the annual general meeting in accordance with
Bye-law 87(1) and (2) of the Bye-laws and whom, being
eligible, offered himself for re-election. For good corporate
governance, as disclosed in the Circular, the Company has
voluntarily and adopted earlier, pursuant to Appendix 14 to
the Listing Rules, the recommended best practices, that Mr.
Mak has served more than nine years, this could be relevant
to the determination of a non- executive director's
independence. The Company has then put Mr. Mak's further
appointment be subjected to a separate resolution to be
approved by shareholders.
The Circular also pointed out that the Company received from
Mr. Mak a confirmation of independence pursuant to Rule 3.13
of the Listing Rules, and that Mr. Mak did not have any
management role in the Group and he had no relationship with
any Directors, senior management or substantial shareholders
or controlling shareholders of the Company. In view of the
above mentioned, the Company hereby reiterates at time of Mr.
Mak's appointment, Mr. Mak fully complied with the
requirements of an independent director under the Listing
Rules.
8
Reference is also made to the announcements issued by the
Company on 31 July and 5
August 2011, among all, these announcements stated the Board
has learned that Mr. Mak was facing several lawsuits raised
by domestic and international regulating bodies and these
lawsuits were concerning some of the other companies in which
Mr. Mak held positions. To the best of the Company's
knowledge, belief and information, such matters did not
relate to any Directors, the management and any of the
business or operation of the Company and its subsidiaries.
Reference is also made to the announcement issued by the
Company on 2
August 2011, Mr. Mak decided to withdraw his offer for
re-election at the Annual General Meeting as he wished to
allocate more time for his own business. Mr. Mak confirmed
that he had no disagreement with the Board and that he was
not aware of any matter relating to his retirement that
needed to be brought to the attention of the shareholders of
the Company. Accordingly, Mr. Mak retired as an independent
director of the Company after the conclusion of the Annual
General Meeting on 5 August 2011. Please refer to the
announcement issued by the Company on 5 August 2011.
Reference is also made to the announcement issued by the
Company on 19 August 2011, in view of requirement of
corporate governance, the Company appointed Dr. Jin Lizou
("Dr. Jin") to be the Company's independent non-executive
director. Dr. Jin graduated from Peking University and Oxford
University and holds a bachelor degree in Political and
Economics and a doctorate degree in Economics respectively.
Dr. Jin had worked for university, the PRC government,
international investment banks and consultancy firm,
accumulated experiences in civil sectors and business
consultancy. Dr. Jin also has experience in serving as an
independent director of listed companies.
The Company has responded to the market numerous times in the
past that the characteristics of the flavours and fragrances
industry are personalized products, minimal portion of cost
or sales, and difficulties for competitors to duplicate due
to secrecy of formula. Of these gross profits for flavours
and fragrances, the gross profit margin for tobacco flavours
are particularly higher which is primarily due to the
relatively high profit margin of the value chain in the
tobacco industry. Since tobacco flavours represent a very
high proportion of the Company's revenue mix, as a result the
Company's overall gross profit margin is higher than those
international flavours and fragrances companies. According to
the prospectus of several domestic comparable companies
listed in recent years, their gross profit margins at time of
listing were ranging from approximately 64% to 73%. Since
tobacco flavours also represent a very high proportion of
these companies' revenue mix at that time, their overall
gross profit margins were similar to that of the Company.
Furthermore, the Company also offers a series of value-added,
integrated services to its customers, including mutual
product manufacturing, industry trend exploration and
post-sales service management.
9
The Company was founded primarily as the flavours and
fragrances trading company at the inception of its
incorporation. After more than 10 years of development, it
has gradually developed an integrated production chain. After
years of hard work, the Company's R&D centre received a
State-recognized R&D facility status, representing the
significant improvement of the Company's R&D capability. In
order to further realise its R&D results, the Company
commenced to establish production bases in Jiangsu Province
between the years of 2003 to 2005, to replace and optimize
its raw material structure, and further increased the level
of its upstream integration. With those manufacturing bases
gradually reaching their production targets, the Company
evolved from a mere trading company into an industrial
company, and hence the production costs can be substantially
lowered and the gross profit margin has improved and become
stable.
C. other matterS for attention
1. Insofar as it is practicable, the Board and the management
of the Company have no intention to change the dividend
arrangement. In the future, subject to compliance with the
Listing Rules, we do not exclude the possibility of using the
funds of not less than HKD500 million to repurchase the
shares of the Company, and to further repurchase shares by
applying more internal resources and/or external resources in
the light of market conditions.
2. As at 31 March 2012, the banking deposits of the Company
amounted to approximately
HKD2,286,577,000.
3. The controlling shareholder of the Company, Ms. Chu, has
strongly indicated to the Company in writing that, subject to
full compliance with the Listing Rules and other applicable
laws and regulations regarding shares dealing by directors
(including but not limited to the restriction that the
Company's directors are prohibited from dealing in shares
within 60 days prior to the release of the Company's final
results), Ms. Chu will increase her shareholding interest in
the Company as soon as practicable.
4. PwC is in the progress of auditing the final results of
the Company and its subsidiaries for the year ended 31 March
2012. The Company proposes to publish its final results on or
before 30
June 2012 according to the Listing Rules. The Company
reiterates that its current production and business
activities remain as usual.
5. The following documents are available for viewing by duly
registered shareholders of the Company at the Company's
principal business place in Hong Kong. Such duly registered
shareholder(s) shall produce appropriate documents of title
(i.e. share certificate) that is acceptable to the Company
for proof of his/her/its identity(ies) as the registered
shareholders of the Company prior to inspection. Viewing time
frame will be from 7 May 2012 to 31 May
2012 (inclusive of both days), between 2 p.m. to 4:30 p.m
from Monday to Friday (exclusive of Saturdays, Sundays and
Hong Kong public holidays):
(a) The Company and its subsidiaries' bank statements as at
end of March 2012;
(b) The Company's certain business transaction receipts with
its top 5 customers and suppliers (including VAT receipts)
for the year of 2010; and
(c) The Company's 28 PRC subsidiaries' SAIC filings and
financial statements for the year of 2010.
10
6. The Company reserves the right to take legal action for
the aforesaid irresponsible and misleading statements as
contained in the Relevant Reports.
Shareholders and investors are advised to exercise caution when dealing in the shares of the
Company.
By Order of the Board
huabao international holdings limited
Chu lam Yiu
Chairman
Hong Kong, 3 May 2012
As at the date of this announcement, the Board comprises six executive directors, namely Ms. CHU Lam Yiu (Chairman), Messrs. LAU Chi Tak (CEO), POON Chiu Kwok, WANG Guang Yu, XIA Li Qun, XIONG Qing, and three independent non-executive directors, namely Dr. JIN Lizuo, Mr. LEE Luk Shiu and Ms. MA Yun Yan.
* For identification purposes only
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