TIDMGCH
RNS Number : 8439T
Green China Holdings Limited
19 December 2012
19 December 2012
Green China Holdings Limited
('Green China' or 'the Company')
First Day of Dealings on AIM
The board of Green China Holdings Limited (AIM: GCH) is pleased
to announce the commencement of dealings in its ordinary shares on
the AIM market of the London Stock Exchange today.
The Company has raised GBP0.93 million before expenses by way of
a placing of 1,553,332 new ordinary shares at 60 pence per share
giving a market capitalisation of circa GBP31 million on admission
to AIM. The funds raised will be used to support the Company's
business strategy and for general working capital purposes.
Northland Capital Partners Limited acts as Broker to the Company
and Cairn Financial Advisers LLPis the Company's Nominated
Adviser.
The Company and its subsidiaries (the "Group") are principally
engaged in the sale and distribution of fertiliser products and the
operation of a network of franchise stores selling fertilisers and
agricultural related products in Hunan Province in China.
The Group's products are sold through a number of different
channels, including its own franchise stores, direct sales to
fertiliser manufacturers and end-users and sales to third party
distributors. As at 31 October 2012, the Group had 767 franchise
stores in Hunan Province, all of which operate under the
Huifengnian brand. Each store purchases products from the Group and
other suppliers and in turn sells to customers who are typically
end-user farmers. The operators of franchise stores pay annual
non-refundable consultancy fees to the Group.
Although historically the bulk of sales were through the direct
sales channel, the Group is in the process of rebalancing towards a
greater emphasis on expanding the franchise store channel, where
the Directors believe faster growth and better margins can be
achieved.
Green China's Chairman Ivor Shrago said: "We are delighted to be
joining AIM today. We believe that admission to AIM will provide
the Group with both access to further equity capital if needed as
well as an enhanced status when dealing with its present and
prospective franchisees. The combination of a well-placed business
with an excellent board and experienced management team operating
in an area strongly supported by the Chinese Government in its
latest 5 year plan distinguishes Green China as a compelling
investment opportunity. We strongly believe that fertiliser demand
will continue to grow as China needs to maximise the yield of its
available arable land, and that agriculture will remain a focus for
Chinese Government support and subsidies for many years to
come."
For further information please visit www.greenchinaholdings.com
or contact the following:
+ 44 (0) 7970
Luke Webster Green China Holdings Limited 066 390
James Caithie / Avi Cairn Financial Advisers +44 (0) 20 7148
Robinson LLP 7900
Gavin Burnell / Luke Northland Capital Partners +44 (0) 20 7796
Cairns Limited 8800
Further Information
Extracts from the Green China admission document published on 12
December 2012 are included below for information. All defined terms
contained within the text below are as defined in the admission
document, which can be downloaded from the Company's website at
www.greenchinaholdings.com.
MARKET OVERVIEW
Fertilisers
The primary nutrients required by plants for growth are
nitrogen, phosphorus and potassium. Other nutrients, including
sulphur, calcium, magnesium, and other minerals such as copper and
zinc, which are usually referred to as secondary nutrients, are
also required for plant growth but in smaller quantities than
primary nutrients. Fertilisers can be broadly classified into (i)
organic fertilisers which are naturally occurring organic
materials; and (ii) chemical fertilisers which are industrially
manufactured to supply plants with one or more plant nutrients. In
this Document, the term "fertiliser" refers to chemical
fertilisers.
There are two main varieties of chemical fertilisers, namely
straight fertilisers and compound fertilisers. Straight fertilisers
contain only one of the three primary plant nutrients while
compound fertilisers contain more than one (or all three) primary
plant nutrients.
Consumption of fertilisers in China
There are more than 300 million farmers in China, but the per
capita area of cultivated land is only 0.09 hectares, which is 56.5
per cent. below the global average. This makes China a country
short of cultivated land resources, making the use of fertilisers
critical to agricultural productivity and resulting in strong
demand throughout China for fertiliser products. Consumption is
forecast to grow at an average of 3.3 per cent. annually to
2015.
Production and Consumption of Fertilisers in Hunan Province
Hunan Province has a population of approximately 70 million
people, with a rural population of 40 million. It is known as the
"Granary of China" and is consistently in the top 10 Chinese
agricultural provinces. Its principal crops are rice and grain,
with lotus seeds, vegetables and cotton also being grown throughout
the province.
Typically, land in Hunan Province is very intensively farmed as
demand for food and other agricultural produce throughout China
outstrips its production. For certain crops, Hunan farmers
typically have two harvests per year and so the land is rarely
allowed to lie fallow. Consequently, there is significant reliance
on and consistent demand for fertiliser products to replenish the
land's nutrients. This demand is expected to be supported in the
future by the limited supply of arable land, rising rural incomes
and government subsidies for farmers.
Fragmented fertiliser market
In spite of the recent and well-documented rapid growth of its
towns and cities, China remains a highly agriculturally-focused
economy, with cultivable land being distributed by the local
government to its residents. The majority of families who are
allocated such land either farm it themselves or trade/lease out
their land tenancies. As a result, end users of the Group's
products are a highly fragmented potential customer base. The Board
believes that the optimum way to sell to this group is through
smaller, highly localised branded shops which the end users can
access with relative ease.
The Group has a commercial website, www.hnzfn.net, through which
it promotes the Group's products. However, a negligible percentage
of China's rural population currently use the internet for trading
purposes and as a result, there are no internet sales of the
Group's products. The Directors therefore intend to concentrate on
creating a more localised physical presence in a limited number of
provinces in the PRC.
Government support for agriculture
The Government of the PRC offers a great deal of protection and
support for the agricultural industry as a whole, given its
importance to the nation. It has been deemed to be one of the "key
industries" under the recent 5-Year Plan published by the
Government of the PRC. This support helps the Group and its
franchise stores in a number of ways. Certain agricultural products
are exempt from VAT at 17 per cent. and some of the Group's
franchise stores that achieve certain sales volumes receive
financial subsidies from the local government. Currently, around
140 of the Group's franchise network are receiving or have received
these government subsidies.
OPERATING OVERVIEW
Products
The products sold and distributed by the Group are classified
into three categories:
(i) compound fertilisers which comprise three proprietary
brands, Huifengnian, Xiangdan and Xiangkunwang, of which the
relevant trademarks are owned by the Group in the PRC, and a
further brand, Jinyizhu, in respect of which the Group has been
granted distribution rights in the PRC, as summarised below;
Product name Date from which trademark Number of products
owned by Group
(or "Huifengnian") 7 May 2011 2
(or "Xiangdan") 13 September 2012 32
(or "Xiangkunwang") 13 September 2012 9
(or "Jinyizhu") N/A* 12
* The Group has non-exclusive distribution rights for this brand
granted by Hunan Xiangzhu Chemical Corporation for distribution in
the PRC between 1 December 2009 and 30 November 2015.
(ii) straight fertilisers which are produced by third party
manufacturers with their own brand names. These include
nitrogen-based fertilisers (containing urea as the main nutrient),
phosphate-based fertilisers (containing phosphorous as the main
nutrient) and potash-based fertilisers (containing potassium as the
main nutrient); and
(iii) ammonium bicarbonate is a nitrogen based fertiliser used
mainly in China that is produced by heating ammonium hydroxide with
carbon dioxide and evaporating the water formed. This product has
become part of the Group's product offering since Huifengnian's
Branch Company in Yueyang signed an exclusive distributorship
agreement on 18 December 2010 with Huarong Hao Tian Chemical
Industrial Co., Ltd for its ammonium bicarbonate products which are
sold under its brand Zhutoushan ( ).
Sales and Distribution
The Group has been in transition since September 2011 when it
disposed of its manufacturing operations, redirecting its focus
from direct sales to sales to its contracted franchise stores. In
doing this, the Group has been able to create further revenue
streams via franchise and consultancy fees from franchise store
owners which carry significantly higher margins than sales of the
products alone. In addition, as the franchisees typically enter
into three year contracts there is more visibility on future
revenues and more predictable returns as further franchise stores
are opened.
The Group's transition is evidenced by the expected change in
ratio of revenues from direct sales to sales to franchise stores
(including franchise and consultancy fees). In 2011 this split was
89%:11%. It is expected that by the year ended 31 December 2014,
the ratio will be 54%:46%.
The following table shows a breakdown of the Group's turnover by
category for the period from incorporation to 31 December 2010, for
the year ended 31 December 2011 and for the six months ended 30
June 2012.
Period from incorporation
to Year ended 6 months to
31 December 2010 31 December 2011 30 June 2012
RMB '000 % RMB '000 % RMB '000 %
Direct sales 333,184 100.0 384,431 89.1 76,941 80.6
Sales to franchise
stores - - 39,893 9.2 13,893 14.5
Franchise and consultancy
fees - - 7,250 1.7 4,679 4.9
---------------- --------- ----------- ------ -------- -----
333,184 100.0 431,574 100.0 95,513 100.0
---------------- --------- ----------- ------ -------- -----
The Directors estimate that average turnover per franchise store
will be approximately RMB90,000 in each of 2013 and 2014.
Direct sales
Direct sales mainly refer to bulk purchases (typically at lower
profit margins than those from franchise stores) by fertiliser
manufacturers and end-users and sales to third party distributors.
Currently, the Group's direct sales team in the PRC consists of 8
personnel who provide direct marketing, sales and services support
to the customers in the PRC. The Group operates two offices within
Hunan Province located in Zhuzhou and Yueyang, each of which has
sales personnel who operate and deal with customers.
The Group also engages third party distributors for all of its
products which are independent of the Group. These distributors
often demand larger quantities of the Group's products for resale
than fertiliser manufacturers and end-customers and, ordinarily,
will submit annual sales plans. The execution of these plans is
monitored by the Group through regular communication with
distributors and analysis of quantity, quality and delivery of
their fertiliser products.
Franchisestores
The administrative divisions of Hunan consist of
prefecture-level divisions subdivided into county-level divisions
then subdivided into township-level divisions and finally
village-level units. The Group's franchise store network comprises
767 stores spanning approximately half of the 14 prefecture-level
divisions that comprise Hunan Province. The Directors believe that
the franchise stores extend the Group's retail coverage and enhance
public recognition of its brands without utilising a substantial
amount of its own resources or capital expenditure. These franchise
stores are expected to be the main driver of growth in the Group
for the foreseeable future. The location of each franchise store is
significant as proximity to end users is the key driver to sale and
distribution of the Group's products.
The Group's franchise stores are generally owned, established,
financed and operated by independent third parties under the
Group's Huifengnian brand. The Group enters into agreements which
govern the arrangements with its franchisees, generally with a term
of three years. Following the granting of the franchise licence in
August 2012, each franchisee pays the Group a non-refundable annual
franchise and consultancy fee of at least RMB18,000. Under this
model, additional stores can be added to the network for minimal
additional cost, and the payment by each store of an annual
consultancy and franchise fee means that they are making an
immediate contribution to the Group's turnover and profit.
The Group's franchise stores can be classified into three broad
categories based on their geographical location - namely,
county-level stores, township-level stores and village-level
stores. As at 31 October 2012, the Group had 64 "county", 422
"town" and 281 "village" stores respectively. The Directors believe
there is sufficient room to continue to grow the business in Hunan
Province rapidly and profitably for a further two to three years.
Current growth carries with it minimal increases in overhead, as
the Group has ten logistics centres from which delivery of the
fertiliser products to the franchise stores is managed and
sufficient central office staff and management to drive and oversee
the growth. Further logistics centres and central office staff can
be added as required to promote growth at a low incremental
cost.
The Directors intend to expand the Group's operations into
neighbouring provinces, such as Anhui Province, where agriculture
is also a key industry. Such expansion would require a further
franchise licence relating to the new province if the Group wanted
to charge further franchise fees. On 24 October 2012 the relevant
PRC government authorities approved the incorporation of Huangshan
and issued a business licence to operate in Anhui Province in
franchise management and sales and distribution of fertiliser and
agricultural related products. The Directors believe that this will
facilitate future expansion into Anhui Province. Application for a
franchise licence in Anhui Province will be made at the appropriate
time.
The expansion of the Group's franchise stores is managed by the
Group's sales team which typically focuses on specific areas where
it can optimise the use of its existing logistics network. In order
to maximise the reach of its franchise stores, the Group generally
conducts an evaluation to ensure the opening of any new franchise
store will not have adverse effects on the operation or
profitability of existing franchise stores. Candidates have to
satisfy certain criteria, in particular, the operation, size and
location of the proposed franchise stores.
Each franchise store adopts uniform brand and decoration style
and management principles. Franchise stores are also required to be
renovated and decorated in accordance with the Group's requirements
and specifications with the objective of creating a distinct and
immediately recognisable brand.
The Directors believe that the benefits to franchisees
include:
-- the secure supply of the Group's high-quality, industry leading products;
-- differentiation from the local competition by virtue of the
respected Huifengnian brand;
-- periodic workshops, tutorials and Huifengnian protocols and
best practices allow store owners to stay informed on industry
trends and provide a value added service to their customers;
-- while the franchise stores can sell competitors' products,
many of the products sourced from other companies are complementary
products to those supplied by the Group, such as seeds, pesticides
and equipment; and
-- each of the store owners is incentivised to purchase the
Group's branded products by the offer of preferential sales terms
and discounted prices.
Management of the sales and distribution network
Currently, the Group has relationships with around 91
independent distributors that operate in and around Hunan Province,
including 30 in the city of Zhuzhou alone. The Directors believe
that these independent distributors operate a similar business
model to the Group's franchise stores except that they do not
belong to the Group's franchise network. Nevertheless, they are key
customers for the Group and help to spread brand awareness of the
Group's products.
Based on sales volume, the Group has divided its sales and
distribution network into ten major sales regions. Each sales
region consists of a logistics centre, each of which is operated by
a third party. The entire sales and distribution network is
supported by the Group's logistics network.
The Group's ten strategically located logistics centres
primarily function as an intermediary and warehouse in that region
for inventory and information flow between suppliers, nearby
customers (such as the franchise stores and independent
distributors), the Huifengnian head office in Zhuzhou and
Huifengnian Branch in Yueyang. The logistics centres are leased on
flexible terms where the Group pays for the amount of space it
uses. This is beneficial because fertiliser demand fluctuates
depending on the season and so inventory may be higher in some
months compared to others. Most of the logistics centres are
located near to railway stations, which facilitates transportation.
Customers either pick up the goods themselves or have them
delivered at a reasonable freight charge.
Outsourcing
The Group outsources the production of compound fertilisers for
its proprietary brands. The entire production process is conducted
by a single independent manufacturer, Xiangzhu Xiangbei, which was
a subsidiary of Wanfeng until its disposal in September 2011.
Pursuant to this disposal, the Group no longer engages in
manufacturing operations, enabling it to utilise a more flexible
and cost-effective business model. In order to maintain its
flexibility, the Group is not restricted by an exclusive agreement
with Xiangzhu Xiangbei. The Directors believe that, as there are a
number of fertiliser manufacturers in Hunan Province, alternative
manufacturers can be engaged within a short period of time to
replace the existing one, if required.
Compound and straight fertilisers which are sold by the Group
under third party brands are purchased from corresponding third
party suppliers.
Business Strategy
The Group's primary goal is to continue to grow its business and
increase its market share in the fertiliser market in the PRC by
leveraging on its expertise and competitive strengths. Below are
the key strategic initiatives of the Group:
Expand the sales network and coverage
By leveraging the established reputation of the Huifengnian
brand, the Group intends to further strengthen its market position
in Hunan Province. It will also seek to extend its market presence
to other nearby agricultural regions, including Anhui, Guangxi,
Jiangxi, Hubei, Guangdong and Yunan. The Group is planning to
expand the number of franchise stores to 1,500 by the end of 2013
and to 2,000 by the end of 2014.
Enhance the supply of products
The Group has a broad offering of fertiliser products. Given the
Group's extensive sales and distribution network, the Group expects
to strengthen its business relationship with major suppliers in the
PRC through entering into distributorship agreements ensuring a
stable supply of fertiliser products.
Enhance consumer awareness of proprietary brands
Through effective marketing, the Group continues to maintain and
promote its proprietary brands. The Group will continue to enhance
consumer awareness of its brands by way of increased advertising,
product promotion seminars and distribution of complimentary
fertiliser samples.
Strengthen the logistics operations
The Directors believe that it is vital to maintain an efficient
logistics network in order to support the growing sales volume and
expansion of its sales and distribution network. The Group plans to
strengthen its logistics operation by establishing new logistics
centres which will serve as regional warehouses in order to cover
and support its established sales and distribution network.
DIRECTORS AND SENIOR MANAGEMENT
The board of directors of the Company and senior management of
the Group are comprised as follows:
Directors
Ivor Colin Shrago - aged 70, Non-Executive Chairman
Mr Shrago was admitted as a solicitor to the Supreme Court of
England and Wales in 1966 and to the Supreme Court of Hong Kong in
1997. He has more than 40 years' experience of practising law. In
1996, he was the General Counsel to Peregrine Direct Investments
Limited, the investment arm of Peregrine Investment Holdings
Limited, a leading banking group based in Hong Kong. He then joined
the asset management arm of Vigers Asset Management Limited as
managing director, while at the same time acting as general counsel
for the group. In 2002, Mr Shrago joined Druces LLP (formerly
Druces & Attlee) and has been a partner of Edwin Coe LLP since
2007. He is currently an independent non-executive director of
MiLOC Group Limited, a company whose shares are traded on the
PLUS-quoted market. He is also Non-Executive Chairman of Rare
Earths Global Limited and Kada Technology Holdings Limited, both of
which are AIM-quoted.
Zhang Sha Li (Sam) - aged 58, Managing Director
Mr Zhang joined the Company on 1 September 2012 and has over 30
years of experience in the fertiliser industry. His career started
at Huarong Nitrogenous Fertiliser Plant in 1979 as an Office
Director and he reached the position of Vice-Director in 2002.
During that time, he also pursued further tertiary education at
Hunan Chemical Engineering School and Hunan Economic Management
College where he studied chemical fertilisers and economic
management between 1989 and 1992. Mr Zhang then joined Huarong
County Haotian Chemical Industrial Co., Ltd in 2002, where he was
Deputy General Manager responsible for strategic planning and
operations management.
Luke Joseph Webster - aged 34, Executive Director
Luke is an experienced solicitor/corporate finance professional.
Luke qualified as a solicitor in 2004 with Nabarro before moving
into corporate finance with Oriel Securities. In 2009 Luke joined
the London Stock Exchange as a senior regulator in charge of the
AIM market where he was responsible for the regulation of 1,600
listed companies and 70 investment banks. Luke will take
responsibility for the investor relations, corporate strategy and
listing responsibilities of the Company. Luke is also the
commercial director of AIM listed Rare Earths Global Limited.
Lu Shangmin (Leo) - aged 49, Non-Executive Director
Mr Lu graduated from Anhui University of Finance and Economic
(formerly known as Auhui Institute of Finance and Trade) with
Bachelor of Economics in 1981. He has since also attained a
certificate in foreign trade business from Cadres Studies
Institute. Mr Lu has over 20 years of managerial and accounting
experience including appointments as Finance Officer in China
Resources Silk Co. Ltd between 1986 and1991 and as Deputy General
Manager at Fealty Company Ltd (a subsidiary of China Resources
(Holdings) Co. Ltd). Mr Lu then became the Financial Controller of
Shenzhen Yue Tai Hua Investments Limited between September 1997 and
March 2007. Mr Lu is now an Executive Director of Z-Obee Holdings
Limited, a company listed on the Hong Kong Stock Exchange. He is
responsible for the financial management, and client solicitation,
assessment and monitoring of this company. He was appointed to the
board of Z-Obee Holdings Limited on 3 March 2009 and was last
re-elected on 30 July 2009.
Senior Management
Tang Weiming (Tommy) - Director of Operations
Mr Tang is responsible for managing the Group's general
operations and leading the development of the Group's franchise
network and sales and distribution network. Prior to joining the
Group in 2009, Mr Tang spent 17 years in banking, business
management and operations in Hunan Province. A graduate of Hunan
Economic Management College, Mr Tang has extensive experience in
business management and operations and spent 20 years in Hunan's
banking industry while with ICBC in their Zhuzhou and Liling
branches between 1981and 2002. Mr Tang then joined Zhuzhou Xingye
Asset Management Co., Ltd as General Manager before moving on to
Zhuzhou Wanshou Real Co. Ltd in 2005 in a similar capacity.
Cheung Yiu Shan (Jessie) - Group Financial Controller
Ms Cheung is responsible for all of the Group's financial
operations, including planning, directing and co-ordinating all
financial activities. Ms Cheung has over 17 years of accounting and
audit experience primarily with Deloitte in Hong Kong. Prior to
joining the Group, she worked as Senior Financial Manager at Kada
Technology Holdings Limited, an AIM-quoted PRC-based company, and
is fluent in English Mandarin and Cantonese.
REASONS FOR ADMISSION AND USE OF PROCEEDS
The Company has applied for the Enlarged Issued Share Capital to
be admitted to trading on AIM to:
-- enhance the Group's corporate status and profile with its
customers (both existing and prospective) and its other
stakeholders, including suppliers and potential partners by being a
quoted company;
-- provide it with finance to support the growth strategy
described in paragraph 4.6 above and to provide it with access to
capital, if required, to support further growth in the future;
-- attribute a value to its Ordinary Shares so as to provide a
mechanism of making available Ordinary Shares as a means of
retaining and incentivising employees should this be deemed
desirable in the future;
-- broaden the Group's shareholder base; and
-- achieve international profile and recognition.
The net proceeds of the Placing of approximately GBP0.53 million
will be used to support the Group's business strategy, as set out
in paragraph 4.5 of this Part I, and for general working capital
purposes.
**ENDS**
This information is provided by RNS
The company news service from the London Stock Exchange
END
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