TIDMCWO
RNS Number : 5237I
China Wonder Limited
16 June 2011
Acquisition of Win Yu International Investments Company
Limited
Placing of 1,710,526 new Ordinary Shares at 19p per share
Admission of the Enlarged Share Capital to trading on AIM
Notice of General Meeting
and
Change of Name to Qihang Equipment Company Limited
1. Introduction
China Wonder Limited ("China Wonder" or the "Company") is
pleased to announce that it has conditionally agreed, subject,
inter alia, to Shareholder approval, to acquire the entire issued
share capital of Win Yu International Investments Company Limited
("Win Yu")(the "Acquisition"). The aggregate consideration of
RMB130,000,000 (approximately GBP12.3 million) for the Acquisition
is to be satisfied by a cash payment of RMB 53,000,000
(approximately GBP5 million) and the issue of 38,325,737 new
ordinary shares of 2.5 pence each in the Company ("Ordinary
Shares") at a price of 19 pence per share (the "Consideration
Shares").
The Company also today announced that it proposes to raise
GBP325,000 by means of a placing of 1,710,526 new Ordinary Shares
at 19p per share (the "Placing"). The proceeds of the Placing will
be used to fund the costs of the Acquisition.
By reason of the size and relative value of Win Yu in relation
to China Wonder, the Acquisition constitutes a reverse takeover
under the AIM Rules for Companies and, therefore, requires the
approval of existing shareholders at a general meeting. To complete
the Acquisition and implement the Placing it will also be necessary
to give the directors of the Company (the "Directors") the required
powers and authorities to allot the Consideration Shares and the
Placing Shares. If the Acquisition is approved by shareholders, the
admission of the existing Ordinary Shares to trading on AIM will be
cancelled and the Company will apply for admission of its enlarged
share capital to trading on AIM ("Admission"). The new Ordinary
Shares to be issued in connection with the Acquisition and Placing
will rank pari passu in all respects with the existing Ordinary
Shares.
2. Background on China Wonder
China Wonder's principal activity was, until recently, the
manufacture of packing machinery and associated spare parts,
equipment, mouldings, paper products, packing cartons and boxes in
China.
In November 2010, the Company announced the sale of Jinzhou
Wonder Machinery Equipment Co., Limited, a manufacturer of bespoke
and specialised machinery for a wide range of industries, and
Jingzhou Wonder Paper Products Co., Limited, a manufacturer of
colour printing and paper products for a cash consideration of RMB
30,000,000 (approximately GBP2.8 million) (the "First Disposal").
In addition, on 4 April 2011, the Company announced the disposal of
Wonder Packaging Machinery Co. for a cash consideration of RMB
33,000,000 (approximately GBP3.1 million) (the "Second
Disposal").
Following these disposals, together representing the whole of
its trading operations, the Company became an investing company for
the purposes of the AIM Rules.
Following the completion of the Second Disposal on 14 June 2011,
China Wonder had cash balances of RMB 57,532,000 (approximately
GBP5.4 million) with no outstanding borrowings. The Directors have
been considering opportunities to pursue the Company's investing
strategy and the Directors have identified Win Yu as an opportunity
to fulfil its key strategic objective of enhancing shareholder
value.
3. Information on the Win Yu Group
The Business
The business of Win Yu is conducted through its sole trading
subsidiary, Jiangsu Qihang CNC Machine Tool Company Limited
("JSQH"), which was established in the 1960s as a state-owned
enterprise under the name of Zhenjiang Machine Tool Factory. It is
located in Zhenjiang, Jiangsu Province, within easy reach of
Shanghai.
Products
JSQH's business comprises the design, manufacture and sale of
lathe and milling machine tools. A lathe is a machine for shaping
wood, metal, or other material by means of a rotating drive which
turns the piece being worked on against changeable cutting tools. A
milling machine is a machine tool used to machine solid materials,
usually metal, which are secured to a carriage and shaped by
rotating milling cutters. Milling machines can perform a large
number of operations, from simple actions (e.g., slot and keyway
cutting, planing and drilling) to complex processes (e.g.,
contouring and diesinking).
JSQH's products are divided into three categories:
Universal: standard manually-operated machine tools which can be
used by any customer;
CNC: machine tools digitally controlled by components
manufactured by JSQH, such that precision and efficiency is
improved and the end-user is able to adjust the parameters from
time to time; and
Heavy Duty: large installations which are capable of processing
raw materials more than one metre in diameter and sixty tonnes in
weight. Only a limited number of competitors have the capability to
produce these machines.
The majority of the lathes produced by JSQH are for manual
operation but an increasing number of CNC machines are now being
produced.
The basic model of machine tool produced by JSQH can be
manufactured in different sizes, lengths, and speeds, with the
additional option for CNC operation. A number of varying
accessories can also be added according to end-user requirements,
such that there are over 160 standard models.
In the year ended 31 December 2010, JSQH sold 1,546 machines
with an aggregate value of RMB210,000,000 (approximately GBP19.9
million)
Customers and sales
Sales of lathes and milling machines manufactured in the PRC
have historically been made in the following sectors of the
domestic market:
Automobile industry 45% to 50%
Aerospace and defence 15% to 20%
General manufacturing 30% to 35%
Sales made in 2009 by JSQH in its domestic market are split,
broadly, across the following sectors:
Automobile industry 20%
Aerospace and defence 5%
General manufacturing 75%
The majority of JSQH's sales are made through its network of
approximately 180 distributors who are based throughout the PRC,
the top five of whom typically account for 26 to 30 per cent. of
JSQH's annual sales. From there, 90 per cent. of JSQH machines are
distributed within China, predominantly within the Jiangsu and
Zhejiang Provinces, the balance going to international end-users in
28 countries including the UK, United States, Germany, Russia,
Brazil and Malaysia. JSQH has, over the last two years, entered
into distribution agreements with distributors in North East China
and in Shandong Province, which is where a number of its
competitors are located, and these distributors are now selling
JSQH products in those areas. In addition, JSQH continues to
develop relationships with distributors with both PRC and
international customers.
Research and Development
JSQH has been awarded a High Tech Enterprise Award granted by
the government of Jiangsu Province and a Famous Trademark
certification in respect of its Zhenji brand, awarded by Zhejiang
State Administration for Industry and Commerce. In addition, one of
its CNC milling machine specifications has been selected for
recommendation by the National Torch Project, an initiative
established by the PRC central government to support high
technology and industrial enterprises.
JSQH's strong research and development department, comprising
around 80 staff, has been instrumental in the development of JSQH's
patented products. Approximately 60 per cent. of the current range
was developed by this team and a further 13 additions to the range
are under development.
Expenditure in respect of research and development by JSQH over
the last three years amounted to in aggregate RMB 4.3 million.
4. Rationale for the Acquisition and Key Strengths
The Directors believe that the Acquisition fits with the
investment strategy of the Company and:
-- JSQH is an existing, profitable business in a sector that is
growing and which the Directors and Proposed Directors believe will
continue to grow
-- the Company is familiar with machine tool manufacturing and
therefore the acquisition of Win Yu fits well with management
experience
-- JSQH is located in one of the most prosperous regions in
China
-- the Directors are impressed by the sales potential of Win Yu
and the opportunity for further expansion
The Directors and Proposed Directors have identified JSQH as
having the following key strengths:
-- long established business with a strong reputation for
quality and service
-- well-recognised brand in an established market
-- strong research and development capability
-- experienced senior management team
-- extensive product range and capability that sets them apart
from competitors
5. Strategy
The strategy of the Enlarged Group in relation to JSQH will be
to:
-- expand the product offering by further investment in research
and development
-- develop and introduce new series, such as combined cutting
and milling lathes and enhanced CNC capability
-- increase sales of higher margin CNC and heavy duty machine
tools
-- increase domestic market share in all provinces of China and
develop into overseas markets
-- continue to reduce costs and improve production process
flow
-- increase/optimize production capacity utilisation at the new
factory site
-- pursue appropriate acquisition opportunities to increase
scale and profits
-- enhance reputation on a global scale
6. Current trading and prospects
China Wonder
The Company has today published its results for the year ended
31 December 2010 which showed a profit of GBP212,434 from
continuing operations compared to a profit for those businesses of
GBP270,855 in the year ended 31 December 2009. As noted above, the
company sold one of its operations in November 2010 and has since
sold the other.
A copy of the audited accounts has been sent to Shareholders
today and is available at
www.chinawonderlimited.com/PDF/CW-2010.pdf.
Win Yu
The following financial information on Win Yu has been extracted
without material adjustment from the audited historical financial
information for the years ended 31 December 2008 to 31 December
2010 and from the unaudited management accounts of Win Yu for the
three months ended 31 March 2011:
Three months Year ended Year ended Year ended
ended 31 December 31 December 31 December
31 March 2011 2010 2009(1) 2008
Unaudited Audited Accounts
RMB'000 RMB'000 RMB'000 RMB'000
Revenue 64,638 209,958 125,647 186,235
Operating
Profit 7,519 15,803 (18,402) (4,167)
Profit before
tax 6,079 21,766 2,244 (7,788)
Profit after
tax 5,107 19,553 895 (7,851)
Before Exceptional Items(2)
RMB'000 RMB'000 RMB'000 RMB'000
Revenue 64,638 209,958 125,647 186,235
Operating
Profit 7,519 21,750 2,198 14,047
Profit before
tax 6,079 27,713 22,844 10,426
Profit after
tax 5,107 25,500 21,495 10,363
Note 1: From late 2008 to Spring 2009, JSQH undertook the main
stages of the relocation of its manufacturing operations to a new
site. This inevitably reduced capacity: before the move due to
winding down production; throughout the move itself; and after the
move whilst facilities were recommissioned and order books rebuilt.
The overall effect of this was to significantly reduce production
and sales in late 2008 and throughout 2009 and this is reflected in
the figures set out above.
Note 2: Excludes specific bad debts written off
At 31 December 2010, being the date of the most recent audited
balance sheet, Win Yu had net assets of RMB 86,737,000
(approximately GBP8.2 million), including cash of RMB 32,632,000
(approximately GBP3.1 million)
The first three months of trading in 2011 have shown a
significant improvement on the same period last year. The Directors
and Proposed Directors believe that the machine tool industry in
China presents an opportunity to develop in China and
internationally and that the prospects of the Enlarged Group are
encouraging.
7. Directors and Proposed Directors
Directors
Mark Chapman, aged 58, Chairman
Mr. Chapman has been involved in investing in the Far East for
over 15 years and from 1995 until 1999 he was a Director of
Powerhouse Resources Inc. which constructed and commissioned a
power station in Guandong Province China. In addition, Mr. Chapman
is a director of a number of private and publicly quoted companies.
Mr. Chapman was appointed to the Board of China Wonder in 2004 as a
non executive director, and became non executive Chairman in
2008.
Qiang Hao, aged 41, Chief Financial Officer
Mr. Hao graduated from Dongbei University of Finance and
Economics in July 1992. He is a qualified Senior Accountant and a
Certified Tax Accountant, and is a Member of Liaoning Tax Payment
Evaluation System Base. Mr. Hao was the financial manager at
Jinzhou Kaite Limited from 1992 to 1995 and project manager at
Liaoning Xinxin Public Accountant Firm from 1995 to 2003. He was
appointed to the Board of China Wonder in June 2009 and is its
Chief Financial Officer.
Roberto Sidnei Cunha Lima, aged 53, Non-executive Director
Mr. Lima has experience in the automotive industry having held
positions as development technician, sales manager, engineering
manager and key account manager in a variety of companies,
including TRW Automotive do Brazil SA, Cofap Companhia Fabricadora
do Pecas, Duramettalic do Brasil Industria e Comercio, Sachs
Automotive Brasil Ltd., Magneti Marelli Cofap and Magneti Marelli
Powertrain GmbH. He is currently the General Manager of Scheuermann
and Heilig do Brazil, a company operating in the automotive
components sector. He was appointed to the Board of China Wonder in
January 2010.
Proposed Directors
Yuanqing Li, aged 42, Proposed Chief Operating Officer
Mr. Li graduated from Shenzhen University in July 1987 with a
degree in law. Mr. Li has experience as the legal representative of
a number of Chinese technology and manufacturing companies,
including Shenzhen Hengtaifeng High-Tech Limited, Zhenjiang
Zhongyuan Real Estate Limited, and Zhongyuan Industry Company. In
February 2004 he joined JSQH as Corporate Executive and
Chairman.
Mr Li has entered into a service agreement with the Company
pursuant to which he will be employed as Chief Operating Officer
from Admission and will receive aggregate remuneration of
RMB200,000 (approximately GBP19,000) per annum. Mr Li's service
agreement can be terminated by either party giving 12 months'
written notice and is subject to certain non-competition
arrangements following termination
Meirong Yuan, aged 40, Proposed Director
Mr.Yuan graduated from Lanzhou Business School in June 1992 as a
Bachelor of Economics and also has a Ph.D. in management from
Southern California University for Professional Study. He joined
NASDAQ company Wonder Auto Technologies, Inc (Ticker: WATG) in 2006
and is its CFO and Principal Accounting Officer, and was also a
director of that company from 2006 until May 2010.
Mr. Yuan is also Vice President of Jinzhou Wonder Industrial
Co., Ltd and was Vice President of Shenzhen Luante Asphalt Advanced
Technology Co. Ltd. from July 2002 until June 2005 where he was
responsible for accounting and finance.
Mr Yuan has entered into a service agreement with the Company
pursuant to which he will be employed as an executive director from
Admission and will receive aggregate remuneration of RMB200,000
(approximately GBP19,000) per annum. Mr Li's service agreement can
be terminated by either party giving 12 months' written notice and
is subject to certain non-competition arrangements following
termination
In addition, three of the Company's directors, Zeng Qingdong,
Liang Hailin and James Wolfson have today resigned with immediate
effect following completion of the Second Disposal.
It is the Company's intention to appoint a further Non-executive
Director following Admission.
8. Details of the Placing and use of proceeds
The Company is proposing to raise GBP325,000 by the issue of
1,710,526 new Ordinary Shares (the "Placing Shares") at 19 pence
per share (the "Placing Price"). The Placing Shares will represent
approximately 3.0 per cent. of the Enlarged Share Capital. The
Placing Shares will rank pari passu in all respects with the
Existing Ordinary Shares, including the rights to all dividend and
other distributions declared, made or paid and following Admission
will be issued credited as fully paid. The proceeds of the Placing
will be used to fund the costs of the Acquisition.
The Placing is conditional, inter alia, on completion of the
Acquisition and Admission occurring by no later than 4 July 2011
(or such later date as Northland and the Company may agree, being
no later than 29 July 2011).
9. Controlling Shareholder and Lock-In arrangements
Upon Admission Yuanqing Li, the vendor of Win Yu, will be
interested in 38,325,737 Ordinary Shares, representing 66.0 per
cent. of the enlarged Share capital of the Company and as such he
will be the ultimate controlling Shareholder in the Company.
Mr Li has entered into a lock-in agreement, pursuant to which he
will not, and will procure that his connected parties will not,
save in certain limited circumstances, during the 12 months
immediately following Admission, dispose of (either directly or
indirectly), or agree to dispose of, any Ordinary Shares held by
him. Further, Mr Li has undertaken that in the following 12 months
he will not, and will procure that his connected parties will not,
dispose of any Ordinary Shares they or their connected parties hold
(or any interest therein) other than following consultation with
and with the consent of the Company's nominated adviser, who may
withhold consent if they reasonably consider such a disposal would
adversely affect the maintenance of an orderly market in such
Ordinary Shares. The Lock In does not apply to any Ordinary Shares
acquired after Admission.
Shareholders should note that following Admission the Company
will not be subject to the rules of the City Code on Takeovers and
Mergers ("City Code"), although certain provisions similar in scope
to Rule 9 of the City Code requiring a mandatory bid for the
Company are begin incorporated in the Company's articles of
association from Admission.
10. Admission, settlement and dealings
Application has been made to the London Stock Exchange for all
of the existing Ordinary Shares the Placing Shares and the
Consideration Shares to be admitted to trading on AIM. It is
expected that Admission will become effective and dealings will
commence in the enlarged share capital on 4 July 2011. No
application has or will be made for the Ordinary Shares to be
admitted to trading or to be listed on any other stock
exchange.
11. Appointment of Nominated Adviser and Broker
In connection with the Acquisition and Placing the Company is
pleased to announce the appointment of Northland Capital Partners
Limited as nominated adviser and joint broker with immediate
effect. Rivington Street Corporate Finance Limited continue as
joint broker to the Company.
12. General Meeting
The Acquisition is classed as a reverse takeover for the purpose
of the AIM Rules and is therefore conditional upon the approval of
existing Shareholders at a general meeting to be held on 1 July
2011 ("General Meeting"). An AIM admission document containing
details of the Acquisition and Placing and a notice convening the
General Meeting has been sent to shareholders in the Company.
At the General Meeting, resolutions will be proposed to:
-- approve the Acquisition on the terms set out in the
Acquisition Agreement;
-- authorise the Directors to allot shares;
-- disapply pre-emption rights;
-- increase the authorised share capital of the Company;
-- change the company name to Qihang Equipment Company
Limited;
-- amend the Articles to include provisions similar to Rule 9 of
the City Code and to authorise the annual report to shareholders to
use RMB as its reporting currency; and
-- amend Article 19 of the Articles to correct a typographical
error.
13. Irrevocable undertakings
The Directors have received irrevocable undertakings to vote in
favour of the resolutions to be proposed at the General Meeting
from existing shareholders in the Company who, in aggregate, hold
3,380,000 Ordinary Shares, representing approximately 18.8 per
cent. of the existing Ordinary Shares.
For further information please contact:
China Wonder Limited
Mark Chapman Tel 01483 894 627
Northland Capital Partners Limited (Nominated Adviser and
Broker)
William Vandyk Tel 020 7796 8800
Tim Metcalfe
This information is provided by RNS
The company news service from the London Stock Exchange
END
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