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Victor Group Holdings LimitedACN 165 378 834
ProspectusAn Offer of up to 25,000,000 Shares at a price of 20c each to raise up to $5,000,000, with a
minimum subscription requirement to raise at least $3,000,000
Corporate Advisor and Lead Manager to the Issue: BlueMount Capital
IMPORTANT INFORMATION
This is an important document. If you do not understand it you should consult your professional advisors without delay.
The Shares offered by this Prospectus should be considered highly speculative.
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TABLE OF CONTENTS
IMPORTANT INFORMATION 3
CORPORATE DIRECTORY 5
INVESTMENT HIGHLIGHTS 6
CHAIRMAN’S LETTER 17
KEY OFFER DETAILS 18
SECTION 1 DETAILS OF THE OFFER 19
SECTION 2 DIRECTORS AND SENIOR MANAGEMENT 27
SECTION 3 INDUSTRY OVERVIEW 33
SECTION 4 COMPANY AND BUSINESS OVERVIEW 37
SECTION 5 HISTORICAL AND PRO FORMA FINANCIAL INFORMATION 47
SECTION 6 INVESTIGATING ACCOUNTANT’S REPORT 66
SECTION 7 RISK FACTORS 70
SECTION 8 MATERIAL CONTRACTS 82
SECTION 9 ADDITIONAL INFORMATION 88
SECTION 10 TAXATION REPORT 96
SECTION 11 DIRECTORS’ AUTHORISATION 102
SECTION 12 DEFINITIONS 104
SECTION 13 APPLICATION FORM 107
The first picture on the front cover of this Prospectus depicts a seminar for the Group’s clients. Nb. Property depicted is not owned by the Group. .
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IMPORTANT INFORMATION
The Prospectus is dated 27 February 2014 and a copy of the Prospectus was lodged with ASIC on that date. Neither ASIC nor ASX take responsibility as to the contents of this Prospectus.
Within 7 days of the date of this Prospectus, the Company will make an application to ASX for the Shares offered pursuant to the Prospectus to be admitted for quotation on ASX.
No Shares will be issued pursuant to this Prospectus later than 13 months after the date of thisProspectus.
Persons wishing to apply for Shares pursuant to the Offer must do so using the Application Form attached to or accompanying this Prospectus. Before applying for Shares potential investors should carefully read this Prospectus so that they can make an informed assessment of the rights and liabilities attaching to the Shares, the assets and liabilities of the Company, its financial position and performance, profits and losses, and prospects.
Any investments in the Company should be considered highly speculative. Applicants should read this Prospectus in its entirety and persons considering applying for Shares pursuant to the Prospectus should obtain professional advice.
No person is authorised to give any information or to make any representation in relation to the Offer which is not contained in this Prospectus. Any such information or representations may not be relied upon as having been authorised by the Directors.
The offer of Shares under this Prospectus does not constitute an offer in any jurisdiction outside Australia. The Offer is not made to persons or places to which, or in which, it would not be lawful to make such an offer of securities. Any persons in such places who come into possession of this Prospectus should seek advice on and comply with any legal restrictions. Any failure to comply with such restrictions may constitute a violation of applicable securities laws.
The distribution of this Prospectus in jurisdictions outside Australia may be restricted by law and persons who come into possession of this Prospectus should seek advice on and observe any of these restrictions. Failure to comply with these restrictions may violate securities laws. Applicants who are resident in countries other than Australia should consult their professional advisers as to whether any governmental or other consents are required or whether any other formalities need to be considered and followed. For further information on selling restrictions that apply to the Shares in certain jurisdictions outside of Australia, see Sections 1.14 and 9.12.
It is important that investors read this Prospectus in its entirety and seek professional advice where necessary. The Shares the subject of this Prospectus should be considered highly speculative.
WEBSITE – ELECTRONIC PROSPECTUS
A copy of this Prospectus can be downloaded from the website of the Company at www.sinovictor.com. Any person accessing the electronic version of this Prospectus for the purpose of making an investment in the Company must be an Australian resident and must only access this Prospectus from within Australia.
The Corporations Act prohibits any person passing onto another person an Application Form unless it is attached to a hard copy of this Prospectus or it accompanies the complete and unaltered version of this Prospectus. Any person may obtain a hard copy of this Prospectus free of charge by contacting the Lead Manager on 1300 70 70 10. For further information, see Sections 1.17 and 9.8.
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RISKS
Before deciding to invest in the Company, potential investors should read the entire Prospectus and in particular, in considering the prospects of the Company, potential investors should consider the risk factors that could affect the financial performance and assets of the Company. Investors should carefully consider these factors in light of personal circumstances (including financial and taxation issues). The Shares offered by this Prospectus should be considered highly speculative. Refer to Section 7 for details relating to risk factors.
EXPOSURE PERIOD
This Prospectus will be circulated during the Exposure Period. The purpose of the Exposure Period is to enable this Prospectus to be examined by market participants prior to the raising of funds. Potential investors should be aware that this examination may result in the identification of deficiencies in this Prospectus and, in those circumstances, any application that has been received may need to be dealt with in accordance with section 724 of the Corporations Act.
Applications for Shares under this Prospectus will not be processed by the Company until after the expiry of the Exposure Period. No preference will be conferred on persons who lodge applications prior to the expiry of the Exposure Period.
MISCELLANEOUS
All references in this Prospectus to “$”, “AUD”, “dollars”, “cents” are references to Australian currency unless otherwise stated.
All references to “RMB”, “Renminbi” or “Chinese Renminbi” are references to Chinese currency unless otherwise stated.
All references to “US$” or “USD” are references to the currency of the United States of America unless otherwise stated.
All references to time relate to the time in Perth, Western Australia.
The people and assets depicted in this Prospectus are not employees or assets of the Company unless specifically stated.
A number of terms and abbreviations used in this Prospectus have defined meanings which appear in Section 12.
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CORPORATE DIRECTORY
DIRECTORS
Mr Wayne V Reid O.B.E. (IndependentChairman)Mr Zhang, Bin (CEO and Deputy Chairman)Mr David P Batten (Independent NED)Mr Liu, Xinjie (NED)Mr Frederick C Kempson (Independent NED)
COMPANY SECRETARY
Richard L S Hill B Com FCA
REGISTERED OFFICE
Level 11, 32 Martin PlaceSydney New South Wales 2000Australia
CORPORATE ADVISOR AND LEAD MANAGER
BlueMount Capital (Sydney) Pty LtdLevel 10, 8-10 Loftus StreetSydney New South Wales 2000Australia
SHARE REGISTRY
Boardroom Pty LimitedLevel 7, 207 Kent StreetSydney New South Wales 2000Australia
AUDITOR AND INVESTIGATING ACCOUNTANTS
Grant Thornton Audit Pty LtdLevel 1, 67 Greenhill RoadWayville South Australia 5034Australia
AUTHOR OF THE TAXATION REPORT
Grant Thornton Australia LtdLevel 1, 67 Greenhill RoadWayville South Australia 5034Australia
LEGAL ADVISERS
Legal Adviser to Australian Law
Price Sierakowski CorporateLevel 24, 44 St Georges TerracePerth Western Australia 6000Australia
Legal Adviser to PRC Law
AllBright Law Offices28th Floor, Hong Kong PlazaNo. 283 Huai Hai Middle RoadShanghai 200021Peoples Republic of China
ASX CODE
“VIG”
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INVESTMENT HIGHLIGHTS
1. INTRODUCTION
Question Response More info.
Who is the issuer of the Prospectus?
Victor Group Holdings Limited ACN 165 378 834 (Company)
Section 4
Who is the Company and what does it do?
The Company is the parent company of Hong Kong Victor International Enterprise Management Co., Ltd (a company incorporated in Hong Kong) which in turn has a wholly-owned subsidiary (incorporated in the PRC). Together, these companies make up the Group.
The Group is the owner and operator of a business advisory and enterprise management consultingbusiness in the PRC.
Sections 4 and 9.1
What is the Company’s strategy?
The Company’s strategy is to achieve superior returns for its Shareholders through expanding both its distribution and its seminars throughout the PRC and offshore markets.
Section 4
What activity has the Group planned?
The Group plans to grow its business advisory and enterprise management consulting business targeting customers which include medium and smaller trading companies, as well as companies from the manufacturing, technology and servicesindustries, the promotion of the Group’s brand and the development of highly connected, practical andcomplementary enterprise management consultingsystems.
Section 1.6 and 4
Who are the Company’s Directors?
Mr Wayne V Reid OBE (Independent Chairman)
Mr Zhang, Bin (CEO and Deputy Chairman)
Mr David P Batten (Independent NED)
Mr Liu, Xinjie (NED)
Mr Frederick C Kempson (Independent NED)
Information about the background and experience of each Director and of key management is set out in Section 2.
Section 2
What is the business model?
The Company’s business model for its Business is generally:
conducting more than 10 different enterprise
See Chairman’s Letter and Section 4
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management consulting programs which include Business Strategy, Finance, Marketing and Leadership courses – all in various themes which can be customised to customers' specifications.
The marketing and sales model is mainly based on customers’ referrals, business distributors, supplemented by direct marketing.Distributors are important clients who have regional influences to bring their own clients to the Company’s seminars. The Company invoices and receives payment from the distributors, and the distributors handle their payment with individual clients, cover marketing costs, and therefore earn profits from the price difference between what they charge clients and what they pay the Company.
The operating model focuses on carrying out large-scale seminars, supplemented by specific enterprise management consulting courses.
What is the financial position of the Company?
The Company was incorporated on 11 September 2013 and has limited financial history. The Company was incorporated for the purpose of the Group listing on the Official List.
As at 30th September 2013, the Group has:1
Cash balance of $550,973.72
Total assets of $970,929.62
Net assets of $332,026.73; and
Shareholders’ equity of $332.026.73.
The above financial information for the three months ended 30th September 2013 is based on the audited financial statements of Hong Kong Victor. The audited financial information has been converted to AUD from Hong Kong Victor’spresentation currency of Chinese Renminbi, based on the foreign currency translation policy outlined in Section 5.5.
Further financial information regarding the Company is set out in Section 5 and is considered in the Investigating Accountant’s Report in
Section 9.1
Sections 5.3and 5.5
1 Based on a normal exchange rate (RMB 1:$0.1771) chosen as at 30 September 2013.
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Section 6 of this Prospectus.
What benefits are being paid to Directors?
The Directors will be paid directors’ fees for operating the Company following the successful listing of the Company on the ASX.
As Non-Executive Chairman, Mr Wayne Reid will be paid $55,000 per annum plus statutory superannuation (if any).
As Executive Deputy Chairman, Mr Zhang, Bin will be paid $50,000 per annum plus statutory superannuation (if any).
The remaining non-executive Directors (Mr David Batten, Mr Liu, Xinjie and Mr Frederick Kempson) will in aggregate be paid an annual directors fees of $57,001 per annum plus statutory superannuation (if any).
For further information on the Directors’ interests, please refer to Section 9.4.
Section 9.4
What benefits are being paid to other persons?
The Company will pay various service providers who have assisted with the preparation of the documentation required to enable the Company to prepare this Prospectus. These persons will include accountants, solicitors and corporate advisors. Full details of the amounts paid, or to be paid are included at Section 9.5.
Section 9.5
How will the Company comply with the Corporations Act and other corporate governance policies?
The Company’s Directors collectively haveexperience in the management and administration of listed companies and have a general working knowledge of the laws and regulations affecting public companies in Australia and in the PRC.
Further information on the Company’s corporate governance policies and practices as at the date of this Prospectus are included of Section 2.4.
Section 2
What important contracts has the Company entered into?
The Company is a party to the following types of material contracts:
Employment agreements with the Group’sDeputy Chairman and Chief Executive Officer, Mr Zhang, Bin;
Lead Manager Agreement;
Business Transfer Agreements;
Sales Agreements;
Section 8
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Deeds of Access, Indemnity and Insurance;and
Related party loans.
For further information on Directors’ interests in the material contracts, please refer to Section 9.4.
What is being offered and what rights and liabilities are attached to the Shares?
The Company is offering up to 25,000,000 Shares at $0.20 each to raise up to $5,000,000 (before costs of the Offer) with a Minimum Subscription of $3,000,000.
The rights and liabilities attaching to the Shares are described at Section 9.2.
Section 1
Section 9.2
Is the Offer underwritten?
No, the Offer is not underwritten.
What is the effect of the IPO on the Company?
The IPO will provide the Company with cash reserves with which to undertake expansion of both its distribution, and its enterprise management consulting courses throughout the PRC and offshore markets.
The capital structure of the Company will be impacted by the number of Shares issued. Control of the Company will remain with Achieva Capital Management via its control of the Company’s substantial shareholders, being Daybreak and Achieva.
The future of the Company will be dependent on many things, some of which are outside of the control of the Company. Specifically in relation to the funds raised under the Prospectus, the future growth of the Company will be dependent on the Company’s ability to expand both its distribution and its enterprise management consulting courses throughout the PRC and offshore markets.
Sections 1 and 4
Will the Company pay dividends?
The Company expects to pay a dividend of 25% of statutory net profit after tax with respect to earnings generated from completion of the Offer to 30 June 2014. Thereafter the Company is targeting a dividend payout ratio of at least 25% of statutory net profit after tax.
Depending on available profits and the financial position of the Company, it is the current intention of the Board to pay an annual dividend each December.
The Board can provide no guarantee as to the
Section 1.19
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future dividend policy, the extent of future dividends or the level of franking or imputation credits applying to such dividends, as these will depend on, among other things, the actual levels of profitability and the financial and taxation position of the Company at the time.
The Company is not likely to be subject to any Australian tax that will allow it to generate franking credits. Please see the Taxation Report at Section 10 for further details.
Where will the Shares be quoted?
An application will be made to the ASX for quotation of the Shares under the trading symbol “VIG”.
Section 1.10
Are any sharesescrowed?
Subject to the Company being admitted to the Official List, certain Shares on issue prior to the Offer will be classified by ASX as restricted securities and will be required to be held in escrow.
Section 1.11
When will I know if myApplication wassuccessful?
A holding statement confirming your allocation under the Offer will be sent to you if your Application is successful. Holding statements are expected to be issued on or about 4 April 2014.
Section 1.12
How can I obtain further advice?
By speaking to your accountant, stockbroker or other professional adviser.
If you require assistance or additional copies of this Prospectus, please contact the BlueMount Capital on 1300 70 70 10.
Contact details For further details, see the Corporate Directory at the beginning of this Prospectus.
Corporate Directory
2. THE OFFER
Question Response More info.
What is the Offer? The Offer is for up to 25 million Shares at an Offer Price of 20 cents per Share to raise funds of up to$5 million. There is no allowance foroversubscriptions.
The Offer has a Minimum Subscription of $3million.
Section 1
How will funds raised under the Offer beused?
The gross funds raised by this Offer assuming Full Subscription will be $5 million (before costs associated with the Offer), which the Company intends to use to:
Sections 1.6 and 9.7
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expenses of the Offer;
expansion of both its distribution, and its enterprise management consulting courses throughout the PRC and offshore markets;
promotion of the Group’s brands; and
general working capital.
What are the key dates of the Offer?
Lodgement of this Prospectus with ASIC: 27 February 2014
Opening Date for Offer: 7 March 2014
Closing Date for Offer: 31 March 2014
Dispatch of Statements of Shareholding: 4 April2014
Expected date for Shares to commence trading onASX: 11 April 2014
The above dates are indicative only and may change without notice. The Company reserves the right to extend the Closing Date or close the Offer early without notice.
Key Offer Details
What is the Offer Price?
The Offer Price is $0.20 per Share. Section 1
What is the Minimum Subscription?
The Minimum Subscription is 15,000,000 shares to raise $3 million.
Applications under the Offer must be for a minimum of 10,000 Shares ($2,000) and then in increments of 1,000 Shares ($200).
Section 1
How do I apply for Shares under theOffer?
All Application Forms must be completed in accordance with the instructions accompanying the Application Form and must be accompanied by a cheque in Australian dollars for the full amount of the application being 20 cents per Share. Cheques must be made payable to “Victor Group Holdings Limited – Share Applications Account” and should be crossed “Not Negotiable”.
Sections 1.2 and 13
Where do I send theApplication Form?
Applications Forms should be sent to Victor Group Holdings Limited c/- BlueMount Capital, Level 10, 8-10 Loftus Street, Sydney NSW 2000, Australia.
Completed Application Forms and cheques must be received by the Lead Manager, BlueMount Capital before 5.00 pm WST on the Closing Date.
Sections 1.2 and 13F
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Can I speak to arepresentative about the Offer?
Questions relating to the Offer can be directed to the Lead Manager, BlueMount Capital on1300 70 70 10. Questions relating to the completion of the Application Form can be directedto the Share Registry, Boardroom Pty Limited on 1300 737 760 within Australia and +61 2 9290 9600outside Australia.
Section 1.20
3. KEY RISK FACTORS
Question Response More info.
What are the key risks of investing in Shares in the Company?
The list below is a summary of some of the key risks associated with investing in the Company. Amore comprehensive list of risks is set out in Section 7.
Section 7
The success of the Group has been in large part due to the talent, effort, experience and leadership of its senior management team, in particular, the leadership of its Deputy Chairman and Chief Executive Officer Mr Zhang, Bin. Although the Group has entered into 3-year service contracts with its Chief Executive Officer Mr Zhang, Bin, and senior management, there is no assurance that such contracts will not be terminated or will be renewed on the expiry of their terms. If Mr Zhang’s employment agreement with the Company ceases, this may have a material impact on the performance of the Company and the price of the Shares.
The Group’s Deputy Chairman and Chief Executive Officer, and its senior management team, are employed pursuant to employment laws in the PRC by Shanghai Kesheng. As such, these employees are entitled to terminate their employment agreements by giving 30 days prior written notice to Shanghai Kesheng. If that occurs, the Group would need to employ alternative staff in a short space of time and the Group’s operations and business would be adversely affected. There is no guarantee that alternative staff could be engaged by the Group, or that alternative staff with the same skills could be engaged by the Group.
Mr Zhang holds no shares in the Company and receives payment for his role as Chief Executive Officer of the Group and Executive Director of Shanghai Kesheng as his only remuneration from the Group. Mr Zhang is also a director of (but does not control) the Company’s largest shareholder, being Daybreak (which is controlled by Achieva
Section 7.1.1
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Capital Management, which also owns the Company’s second largest shareholders Achieva).
Most of the Group’s consultants are invited to provide enterprise management consulting services on a provisional or course-by-course basis with no long terms arrangements. In the event that any such provisional invited consultants fail to fulfill the standard and quality that the Group has committed to its clients, the Group may incur civil claims from its clients or administrative claims from the local authorities which would materially affect its business operations and reputation. In addition, if suitable consultants are not able to be engaged by the Group this would also materially affect the Group’s business operations and business reputation.
Section 7.1.2
The Group conducts substantially all its business operations in the PRC. Accordingly, the Group’s results of operations, financial condition and prospects are significantly dependent on economicand political developments in the PRC. The PRC government exercises significant control over its economic growth through the allocation of resources, control over payment of foreign currencydenominated obligations, implementation of monetary policy, and preferential treatment to particular industries or companies. Any such current and future government actions could materially affect the Group’s liquidity, access to capital, and ability to operate its business. Further, any slowdown in the economic growth of the PRC could lead to reduced demand for the Group’sservices, which could materially and adversely affect the Group’s business, financial condition and results of operations.
Section 7.1.7
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Following the Offer and assuming full subscription, Daybreak will hold 400 million Shares in the Company representing approximately 77%, and Achieva will hold 80 million Shares in the Company representing approximately 15% of the Shares and voting rights in the Company. Daybreak and Achieva are both wholly owned by Achieva Capital Management. Achieva Capital Management, by its control of Daybreak and Achieva, would exert substantial influence over matters requiring approval by the Shareholders, including electing directors, and in doing so they may not act in the best interest of other minority shareholders.
This concentration of ownership would likely also discourage, delay or prevent a change of control of the Company, which would deprive the Company’s Shareholders of an opportunity to receive a premium for their Shares as part of a sale of the Company and might reduce the price for the Company’s Shares. These actions may be taken even if they are opposed by the Company’s other Shareholders, including those who purchase Shares in this offering.
In addition, Achieva Capital Management, Daybreak or Achieva would not be subject to the takeovers prohibition in the Corporations Act, would be able to compulsorily acquire Shares from other minority Shareholders following listing on ASX, and would create a detrimental effect on the market price at which the Company’s Shares trade on ASX if they were to sell a substantial number of their Shares.
Section 7.1.10
The Group relies on distributors for a large part of its revenue, the Group’s distributors are engaged on short-term non-exclusive arrangements that may be terminated at any time or not renewed. In particular, one major distributor accounted for 63% of total revenues for the Group during the Audited Period. This distributor was similarly engaged on a short-term non-exclusive basis.
In addition, the Group does not specify the arrangements which can be made between distributors and customers, including any recommended or minimum price.
The termination, non-continuance or breach of these arrangements would materially and adversely affect the business and operations of the Group.
Sections 7.1.4, 7.1.5, 7.1.6, 7.1.11 and 7.1.20
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As a holding company, the Company relies principally on dividends from its Subsidiaries for its cash requirements, including any debt the Group may incur. Current PRC regulations permit the Group’s Chinese Subsidiaries to pay dividends only out of accumulated after tax profits, if any. Anyinability of the Chinese Subsidiaries to distribute dividends or other payments to the Company could materially and adversely limit the Group’s ability to grow, make investments or acquisitions that could be beneficial to its business, pay dividends, orotherwise fund and conduct its business.
Section 7.1.12
The Group’s operations in the PRC are governed by PRC laws and regulations. China has a civil law legal system based on written statutes. Unlike the common law system, previous court decisions in the PRC may be cited for reference but havelimited precedential value. As a result, and due also to certain PRC laws and regulations being relatively new, the interpretation and enforcement of PRC laws and regulations may involveuncertainty. Such uncertainties may limit the legal protections available to the Group and to other foreign investors, including Applicants. In addition, the legal system in the PRC is based in part on government policies and certain internal rules, some of which are not published on a timely basis or at all and which may have retroactive effect. Also, any administrative or court proceedings may be protracted if the Group seeks to enforce its legal rights through administrative or court proceedings in the PRC. In addition, PRC administrative and court authorities have significantly wider discretion in interpreting and implementing statutory and contractual provisions than in other jurisdictions.These uncertainties may impede the Group’s ability to enforce its contracts, which could in turn materially and adversely affect the Group’s business and operations.
Section 7.1.9
To utilise the proceeds from the Offer in the manner described in this Prospectus, the Company may extend loans to its Subsidiaries or make additional capital contributions to them. Capital contributions to its Chinese Subsidiary, Shanghai Kesheng must be approved by the PRC Ministry of Commerce or its local counterpart. If the Group fails to obtain such approvals, the Company’s ability to use theproceeds from this offering as intended will be affected, and this could adversely affect the Group’s ability to carry out its business strategies and fund and expand its business operations.Further, such capital as converted from foreign
Section 7.1.14
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currencies must be used for purposes which are regulated by government authorities in the PRC.
Following the Offer, up to approximately 95% of the Company’s Share capital may be escrowed for a period of time (up to 24 months). There is a risk that this may result in reduced levels of liquidity in the Company’s Shares.
Section 7.1.13
4. OFFER STATISTICS
Offer Price $0.20 per share
FullSubscription($5,000,000)
MinimumSubscription($3,000,000)
Section
Number of Existing Shares currently on issue
500,000,000 500,000,000 Key Offer Details, andSection 1
Number of Shares available under the Prospectus
25,000,000 15,000,000 Key Offer Details, andSection 1
Total number of Shares on issue following the Offer
525,000,000 515,000,000 Key Offer Details, andSection 1
Total proceeds from the Offer (before costs)
$5,000,000 $3,000,000 Key Offer Details, andSection 1
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CHAIRMAN’S LETTER
Dear Investor,
On behalf of the Directors of Victor Group Holdings Limited (“the Company”, and together with its subsidiaries, the “Group”), I am pleased to present this Prospectus, and offer you the opportunity to become a Shareholder of the Company. This is an opportunity to invest in a company focused on providing business advice and enterprise management consulting predominantly for large and rapidly growing businesses in the PRC.
The Group owns and operates the “Victor” brand, which was originally established in 2003.
The Group’s business model for its business advisory and enterprise management consultingbusiness is focused towards:
1. owning and operating a business advisory and enterprise management consultingbusiness in the PRC; and
2. targeting customers which include medium and smaller trading companies, as well as companies from the manufacturing, technology and services industries, the promotion of the Group’s brand and the development of highly connected, practical and complementary enterprise management consulting systems for management in enterprises.
Using this business model, the Group’s strategy is to expand both its distribution and its enterprise management consulting courses throughout the PRC and offshore markets.
This Prospectus contains an offer of up to 25,000,000 New Shares at an issue price of $0.20 each to raise up to $5,000,000.
The proceeds from the Offer will be used to progress the Group’s business goals and expansion plans. The Directors are confident that the Group’s business model is appropriate to achieve growth in its targeted markets. However, an investment in the Group is subject to risks, including general and company-specific risks. Detailed information about these risks is set out in Section 7, which I encourage you to read carefully. While the objective of this Prospectus is to provide the necessary information to help you make an investment decision, we recommend that you seek independent professional advice.
The Company is committed to listing on the ASX as it offers a sophisticated capital market, an internationally recognised and sustainable corporate governance environment, and thereby a suitable platform for the Group’s expansion.
The Board of the Company commends the Offer to you and looks forward to welcoming you as aShareholder.
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KEY OFFER DETAILS
Key Financial Data Relating to the Offer
Offer price per Share 20 cents
New Shares to be offeredassuming Full Subscription 25,000,000assuming Minimum Subscription 15,000,000
Cash proceeds of the Offerassuming Full Subscription $5,000,000assuming Minimum Subscription $3,000,000
Total number of Existing Shares on issue before the Offer 500,000,000
Total number of Shares on issue following the Offerassuming Full Subscription 525,000,000assuming Minimum Subscription 515,000,000
Indicative Timetable
Dates shown in the table below are indicative only and may be varied. The Company reserves the right to vary the Opening Date and the Closing Dates without prior notice, which may have a consequential effect on the other dates. Applicants are therefore urged to lodge their Application Forms as soon as possible.
INDICATIVE TIMETABLE
Lodgment Of This Prospectus With ASIC 27 February 2014
Opening Date for the Offer 7 March 2014
Closing Date for the Offer (“Closing Date”) 31 March 2014
Dispatch of Statements of Shareholding 4 April 2014
Expected date for Shares to commence trading on ASX 11 April 2014
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SECTION 1 DETAILS OF THE OFFER
By this Prospectus, the Company offers up to 25 million Shares at an Offer Price of 20 cents per Share to raise funds of up to $5 million. There is no allowance for oversubscriptions.
The Offer is open to the general public.
The Shares to be issued pursuant to this Prospectus are of the same class and will rank equally in all respects with the Existing Shares in the Company. The rights and liabilities attaching to Shares are further described in Section 9.2 of the Prospectus.
Persons wishing to apply for Shares should refer to the following Section 13 of this Prospectus for further details and instructions
1.1 THE OFFER
Under the Offer, members of the general public may apply for Shares pursuant to this Prospectus. Applications for Shares under the Offer can only be made on the Application Forms contained at the back of the Prospectus.
The Application Form should be completed in accordance with the instructions set out on the back of the form.
Applications under the Offer must be for a minimum of 10,000 Shares ($2,000) and then in increments of 1,000 Shares ($200). No brokerage, stamp duty or other costs are payable by applicants. Refer to Section 1.2 below for payment and lodgement details.
1.2 PAYMENT AND LODGEMENT DETAILS
The details provided in this section relate to the Application Form.
All Application Forms must be completed in accordance with the instructions accompanying the Application Form and must be accompanied by a cheque in Australian dollars for the full amount of the application being 20 cents per Share. Cheques must be made payable to “Victor Group Holdings Limited – Share Applications Account” and should be crossed “Not Negotiable”. All applications Monies will be paid into a trust account.
Completed Application Forms and cheques must be received by the Lead Manager, BlueMount Capital before 5.00pm WST on the Closing Date.
Applicants are urged to lodge their Application Forms as soon as possible, as the Offer may close early without notice.
Delivered to:
Victor Group Holdings LimitedC/- BlueMount CapitalLevel 10, 8-10 Loftus StreetSydney NSW 2000Australia
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Mailed to:
Victor Group Holdings LimitedC/- BlueMount CapitalLevel 10, 8-10 Loftus StreetSydney NSW 2000Australia
An original, completed and lodged Application Form for Shares together with a cheque for the Application Monies, constitutes a binding and irrevocable offer to subscribe for the number of Shares specified in each Application Form. The Application Form does not need to be signed to be valid. If the Application Form is not completed correctly or if the accompanying payment is for the wrong amount, it may be treated by the Company as valid. The Directors’ decision as to whether to treat such an application as valid and how to construe amend or complete the Application Form is final however an applicant will not be treated as having applied for more Shares than is indicated by the amount of the cheque for the Application Monies.
It is the responsibility of Applicants outside Australia to obtain all necessary approvals for the allotment and issue of the Shares pursuant to this Prospectus. The return of a completed Application Form will be taken by the Company to constitute a representation and warranty by the Applicant that all relevant approvals have been obtained.
1.3 MINIMUM SUBSCRIPTION
The Minimum Subscription for this Prospectus is $3 million representing 15 million Shares of 20 cents each. No Shares will be allotted or issued until the Offer has reached the Minimum Subscription. If the Minimum Subscription of the Offer has not been achieved within four (4) months after the date of this Prospectus, all Application Monies will be refunded without interest in accordance with the Corporations Act.
1.4 ARRANGEMENT WITH THE LEAD MANAGER
The Lead Manager, BlueMount Capital, has agreed to manage the Offer. A summary of the Lead Manager Agreement is provided at Section 8.2 of this Prospectus.
1.5 PURPOSE OF THE OFFER
The principal purpose of the Offer is:
to facilitate the listing of the Company’s Shares on ASX; and
to fund the growth of the Company’s business advisory and enterprise management consulting business through expansion of both its distribution and its enterprise management consulting courses throughout the PRC and offshore markets.
1.6 PROPOSED APPLICATION OF FUNDS RAISED
The Company plans to raise up to $5 million. The Company intends to apply the funds raised from the Offer over the next two years as follows:F
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PROPOSED APPLICATION OF FUNDS RAISED
MinimumSubscription
FullSubscription
Amount ($) % Amount ($) %
Expenses of the Offer(Including Lead Manager fees)1 537,020 17.9 546,680 10.9
Development of the Group’s enterprise management consulting courses2 317,000 10.6 528,000 10.6
Marketing and distributor development3 1,058,000 35.3 1,763,000 35.3
Vehicles, computers and office equipment 300,000 10 300,000 6
General working capital purposes 787,980 26.2 1,862,320 37.2
Total 3,000,000 100.0 5,000,000 100.0
Notes:
1. Actual expenditure may differ from the above estimates due to a number of factors. For details of the Company’s business and risk factors relating to its operations please refer to Section 4 – Company and Business Overview and Section 7 – Risk Factors of this Prospectus.
2. For further information see Section 4.10.
3. Additional expenses of the Offer have been paid from the existing funds of the Company (for further information, refer to Section 9.7).
If the proceeds from the Offer are between the Minimum Subscription and the Full Subscription, the funds will be allocated between the above uses on a pro-rata basis.
The Directors are of the opinion, after reviewing its business plans, investment plans and the proceeds to be raised from the Offer under this Prospectus, that upon completion of the Offer (regardless of whether the Full Subscription or the Minimum Subscription is raised), the Company will have sufficient capital to meet its stated objectives.
If only the Minimum Subscription, or less than the Full Subscription, is raised the Company believes that this may have an effect on the rate at which its expansion plans are undertaken. The use of further equity funding or share placements will be considered by the Directors where it is appropriate to accelerate a specific project.
It is also possible that future acquisitions that may be contemplated may exceed the current or projected financial resources of the Company and it is expected that these acquisitions would be funded by additional financing and/or equity issues (subject to any necessary shareholder approvals).
1.7 CAPITAL STRUCTURE
Set out in the table below is a summary of the capital structure of the Company before and after completion of the Offer.
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CAPITAL STRUCTURE
FullSubscription
MinimumSubscription
Number of Shares % Number of
Shares %
Shares on issue at the date of this Prospectus* 500,000,000 95.2 500,000,000 97.1
Shares now offered under this Prospectus 25,000,000 4.8 15,000,000 2.9
Total Shares on issue at completion of the Offer 525,000,000 100.0 515,000,000 100.0
* Directors are of the opinion that all or a substantial portion of the 500,000,000 Existing Shares on issue at the date of this Prospectus will be under escrow (refer to Section 1.11 for details).
1.8 ALLOCATION AND ALLOTMENT OF SHARES
The Directors (in conjunction with the Lead Manager), reserve the right to reject any application or to allot a lesser number of Shares than that applied for. If the number of Shares allocated is less than that applied for, or no allotment is made, the surplus Application Monies will be promptly refunded without interest.
Subject to ASX granting approval for quotation of the Shares, the allotment of Shares will occur as soon as practicable after the Offer closes. All Shares issued pursuant to the Offer will rank pari passu in all respects with the Existing Shares of the Company. Statements of shareholding will be dispatched as required by ASX. It is the responsibility of applicants to determine their allocation prior to trading in the Shares.
Applicants who sell the Shares before they receive their statement of shareholding will do so at their own risk.
1.9 APPLICATION MONIES TO BE HELD IN TRUST
The Application Monies for Shares to be issued pursuant to the Offer will be held in a separate bank account on behalf of Applicants until the Shares are allotted. If the Minimum Subscription of the Offer is not fully subscribed within a period of four (4) months from the date of this Prospectus, the Application Monies will be refunded in full without interest, and no Shares will be allotted pursuant to this Prospectus. All interest earned on Application Monies (including those which do not result in allotment of Shares) will be retained by the Company.
1.10 ASX LISTING
The Company will apply to ASX no later than seven (7) days from the date of this Prospectus for ASX to grant official quotation of the Shares issued pursuant to this Prospectus.
If the Shares are not admitted to quotation by ASX within three (3) months after the date of this Prospectus, no Shares will be issued. In that case, Application Monies will be refunded in full without interest in accordance with the Corporations Act.
Neither ASX nor ASIC take responsibility for the contents of this Prospectus. The fact that ASX may grant official quotation of the Shares issued pursuant to this Prospectus is not to be taken in any way as an indication by ASX as to the merits of the Company or the Shares.
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1.11 RESTRICTED SECURITIES
Pursuant to the Listing Rules, securities issued to promoters, seed capitalists and vendors of classified assets may have escrow restrictions placed on them. Such securities may be required to be held in escrow for up to 24 months and may not be transferred, assigned or otherwise disposed of during that period. A total of 500,000,000 Existing Shares on issue as at the date of this Prospectus may be escrowed for a period of up to 24 months from their respective issue dates in accordance with the Listing Rules.
The amount of the Existing Shares that may be escrowed will be determined by ASX, applying the Listing Rules and any discretion it holds on such matters pursuant to the Listing Rules. At this stage, it is expected that Daybreak and Achieva would be treated as “promoters” for the purposesof the restrictions on securities under the Listing Rules. As such, the Group expects that Daybreak’s and Achieva’s Existing Shares would be escrowed for a period of 24 months from quotation of the Company’s Shares on the Official List. It is noted that Daybreak and Achieva would together hold in excess of 90% of all Shares in the Company following the Offer. For further information on these substantial holders see Section 9.13. In addition, it is expected that a remaining holder of Existing Shares would be treated as a seed capitalist for the purposes of the restrictions on securities under the Listing Rules. As such, it is expected that almost all of the Existing Shares held by that shareholder would be escrowed for a period of 12 months commencing from the dates on which those securities were issued (in late 2013).
1.12 CHESS AND ISSUER SPONSORSHIP
The Company will apply to CHESS. The Company will operate an electronic CHESS sub-register and an electronic issue sponsored sub-register. These two sub-registers will make up the Company’s register of shares. The Company will not issue certificates to shareholders. Rather, holding statements (similar to bank statements) will be dispatched to shareholders as soon as practicable after allotment. Holding statements will be sent either by CHESS (for shareholders who elect to hold shares on the CHESS sub-register) or by the Company’s Share Registry (for shareholders who elect to hold their shares on the issuer sponsored sub-register). The statements will set out the number of Shares allotted under the Prospectus and provide details of a shareholder’s Holder Identification Number (for shareholders who elect to hold shares on the CHESS sub register) or Shareholder Reference Number (for shareholders who elect to hold their shares on the issue sponsored sub-register). Updated holding statements will also be sent to each shareholder following the month in which the balance of their shareholding changes, and also as required by the Listing Rules or the Corporations Act.
1.13 RISKS
As with any share investment, there are risks associated with investing in the Company. The principal risks that could affect the financial and market performance of the Company are detailed in Section 7 of this Prospectus. The Shares on offer under this Prospectus should be considered highly speculative. Accordingly, before deciding to invest in the Company, Applicants should read this Prospectus in its entirety and should consider all factors in light of their individual circumstances and seek appropriate professional advice.
1.14 OVERSEAS INVESTORS
This Prospectus does not constitute an offer or invitation in any place in which, or to any person to whom, it would not be lawful to make such an offer or to extend such an invitation. No action has been taken to register this Prospectus or otherwise to permit a public offering of Shares in any jurisdiction outside Australia. It is the responsibility of non-Australian resident investors to obtain all necessary approvals for the issue to them of Shares offered pursuant to this Prospectus.
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1.15 PRIVACY DISCLOSURE
Persons who apply for Shares pursuant to this Prospectus are asked to provide personal information to the Company, either directly or through the Share Registry. The Company and the Share Registry collect, hold and use that personal information to assess applications for Shares, to provide facilities and services to shareholders, and to carry out various administrative functions.Access to the information collected may be provided to the Company’s agents and service providers and to ASX, ASIC and other regulatory bodies on the basis that they deal with such information in accordance with the relevant privacy laws. If the information requested is not supplied, applications for Shares will not be processed. In accordance with privacy laws, information collected in relation to specific Shareholders can be obtained by that Shareholder through contacting the Company, or the Share Registry on 1300 737 760 from within Australia and on +61 2 9290 9600 from outside Australia.
1.16 EXPOSURE PERIOD
In accordance with Chapter 6D of the Corporations Act, this Prospectus is subject to an Exposure Period of 7 days from the date of lodgement with ASIC. The Exposure Period may be extended by ASIC by a further period of up to 7 days.
The purpose of the Exposure Period is to enable the Prospectus to be examined by market participants prior to the raising of funds. The examination may result in the identification of deficiencies in the Prospectus. If deficiencies are detected, any application that has been received may need to be dealt with in accordance with Section 724 of the Corporations Act. During the Exposure Period, the Prospectus may be viewed online at the Group’s website (www.sinovictor.com) or a hard copy of the Prospectus will be made available upon request to the Company. Applications received during the Exposure Period will not be processed until after expiration of the Exposure Period. No preference will be conferred on applications received during the Exposure Period and all such applications will be treated as if they were simultaneously received on the Opening Date.
1.17 ELECTRONIC PROPECTUS
In addition to issuing the Prospectus in printed form, a read-only version of the Prospectus is also available on the Company’s website, www.sinovictor.com. There is no facility for online applications. Any person accessing the electronic version of this Prospectus for the purpose of making an investment in the Company must be an Australian resident and must only access the Prospectus from within Australia. The Corporations Act prohibits any person passing onto another person an Application Form unless it is attached to a hard copy of this Prospectus or it accompanies the complete and unaltered electronic version of this Prospectus. For further information, see Section 9.8.
1.18 FORECAST FINANCIAL INFORMATION
There are significant uncertainties associated with forecasting future revenues and expenses of the Group. In light of uncertainty as to timing and outcome of the Group’s expansion strategiesand short-term nature of the Group’s contracts with its customers as well as uncertain macro market and economic conditions in the Group’s markets and how they apply to the Group, the Group’s performance in any future period cannot be reliably estimated. On these bases and after considering ASIC Regulatory Guide 170, the Directors do not believe that they have a reasonable basis to reliably forecast future earnings and accordingly the forecast financials are not included in this Prospectus.
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1.19 DIVIDENDS
Pursuant to the current PRC Company Law, the Chinese Subsidiary is required to transfer 10% of its profit after tax to a statutory reserve until the surplus reserve balance reaches 50% of its registered capital. For the purposes of calculating the transfer to this reserve, the profit after taxation shall be the amount determined under the PRC accounting standards. The Chinese Subsidiary’s registered capital is US$200,000.2 The ability of the Chinese Subsidiary to pay dividends is also subject to regulations in the PRC. For further information, see Section 7.1.12.
The Company expects to pay a dividend of 25% of the Group’s net profit after tax with respect to earnings generated from completion of the Offer to 30 June 2014. Thereafter the Company is targeting a dividend pay-out ratio of at least 25% of the Group’s net profit after tax. Depending on available profits and the financial position of the Company, it is the current intention of the Board to pay an annual dividend each December.
The Board can provide no guarantee as to the future dividend policy or the extent of future dividends, as these will depend on, among other things, the actual levels of profitability and the financial and taxation position of the Company at the time.
The Company is not likely to be subject to any Australian tax that will allow it to generate franking credits. Please see the Taxation Report at Section 10 for further details.
1.20 ENQUIRIES
This Prospectus is important and should he read in its entirety. Persons who are in any doubt as to the course of action to be followed should consult their stockbroker, solicitor, accountant or other professional advisor without delay.
Questions relating to the Offer can be directed to the Lead Manager, BlueMount Capital on 1300 70 70 10.
Questions relating to the completion of the Application Forms can be directed to the Share Registry, Boardroom Pty Limited on 1300 737 760 from within Australia and on +61 2 9290 9600 from outside Australia.
2 Based on a nominal exchange rate (US$1:A$1.11319) chosen as at 24 February 2014, this equates to $222,638. This exchange rate will fluctuate, and may not be applicable at the time of expiry of these arrangements. Such fluctuations will result in changes to the AUD amount shown above.
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The pictures above depict seminars for the Group’s clients. Nb. Property depicted is not owned by the Group.
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SECTION 2 DIRECTORS AND SENIOR MANAGEMENT
The Board of the Company is responsible for:
setting and reviewing strategic direction and planning;
reviewing financial and operational performance;
identifying principal risks and reviewing risk management strategies; and
considering and reviewing significant capital investments and material transactions.
The Board of the Company includes directors who collectively have significant experience in the enterprise management consulting and corporate sectors. Brief summaries of the Directors profiles are set out below.
2.1 DIRECTOR PROFILES
Mr Wayne V Reid OBE (Independent Chairman)Independent Non-Executive ChairmanMr Wayne V Reid, is an Independent Non-Executive Director of the Company. He was appointed as a Director on 4 December 2013. Mr Reid, an Australian resident, has served on over 30 company boards of various companies across several continents in diverse and wide ranging industries, including insurance, pharmaceutical, retail, mining, stock-broking, construction, property development and hospitality. Mr Reid was previously an Executive Director of Jarden Morgan Europe S.A. managing its strategic investments and stock broking divisions. Prior to that, Mr Reid also owned and controlled a division of one of the world’s leading credit card companies.
In addition to his professional achievements, Mr Reid has spent 11 years as the Vice President of the Association for the Blind and is a Life Governor of the Association. He was also formerly President of Kooyong Low Vision Aid Centre and a recipient of the Vision Australia Honour Award. Mr Reid was the President of the Confederation of Australian Sports, President of Tennis Australia, President of the Melbourne Football Club, Vice President of International Tennis Federation and a Member of the Australian Sporting Hall of Fame. Mr Reid was also a member of the Federal Government’s 6 members Sports Advisory Council and a Foundation Director of the Australian Institute of Sports. For his services and contributions to both sports and community in Australia, Mr Reid was awarded the Order of the British Empire (O.B.E.).
Mr Zhang, BinCEO and Deputy ChairmanMr Zhang, Bin is the Deputy Chairman and Chief Executive Officer of the Group, and Chief Executive Officer of Shanghai Kesheng and founder of the business of the Group. Mr Zhang is an entrepreneur with over 10 years experience in the enterprise management consulting industry. Mr Zhang is responsible for the day to day operations of the Business and regularly gives lectures to clients who attend the Company’s courses.
Mr David P BattenIndependent Non-Executive DirectorMr David P Batten, is a Non-Executive Director of the Company. He was appointed as a Director on 4 December 2013. Mr Batten, an Australian resident, has over twenty five years of experience in the financial markets with more than half of that managing and leading his peers. His specialty has been in the complex world of derivatives where he has experienced bullion, equity, commodities, foreign exchange and interest rate markets.
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David has primarily worked for brand name foreign banking institutions such as Bankers Trust Australia, Goldman Sachs JB Were and the Republic Bank of New York (both in Sydney and New York) within the corporate arena. He is currently Chief Executive Officer/Director at the Global Derivatives Firm BMFN Pty Ltd.
Mr.Liu, XinjieNon-Executive DirectorMr Liu, Xinjie is a Non-Executive Director of the Company. He was appointed as a Director upon incorporation of the Company on 11 September 2013. Mr Liu is currently the Finance Manager of Achieva Capital (Shanghai) Ltd, and a Director of Achieva and Achieva Capital Management and he holds a bachelor of science in management from Shannxi University of Science & Technology, Xi’an, the PRC.
Mr.Frederick C KempsonIndependent Non-Executive DirectorMr Frederick C Kempson, is an Independent Non-Executive Director of the Company. He was appointed as a Director on 6 January 2014. Mr Kempson, an Australian resident, is Managing Director of Kempson Capital Pty Limited (corporate consulting for domestic and international corporations and high net worth individuals) - since 2001 Chairman - Simple Trade Pty Ltd (Swedish controlled Internet company) - since 2007 Chairman Advisory Board - Forte Wealth Management limited (wealth management) since 2012 Chairman designate - Etivity Corporation Limited (Cloud IT company soon to be publicly listed on ASX) since 2013 Director - Ocean Spray Group Inc (Hong Kong seafood investment company) since 2008 Alternate Director - Octief Holdings Pty Ltd (hazard material monitoring services group) since 2013.
Previous major company directorships and managerial roles include , Australian representative for Bank of New York IMB (Swiss bank subsidiary of Bank of New York) 2001- 2006 Managing Director - Security Pacific Limited (international investment bank holding company subsidiary of Security Pacific National Bank California) 1985- 1992 Managing Director - Australian International Finance Corporation Limited (ANZ Banks investment Bank) 1981- 1985 Deputy Chairman -Australian Merchant Bankers Association 1986- 1992 Director - NBN Ltd (public listed television company) 1987- 1990 Director - Fulcrum limited (leverage buyout fund) 1987- 1993 Chairman -Engsteel Ltd (Russian steel Australian distributor) 2008- 2013 Director - Umami Seafood Inc -(USA public listed aquaculture corporation) 2009- 2011 Numerous consulting roles for major international and domestic corporations and Australian State Governments.
Mr Kempson was the non-executive chairman of Millhouse IAG, a company that was placed into voluntary administration on 7 May 2010 and then following that into provisional liquidation. Millhouse IAG operated in the high risk business environment of providing venture capital to start up business predominantly in Germany. Upon entering into administration the Company owed unsecured creditors $4.67 million. Questions raised by the administrators and the provisional liquidators were referred to ASIC. However, Mr Kempson has not been contacted by ASIC in relation to any investigation.
2.2 COMPOSITION OF BOARD OF DIRECTORS
The Company’s Board currently comprises five members, four Non-Executive Directors and one Executive Chairman.
The Board considers an independent Director to be a Non-Executive Director who is not a member of management and who is free of any business or other relationship that could materially interfere with or could reasonably be perceived to materially interfere with the independent exercise of that director’s judgment. The Company considers Mr Wayne Reid,Mr David Batten and Mr Frederick Kempson to be independent. As such, the composition of
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Company’s Board is in line with the recommendations of the ASX Corporate Governance Council in that it has a majority of Independent Directors.
2.3 SENIOR MANAGEMENT TEAM
The Board has delegated responsibility for the business operations of the Company to the Chief Executive Officer and the management team. The management team, led by the Chief Executive Officer, Mr Zhang, Bin is accountable to the Board and comprises:
Mr Richard L S HillCompany Secretary and Chief Financial OfficerRichard Hill has a Bachelor of Commerce from the University of New South Wales, is a Fellow of both the Institute of Chartered Accountants in Australia and a Fellow of the Papua New Guinea Institute of Accountants.
Richard is the senior partner of DFK-Richard Hill/Chartered Accountants and Business Advisers, established in 1983. The Firm with offices in Martin Place, Sydney and Port Moresby, Papua New Guinea employs 35 people. In 2004 the Firm became a member of the worldwide DFK Accounting and Financial Advisory Group.
Richard Hill has strong expertise in the resources sector and currently provides through his firm audit/advisory services to a number of ASX-listed Australian companies. He is a director, Chairman and initial public offerings advisor to a number of listed and unlisted companies.
Mr Xia, YuedongChief Operating Officer of Shanghai KeshengMr Xia is principally responsible for the Company’s product research and development and brand building, and has been working in the business for around 3 years. Mr Xia previously worked in the domestic sales department of Cosentra’s (Shanghai) Cosmetic Co., Ltd., and before that in the marketing department of Shanghai Wansen Biotech Co. Ltd.
Mr Wang, ShuaiDirector of Business Development of Shanghai KeshengMr Wang is in charge of business development in relation to agents and is responsible for maintaining and developing business development policies and performance. Mr Wang has worked in the business since 2007.
Ms Dong, LeiDepartment Manager of Shanghai KeshengMs Dong is responsible for the corporate and management systems for the Group. Prior to joining the business in 2013, Ms Dong was a dean at the Beijing Zhilian Jing Wei Education Training Centre, and previously a medical representative for China Medical System Holdings Limited (Tian Jin District).
Ms Dong, XiaoliFinancial Manager of Shanghai KeshengMs Dong is primarily responsible for maintaining accounting systems and standards for Shanghai Kesheng. Ms Dong joined the business in 2009 and provides general ledger accounting services to Shanghai Kesheng.
In accordance with company law in the PRC, a legal supervisor has also been appointed for Shanghai Kesheng. Mrs Zhang, Yixia has been appointed as the legal supervisor of Shanghai
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Kesheng. Mrs Zhang, Yixia is married to the Group’s Deputy Chairman and Chief Executive Officer, Mr Zhang, Bin. As legal supervisor of Shanghai Kesheng, Mrs Zhang, Yixia is responsible for general oversight of the executive Director (Mr Zhang) and senior management personnel of Shanghai Kesheng, including Mr Zhang, Bin. In particular, pursuant to company law in the PRC, the legal supervisor of Shanghai Kesheng has various powers to inspect Shanghai Kesheng’s finances, supervise the performance of Shanghai Kesheng’s directors and senior management personnel, make proposals to the shareholder of Shanghai Kesheng and bring legal actions against the directors and senior management personnel of Shanghai Kesheng. For further information, see Sections 7.1.9 and 9.4.
2.4 CORPORATE GOVERNANCE
The Board of Directors recognises the importance of good corporate governance and establishingthe accountability of the Board and management. The Board intends to establish a corporategovernance structure framework that is consistent with the ASX Corporate Governance Principles and Recommendations.
The Board recognises the need for the Company to operate with the highest standards of behaviour and accountability. Subject to the exceptions outlined below the Company has adopted the ASX Corporate Governance Council’s Corporate Governance Principles andRecommendations to determine an appropriate system of control and accountability to best fit its business and operations commensurate with these guidelines. The Board has adopted a number of corporate governance policies, including a securities trading policy which sets out the Company’s policy and procedures regarding dealing in the Company’s securities by directors, officers, employees and contractors.
Copies of corporate governance policies are accessible on the Company’s website at www.sinovictor.com.
As the Company’s activities develop in size, nature and scope the implementation of additional corporate governance structures will be given further consideration. The Board sets out below its “if not, why not” report in relation to those matters of corporate governance where the Company’s practices depart will depart from the recommendations.
ASX Guidelines Explanation for Departure
Recommendation 1.2 Companies should disclose the process for evaluating the performance of senior executives
At the time of adoption of the Corporate Governance & Policies Manual the Company only employed 6 senior executives, being the Chief Executive Officer, the Company Secretary and the 4 senior management team members named in Section 2.3. No formal process has been adopted for evaluating performance of senior executives however the Board will monitor the performance of the Company’s senior executives against meeting the Company’s strategic objectives. The Company has a Remuneration Policy which establishes a Remuneration Committee to review and make decisions in relation to senior executive remuneration and incentive policies. The Board concurs with the full implementation of this Principle and will review appropriate ways of compliance as and when further senior executives are engaged.
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ASX Guidelines Explanation for DepartureRecommendation 3.2 Companies should establish a policy concerning diversity and disclose the policy or a summary of that policy. The policy should include requirements for the Board to establish measurable objectives for achieving gender diversity and for the Board to assess annually both the objectives and progress in achieving them.
The Company has established a Diversity Policy, and the policy states that the board will establish measurable objectives for achieving gender diversity. However, given the Company’s size and stage of development, the board does not think it is yet appropriate to include measurable objectives in relation to gender. As the Company grows and requires more employees, the Company will review this policy and amend as appropriate.
Recommendation 3.3 Companies should disclose in each annual report the measurable objectives for achieving gender diversity set by the Board in accordance with the diversity policy and progress towards achieving them.
The Company has established a Diversity Policy, and the policy states that the board will establish measurable objectives for achieving gender diversity. However, given the Company’s size and stage of development, the board does not think it is yet appropriate to include measurable objectives in relation to gender.
Recommendation 7.2 The board should require management to design and implement the risk management and internal control system to manage the company’s material business risks and report to it on whether those risks are being managed effectively.
Management has not reported to the Board as to the effectiveness of the Company’s management of its material business risks given the early stages of the Company and its operations.
Whilst the Board recognises the benefit of the discipline of documenting such matters, the Board has deployed its resources to other endeavours in priority to the preparation of a written report on the matter of risk given the Company has risk management procedures in place and the Board has 2 executive directors who are supported by the Company Secretary which are well versed in the day to day affairs of the Company and know what measures are in place.
The Company’s full Corporate Governance Policies are available from the Company’s website www.sinovictor.com.
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The pictures above depict seminars for the Group’s clients. Nb. Property depicted is not owned by the Group.
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SECTION 3 INDUSTRY OVERVIEW
3.1 OVERVIEW
In recent years, education has increasingly become one of the most important components of the service industry in the PRC. The education market in the PRC has been experiencing growth in recent times and has been emerging as an important sector of the Chinese economy.
3.2 REPORT ON THE TRAINING INDUSTRY MARKET IN THE PRC
3.2.1 Macroeconomic environment in the PRC
The PRC government has been encouraging non-state-owned education as a means of assisting the reform of the PRC educational system. The Group believes that the expansion of this sector generally in the PRC will be advantageous to the Business in the future. Further, the Group expects that this sector will continue to be an important focus for the PRC government.
The macroeconomic picture of the PRC for 2012 improved noticeably compared with 2011. The Chinese economy experienced steady growth. This has in part been thanks to recovering major economies such as Europe, the USA and Japan, expanding exports of the PRC and continuity of domestic macroeconomic policies.
The improvement in 2012 was largely due to a steady supply of capital due to high domestic savings of the PRC, the large workforce and the advancement of new technologies.Advancement in technologies in the education and training sector is increasingly modernising the practices and teaching programs of participants in this sector. New developments include advancement in audio and visual technologies, scenario simulation teaching and interactive online teaching.
3.2.2 Market overview
The education and training market in the PRC has seen the influx of education professionals to the PRC from all over the world. The market is now dominated by large or franchised businesses, both privately owned and listed on foreign exchanges such as the New York Stock Exchange, and also on the Hong Kong Stock Exchange as well as others.
Branding is the key to survival and strong corporate branding generally equates to market competitive strength in the education and training markets. The Group believes that competition in the education and training sector in the PRC will intensify in the coming years. In that case, it is expected that good corporate branding will become increasingly important to the Business.
In addition, many businesses within the training and education sector in the PRC are forming strategic alliances with other complementary businesses to greater extend the range and geographic coverage of the services they provide. The Group expects that this trend will continuein the short to medium term, intensifying the need to create and build brand awareness and to grow.
High level training for business executives is becoming increasingly popular in certain parts of the PRC. The Group believes that there is growing demand for local training via respected facilitators.
In recent years, small and micro enterprises in the PRC have been blossoming. As a result, varied Chief Executive Officer seminars, business management seminars and Executive Masters of Business Administration programs have been introduced into the market and are welcomed by
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top executives of large companies, as well as private business owners. Course costs for popular courses range from tens of thousands of RMB to more than one hundred thousand RMB. In the PRC, the Group’s clientele is mainly comprised of top executives of large companies and private business owners.
3.2.3 Competitive landscape
The Group expects that the larger participants in the education and training market in the PRC will increase their market share as the market itself expands. The Chinese government has recently sought to open up the education and training market in the PRC by encouraging non-state owned enterprises. In addition, the Group has noticed an increase in popularity for vocational training. It is expected that smaller market participants may in the long term find it more difficult to maintain their market share. In particular, for the education and training market in the PRC most participants require payment prior to provision of services, and for this reason brands in this industry take on an increased importance. This is because prospective students may wish to choose a dominant education and training brand, with which they associate reliability and prestige. For this reason the Group expects project based training organisations will be more likely to evolve towards offering more comprehensive services which will be segmented by specialty.
After New Oriental Education & Technology Group Inc was listed on the New York Stock Exchange, foreign language education attracted extensive attention from investors. The listing of ChinaEdu Corporation and Xueda Education Group catalyzed financing activity of exam-oriented education enterprises. Investments in the education industry are spreading into more specialized segments, including preschool education, occupational training and civil servants training and even driver training organizations like East Pioneer. The investment value of all segments of the education industry becomes more relevant to the Group as this reflects a general increase in demand for services in this sector.
3.2.4 Trends and key drivers
The Group believes that development trend of market structure is decided by five major factors;i.e. entry of new competitors, threat from alternative products, bargaining power of buyers, bargaining power of suppliers and competition among existing competitors. The Group believes that expansion will be crucial to the Group’s ability to maintain market share, particularly in light of the development market in which it operates and the development of the PRC generally.
The Group expects that the continuing development of the PRC will lead to continued growth in the training and education market in the PRC. The Group also expects that the PRC government will increasingly see education as an important factor for the development of the PRC.
The education industry finds favor in venture capital and has received the highest investment from venture capitalists of all industry segments in the PRC. In spite of the global financial crisis and economic slowdown, the education industry has continued to find favor with investors since 2011 because of healthy cashflow and what is viewed as sustainable growth. In recent years, the number of new education and training brands has soared.
Moreover, many bluechip listed education groups in the PRC have maintained steady growth in recent years.
Many businesses within the education and training sector in the PRC are looking to capitalise on economies of scale via growing internally or by relationships with complimentary businesses. The Group believes that competent training organisations will be best placed to achieve growth over the short term. In particular, education companies that already have established successful
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business models and brand awareness will be able to expand more quickly and thereby realise economies of scale in advance of their competitors, either via internal growth or acquisition.
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The picture above depicts the Group’s Deputy Chairman and Chief Executive Officer, Mr Zhang, Bin.
The picture above depicts a seminar for the Group’s clients. Nb. Property depicted is not owned by the Group.
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SECTION 4 COMPANY AND BUSINESS OVERVIEW
The information provided in this Section 4 is in summary form only. Investors should read the remainder of this Prospectus which contains more detailed information before making a decision to apply for Shares.
4.1 OVERVIEW
The Company is a business consulting firm, offering Enterprise Management Consulting and Planning services to entrepreneurs in the PRC. The Company has committed to enhancing the ability of Chinese organizational leadership and personal leadership skills, by providing intellectual support for Chinese small to medium size enterprises to assist them in achieving sustainable development.
Having been in the enterprise management consulting sector for more than 10 years, the Group’s Deputy Chairman and Chief Executive Officer, Mr Zhang and his associates have established a strong customer base. Target customers include medium and smaller trading companies, including companies from the manufacturing, high-tech goods and service industries. In addition to Mr Zhang, the Company employs a highly experienced management team with an average of 10 years of experience in the Enterprise Management Consulting industry. The Group offers more than 10 types of consulting programs. These programs cover areas such as business strategy, finance, marketing and leadership, which the Group further customises to suit the clients’specifications. The Group believes that the customisation of its courses is a key differentiating factor for the services it offers.
The Group aims to provide an integrated enterprise management training system via the courses offered to clients (as detailed in Section 4.3). This program of courses is designed to assist businesses to build an integrated management system, through arranging co-operation between internal departments and the co-ordination of management and departments. The Group assistsclients to implement certain core values and executive standards through creating an understanding of those values and standards throughout each business.
The Group’s courses are aimed primarily towards entrepreneurs from small to medium sized enterprises. The Group tailors its courses for groups of senior management personnel of a particular business with whom they attend a specific course at the expense of the business, and also for large groups of individual managers from different businesses who attend group courses. In either case, the overall goal of the Group’s courses is to help senior management promote and improve their businesses.
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4.1.1 CORPORATE STRUCTURE
The Group consists of the Company and its two Subsidiaries, with a structure as follows:
4.1.2 BRIEF HISTORY OF THE GROUP
The Group’s Deputy Chairman and Chief Executive Officer, Mr Zhang founded the “Victor” brand in 2003, which included the Business among other enterprises. In 2010, Achieva Capital Holdings Limited (a company which is a related body corporate of Achieva), a Shanghai-based private equity business, invested in the Victor business. Achieva Capital Investments Limited later acquired control of the Business via a purchase of shares in Hong Kong Victor (which owns Shanghai Kesheng, the Business-owner). Mr Zhang subsequently sold out of the previous Victor business and is now primarily involved with the Group as its Deputy Chairman and Chief Executive Officer. The Company has since acquired the shares in Hong Kong Victor from Achieva Capital Investments Limited. Mr Zhang is also a Director of Daybreak which is wholly owned by Achieva Capital Management (the parent company of the Company’s two largest shareholders, Daybreak and Achieva). For further information on the Group’s Deputy Chairman and Chief Executive Officer, Mr Zhang, see Sections 2.1 and 7.1.1.
Achieva Capital Management is a company focused on equity investments, based in Shanghai in the PRC. Achieva Capital Management was founded in 2008 by experienced investment banking partners from different market sectors. Achieva Capital Management provides corporate advisory services and makes private equity investments. Achieva Capital Management’s investment and advisory services focus is mainly on small to medium enterprises in sectors such as information technology, education and training, and consumer goods and services.
4.2 BRANDING
The Group is committed to building its brand through network marketing, traditional magazineadvertising and the positive effects of on-site open seminars where clients attend for both education and the opportunity to network with other senior managers and owners. The Group’s
Victor Group Holdings Limited
(Company)(incorporated in Australia)
Hong Kong Victor International Enterprise Management Co Limited
(Hong Kong Victor)(incorporated in Hong Kong)
Kesheng Business Consulting (Shanghai) Ltd
(Shanghai Kesheng)(incorporated in PRC)
100%
100%
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network marketing is mainly based on the promotion of “micro-blogging” and “micro-channel”platforms, which are popular internet-based social networking platforms in the PRC. The Group’s brand is also promoted in entrepreneurial learning magazines. In relation to the on-site open seminars (attended by senior management personnel from different businesses), the enthusiastic atmosphere of the seminar leads to the best word of mouth marketing and the Group sees this marketing channel as being of primary importance to its brand image.
The Company believes that the Group’s trademarks are important to its success and competitive position, and it recognizes the importance of registering the trademarks related to the “Victor” brand for protection against infringements. To date, the Group has various registered trademarks in the PRC in the classes relevant to the business. Some of these trademarks are in the process of being transferred to Shanghai Kesheng, in accordance with the Business Transfer Agreements,as detailed in Section 8.3. For further information on the Group’s intellectual property rights, please see Section 4.8.
4.3 PROGRAM PORTFOLIO
The Group offers the following courses:
No. Course Background Core Modules1 The essentials
of strategyThe theme of the course is that it is advisable for entrepreneurs to pay attention to their company’s strategic planning, especially in today’s “jungle” ofbusiness.
Part 1 Life StrategyReveal oneself, control oneself and enlighten one’s life.Part 2 Enterprise business strategyStrategy is the overall plan for future. It focuses on the capability of dealing with the changing business environment.Part 3 Corporate Culture strategyEnsure all employees understand the corporate mission and vision.
2 The essentialsof finance 2
This course examines finance in light of global economic development.Financing issues have become a significant area for concern faced by small to medium enterprises all over the world.This module analyses the problems faced by Chinese small to medium enterprisesin relation to financing, and seeks to provide effective solutions for Chinese small to medium enterprises.
Part 1 Theoretical AnalysisIncluding Investment-decision model, Financial models, International finance: long-term financing, risks courses.Part 2 Financing StrategyIncluding long-term and short-term financing channels, enhanced export credit financing, pros and cons of various financial lease methods, solutions to account receivable issue.Part 3 Case StudyIllustrating 7 symptoms of business failure, combined with financial crisis cases.Part 4 Practical FinancingThis session introduces related banking business and financing channels.
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No. Course Background Core Modules3 The essentials
of marketingIn recent years, product competition has become increasingly fierce. In order to survive in the competitive modern business world, it is necessary for entrepreneurs to enhance their strategic marketing capabilities.
To understand the nature of the firm and the future social trends.To understand the barriers to entry in different industries.To identify the real needs of customers.To identify the sticking and breakthrough point in different industries.
4 The essentialsof leadership
This course, aiming to achieve mutual benefits for both enterprises and individuals, embraces both modern management and traditional Chinese culture.
To identify one’s future development.To explain the definition and the value of studies of Chinese ancient civilisation (including philosophy, history, archaeology, literature, linguistic, etc.)To introduce Taoism.
5 Chief executive officer leadership curriculum
The leadership of the chief executive officer has a significant impact on the enterprise’s survival and development.
Help the chief executive officer to identify and solve problems faced by company.Team building guidance.To undertake employee management in a more active way.Boost overall firm performance by up to 200%.
6 The general manager execution curriculum
This course seeks to assist general managers to play acrucial role in team building, corporate culture creation, employee performance management implementation and market expansion.
Business goal programming.Team building.Task assignment.Performance measurement system conducting.The general manager’s mission and vision.
7 Strong executive team construction curriculum
This course seeks to encourage and enhance high-quality teamwork.
Change attitude of each team member.Improve team execution outcome.Team construction.Execution system creation.Enterprise incentive system improvement.
8 Zhang’s seminarcurriculum
The overall goal of this course is to integrate the requirements of work and life via certain core values which are important to both.
Improve public presentation and sale skills.Enhance sale skills in a one-to-many situation.Acquaint the philosophy of success.Maximise the value of products.
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4.4 MARKETING AND PROMOTION
The marketing and sales model is mainly based on customers’ referrals and business distributors, and is supplemented by direct marketing. The Group tailors the programs and courses on offer to clients, based on individual business needs and seminar sizes. In particular, more specific courses may be created where a company wishes to send its senior management to attend one of the Group’s courses or programs, in which case company specific goals and learning objectives can be catered for.
However, a significant proportion of the Group’s clients are brought to the Group’s courses via distributors. Distributors are important customers who have regional ability to bring their own customers to the Company’s seminars. Individual clients who attend the Group’s seminars maythemselves become distributors, by being able to refer the Group’s seminars to their own contacts or staff. The Company invoices and receives payment from the distributors, and the distributors handle their payments with individual clients and cover marketing costs, and therefore earn profits from the price difference between what they charge clients and what they pay the Group. The Group engages with distributors via short-term non-exclusive contracts, predominantly on a course by course basis. For further information, see Sections 7.1.4, 7.1.5, 7.1.6, 7.1.11, 7.1.20and 8.4.
4.5 PRICING POLICY
The Group has two principal sources of revenue, being customers who wish to send their senior management to attend courses held by the Group, and distributors who on-sell the Group’s courses to clients. The distributors typically make up a significant proportion of the Group’s revenue. The Group typically requires payment prior to provision of the courses to clients.However, the Group does not specify the price at which the courses may be on-sold by distributors to clients. In determining the pricing for its products, the Group usually takes prevailing market conditions, associated costs of designing and holding courses, and prices set by competitors into account.
4.6 CREDIT POLICY
The Group typically requires payment in advance of holding the relevant course or program. For all other cases, the Group may consider granting certain distributors a credit term of 30 days. The Group closely monitors its trade receivables and takes appropriable measures to collect overdue accounts. No further services will be sold to distributors that have past due amounts owing to the Group and further sales will only be made to these distributors after the overdue amounts are settled.
In determining bad and doubtful debts, the Group’s management takes into account the credithistory and payment pattern of its distributors as well as their on-going relationship with the Group. The Group has not been required to make any provision of bad and doubtful debts to-date.
4.7 DESIGN AND PRODUCT DEVELOPMENT
The Group conducts live broadcasts, recorded broadcasts, remote education and online question and answer forums as part of its offerings to clients. Such offerings can be provided at reduced costs and readily able to be accessed via a larger audience via the internet.
The Group believes that the design of its course are essential to its success. The Group defines itself by committing to enhancing the ability of Chinese organizational leadership and personal leadership skills with quality consulting services. Through emphasis on customized consulting
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services, the Group aims to become a competitive consulting company in the PRC. The Group believes that its products are well-positioned to cater to small and medium entrepreneurs' demands.
All of the Group's consulting products are designed by its product development team led by Mr Xia Yuedong, the Chief Operating Officer of Shanghai Kesheng (for more information on Mr Xia Yuedong, see Section 2.3. Product development department members conduct market research on the enterprise management consulting market each month, keep themselves abreast of the prompt enterprise management consulting market hot spots through following latest industry news or authorized industry reports, and seek to ascertain the real needs of small and medium business owners via both online and offline questionnaires. This initial process is undertaken to enhance the effectiveness and practicality of the Group's enterprise management consulting services. After integrating marketing research materials, product team members shape new ideas for consulting products and offer showcases of product syllabuses.
The Group takes into account client assessments of its core speakers and its brand strategy when assessing potential new products. If any new products are considered necessary, the Group would seek to trial these by use with small groups of customers. The Group’s product development department would liaise with the Group’s marketing department for these purposes. On receiving feedback and incorporating any amendments, the Group may then approve new products for wider application.
4.8 INTELLECTUAL PROPERTY RIGHTS
The Group’s intellectual property rights consist of trademarks and it believes that the Group’s trademarks are important to its success and competitive position. The Group recognises the importance of registering the trademarks related to the “Victor” brand for protection against infringement.
To date, the Group has various registered trademarks in the process of being transferred to it (in accordance with the Business Transfer Agreements as detailed in Section 8.3) and registered to itin the PRC in the classes relevant to the Business. Those transfers and registrations are subject to the approval of the relevant government department in the PRC. Registration entitles the Chinese Subsidiary to exclusive rights to use the registered trademarks, as protected by law in the PRC. Each trademark is valid for a period of 10 years, commencing on the date of approval of the registration of the trademark. Following this 10 year period, the registration of the trademarks may be renewed by the Chinese Subsidiary for another 10 years in each case. Trademarks in the PRC are freely assignable, subject to the approval of the Trademark Office in the PRC.
The Group has also applied for 3 trademarks in Australia, although it does not currently trade in Australia and it has no immediate plans to do so.
In the PRC, any of the following acts will be deemed to be an infringement of the Group’s exclusive rights to use its trademarks registered in the PRC:
the use by a third party of a trademark that is the same as or similar to a registered trademark for identical or similar goods without the permission of the Chinese Subsidiary;
the sale of any goods that have infringed on the Group’s exclusive rights to use any registered trademarks;
any counterfeit or unauthorised production of the label of the Group’s registered trademarks, or the sale of any such label that is counterfeited or produced without authorisation;
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the change of any of the Group’s trademarks, for the sale of goods bearing the Group’s trademarks without the Chinese Subsidiary’s consent; and
any other acts that have caused damage to the Group’s exclusive rights to use its registered trademarks.
In the event of any infringement by a third party on the Group’s exclusive rights to use its registered trademarks, the Chinese Subsidiary may seek redress by filing a law suit in the PRC, or requesting an administrative department for industry and commerce in the PRC to investigate and potentially order the cessation of such infringement or confiscate or destroy the infringing goods or impose a fine, or the Group may seek an injunction in the PRC to enforce the cessation of a potential or continuing infringement where this would cause irreparable damage to the Group’s lawful rights and interests. For further information on the PRC legal system, see Sections 7.1.7and 7.1.9.
The Group seeks to protect its intellectual property rights by registering those rights as required in the relevant jurisdiction.
Although the Group has not experienced any instances of counterfeit products, it views this seriously and will not hesitate to report such instances to the relevant authorities for them to take appropriate administrative actions against the infringing parties.
4.9 COMPETITIVE STRENGTHS
The Group competes in the PRC with an increasing number of target customers and customizedconsulting services. Having successfully developed and marketed its “Victor” brand in the PRC, the Group believes that its ability to rapidly expand its business and capture the increasing opportunities in the PRC enterprise management consulting market is underpinned by the following competitive strengths:
Extensive program portfolio and strong product design capability
The Group has conducted more than 10 types of enterprise management consulting programs. The extensive portfolio includes business strategy, finance, marketing and leadership courses –all in various themes which the Group can further customize according to customers' specifications. The enterprise management integrated training system of the Group, mainly for entrepreneurs from small and medium enterprises, is intended to establish effective management practices and to gradually promote enterprises overall.
The Group differentiates itself through its sophisticated course offerings and its ability to tailor courses for specific clients’ needs. The Group’s courses and programs are designed by the Group’s product development team. For those purposes, the Group collects customers’ feedback and requirements for prospective courses so that it may improve on the courses and programs offered.
Diversified customer base
The Group has established a strong customer base. Target customers include medium and smaller trading companies, as well as companies from the manufacturing, high-tech and service industries. The Group has fostered good working relationships with its customers. The Group benefits from customers who recommend courses to other customers.
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Experienced management team
The Group owns a highly experienced and professional management team with an average of 10 years of experience in the enterprise management consulting industry. The Group’s Deputy Chairman and Chief Executive Officer, Mr Zhang Bin, has more than 10 years of relevant experience in the enterprise management consulting industry. The Group has also recruited qualified and experienced people to head all of its main business divisions of the Group; e.g. sales, product and research, marketing, customer service and finance. With the expertise of each senior manager in their specific area and the strong leadership of the Group’s Deputy Chairman and Chief Executive Officer, the Group believes it has an effective management team which has enabled it to compete in the marketplace and to increase its market share.
Successful development and promotion of the Group’s consulting brand targeting the enterprise management consulting market in the PRC
The Group has created and established its brand with a very clear vision of its targeted customer segment which is mainly based around small and medium sized enterprises. The Group chose this market segment as this was a fast growing market segment. The ability to promote the Group’s consulting brand is enhanced by various marketing channels. The Group is committed to building its brand through internet marketing (e.g. micro-blogging platform), traditional magazines (e.g. authorized “entrepreneurial learning magazines”) and word of mouth (e.g. particularly for courses attended by customers from different businesses).
4.10 BUSINESS STRATEGIES
The Group aims to position itself as one of the leading enterprise management consultingbusinesses in the PRC. For these purposes, the Group intends to pursue the following strategies:
Expand the Group’s sales and distribution network to enhance market penetration
The Group’s sales and distribution network is mainly focused on regional business developmentwithin the PRC. On a national scale, the Group sees opportunities for expansion in areas such as Beijing, Shanghai, Guangzhou, Xi’an, Chongqing, Chengdu and Wuhan, which have relatively more enterprise management consulting institutions. The future vision of the Group also includes expansion to the second or third-tier cities such as Xi’an, Zhengzhou, Changchun, Jilin, Guiyang, and main cities of Xinjiang Province and Sichuan Province. The Group plans to expand its sales and distribution network by, amongst other thing, undertaking advertising campaigns as well as by customising its enterprise management consulting courses and expanding its team of lecturers, instructors and consultants.
Customized enterprise management consulting courses
The Group expects that increased competition within the enterprise management consultingsector in the PRC will lead to further customisation of courses being offered by most providers. In the meantime, customised course offerings offer the Group a means of differentiating itself from many of its competitors. The Group plans to engage with customers in order to ascertain how course may be further refined and better customized to their needs.
The Group sees small and medium sized enterprises in to the PRC as being increasingly interested in course offerings such as those provided by the Group. Such businesses will look to improve management skills so that they may themselves seek to expand or consolidate.
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Continue to expand the team of lecturers, instructors and consultants
The Group has a team of professional lecturers which currently run the courses and programs offered by the Group. However, the Group expects that in the future new lecturers may be needed for expansion and for specialisation where further customisation of courses is provided.
The Group believes that these marketing and promotion strategies should help to further strengthen its brand awareness in its target customer markets and enhance consumer loyalty to the “Victor” brand in the PRC.
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The pictures above depict the Group’s leased premises in Shanghai. Nb. The buildings shown are leased by, but not owned by, the Group.
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SECTION 5 HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
5.1 OVERVIEW
This section contains a summary of the Historical Financial Information and Pro Forma Historical Financial Information (collectively referred to as the Financial Information) in relation to the Victor Group Holdings Limited (“Victor” or “Company”) which the Directors consider relevant to investors.
Investors are referred to section 4.1.1 of the Prospectus for an overview of Victor’s corporate structure. Investors should note that Victor’s financial year ends on 30 June.
Victor Group Holdings Limited was incorporated on 11 September 2013 for the purposes of entering into a Share Transfer Agreement dated 23 December 2013 to acquire Hong Kong Victor International Enterprise Management Co., Limited (“Hong Kong Victor”). Victor has not traded from the period of incorporation to the date of this prospectus.
Kesheng Management Consulting (Shanghai) Co., Ltd was incorporated on the 28 June 2013 as a wholly owned subsidiary of Hong Kong Victor and commenced trading on 1 July 2013. The historical financial information contained within Section 5 has been prepared for the three months ending 30 September 2013.
The Financial Information comprises the following:
(1) Historical Financial Information
Audited Consolidated Historical Statement of Profit or Loss and Other Comprehensive Income for Hong Kong Victor for the three months ended 30 September 2013 as set out in section 5.3; and
Audited Consolidated Statement of Financial Position of Hong Kong Victor as at 30 September 2013 as set out in section 5.5.
(2) Pro Forma Historical Financial Information
Pro Forma Consolidated Historical Statement of Financial Position of Victor as at 30 November 2013 as set out in section 5.5, includes the Consolidated Financial Information of Hong Kong Victor as at 30 September 2013 which assumes the pro forma transactions set out in Note 2 of section 5.5 had occurred on 30 November 2013;
Pro Forma Consolidated Historical Statement of Changes in Equity of Victor as at 30 November 2013 as set out in section 5.5 includes the Consolidated Financial Information of Hong Kong Victor as at 30 September 2013 which assumes the pro forma transactions set out in Note 2 of section 5.5 has occurred at 30 November 2013.
The Financial Information contained in this section of the Prospectus is presented in an abbreviated form and does not contain all the disclosures that are usually provided in an annual report prepared in accordance with Australian equivalents to International Financial Reporting Standards (“AIFRS”) and the Corporations Act. In the view of the Directors of Victor, the omitted disclosures would provide no further relevant information to potential investors.
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The Financial Information should be read in conjunction with the risk factors associated with an investment in Victor set out in sections 7 and 8, the Investigating Accountant’s Report and the other information contained in this Prospectus.
Investors should note the scope and limitations of the Investigating Accountant’s Report.
5.2 BASIS OF PREPARATION OF THE FINANCIAL INFORMATION
(1) Historical Financial Information
The Historical Financial Information has been compiled from the financial statements of Hong Kong Victor as at 30 September 2013 which have been audited by Grant Thornton Audit Pty Ltd.
(2) Pro Forma Historical Financial Information
The Pro Forma Historical Financial Information of Victor has been compiled from the reviewed financial information of Victor and the audited Consolidated Financial Information of Hong Kong Victor for the three months period ending 30 September 2013, on which Grant Thornton Audit Pty Ltd issued an unqualified audit report.
The consolidated financial statements of Hong Kong Victor were audited for the purposes of the initial public offering. Grant Thornton Audit Pty Ltd has not prepared the audit report on Hong Kong Victor’s consolidated financial statements in the context of complying with the relevant accounting, statutory and regulatory requirements in the PRC or Hong Kong.
The consolidated financial statements of Hong Kong Victor for the three months ending 30 September 2013 are converted into Victor’s presentation currency, Australian Dollars for the purposes of inclusion of financial information for this Prospectus as opposed to the financial statements of Hong Kong Victor which are presented in Chinese Renminbi.
(3) Foreign Currency Translation
In accordance with the requirements of AIFRS, Victor has adopted the foreign currency translation accounting policy set out in section 5.5 where assets and liabilities of the Company and its controlled entities are translated at exchange rates in effect at reporting date. Revenue and expenses are translated at the exchange rates in effect at the date of the transaction. Exchange differences arising are recognised directly to the Group’s foreign currency translation reserve in the Statement of Financial Position.
5.3 SUMMARY OF HISTORICAL FINANCIAL PERFORMANCE
Set out below is the Historical Consolidated Financial Information for Hong Kong Victor.
The basis of preparation of the Historical Consolidated Financial Information is set out in section 5.2. The Historical Consolidated Financial Information has been prepared under AIFRS and the accounting policies set out in Note 1 of section 5.5. Prior to the 1 July 2013, the Group had not traded.F
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Historical(1)
Period ended 30 September
2013$’000
Revenue 716Cost of sales (161)Gross profit 555
Other revenues -General and administrative expenses (90)
Finance costs -Profit before income tax expense 465
Income tax expense (130) Profit after income tax expense 335
(1) The above Statement of Profit or Loss and Other Comprehensive Income of Hong Kong Victor for the 3 months ending 30 September 2013 has been translated from RMB to $AUD at average exchange rate of RMB 1 : AUD$0.1771.
5.4 MANAGEMENT DISCUSSION ON FINANCIAL PERFORMANCE FOR THE PERIOD ENDED 30 SEPTEMBER 2013
(1) Financial Performance
The commentary below has been provided in order to give investors an understanding of the Historical Consolidated Financial Information of Hong Kong Victor set out above. This section should be read in conjunction with the Basis of Preparation of the Financial Information set out in section 5.2.
(2) Revenue
A revenue breakdown is shown as follows:
Category Period ended 30 September
2013$’000
Provision of training and consulting services 716
Cost of sales (161)Gross profit 555Gross margin 78%
Operating revenues are generated through the provision of training and consulting services through its main operating entity Kesheng Management Consulting (Shanghai) Co., Ltd.
During the period, 63% of total revenues was contributed by one major client.
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(3) General and administraive expenses
Major operating expense line items are shown below:
Period ended 30 September
2013$’000
Salary and wages 35Rental expenses 11
General and administrative expenses are costs directly related to operating activities.
(4) Income tax expense
Hong Kong Victor is a resident Hong Kong company and pays tax in Hong Kong at an income tax rate of 16.5%. The subsidiary of Hong Kong Victor, Kesheng Management Consulting (Shanghai) Co., Ltd (“Kesheng”) is a resident company in the People’s Republic of China.
The income tax rate applicable to the main operating subsidiary, Kesheng, is 25% in accordance with the income tax law of People’s Republic of China for a foreign owner enterprise.
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5.5 PRO FORMA FINANCIAL INFORMATION
Victor Group Holdings LimitedACN 165 378 834
REVIEWED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FROM REGISTRATION TO 30 NOVEMBER 2013
The above statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes
Reviewed$
Revenue -Cost of sales -Gross profit
Other revenues -General and administrative expenses -Finance costs -
Profit/(loss) from ordinary activities before income tax expense -
Income tax expense relating to ordinary activities -
Profit/(loss) from ordinary activities after income tax expense -
Other comprehensive income -
Total comprehensive income for the period -
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Victor Group Holdings LimitedACN 165 378 834
STATEMENT OF FINANCIAL POSITION AND CONSOLIDATED PRO FORMA STATEMENT OF FINANCIAL POSITION AS AT 30 NOVEMBER 2013
NoteReviewed Victor(1)
Audited Hong Victor(2)
Reviewed Pro FormaMinimum
Subscription
Reviewed Pro Forma
Full Subscription
$’000 $’000 $’000 $’000CURRENT ASSETSCash and cash equivalents 1 551 3,015 5,005Trade and other receivables 4 - 121 121 121Other assets - 101 - -
TOTAL CURRENT ASSETS 1 773 3,136 5,126
NON CURRENT ASSETSProperty, plant and equipment 5 - 195 195 195Intangible assets 6 - 3 3 3
TOTAL NON CURRENT ASSETS - 198 198 198
TOTAL ASSETS 1 971 3,334 5,324
CURRENT LIABILITIESTrade and other payables 7 - 150 150 150Related party loan - 360 259 259Current tax liabilities 8 - 128 128 128
TOTAL CURRENT LIABILITIES - 638 537 537
TOTAL LIABILITIES - 638 537 537
NET ASSETS - 333 2,797 4,787
SHAREHOLDERS EQUITYIssued capital 9 1 1 2,921 4,915Foreign currency translation reserve
10- (3) (3) (3)
Retained earnings - 335 (121) (125)
TOTAL SHAREHOLDERS EQUITY 1 333 2,797 4,787
(1) Victor Group Holdings Limited was registered on the 11th of September 2013 with 1,000 shares. The amount of capital paid was AUD$1,000.00.
(2) Audited Hong Kong Victor financial information has been extracted from the audited financial statements of Hong Kong Victor for the three month period ending 30 September 2013.
The above statement of financial position and consolidated pro forma statement of financial position should be read in conjunction with the accompanying notes
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Victor Group Holdings LimitedACN 165 378 834
REVIEWED STATEMENT OF CASH FLOWSFOR THE PERIOD FROM INCORPORATION TO 30 NOVEMBER 2013
Reviewed$’000
Operating activities
Receipts from clients -Payments to suppliers -Interest received -
Cash inflows/(outflows) from operating activities -
Investing activities
Payments for property, plant and equipment -
Cash inflows/(outflows) from investing activities -
Financing activities
Proceeds from share issues 1Payments for capital raising costs -
Cash inflows/(outflows) from financing activities 1
Net increase/(decrease) in cash 1
Cash at incorporation -
Cash at period end 1
The above statement of cash flows should be read in conjunction with the accompanying notes
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Victor Group Holdings LimitedACN 165 378 834
REVIEWED STATEMENT OF CHANGES IN EQUITY AND CONSOLIDATED PRO FORMA STATEMENT OF CHANGES IN EQUITYFOR THE PERIOD FROM INCORPORATION TO 30 NOVEMBER 2013
Consolidated EntityIssued Capital
Foreign currency
translation reserve
Reserves RetainedEarnings
$’000 $’000 $’000 $’000Shares issued on incorporation – 1,000 ordinary shares (1) 1 - - -
Balance at 30 November 2013 1 - - -
Pro forma transactions Issue of 499,999,000 Ordinary Shares to the existing shareholders of Hong Kong Victor and equity adjustments resulting from the common control transaction – Refer Note 3 1 - - -
Amounts recognised as a consequence of a common control transaction – Refer Note 3 - (3) - 335
Issue of 15,000,000 Offer Shares in the Company pursuant to this Prospectus –Minimum Subscription 3,000 - - -
Expenses of the offer– Refer Note 2 (116) - - (421)
Deferred tax assets associated with capital raising costs not recognised 35 - - (35)
Pro forma balance - Minimum Subscription 2,921 (3) - (121)
Issue of an additional 10,000,000 Offer Shares in the Company pursuant to this Prospectus –Full Subscription 2,000 - - -
Additional expenses of the offer– Refer Note 2 (8) - - (2)
Deferred tax assets associated with capital raising costs not recognised 2 - - (2)
Pro forma balance - Full Subscription 4,915 (3) - (125)
(1) Victor Group Holdings Limited was registered on the 11th of September 2013 with 1,000 shares. The amount of capital paid was AUD$1000.
The above statement of changes in equity and consolidated pro forma statement of changes in equity should be read in conjunction with the accompanying notes
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Victor Group Holdings LimitedACN 165 378 834
NOTES TO THE FINANCIAL STATEMENTSFOR THE PERIOD ENDED 30 NOVEMBER 2013
Note 1 - Statement of Significant Accounting Policies
The consolidated Financial Information has been prepared in accordance with the Australian equivalents to International Financial Reporting Standards (AIFRS).
Accounting Policies
(a) New Accounting Standards and Interpretations
Certain new accounting standards and IFRIC interpretations have been published that are not mandatory for current reporting periods. The Company's assessment of the impact of these new standards and interpretations is that there would be no material impact on the historical or reported pro forma financial information.
(b) Principles of Consolidation
A controlled entity is any entity that Victor has the power to control the financial and operating policies of the entity so as to obtain benefits from its activities. In assessing the power to govern, the existence and effect of holdings of actual and potential voting rights are considered.
As at a reporting date, the assets and liabilities of all controlled entities have been incorporated into the consolidated financial statements as well as their results for the period then ended. Where controlled entities have entered (left) the group during the period, their operating results have been included (excluded) from the date control was obtained (ceased).
All intercompany balances and transactions between entities in the consolidated entity, including any unrealised profits or losses, have been eliminated on consolidation. Accounting policies of subsidiaries have been changed where necessary to ensure consistencies with those policies applied by the parent entity.
(c) Income Tax
The charge for current income tax expense is based on the profit for the year adjusted for any non-assessable or disallowed items. It is calculated using the tax rates that have been enacted or are substantially enacted by the reporting date.
Deferred tax is accounted for using the liability method in respect of temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profit or loss.
Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or liability is settled. Deferred tax is credited in the statement of profit or loss and other comprehensive income except where it relates to items that may be credited directly to equity, in which case the deferred tax is adjusted directly against equity.
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Deferred income tax assets are recognised to the extent that it is probable that future tax profits will be available against which deductible temporary differences can be utilised.
The amount of benefits brought to account or which may be realised in the future is based on the assumption that no adverse change will occur in income taxation legislation and the anticipation that the Group will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law.
(d) Incorporation
The Company was registered on 11 September 2013.
(e) Foreign currency translation
(i) Functional and presentation currency
The functional currency of each of the group’s entities is measured using the currency of the primary economic environment in which that entity operates.
The presentational currency of Victor and the functional currency of its operating subsidiary, Kesheng Management Consulting (Shanghai) Co., Ltd is Chinese Renminbi, and the consolidated financial statements are presented in Australian Dollars, the presentational and functional currency of Victor.
(ii) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the date of the transaction(s). Foreign exchange gains and losses resulting from the settlement of such transaction(s) and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of profit or loss and other comprehensive income, except when deferred in equity as qualifying cash flow hedges and qualifying net investment hedges.
Translation differences on non-monetary financial assets and liabilities are reported as part of the fair value gain or loss. Translation differences on non-monetary financial assets and liabilities such as equities held at fair value through profit or loss are recognised in profit or loss as part of the fair value gain or loss. Translation differences on non-monetary financial assets such as equities classified as available for sale financial assets are included in the fair value reserve in equity.
(iii) Group entities
Financial results and position of foreign operations whose functional currency is different from the group’s presentation currency are translated as follows:
assets and liabilities are translated at year end exchange rates;
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income and expenses are translated at average rates for the period; and
retained earnings are translated at historical rates.
Exchange differences arising on the translation of foreign operations are recognised directly to the Group’s foreign currency translation reserve in the Statement of Financial Position.
(f) Revenue Recognition
Revenue is measured at the fair value of the consideration received or receivable.
Revenue from the sale of goods is recognised at the point of delivery as this corresponds to the transfer of significant risks and rewards of ownership of the goods and the cessation of all involvement in those goods.
(g) Leases
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the statement of profit or loss and other comprehensive income on a straight line basis over the period of the lease.
(h) Business Combination
Common control transactions are transactions in which all the combining entities are controlled by the same party or parties before and after the transaction and the control is not transitory. The Company has elected to account for these transactions using the predecessor values method. The method requires financial statements to be prepared using the predecessor book values. Predecessor book values represent the carrying amount of net assets before the common control transaction.
(i) Impairment of Assets
At each reporting date, the Company reviews the carrying values of its tangible and intangible assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, is compared to the asset’s carrying value. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
Any excess of the asset’s carrying value over its recoverable amount is expensed to the statement of profit or loss and other comprehensive income.
Impairment testing is performed annually for intangible assets with indefinite lives and intangible assets not yet available for use. Where it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs.
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(j) Cash and Cash Equivalents
For statement of cash flows presentation purposes, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts.
(k) Trade and Other Receivables
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost, less provision for doubtful debts.
Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off. A provision for doubtful receivables is established where there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables.
(l) Financial Instruments:
(i) Recognition
Financial instruments are initially measured at cost on trade date, which includes transaction costs, when the related contractual rights or obligations exist. Subsequent to initial recognition these instruments are measured as set out below.
(ii) Loans and Receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are stated at amortised cost using the effective interest rate method.
(iii) Financial Liabilities
Non-derivative financial liabilities are recognised at amortised cost, comprising original debt less principal payments and amortisation.
(iv) Fair Value
Fair value is determined based on current bid prices for all quoted investments. Valuation techniques are applied to determine the fair value for all unlisted securities, including recent arm’s length transactions, reference to similar instruments and option pricing models.
(v) Impairment
At each reporting date, the Group assesses whether there is objective evidence that a financial instrument has been impaired. In the case of available-for-sale financial instruments, a prolonged decline in the value of the instrument is considered to determine whether impairment has arisen. Impairment losses are recognised in the statement of profit or loss and other comprehensive income.
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(m) Property, Plant & Equipment
Each class of property, plant and equipment is carried at cost or fair value less, where applicable, any accumulated depreciation and impairment losses.
(i) Plant and Equipment
Plant and equipment are measured on the cost basis less depreciation and impairment losses.
The carrying amount of plant and equipment is reviewed annually by directors to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash flows that will be received from the asset’s employment and subsequent disposal. The expected net cash flows have been discounted to their present values in determining recoverable amounts.
(ii) Amortisation and depreciation
The depreciable amount of all fixed assets is depreciated on a straight-line basis over the asset’s useful life to the combined group commencing from the time the asset is held ready for use. The depreciation rates used for each class of depreciable assets are:
Office equipment 20%
Motor Vehicles 20%
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date.
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.
(n) Provisions
Provisions are recognised when the Company has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result and that outflow can be reliably measured.
Provisions are measured using the best estimate of amounts required to settle the obligation at the end of the reporting period.
(o) Employee Benefits
Provision is made for the Company’s liability for employee benefits arising from services rendered by employees to reporting date. Employee benefits that are expected to be settled within one year have been measured at the amounts expected to be paid when the liability is settled, plus related on-costs.
Employee benefits payable later than one year have been measured at the present value of the estimated future cash outflows to be made for those benefits. Those cash flows are discounted using market yields on national government bonds with terms to maturity that match the expected timing of cash flows.
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(p) Contributed equity
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares and options are shown in equity as a deduction, net of tax, from the proceeds.
(q) Chinese VAT / Australian GST
Revenues, expenses and assets are recognised net of the amount of VAT / GST, except where the amount of VAT / GST incurred is not recoverable from the local tax office. In these circumstances the VAT / GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the statement of financial position are shown inclusive of VAT / GST. Cash flows are presented in the statement of cash flows on a gross basis, except for the VAT / GST component of investing and financing activities, which are disclosed as operating cash flows.
(r) Finance Costs
Borrowing costs directly attributable to the acquisition, construction or production of assets that necessarily take a substantial period of time to prepare for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use of sale.
All other borrowing costs are recognised in the statement of profit or loss and other comprehensive income in the period in which they are incurred.
(s) Critical Accounting Estimates and Judgements
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a financial impact on the entity and that are believed to be reasonable under the circumstances.
Critical accounting estimates and assumptions
The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities with the next financial year are discussed below.
Exchange Rates
The following exchange rates used in the preparation of the financial information section is as follows:
RMB:AUDAverage Spot
Period from 1 July 2013 to 30 September 2013
0.1771 0.1744
30 June 2013 0.1767
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Note 2 - Basis of Preparation of the Consolidated Pro Forma Statement of Financial Position
The consolidated pro forma Statement of Financial Position has been prepared from the Audited Statement of Financial Position of Hong Kong Victor adjusted for the following transactions as if they had taken place on 30 November 2013:
(a) Agreements subsequent to 30 September 2013:
Pursuant to a Share Transfer Agreement dated 23 December 2013 the Company will issue 499,999,000 Ordinary Shares to the existing shareholders of Hong Kong Victor as purchase consideration for 100% of the share capital of that entity. This transaction is one referred to as a common control transaction, the detail of which is set out in Note 3.
(b) Assuming Minimum Subscription
The issue of 15,000,000 Offer Shares at an issue price of $0.20 per share to raise $3,000,000, less associated capital raising costs estimated to be $537,020. $115,894 has been directly off-set against raised capital ($81,126 net of tax), and $421,126 has been expensed in accordance with Australian Accounting Standards.
(c) Assuming Full Subscription
The issue of an additional 10,000,000 Offer Shares upon Full Subscription at an issue price of $0.20 per share to raise an additional $2,000,000, less additional capital raising costs estimated to be $9,660. Total capital raising costs associated with maximum subscription are estimated to be $546,680 of which $123,270 has been directly off-set against raised capital ($86,289 net of tax), and $423,410 has been expensed in accordance with Australian Accounting Standards.
(d) Repayment of amounts outstanding to Achieva Capital Investment Limited
Repayment of loans relating to capital raising costs paid on behalf of Victor to Achieva Capital Investment Limited (related party) from proceeds received pursuant to loan agreements dated 30 September 2013 and 31 December 2013. Refer to Section 8.6 for further information.
Note 3 – Business Combination
Pursuant to a Share Transfer Agreement dated 23 December 2013, Hong Kong Victor and its controlled entity will become a wholly owned subsidiary of Victor.
Through this transaction effective control of Victor passed to the shareholders of Hong Kong Victor. The transaction is one referred to in AASB 3 Business Combinations as a common control, where following the reconstruction Victor took control of Hong Kong Victor with no change in underlying control.
As Victor was incorporated specifically for the purpose of this transaction and the subsequent equity raising, the fair value of the equity instruments issued has been estimated by reference to the value of historical (Hong Kong Victor’s) net assets.
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The following has been extracted from the audited financial information of Hong Kong Victor as at 30 September 2013, converted from Chinese Renmimbi to Australian Dollars using an exchange rate outlined in Note 1.
30 September 2013$’000
The assets and liabilities of Hong Kong Victor as at 30 September 2013 were:
Cash and cash equivalents 551Trade and other receivables 121Other assets 101Property, plant and equipment 195Intangible assets 3Trade and other payables (150)Related party loan (360)Current tax liabilities (128)
Total net assets acquired 333
Accounted for as:
Issued capital 1Foreign currency translation reserve (3)Retained earnings 335
333
Note 4 – Trade and other Receivables
Reviewed
Pro FormaMinimum
Subscription
Pro FormaFull
Subscription$’000 $’000 $’000
Trade receivables - 121 121Total trade and other receivables - 121 121
The carrying value of trade receivables is considered a reasonable approximation of fair value due to the short-term nature of the balances.
The maximum exposure to credit risk at the reporting date is the fair value of each class of receivable in the financial statements. The company does not hold any collateral as security over any receivable balance, nor does it hold any restrictions of title.
The average credit period on sales of goods is 7 days. An analysis of the clients over the historical period shows concentration of sales to a major client with 63% of sales during for the three months ended 30 September 2013. No interest is charged on the trade receivables.
Some of the unimpaired trade receivables are past due as at the reporting date. These relate to clients who have a good credit history with the Company and are expected to be recovered in full.
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The age of trade receivables past due but not impaired is as follows:
$’0007-30 days 121Total 121
Note 5 – Property, Plant and Equipment
Reviewed
Pro FormaMinimum
Subscription
Pro FormaFull
Subscription$’000 $’000 $’000
Office equipment - 144 144Less accumulated depreciation - - -
- 144 144
Motor Vehicles - 51 51Less accumulated depreciation - - -
- 51 51
Total property, plant and equipment - 195 195
Note 6 – Intangible assets
Reviewed
Pro FormaMinimum
Subscription
Pro FormaFull
Subscription$’000 $’000 $’000
Trademarks - 3 3Accumulated amortisation - - -Total intangible assets - 3 3
Note 7 – Trade and other payables
Reviewed
Pro FormaMinimum
Subscription
Pro FormaFull
Subscription$’000 $’000 $’000
Trade payables - 46 46Accrued expenses - 40 40Related party payable - 37 37Sales and other taxes payable - 27 27Total trade and other payables - 150 150
Included in trade and other payables is related party amount payable to Director Simon Bin Zhang for outstanding salaries and expenses incurred on behalf of the Company, totaling$37,042.
Note 8 – Current tax liabilities
Reviewed
Pro FormaMinimum
Subscription
Pro FormaFull
Subscription$’000 $’000 $’000
Income tax payable - 128 128Total current tax liabilities - 128 128
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Income tax payable represents current income tax obligations to the Chinese taxation authorities at 30 September 2013.
Note 9 – Issued Capital
Number of shares issued
$’000
Shares on issue at 30 November 2013 – 1,000 ordinary shares 1,000 1
Pro forma transactions
- Issue of 499,999,000 Ordinary Shares for the acquisition Hong Kong Victor 499,999,000 1
- Issue of 15,000,000 Offer Shares in the Company pursuant to this Prospectus 15,000,000 3,000
Less capital raising costs (net of tax effect) - (81)
Pro forma issued capital - Minimum Subscription 515,000,000 2,921- Issue of additional 10,000,000 Offer Shares in the
Company pursuant to this Prospectus 10,000,000 2,000
Less capital raising costs (net of tax effect) - (6)
Pro forma issued capital - Full Subscription 525,000,000 4,915
Note 10 – Controlled Entities
The pro forma financial statements incorporate assets, liabilities, results and equity of the following entities in accordance with Note 2 - Pro Forma Transactions, Note 3 - Business Combination and Note 1(b) Principles of Consolidation.
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Name of Entity Incorporation date
Country of incorporation
Pro-forma equity holding
Ultimate Holding Company
Victor Group Holdings Limited 11 September 2013 Australia
Subsidiaries of Victor Group Holdings LimitedHong Kong Victor International Enterprise Management Co., Limited
24 April 2008 Hong Kong 100%
Subsidiary of Hong Kong Victor International Enterprise Management Co., LimitedKesheng Management Consulting (Shanghai) Co., Ltd
28 June 2013 People's Republic of China
100%
Note 11 – Commitments
Operating leases in respect of office premises with commitments totalling $198,816 at 30 September 2013. The lease agreement for the office premises is for a period of 5 years and ends on the 30 June 2018.
The Company has also entered into a lease agreement for venue hire for the provision of consulting and training services at a rate of RMB20,000 per training session. The lease agreement for venue hire is for a period of 5 years and ends on the 30 June 2018.
Note 12 – Contingent Assets and Liabilities
The company is not aware of any contingent assets and liabilities as at 30 November 2013 that should be disclosed in accordance with AASB137.
Note 13 – Subsequent Events
The Directors of Victor are aware of no subsequent events, other than those pro forma transactions set out in Note 2 of section 5.5 of the Prospectus.
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SECTION 6 INVESTIGATING ACCOUNTANT’S REPORT
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SECTION 7 RISK FACTORS
As with any share investment, there are risks involved. This section identifies the major areas of risk associated with an investment in the Company, but should not be taken as an exhaustive list of the risk factors to which the Company and its shareholders are exposed. Potential investors should read the entire Prospectus and consult their professional advisor before deciding whether to apply for Shares.
7.1 SPECIFIC COMPANY RISKS
7.1.1 RELIANCE ON THE GROUP’S DEPUTY CHAIRMAN AND CHIEF EXECUTIVE OFFICER MR ZHANG AND THE MANAGEMENT TEAM
The success of the Group has been in large part due to the talent, effort, experience and leadership of its senior management team, in particular, the leadership of the Group’s Deputy Chairman and Chief Executive Officer, Mr Zhang, Bin. Although the Group has entered into 3 year service contracts with its Executive Director, Mr Zhang, Bin, and senior management, there is no assurance that such contracts will not be terminated or will be renewed on the expiry of their terms. If Mr Zhang’s employment agreement with the Company ceases, this may have a material impact on the performance of the Company and the price of the Shares. The Company notes that Mr Zhang, Bin began his role as Executive Director for Shanghai Kesheng on 1 July 2013, and as Group Chief Executive Officer on 1 January 2014, and that both contracts have 3 year terms. In addition, there is no assurance that Mr Zhang, Bin or senior management would remain healthy and able to continue in their current roles. If such contracts were terminated or breached, or if the relevant employees were no longer to continue in their current roles, the Group would need to employ alternative staff, and the Group’s operations and business would be adversely affected.
The Group’s Deputy Chairman and Chief Executive Officer, and its senior management team, are employed by Shanghai Kesheng. Pursuant to employment laws in the PRC, employees of Shanghai Kesheng are entitled to terminate their employment agreements by giving 30 days prior written notice to Shanghai Kesheng. This is a statutory requirement for employees in the PRC. As such, the Group’s Deputy Chairman and Chief Executive Officer, Mr Zhang and the senior management team are able to resign from employment with Shanghai Kesheng on 30 days notice. If that occurs, the Group would need to employ alternative staff in a short space of time, and the Group’s operations and business would be adversely affected. There is no guarantee that alternative staff could be engaged by the Group, or that alternative staff with the same skills could be engaged by the Group.
In addition, Mr Zhang holds no shares in the Company and receives payment for his role as Chief Executive Officer of the Group and Executive Director of Shanghai Kesheng as his only remuneration from the Group. Mr Zhang is bound to certain non-compete obligation following termination of his employment. Upon termination of his service agreement with the Company,there is a significant risk that the Group may not be able to find an appropriate replacement for Mr Zhang. In that case the Group’s business, financial condition and results of operations could be materially and adversely affected. Also, Mr Zhang is a Director of DayBreak which is a subsidiary of Achieva Capital Management.
7.1.2 RELIANCE ON PROVISIONALLY ENGAGED CONSULTANTS
The Group provides enterprise management consulting courses to its clients, and for these purposes invites consultants to help provide these services. Most of the Group’s consultants are invited to provide enterprise management consulting on a provisional or course-by-course basis with no long term arrangements. In the event that any such provisionally invited consultants fail to fulfill the standard and quality that the Group has committed to its clients, the Group may incur
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claims, which would materially affect its business operations and reputation. Such claims could include civil claims from the Group’s clients and administrative claims from the relevant PRC authorities. In addition, if suitable consultants are not able to be engaged by the Group, this would also materially affect the Group’s business operations and reputation.
7.1.3 ABILITY TO PROMOTE THE GROUP’S BRAND
Brand image is a key factor in the Business. The Group believes that it has been successful in establishing its brands in the PRC. The Group’s ability to maintain and further develop its brand in the PRC depends, in part, on its ability to meet changing consumer tastes and preferences and the effectiveness of its advertising campaigns. Any misjudgment of changes in consumer tastes or failure to respond to such changes in a timely manner or the Group’s advertising campaigns not achieving their intended results could affect its brand image, which could in turn affect its business and results. Further explanation of the Group’s marketing activities is provided at Section 4.4.
7.1.4 DISTRIBUTORSHIP SALES MODEL
The Group sells its products in the PRC primarily through its distributors, who in turn sell theGroup’s products to consumers. If the Group’s distributors are unsuccessful in selling the Group’s products or fail to effectively manage the distribution requirements, the Group’s sales willultimately be affected.
The Group’s arrangements with its distributors are short-term non-exclusive arrangements. There is a risk that distributors could terminate such arrangements at any time and/or simply not enter into arrangements of this kind in the future with the Group. This could materially and adversely affect the Group’s business, financial condition and results of operation.
There is also no assurance that one or more of the Group’s distributors will not breach the terms of the sales agreements or fail to comply with their obligations thereunder.
For further information concerning the Group’s distributors, see Sections 7.1.5, 7.1.6, 7.1.11 and7.1.20. For further information on the Group’s sales agreements, see Section 8.4.
7.1.5 CONCENTRATION OF RELIANCE ON CERTAIN NON-EXCLUSIVE DISTRIBUTORS
The Group places some reliance on around 4 distributors who between them make up for almost all of the Group’s total sales for the Audited Period. In particular, one major distributor accounted for 63% of total revenues for the Group during the Audited Period. If a significant proportion of the Group’s main distributors, or for a period such as the Audited Period if the major distributor which accounted for 63% of the Group’s revenue, were to fail or fail to effectively manage the distribution requirements, or fail to make payment to the Group, the Group’s sales will ultimately be affected.
In addition, the Group engages distributors on a non-exclusive basis. Distributors are therefore free to not engage with the Group and/or instead engage with a competitor of the Group. If a distributor or more than one distributor were to cease engagement with the Group and cease to sell the Group’s products, the Group’s sales will ultimately be affected.
For further information on the Group’s sales agreements, see Section 8.4. For further information concerning the Group’s distributors, see Sections 7.1.4, 7.1.6, 7.1.11 and 7.1.20. For further information on the Group’s services, see Section 4.3.
7.1.6 SHORT TERM SALES CONTRACTS
The Group’s contracts with both distributors and with its own customers are generally of a short term nature, and relate to the course or program being offered to the relevant clients. The Group
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derives all of its revenue from such short term contracts. The Group does not have long term sales contracts and there is no guarantee that the Group will continue to be able to find buyers for its services in the future.
For further information concerning the Group’s distributors, see Sections 7.1.4, 7.1.5, 7.1.11 and 7.1.20. For further information on the Group’s sales agreements, see Section 8.4.
7.1.7 OPERATIONS IN THE PRC
The Group conducts substantially all its business operations in the PRC. Accordingly, the Group’s results of operations, financial condition and prospects are significantly dependent on economic and political developments in the PRC. Although the PRC’s economy has experienced significant growth in the past 30 years, the Group cannot assure investors that the PRC’s 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 will not have a negative effect on its business and results of operations.
The PRC government exercises significant control over its economic growth through the allocation of resources, control over payment of foreign currency-denominated obligations, implementation of monetary policy, and preferential treatment to particular industries or companies. Certain measures adopted by the PRC government may restrict loans to certain industries, such as changes in statutory deposit reserve ratio and lending guidelines for commercial banks by the People’s Bank of China (“PBOC”). These current and future government actions could materially affect the Group’s liquidity, access to capital, and ability to operate its business. In response to the global financial crisis and economic downturn in 2008, the PRC government adopted various measures aimed at expanding credit and stimulating economic growth, such as decreasing the PBOC statutory deposit reserve ratio and lowering benchmark interest rates. However, it is unclear whether such measures will be effective in sustaining stable economic growth in the future in the PRC. Any slowdown in the economic growth of the PRC could lead to reduced demand for the Group’s products, which could materially and adversely affect the Group’s business, financial condition and results of operations.
7.1.8 FOREIGN EXCHANGE RISKS
The Group’s costs and expenses in the PRC and Hong Kong are denominated in RMB and Hong Kong Dollar respectively. Accordingly, the depreciation and/or the appreciation of the RMB and or Hong Kong Dollar relative to the Australian currency would result in a translation loss on consolidation which is taken directly to shareholder equity. In addition the reporting currency of the Company‘s financial reports is denominated in Australian currency. Any depreciation of the RMB or Hong Kong Dollar relative to the Australian currency may result in lower than anticipated revenue, profit and earnings. The Group will be affected on an ongoing basis to foreign exchange risks between the Australian Dollar and the RMB and Hong Kong Dollar, and will have to monitor this risk on an ongoing basis. Any change in the ability to convert the RMB to Australian Dollars or Hong Kong Dollars to Australian Dollars due to currency control may have an adverse effect on the financials of the Group from time to time.
Further, the PRC government imposes controls on the convertibility of the RMB into foreign currencies and, in certain cases, the remittance of currency out of the PRC. The Group receives all of its revenues in RMB. Under the Group’s current corporate structure, the Company may rely on dividend payments from its Chinese Subsidiaries to fund any cash and financing requirements the Company may have. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval from the PRC State Administration of Foreign Exchange (“SAFE”), by complying with certain procedural requirements, including but not limited to obtaining tax certificates from competent tax authorities.
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Therefore, the Chinese Subsidiaries are able to pay dividends in foreign currencies to the Group without prior approval from SAFE by complying with certain procedural requirements. But approval from or registration with appropriate government authorities is required where RMB are to be converted into foreign currency and remitted out of the PRC to pay capital expenses such as the repayment of loans denominated in foreign currencies. The PRC government may also at its discretion restrict access in the future to foreign currencies for current account transactions. If the foreign exchange control system prevents the Group from obtaining sufficient foreign currencies to satisfy the Group’s foreign currency demands, it may not be able to pay dividends in foreign currencies to Shareholders.
7.1.9 LEGAL SYSTEM AND LEGAL RISKS
The Group’s operations in the PRC are governed by PRC laws and regulations. The Group’s Chinese Subsidiary is a wholly owned foreign-invested enterprise and is subject to laws and regulations applicable to foreign investment in the PRC. The PRC has a civil law legal system based on written statutes. Unlike the common law system, previous court decisions in the PRC may be cited for reference but have limited precedential value. Although the overall effect of legislation over the past 30 years has significantly enhanced the protections afforded to various forms of foreign investments in the PRC, it has not developed a fully integrated legal system and recently enacted laws and regulations may not sufficiently cover all aspects of economic activities. In particular, because these laws and regulations are relatively new, and because of the limited volume of published decisions and their non-binding nature, the interpretation and enforcement of these laws and regulations involve uncertainties. Such uncertainties may limit the legal protections available to the Group and to other foreign investors, including Applicants.
Shanghai Kesheng has appointed a legal supervisor in accordance with company law in the PRC. Hong Kong Victor, as the shareholder of Shanghai Kesheng, has the ability to remove and appoint legal supervisors for Shanghai Kesheng in accordance with PRC company law. The legal supervisor exercises the following duties and powers in relation to Shanghai Kesheng:
to inspect the finances of Shanghai Kesheng;
to supervise the performance of duties by the Executive Director (Mr Zhang, Bin) and senior management personnel and to propose the removal of the Executive Director or senior management personnel where they violate laws and regulations in the PRC, the articles of association of Shanghai Kesheng or resolutions of the shareholder of Shanghai Kesheng (being Hong Kong Victor);
to require directors or senior management personnel to rectify matters where they have acted against the interests of Shanghai Kesheng;
to make proposals to the shareholder of Shanghai Kesheng (being Hong Kong Victor); and
to bring legal claims or actions against directors or senior management personnel in accordance with the relevant laws.
Whilst the legal supervisor does not have the power to remove the Executive Director or senior management personnel, he or she can propose to the shareholder of Shanghai Kesheng (being Hong Kong Victor) that such removal take place. There is a risk that Shanghai Kesheng’s legal supervisor could file law suits against the Executive Director or senior management personnel in certain circumstances. For further information on the Group’s reliance on Mr Zhang and the senior management team, see Section 7.1.1. For further information on the legal supervisor of Shanghai Kesheng, see Sections 2.3 and 9.4.
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In addition, the legal system in the PRC is based in part on government policies and certain internal rules, some of which are not published on a timely basis or at all and which may have retroactive effect. As a result, the Group may not be aware of its violation of these policies and internal rules until some time after the violation. Also, any administrative or court proceedings may be protracted, resulting in substantial costs and diversion of resources and management attention if the Group seeks to enforce its legal rights through administrative or court proceedings. Moreover, compared to more developed legal systems, the PRC administrative and court authorities have significantly wider discretion in interpreting and implementing statutory and contractual provisions. As a result, it may be more difficult to evaluate the outcomes of the administrative and judicial proceedings as well as the level of legal protections the Group is entitled to. These uncertainties may impede the Group’s ability to enforce its contracts, which could in turn materially and adversely affect the Group’s business and operations.
7.1.10 CONCENTRATION OF OWNERSHIP OF SHARES
Following the Offer and assuming Full Subscription, Daybreak will hold 400 million Shares in the Company representing approximately 77%, and Achieva will hold 80 million Shares in the Company representing approximately 15%, of the Shares and voting rights in the Company. Daybreak and Achieva are both wholly owned by Achieva Capital Management. Achieva Capital Management, via its control of Daybreak and Achieva, would exert substantial influence over matters requiring approval by the Shareholders, including electing directors, and in doing so they may not act in the best interests of other minority Shareholders.
This concentration of ownership would likely also discourage, delay or prevent a change in control of the Company, which would deprive the Company’s Shareholders of an opportunity to receive a premium for their Shares as part of a sale of the Company and might reduce the price for the Company’s Shares. These actions may be taken even if they are opposed by the Company’s other Shareholders, including those who purchase Shares in this Offering.
In addition:
if Achieva Capital Management, Daybreak or Achieva were to sell a substantial number of Shares, or if there was a perception that this may occur, this would likely have a detrimental effect on the market price at which the Company’s Shares trade on ASX;
it is likely that Achieva Capital Management, Daybreak, Achieva and the Group’s Deputy Chairman and Chief Executive Officer Mr Zhang would not be subject to the takeovers prohibition in the Corporations Act, and could therefore acquire Shares on ASX without needing to launch a takeover bid or seek shareholder approval (etc); and
There is a risk that Achieva Capital Management, Daybreak, Achieva or the Group’s Deputy Chairman and Chief Executive Officer Mr Zhang would be able to compulsorily acquire Shares from other minority shareholders following listing on ASX.
In all of these cases, Shareholders may receive less than the Offer Price when selling, or being forced to sell, their Shares.
7.1.11 LACK OF CONTROL OVER DISTRIBUTORSHIP ARRANGEMENTS
The Group does not specify the arrangements which can be made between distributors and customers, including any recommended or minimum price. Whilst the Group provides course materials to distributors for the purposes of distributors providing these two prospective customers, there is no guarantee that such materials will be received by customers. Similarly, there is no guarantee that customers would be charged a reasonable price for the services provided by the Group. In the event that expectations of customers are not met or
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misrepresentations are made by distributors to customers in relation to courses provided by the Group, there is the potential that customers could be unhappy with the courses provided by the Group. In such circumstances, it is possible that customers may seek redress against the Group despite that the Group has not sold the courses to the customer and may not have made any misrepresentations itself to the customer. There is a risk that this could result in damage to the Group’s brands.
For further information concerning the Group’s distributors, see Sections 7.1.4, 7.1.5, 7.1.6 and 7.1.20. For further information on the Group’s sales agreements, see Section 8.4.
7.1.12 PAYMENT OF DIVIDENDS
As a holding company, the Company relies principally on dividends from its Chinese Subsidiaryfor its cash requirements, including any debt the Group may incur. Current PRC regulations permit the Group’s Chinese Subsidiary to pay dividends only out of accumulated after-tax profits, if any, determined in accordance with the PRC accounting standards and regulations. In addition, the Chinese Subsidiary is required to set aside a certain amount of its after-tax profits each year, if any, to fund certain statutory reserves. These reserves are not distributable as cash dividends. Furthermore, in the future, if the Chinese Subsidiary incurs debt on its own behalf, the instruments governing the debt may restrict its ability to pay dividends or make other payments to the Company. The inability of the Chinese Subsidiary to distribute dividends or other payments to the Company could materially and adversely limit the Group’s ability to grow, make investments or acquisitions that could be beneficial to its businesses, pay dividends, or otherwise fund and conduct its business.
7.1.13 LIQUIDITY AND DILUTION RISK
There are currently 500,000,000 Shares on issue, with between 4.8% and 2.9% of the total Shares on issue following admission to the Official List being offered to the public pursuant to this Prospectus. Upon admission to the Official List, a significant portion of the Shares on issue will be subject to the escrow restrictions imposed by the Listing Rules. Some investors may consider that there is an increased liquidity risk as a large portion of the issued capital may not be able to be traded freely for a period of up to 24 months.
The Company hopes to encourage increased levels of liquidity of trading in its Shares after being admitted to Official List. To that end, the Company notes that ASX may determine that one Shareholder’s parcel of Existing Shares will be escrowed for 12 months. This Shareholder’s parcel of Existing Shares will constitute between 3.9% and 3.8% of the total Shares on issue following admission to the Official List. For further information on potential restrictions to be imposed by ASX, see Section 1.11. Following the release of this parcel of Shares from escrow, this would leave a total of between 8.6% and 6.8% of the total Shares on issue as being tradable on ASX. In accordance with the Group’s expansion plans, the Company will consider secondary raisings and/or potential acquisitions in the future with a view to increasing the proportion of its tradable Shares to above 10% within 12 to 24 months from the Company being admitted to the Official List of ASX. Investors should note that any such secondary raisings or potential acquisitions (for which Shares are issued as consideration) would dilute Shareholder’s interests.
7.1.14 UTILISATION OF PROCEEDS
To utilise the proceeds from the Offer in the manner described in this Prospectus, as an offshore holding company of the Chinese Subsidiary, the Company may provide loans to its Chinese Subsidiary or make additional capital contributions to it. Any loans to the Chinese Subsidiary are subject to relevant registration under PRC regulations, and capital contributions must be approved by the PRC Ministry of Commerce or its local counterparts. The Company cannot assure investors that it will be able to obtain these government approvals on a timely basis, if at all, with
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respect to future capital contributions by it to its Chinese Subsidiary. If the Group fails to obtain such approvals, the Company’s ability to use the proceeds from this offering as intended will be affected, and this could adversely affect the Group’s ability to carry out its business strategies and fund and expand its operations.
On August 29, 2008, SAFE promulgated Circular 142, which requires that the registered capital of a foreign-invested company converted from foreign currencies only be used for purposes within the business scope approved by the applicable government authority and may not be used for equity investments in the PRC. In addition, a foreign-invested company may not change the use of its RMB-denominated registered capital that is converted from foreign currencies without SAFE’s prior approval. Violations of Circular 142 could result in severe penalties, including fines and confiscation of illegal gains. If the Group fails to obtain the necessary approvals, the Group’s ability to utilise net proceeds from this offering to invest in or acquire any other PRC companies, or establish other subsidiaries in the PRC may be negatively affected, which could materially and adversely affect the Group’s liquidity and its ability to fund and expand the business.
7.1.15 ENTERPRISE MANAGEMENT CONSULTING INDUSTRY TRENDS
The long term success of the Group depends on its ability to interpret trends in the PRC business enterprise management consulting market. Whilst the Group has been successful in the past in coming up with products that are well received by its customers, there is no assurance that the Group will be able to continue to come up with products that will appeal to its customers. If the Group is not able to offer products that appeal to its customers, the Group may be unable to sustain its current revenue streams which will affect the profitability of the Group.
7.1.16 PROTECTION OF INTELLECTUAL PROPERTY RIGHTS
The Company believes that the Group’s trademarks are important to its success and competitive position and recognise the importance of registering the trademarks related to the “Victor” brandfor protection against infringement. Some of these trademarks are in the process of being transferred to Shanghai Kesheng (in accordance with the Business Transfer Agreements as detailed in Section 8.3) and such transfer requires the approval of the relevant authorities in the PRC. There is a risk that this approval may not be forthcoming. For further information on this transfer, see Section 8.3.
To date, the Group has various registered trademarks in the process of being transferred to it and registered in the PRC in the classes relevant to the business. The Company is not aware of any material violations or infringements of the trademarks and the Group’s intellectual property rights. However, third parties may in the future attempt to challenge the ownership and/or validity of the Group’s intellectual property rights. In addition, the business is subject to the risk of third parties counterfeiting the “Victor” brand products or otherwise infringing intellectual property rights. Such unauthorised use of the Group’s brand in counterfeit products could not only result in potential revenue loss, but also have an adverse impact to its brand value and perceptions of its products quality. The Group may not always be successful in securing protection for its intellectual property rights, in preventing the production and sale of counterfeit products and preventing other infringements of the Group’s intellectual property rights.
Protections offered by the PRC intellectual property laws and the enforcement of these protections may not be as effective as in some other countries. The Group may need to resort to litigation in the future to enforce its intellectual property rights. Any such litigation could result in substantial costs and a diversion of its resources. The Group’s failure to protect and enforce its intellectual property rights could have a material adverse impact on its reputation, business and results of operations.
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7.1.17 GROWTH MANAGEMENT
The Group and its operations had grown considerably over the past year. One of the Group’s main business strategies is to continue to expand its distribution network, including by promotion through media and magazine advertisements, and offering free sessions to prospective clients.This expansion plan may place significant strain on the Group’s managerial, operational and financial resources. The Group cannot ensure that its personnel, systems, procedures and controls will be adequate to implement its business plans or support future growth.
7.1.18 COMPETITION
The industry in which the Group will be involved is subject to increasing domestic and global competition. While the Group will undertake all reasonable due diligence in its business decisions and operations, the Group will have no influence or control over the activities or actions of its competitors, whose activities or actions may, positively or negatively, affect the operating and financial performance of the Group’s projects and business.
7.1.19 FUTURE CAPITAL NEEDS
Further funding of projects may be required by the Group to support its ongoing activities and operations. There can be no assurance that such funding will be available on satisfactory terms or at all. Any inability to obtain funding will adversely affect the business and financial condition of the Group and, consequently, its performance.
7.1.20 LIABILITY CLAIMS
All of the Group’s products are currently sold within the PRC and involve the provision of services to customers. The Group may be exposed to liability claims if those services are provided in faultand/or cause harm to its customers. As a result, the Group may have to expend significant financial and managerial resources to defend against such claims. The Company believes that such liability claim risks will increase as legal concepts in liability for services claims begin to develop and mature in the PRC. If a successful claim is made against the Group, the Group may be fined or sanctioned and its reputation and brand may be negatively impacted, which could materially and adversely affect its reputation, business prospectus, financial condition and results of operation.
For further information concerning the Group’s distributors, see Sections 7.1.4, 7.1.5, 7.1.6 and 7.1.11. For further information on the Group’s sales agreements, see Section 8.4. For further information on the Group’s reliance on provisionally engaged consultants, see Section 7.1.2.
7.1.21 INSURANCE COVERAGE
The Group faces various risks in connection with its Business and may lack adequate insurance coverage or may not have the relevant insurance coverage. The Group maintains insurance coverage for its vehicles and employees (as required by law in the PRC). However, as is typical in the PRC, the Group does not maintain product liability insurance, business interruption insurance or third-party liability insurance against claims for property damage and environmental liabilities. If the Group incurs substantial losses or liabilities and its insurance coverage is unavailable or inadequate to cover such losses or liabilities, its financials may be adversely affected.
7.1.22 NEW PRC ENTERPRISE INCOME TAX LAW
Under the PRC Enterprise Income Tax Law (the “New EIT Law”) and its implementing rules, both effective from 1 January 2008, an enterprise established outside of the PRC with “de facto
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management bodies” within the PRC is considered a “resident enterprise” and will be subject to enterprise income tax at the rate of 25% on its worldwide income. The implementing rules define the term “de facto management bodies” as “establishments that carry out substantial and overall management and control over the manufacturing and business operations, personnel, accounting, properties, etc. of an enterprise”, which has been further defined under the Notice Regarding the Determination of Chinese-Controlled Offshore Incorporated Enterprises as PRC Tax Resident Enterprises on the Basis of De Facto Management Bodies dated 22 April 2009 issued by the State Administration of Taxation (“Circular 82”). The Group may be considered as a “resident enterprise” and may therefore be subject to the enterprise income tax at 25% on the Group’s worldwide income, which could significantly increase its tax burden in the future. If the Group is treated as a PRC “resident enterprise,” although under the New EIT Law and its implementing rules dividends paid to the Group from its Chinese Subsidiary would qualify as “tax exemptedincome,” the Company cannot assure you that such dividends will not be subject to a 10%withholding tax, as the State Administration of Taxation, which enforces the withholding tax, have not yet issued guidance with respect to the processing of outbound remittances to entities that are treated as resident enterprises for PRC enterprise income tax purposes and also because the dividends of the Chinese Subsidiary are made to Hong Kong Victor in the first instance.
In addition, it is uncertain whether, if the Group (or parts of it), were considered a PRC “residententerprise,” any dividends to be distributed by it to its non-PRC enterprise shareholders would be subject to a 10% PRC withholding tax and whether any sale of its shares would be subject to a 10% PRC withholding tax. If the Company is required under the New EIT Law to withhold such withholding tax with respect to dividends, or if sales of its shares would be subject to PRC tax, shareholders’ investment in Shares may be materially and adversely affected.
The PRC Individual Income Tax Law, or the PRC Individual Tax Law, imposes tax at the rate of 20% on dividends and gains realized by overseas individuals who are not domiciled or tax resident in the PRC, to the extent that such dividends or gains are sourced within the PRC. Pursuant to the Individual Tax Law, although the matter is unclear, if the Group (or parts of it), were considered a PRC resident enterprise, dividends or gains realized by the Group’s non-PRC individual shareholders may be treated as income derived from sources within the PRC and may be subject to PRC tax (which in the case of dividends may be required to be withheld) at a rate of 20%.
7.1.23 TAX TREATY BENEFITS
Under the applicable PRC tax laws in effect before 1 January 2008, dividend payments to foreigninvestors made by foreign-invested enterprises in the PRC, such as Shanghai Kesheng, were exempt from PRC withholding tax. Under the New EIT Law, starting from 2008, dividends paid by a PRC foreign-invested enterprise to its immediate parent company outside the PRC (if the parent company is considered a “non-resident enterprise that has not set up institutions or establishments in China, or where institutions or establishments are set up but with no relationship with the income obtained by such enterprise”) are subject to a 10% withholding tax, unless any such foreign investor’s jurisdiction of incorporation has a tax treaty with the PRC that provides for a preferential withholding arrangement. Pursuant to a special tax arrangement between Hong Kong and the PRC, such rate may be lowered to 5% if the PRC enterprise is at least 25% held by a Hong Kongenterprise. In October 2009, the State Administration of Taxation further issued the Circular on How to Interpret and Recognize the “Beneficial Owner” in Tax Agreements (“Circular 601”), and certain other related rules. According to Circular 601, non-resident enterprises that cannot provide valid supporting documents as “beneficiary owners” may not be approved to enjoy tax treaty benefits and “beneficial owners” refer to individuals, enterprises or other organizations which are normally engaged in substantive operations. These rules also expressly exclude a “conduit company,” or any company established for the purposes of avoiding or reducing tax obligations or transferring or accumulating profits and not engaged in actual operations such as manufacturing, sales or management, from being a “beneficial owner.” As a result, although
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Shanghai Kesheng is currently wholly owned by Hong Kong Victor, the Group may not be able to enjoy the preferential withholding tax rate of 5% under the tax treaty and therefore be subject to withholding tax at a rate of 10% with respect to dividends to be paid by Shanghai Keshengbecause Hong Kong Victor may not qualify as a beneficial owner of Shanghai Kesheng.
7.2 GENERAL RISKS
7.2.1 INVESTMENT RISK
The Shares to be issued pursuant to this Prospectus should be considered highly speculative. They carry no guarantee as to payment of dividends, return of capital or the market value of the Shares. The prices at which an investor may be able to trade the Shares may be above or below the Offer Price paid for the Shares. While the Directors commend the Offer, prospective investors must make their own assessment of the likely risks and determine whether an investment in the Company is appropriate to their own circumstances.
7.2.2 SHARE MARKET
Share market conditions may affect the value of the Company’s quoted securities regardless of the Company’s operating performance.
Share market conditions are affected by many factors including but not limited to the following:
general economic outlook;
interest rates and inflation rates;
currency fluctuations;
changes in investor sentiment toward particular market sectors;
the demand for, and supply of, capital;
terrorism or other hostilities; and
as well as other factors beyond the control of the Company.
7.2.3 ECONOMIC CONDITIONS
The performance of the Company may be significantly affected by changes in economic conditions, and particularly conditions which affect the enterprise management consulting industry in the PRC. Changes in economic conditions could affect the ability of the Company to operate and could increase the costs of operating the Company. Adverse economic conditions, including economic recession, may have a negative impact on the Company’s ability to raise capital.Factors such as inflation, currency fluctuation, and interest rates have an impact on operating costs, media expenditures and stock market prices. The Company’s future possible profitability and the market price of its Shares can be affected by these factors, which are beyond the control of the Company and its Directors, particularly due to the Company operating in fast changing economic conditions in the PRC and Australia.
7.2.4 CHANGES IN LEGISLATION OR REGULATION
The Company may be affected by changes to Government policies and legislation (both Australian and in foreign jurisdictions including, but not limited to, the PRC) concerning property, the environment, superannuation, taxation and the regulation of trade practices and competition,
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Government Grants and incentive schemes. These changes in legislation or regulation, or changes to accounting rules, could have adverse impacts on the Company from a financial and operational perspective. The Company’s primary assets and business interests are in Australia and the PRC and changes in these countries’ legislation or regulation could have an adverse impact on the Company’s results of operations, business or prospects.
7.2.5 CHANGES TO REGULATIONS
The Company may be affected by changes to Government policies and legislation (both Australian and in foreign jurisdictions including, but not limited to, Hong Kong and the PRC) concerning property, the environment, superannuation, taxation and the regulation of trade practices and competition, government grants and incentive schemes. These changes in legislation or regulation, or changes to accounting rules, could have adverse impacts on the Company from a financial and operational perspective. The Company’s primary assets and business interests are in Australia and the PRC and changes in these countries’ legislation or regulation could have an adverse impact on the Company’s results of operations, business or prospects.
7.2.6 WEATHER CONDITIONS, NATURAL DISASTERS, HEALTH EPIDEMICS AND OTHER SIMILAR EVENTS
The Group’s operations could be disrupted or otherwise adversely affected by severe weather conditions, such as snowstorms or typhoons, natural disasters, such as earthquakes, health epidemics, such as an outbreak of avian influenza or severe acute respiratory syndrome, and other similar events. The occurrence of any such event could significantly change the living and consumption patterns of the people and businesses in the affected area. The Group’s business,and distributors may also be disrupted. In particular, this may lead to lower consumption levels of enterprise management consulting services and therefore reduced orders from the Group’s distributors. Such changes and disruptions could adversely affect the Group’s business, results ofoperations and financial condition.
7.2.7 INVESTMENT HIGHLY SPECULATIVE
The above list of risk factors ought not to be as exhaustive of the risks faced by the Company or by investors in the Company.
The above factors, and others not specifically referred to above, may in the future materially affect the financial performance of the Company and the value of the securities offered under this Prospectus. Therefore, the securities to be issued pursuant to this Prospectus carry no guarantee with respect to the payment of dividends, return of capital or the market value of those securities.
Potential investors should consider that an investment in the Company is highly speculative and should consult their professional advisers before deciding whether to apply for securities pursuant to this Prospectus.
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The pictures above depict seminars for the Group’s clients. Nb. Property depicted is not owned by the Group.
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SECTION 8 MATERIAL CONTRACTS
8.1 CHIEF EXECUTIVE OFFICER EMPLOYMENT CONTRACTS
The Group has chosen to engage Mr Zhang, Bin by way of two separate agreements contemplating two separate roles for the Group. The first agreement detailed below is for Mr Zhang’s role as Chief Executive Officer of the Group, and the second is for Mr Zhang’s management role in Shanghai Kesheng. This reflects the Group’s preference for Mr Zhang to be engaged directly by the Company, and the PRC Labour Contract Law requirement for Mr Zhang to conclude an employment agreement with Shanghai Kesheng where he is providing services to that company in the PRC. The total remuneration for Mr Zhang from both agreements described below is equivalent to approximately $115,418.3 The remuneration package is made up of $50,000 per annum paid by the Company and RMB360,0004 per annum paid by Shanghai Kesheng. Mr Zhang is also a Director of DayBreak which is wholly owned by Achieva Capital Management (which wholly owns the Company’s two largest shareholders, being Achieva and Daybreak). For further information on the Group’s reliance on Mr Zhang as its Deputy Chairman and Chief Executive Officer, see Section 7.1.1.
Group Chief Executive Officer
The Chief Executive Officer of the Company, Mr Zhang, Bin, is engaged as the Company’s Chief Executive Officer pursuant to an Employment Agreement between he and the Company.
As a result of Mr Zhang, Bin’s appointment as Deputy Chairman pursuant to clause 13.19 of the Constitution, Mr Zhang, Bin will not be subject to the usual requirement of directors to stand for re-election in accordance with the rotation of directors requirements.
The Employment Agreement commenced on 1 January 2014 (“Commencement Date”). The term of the engagement is 3 years from the Commencement Date unless otherwise terminated in accordance with the Employment Agreement.
The Deputy Chairman and Chief Executive Officer shall (amongst other things):
(i) be engaged as a full-time employee of the Company and must donate the whole of his time, attention and skill to the duties of his position and the business of the Company;
(ii) perform his duties in a proper and reasonable manner, with the standard of diligence normally exercised by a person bearing comparable qualifications in the performance of comparable duties, and in accordance with generally accepted practices and standards appropriate to those duties and that industry; and
(iii) obey all reasonable and lawful directions given to him by or under the authority of the Board, and use his best endeavours to promote interests of the Company.
Either party may terminate the agreement without cause by providing the other party no less than6 months notice in writing.
3 Based on a nominal exchange rate (RMB 1:$0.18172) chosen as at 24 February 2014. This exchange rate will fluctuate, and may not be applicable at the time of expiry of these arrangements. Such fluctuations will result in changes to the AUD amount shown above.4 Which equates to $65,418 based on a nominal exchange rate (RMB 1: $0.18172) chosen as at 24 February 2014. This exchange rate will fluctuate, and may not be applicable at the time of expiry of these arrangements. Such fluctuations will result in changes to the AUD amount shown above.
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The Company may terminate the agreement by summary notice to the Deputy Chairman andChief Executive Officer with cause in circumstances considered standard for agreements of this nature.
Inventions, discoveries, designs and developments relating to or capable of being used in the Business which are made by the Deputy Chairman and Chief Executive Officer during his employment by the Company will become the property of the Company and the Deputy Chairman and Chief Executive Officer is obligated to promptly disclose full details of any such invention.
The Deputy Chairman and Chief Executive Officer is also subject to restrictions in relation to thesolicitation of employees and clients, the use of confidential information and being directly or indirectly involved in a competing business for a period of 1 year from termination of the agreement, on terms which are otherwise considered standard for agreements of this nature in Australia.
The Employment Agreement contains additional provisions considered standard in agreements of this nature in Australia.
PRC Executive Director
Mr Zhang, Bin is also appointed as Shanghai Kesheng’s Executive Director, and has concluded aLabour Contract with Shanghai Kesheng. The Labour Contract commenced on 1 July 2013. The term of the engagement is 3 years from 1 July 2013 unless otherwise terminated in accordance with the Labour Contract and laws.
The PRC Executive Director shall (amongst other things):
(i) prudently and honestly protect the assets of Shanghai Kesheng, including tangible and intangible assets and customer information accumulated by Shanghai Kesheng, and the reputation of Shanghai Kesheng;
(ii) to abide by the intellectual property rights and protect the trade secrets of Shanghai Kesheng; and
(iii) to abide by the regulations and requirements of Shanghai Kesheng in connection with the protection of Shanghai’s Kesheng’s information.
Mr Zhang may terminate the agreement without cause by providing Shanghai Kesheng no less than 30 days’ prior notice in writing. Termination of the agreement with Shanghai Kesheng does not automatically result in termination of Mr Zhang’s employment agreement with the Company as Group Executive Officer.
Shanghai Kesheng may terminate the agreement by notice to Mr Zhang in circumstances where Mr Zhang:
(i) materially violates the Shanghai Kesheng’s regulations and rules;
(ii) commence gross misfeasance or engages in malpractice, which causes major damage above RMB 20005 to Shanghai Kesheng;
5 Which equates to approximately $363 based on a nominal exchange rate (RMB 1: $0.18172) chosen as at 24 February 2014. This exchange rate will fluctuate, and may not be applicable at the time of expiry of these arrangements. Such fluctuations will result in changes to the AUD amount shown above.
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(iii) establishes a labour relationship with any other employer during the term of the agreement which has a serious impact on completion of the work assigned to Mr Zhang by this agreement, where Mr Zhang refuses to rectify the situation following notice from Shanghai Kesheng; and
(iv) is involved in any other circumstances stipulated by laws or administrative regulations in the PRC.
Any intellectual property created by Mr Zhang due to his performance of duties or mainly by utilizing Shanghai Kesheng’s physical and technical conditions during the course of his employment by Shanghai Kesheng, and within one year after the labour relationship between Mr Zhang and Shanghai Kesheng terminates, will become the property of Shanghai Kesheng.
Mr Zhang is also subject to restrictions in relation to the use of confidential information of Shanghai Kesheng’s from 1 July 2013 until 2 years following termination of the agreement.
The Labour Contract contains additional provisions considered standard in agreements of this nature in the PRC.
8.2 LEAD MANAGER AGREEMENT
Hong Kong Victor entered into a mandate agreement with BlueMount Capital dated 12 September 2013 (“Lead Manager Agreement”), under which BlueMount Capital was appointed on an exclusive basis for a period of 12 Months to act as the Lead Manager to the Offer and use reasonable endeavours to manage the Offer in accordance with this Prospectus. BlueMountCapital’s role as the Lead Manager does not include any commitment to underwrite the Offer or any part of it.
Fees and expenses
The fees payable by the Group to BlueMount Capital in consideration for performing its role as the Lead Manager and providing the relevant services under the BlueMount Capital Mandate, are: amonthly retainer fee of $15,000 (plus GST) which is capped at three (3) months and a success fee of $60,000 (plus GST ) payable upon the Company being listed on the ASX.
Indemnity
The Company has agreed to indemnify BlueMount Capital (and its affiliates, officers, employees and agents) in respect of loss suffered by or claims made against BlueMount Capital arising from or in connection with the appointment of the BlueMount Capital as the Lead Manager.
8.3 BUSINESS TRANSFER AGREEMENTS
Shanghai Kesheng entered into agreements to purchase the Business and all assets associated with the Business from Shanghai Victor Enterprise Management Co., Ltd. (“Transferor”), being a business transfer agreement dated 1 July 2013 and asset transfer agreement dated 8 August 2013 and a supplementary agreement to the business transfer agreement and asset transfer agreement dated 31 December 2013. Completion of the transfer of the Business and or assets associated with the Business took place in mid-2013. There are some continuing obligations on the Transferor under the supplementary agreement to the business transfer agreement and asset transfer agreement including:
(i) The Transferor agreed to no longer be engaged in any business identical to or similar to the Business.
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(ii) The Transferor agreed to indemnify Shanghai Kesheng, its affiliates and any third party from and against any claims or costs incurred after 1 July 2013 in relation to the Business as a result of any act of the Transferor or its employees, agents or subcontractors prior to 1 July 2013.
(iii) The Transferor undertook that on and from 1 July 2013, neither it nor its shareholders, subsidiaries, branches, affiliates, directors, supervisors, senior management and their direct relatives would directly or indirectly operate any business identical to or similar to the Business or any business in competition with the Business.
(iv) The Transferor agreed to keep Shanghai Kesheng indemnified from any loss arising from any breach of the Transferor’s representations or obligations under this agreement. In addition, the Transferor agreed to assist Shanghai Kesheng with any certain claims which may arise from operating activities prior to 1 July 2013.
(v) For a period of 24 months from 1 July 2013 the Transferor must:
refer exclusively to Shanghai Kesheng any communication (including any correspondence, enquiry, order or notice) which the Transferor receives in connection with the Business;
ensure that its website contains a hypertext link directing all persons making enquiries in relation to the Business at that website to Shanghai Kesheng’s website (www.sinovictor.com); and
if requested by Shanghai Kesheng, introduce representatives of Shanghai Kesheng to customers of the Business and recommend the services of Shanghai Kesheng to those customers.
(vi) The Transferor and its shareholders, subsidiaries, branches, affiliates, directors, supervisors, senior management and their direct relatives shall not directly or indirectly:
use any name intended or likely to be confused with any corporate name, trade name or mark used as part of the Business;
solicit, canvass or secure the custom of a person who is at 1 July 2013 or was within 24 months before 1 July 2013, a customer of the Business or the Transferor in connection with the Business;
represent themselves as being in any way connected with, interested in or associated with the Business (except as its proprietor before 1 July 2013);
use or disclose to their advantage any of the trade secrets, secret or confidential operations, processes or dealings of, or any confidential information relating to the Business or its organisation, finances, transactions, customers or affairs; and
solicit, employ or engage the services of any transferring employee or any other person who becomes an employee of Shanghai Kesheng in connection with the Business.
(vii) In addition, the Group’s Deputy Chairman and Chief Executive Officer Mr Zhang agreed to guarantee the performance of all obligations and the payment of all present and future liabilities of the Transferor under the Business Transfer Agreements. Mr Zhang also agreed to indemnify Shanghai Kesheng on demand in respect of any costs or losses
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suffered or incurred by Shanghai Kesheng arising out of or in connection with any failure of the Transferor to perform any obligations or pay any liability under those agreements.
(viii) The agreements are subject to PRC law and contain other terms which are considered standard for agreements of this nature.
8.4 SALES AGREEMENTS
Shanghai Kesheng enters into short-term non-exclusive arrangements with its distributors for the provision of business management and consulting services by it, including the development of strategic plans, financial management, marketing planning, human relations management and corporate culture improvement, for the distributor and the distributor’s clients. For further information, see Sections 7.1.4, 7.1.5, 7.1.6, 7.1.11 and 7.1.20.
8.5 DEEDS OF ACCESS, INDEMNITY AND INSURANCE
The Company has entered into Deeds of Access, Indemnity and Insurance with each Director and the Company Secretary which confirm each person’s right of access to certain books and records of the Company for a period of seven years after the Director ceases to hold office. This seven year period can be extended where certain proceedings or investigations commence before the seven years expires. The Deeds also require the Company to provide an indemnity for liability incurred as an officer of the Company, to the maximum extent permitted by law.
Pursuant to the Deeds of Access, Indemnity and Insurance, the Company shall arrange and maintain Directors’ and Officers’ Insurance during each Director’s and the Company Secretary’s period of office and for a period of seven years after a Director or Company Secretary ceases to hold office. This seven year period can be extended where certain proceedings or investigations commence before the seven years expires.
The Deeds of Access, Indemnity and Insurance are otherwise on terms and conditions consideredstandard for agreements of this nature in Australia.
8.6 RELATED PARTY LOANS
Hong Kong Victor has entered into the Achieva Loans with a related party of the Group. These loans are all on the same terms and the Company considers all such loans to be on arm’s length terms or more favourable to the Company than arm’s length terms. Accordingly, member approval for the loans has not been sought.
The Achieva Loans are interest free, non-recourse loans and are repayable within 2 years of the agreement (in each case). The earliest of these loans was entered into on 30 September 2013.The Company considers the loans to otherwise be on standard commercial terms.
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The pictures above depict seminars for the Group’s clients. Nb. Property depicted is not owned by the Group.
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SECTION 9 ADDITIONAL INFORMATION
9.1 COMPANY INFORMATION
Victor Group Holdings Limited ACN 165 378 834
Victor Group Holdings Limited was incorporated on 11 September 2013 for the purposes of the Group’s listing on the official list of ASX. The Company is the parent company of Hong Kong Victor (which is wholly-owned) which in turn has a wholly-owned subsidiary (incorporated in the PRC), in Shanghai Kesheng. Together, these companies make up the Group, which conducts the Business.
9.2 RIGHTS AND LIABILITIES ATTACHING TO SHARES
The following is a general description of the more significant rights and liabilities attaching to the Shares. This summary is not exhaustive. Full details of provisions relating to rights attaching to the Shares are contained in the Corporations Act, Listing Rules and the Company’s Constitution. A copy of the Company’s Constitution is available upon request from the Share Registry on1300 737 760 from within Australia and on +61 2 9290 9600 from outside Australia.
Ranking of Shares
At the date of this Prospectus, all shares are of the same class and rank equally in all respects. Specifically, the Shares issued pursuant to this Prospectus will rank equally with Existing Shares.
Voting Rights
Subject to any special rights or restrictions (at present there are none), at any meeting each member present in person or by proxy has one vote on a show of hands, and on a poll has one vote for each share held.
Dividend Rights
Subject to any special rights (at present there are none), any dividends that may be declared by the Company are payable on all Shares in proportion to the amount paid up.
Variation of Rights
The rights attaching to the Shares may only be varied by the consent in writing of the holders of three quarters of the Shares, or with the sanction of a special resolution passed at a general meeting.
Transfer of Shares
Subject to the Company’s Constitution, the Corporations Act or any other applicable laws of Australia and the Listing Rules, the Shares are freely transferable. The Directors may refuse to register a transfer of Shares only in limited circumstances, such as where the Listing Rules require or permit the Company to do so.
General Meetings
Each shareholder is entitled to receive notice of, and to attend and vote at, general meetings of the Company and to receive all notices, accounts and other documents required to be furnished to shareholders under the Company’s Constitution, the Corporations Act and Listing Rules.
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Rights on Winding Up
If the Company is wound up, the liquidator may, with the sanction of a special resolution;
divide among the shareholders the whole or any part of the Company’s property; and
decide how the division is to be carried out between the Shareholders.
Subject to any special rights (at present there are none), any surplus assets on a winding up are to be distributed to Shareholders in proportion to the number of Shares held by them irrespective of the amounts paid or credited as paid.
9.3 CONTINUOUS DISCLOSURE AND DOCUMENTS AVAILABLE FOR INSPECTION
The Company will be a “disclosing entity” for the purposes of Part 1.2A of the Corporations Act. As such, it will be subject to regular reporting and disclosure obligations which will require it to disclose to ASX any information which it is or becomes aware of concerning the Company and which a reasonable person would expect to have a material effect on the price or value of the securities of the Company.
9.4 INTERESTS OF DIRECTORS
Other than as set out below or elsewhere in this Prospectus no Director has or has had, within two years before lodgement of this Prospectus with ASIC:
any interest in the formation or promotion of the Company; or in any property acquired or proposed to be acquired by the Company in connection with its formation or promotion or inconnection with the Offer; or in the Offer; and
no amounts have been paid or agreed to be paid and no benefits have been given or agreed to be given to any Director, either to induce him to become, or to qualify him as a Director, or otherwise, for services rendered by him in connection with the formation or promotion of the Company or the Offer.
Shareholding qualifications
The Directors are not required to hold any Shares under the Constitution of the Company.
Directors’ security holdings
Set out in the table below are details of the Directors’ interests in the Shares of the Company as at the date of this Prospectus.
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DIRECTORS’ SECURITY HOLDINGS
Interests of the Directorsand their related parties1
NumberOf Existing Shares
% of ExistingShares
% of post-Offer Shares*
Mr Zhang, Bin2, 3 0 0% 0%
Mr David P Batten 0 0% 0%
Mr Liu, Xinjie4 0 0% 0%
Mr Frederick C Kempson 0 0% 0%
Mr Wayne V Reid 0 0% 0%
TOTAL 0 0% 0%
Notes:
1. Based on Full Subscription.
2. The Group’s Deputy Chairman and Chief Executive Officer, Mr Zhang, Bin is a director of Daybreak which owns 400,000,000 Existing Shares in the Company, which equates to 80% of the Existing Shares and 76.2% of all post-Offer Shares assuming Full Subscription. For further information see Sections 7.1.10 and 9.13.
3. Mr Zhang, Bin is married to Mrs Zhang, Yixia who is the legal supervisor of Shanghai Kesheng. Mrs Zhang, Yixia receives a salary of RMB 6,0006 per month for fulfilling the role of legal supervisor. For further information see Sections 2.3 and 7.1.9.
4. The Group’s Director Mr Liu, Xinjie is a director of both Achieva and Achieva Capital Management, the latter of which (via its wholly owned subsidiaries, Achieva and DayBreak) indirectly owns 480,000,000 Existing Shares in the Company, which equates to 96% of the Existing Shares and 91.2% of all post-Offer Shares assuming Full Subscriptions. For further information see Section 9.13.
Directors remuneration
The Constitution provides that each Director is entitled to such remuneration from the Company as the Directors decide, but the total amount provided to all non-executive directors must not exceed in aggregate the amount fixed by the Directors prior to the first annual general meeting. The aggregate remuneration for all non-executive directors has been set at an amount of $112,001 per annum by the Directors. The remuneration of the Directors shall not be increased except pursuant to a resolution passed at a general meeting of the Company where notice of the suggested increase shall have been given to Shareholders in the notice convening the meeting. The Directors have resolved that non-executive director’s fees will be $55,000 per annum for the Chairman and $57,001 per annum in aggregate for the other non-executive directors. Theremuneration of the executive Director, being $50,000 per annum, has been fixed by the Board via service agreements, details of which are provided in Section 8.1.
9.5 INTERESTS OF EXPERTS AND ADVISERS
Other than as set out below or elsewhere in the Prospectus, no expert, promoter, or any other person named in this Prospectus as performing a function in a professional, advisory or other capacity in connection with the preparation or distribution of this Prospectus, nor any firm in which any of those persons is or was a partner nor any company in which any of those persons is or was associated with, within two years before lodgement of the Prospectus with ASIC, has:
6 Which equates to approximately $1,090 based on a normal exchange rate (RMB 1:$0.18172) chosen as at 24 February 2014. This exchange rate will fluctuate and may not be applicable at the time of expiry of these arrangements. Such fluctuations will result in changes to the AUD amount shown.
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had any interest in the formation or promotion of the Company or in any property acquired or proposed to be acquired by the Company in connection with its formation or promotion, or in connection with the Offer, or in the Offer; and
received any amounts or benefits or has agreed to be paid benefits for services rendered by such persons in connection with the formation or promotion of the Company or the Offer.
Price Sierakowski acted as legal adviser as to Australian Law. Total fees payable to Price Sierakowski for work done in relation to this Prospectus and other matters are approximately $140,000 (plus GST).
BlueMount Capital (Sydney) Pty Ltd has acted as Lead Manager and corporate advisor to the Issue. Total fees payable to BlueMount Capital (Sydney) Pty Ltd in relation to this Prospectus are approximately $105,000 (plus GST).
Grant Thornton Audit Pty Ltd has prepared the Investigating Accountant’s Report which is included as part of this Prospectus. Total fees payable to Grant Thornton Audit Pty Ltd for work done in relation to this Prospectus are approximately $45,000 (plus GST).
Grant Thornton Australia Limited has prepared the Taxation Report which is included as part of this Prospectus. Total fees payable to Grant Thornton Australia Ltd for work done in relation to this Prospectus are approximately $5,000 (plus GST).
AllBright Law Offices has acted as legal adviser as to PRC Law. Total fees payable for work done in relation this Prospectus are approximately $54,000 (including value added tax in the PRC).
9.6 CONSENTS
The following written consents have been given in accordance with the Corporations Act with respect to the issue of this Prospectus in both paper and electronic form:
Grant Thornton Australia Limited has given, and has not before lodgement of this Prospectus withdrawn, its written consent to be named in this Prospectus as the author of the Taxation Report and to the inclusion of the Taxation Report in Section 10 of this Prospectus in the form and context in which it is named and the Taxation Report is included, together with all references to its name and that report in this Prospectus. Grant Thornton Australia Limited has not authorised or caused the issue of this Prospectus and takes no responsibility for any part of this Prospectusother than any references to it and that report.
Price Sierakowski Pty Ltd trading as Price Sierakowski Corporate has given, and has not before lodgement of this Prospectus withdrawn, its written consent to be named in this Prospectus legal advisers as to Australian Law in the form and context in which it is included. Price Sierakowski has not authorised or caused the issue of this Prospectus and takes no responsibility for any part of this Prospectus other than its report and any references to it.
Grant Thornton Audit Pty Ltd has given, and have not before lodgement of this Prospectus withdrawn, its written consent to be named in this Prospectus as Investigating Accountant and Auditors and to the inclusion of the Investigating Accountant’s Report in Section 6 of this Prospectus in the form and context in which it is named and the Investigating Accountant’s Report is included, together with all references to them and to that report in this Prospectus. Grant Thornton Audit Pty Ltd has not authorised or caused the issue of this Prospectus and take no responsibility for any part of this Prospectus other than any references to it and that report.
BlueMount Capital (Sydney) Pty Ltd has given, and has not before lodgement of this Prospectus withdrawn, its written consent to be named in this Prospectus as Lead Manager and corporate
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advisor in the form and context in which it is included, together with all references to it in this Prospectus. BlueMount Capital (Sydney) Pty Ltd has not authorised or caused the issue of this Prospectus and takes no responsibility for any part of this Prospectus other than any references to it.
AllBright Law Offices has given, and has not before lodgement of this Prospectus withdrawn, its written consent to be named in this Prospectus as legal advisers to PRC Law, including intellectual property and trademark law in the PRC, in the form and context in which it is included, together with all references to PRC Law in this Prospectus. AllBright Law Offices has not authorised or caused the issue of this Prospectus and takes no responsibility for any part of this Prospectus other than its report and any references to it and to PRC Law.
Boardroom Pty Limited has given, and has not before lodgement of this Prospectus withdrawn, itswritten consent to be named in this Prospectus as the Share Registry in the form and context in which it is named, together with all references to it in this Prospectus. Boardroom Pty Limited has had no involvement in the preparation of any part of this Prospectus other than being named as Share Registry. Boardroom Pty Limited has not authorised or caused the issue of this Prospectus and takes no responsibility for any part of this Prospectus other than the references to it.
Achieva has given, and has not before lodgement of this Prospectus withdrawn, its written consent to be named in this Prospectus, including as assisting the Company with the preparation of the Prospectus, in the form and context in which it is included, together with all references to it in this Prospectus. Achieva has not authorised or caused the issue of this Prospectus and takes no responsibility for any part of this Prospectus other than any references to it.
There are a number of persons referred to elsewhere in this Prospectus who have not made statements included in this Prospectus and there are no statements made in this Prospectus on the basis of any statements made by those persons. These persons did not consent to being named in this Prospectus and did not authorise or cause the issue of this Prospectus.
9.7 EXPENSES OF THE OFFER
The expenses of the Offer are expected to comprise the following estimated costs and are exclusive of any GST payable by the Company.
Item of Expenditure FullSubscription
MinimumSubscription
ASX/ASIC fees $94,020 $103,680
Lead Manager fees and commissions $105,000 $105,000
Adviser fees (accounting, legal and other) $293,000 $293,000
Printing, design and miscellaneous $45,000 $45,000
Total $537,020 $546,680
9.8 ELECTRONIC PROSPECTUS
Pursuant to Class Order 00/044 the ASIC has exempted compliance with certain provisions of the Corporations Act to allow distribution of an electronic prospectus and electronic application form on the basis of a paper prospectus lodged with ASIC, and the publication of notices referring to an electronic prospectus or electronic application form, subject to compliance with certain conditions.
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If you have received this Prospectus as an electronic Prospectus, please ensure that you have received the entire Prospectus accompanied by the Application Form. If you have not, please contact the Lead Manager on 1300 70 70 10. Alternatively, you may obtain a copy of the Prospectus from the Company’s website at www.sinovictor.com.
The Company reserves the right not to accept an Application Form from a person if it has reason to believe that when that person was given access to the electronic Application Form, it was not provided together with the electronic Prospectus and any relevant supplementary or replacement prospectus or any of those documents were incomplete or altered.
9.9 FORECASTS
There are significant uncertainties associated with forecasting future revenues and expenses of the Company. In light of uncertainty as to timing and outcome of the Group’s strategies as well as uncertain macro market and economic conditions in the Company’s markets, the Company’s performance in any future period cannot be reliably estimated. The Group has a short trading history, with the Business having been recently acquired via the Business Transfer Agreementsas detailed in Section 8.3. On this basis and after considering ASIC Regulatory Guide 170, the Directors do not believe that they have a reasonable basis to reliably forecast future earnings and accordingly have not included the forecast in this Prospectus.
9.10 LITIGATION
To the Directors knowledge there is no material litigation against the Company or initiated by theCompany as at the date of this Prospectus.
9.11 TAXATION
It is the responsibility of all persons to satisfy themselves of the particular taxation treatment thatapplies to them in relation to the Offer, by consulting their own professional tax advisers. Neither the Company nor any of its Directors or officers accepts any liability or responsibility in respect of the taxation consequences of the matters referred to above. Please also see the Taxation Report at Section 10.
9.12 FOREIGN SELLING RESTRICTIONS
No action has been taken to register or qualify Shares that are subject to the Offer or otherwise permit a public offering of the Shares in any jurisdiction outside Australia.
People’s Republic of China
This Prospectus may not be circulated or distributed in the PRC and the Shares offered by thisProspectus have not been offered or sold, and will not be offered or sold to any person for re-offering or resale, directly or indirectly, to any resident of the PRC except pursuant to applicable laws and regulations of the PRC.
The contents of this Prospectus have not been reviewed by any PRC regulatory authority. Youare advised to exercise caution in relation to the Offer. If you are in doubt about any contents of this Prospectus, you should obtain independent professional advice.
For the purpose of the paragraphs above, the PRC does not include Taiwan and the specialadministrative regions of Hong Kong and Macau.
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Hong Kong
This Prospectus has not been, and will not be, registered as a prospectus under the CompaniesOrdinance (Cap. 32) of Hong Kong (the “Companies Ordinance”), nor has it been authorised by the Securities and Futures Commission in Hong Kong pursuant to the Securities and Futures Ordinance (Cap. 571) of the Laws of Hong Kong (the “SFO”). No action has been, and will not be,taken in Hong Kong to authorise or register this Prospectus or to permit the distribution of this Prospectus or any documents issued in connection with it. Accordingly, the Shares have not been and will not be offered, sold or traded in the Stock Exchange of Hong Kong by means of any document, other than:
to ‘professional investors’ (as defined in the SFO); or
in other circumstances that do not result in this Prospectus being a ‘prospectus’ (as defined in the Companies Ordinance) or that do not constitute an offer to the public of Hong Kongwithin the meaning of that ordinance.
No advertisement, invitation or document relating to the Shares has been or will be issued, or has been or will be in the possession of any person for the purpose of issue, in Hong Kong or elsewhere that is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the SFO of Hong Kong) other than with respect to Shares that are or are intended to be disposed of only to persons outside Hong Kong or only to professional investors (as defined in the SFO and any rules made under that ordinance). No person allotted Shares may sell, or offer to sell, such shares in circumstances that amount to an offer to the public in Hong Kong within six months following the date of issue of such Shares.
The contents of this Prospectus have not been reviewed by any Hong Kong regulatory authority. You are advised to exercise caution in relation to the Offer. If you are in doubt about any contents of this Prospectus, you should obtain independent professional advice.
9.13 SUBSTANTIAL HOLDERS
Those Shareholders holding 5% or more of the Shares on issue as at the date of this Prospectus (and their post offer/shareholdings) are set out in the table below.
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On completion of the Offer and assuming that no existing substantial Shareholders subscribe and receive additional Shares pursuant to the Offer:
Full SubscriptionShareholder Shares %
Daybreak 400,000,000 76.2
Achieva 80,000,000 15.2
Minimum SubscriptionShareholder Shares %Daybreak 400,000,000 77.7
Achieva 80,000,000 15.5
The Company will announce to ASX details of its top 20 Shareholders (following completion of the Offer) prior to the Shares commencing trading on ASX.
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SECTION 10 TAXATION REPORT
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SECTION 11 DIRECTORS’ AUTHORISATION
The Prospectus is issued by the Company and its issue has been authorised by a resolution of the Directors.
In accordance with section 720 of the Corporations Act, each Director has consented to the lodgement of this Prospectus with ASIC and has not withdrawn that consent.
Signed for and on behalf of Victor Group Holdings Limited.
Mr Zhang, BinDeputy Chairman and Chief Executive Officer
27 February 2014
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The pictures above depict seminars for the Group’s clients. Nb. Property depicted is not owned by the Group.
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SECTION 12 DEFINITIONS
Achieva means Achieva Capital Holdings Limited, a company incorporated in the Seychelles with the Republic of Seychelles, being a private equity firm based in Shanghai in the PRC, which is ultimately controlled by Achieva Capital Management.
Achieva Capital Management means Achieva Capital Management Limited, a company incorporated in the British Virgin Islands, being the owner of Achieva and Daybreak.
Achieva Loans means the loans of $360,0007 to Hong Kong Victor by Achieva as detailed in Section 8.6.
Applicants means persons to whom an Offer is made under this Prospectus and who apply for Shares under the Offer.
Application Monies means the amount of money in dollars and cents payable for Shares at 20cents per Share pursuant to this Prospectus.
Application Form means the Application Form attached to, and forming part of this Prospectus.
ASIC means Australian Securities and Investments Commission.
ASX means ASX Limited (ABN 98 008 624 691) operating as the Australian Securities Exchange.
Audited Period means the period of 3 months ending on 30 September 2013.
BlueMount Capital means BlueMount Capital (Sydney) Pty Ltd of Level 10, 8-10 Loftus Street, Sydney, New South Wales, Australia.
Board means the Board of Directors of the Company.
Business means the business of the Group, which is the provision of business advice and enterprise management consulting.
Business Transfer Agreements means the business transfer agreement, the asset transfer agreement and the supplementary agreement, which give effect to the transfer of the Business to Shanghai Kesheng.
CHESS means ASX Clearing House Electronic Sub-register System operated in accordance with the Listing Rules and the ASX Settlement and Transfer Corporation Pte Ltd (ACN 008504532).
Closing Date means the date by which Application Form must be lodged for the Offer, as set out in the “Key Offer Details” of this Prospectus (subject to the Closing Date being varied by the Company).
Company means Victor Group Holdings Limited (ACN 165 378 834).
Constitution means the constitution of the Company.
Corporations Act means the Corporations Act 2001 (Cth).
7 The AUD amount shown above is based on the exchange rate set out at Section 5.5 (see paragraph (s) of Note 1). This exchange rate will fluctuate, and may not be applicable at the time of expiry of these arrangements. Such fluctuations will result in changes to the AUD amounts shown above.
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Daybreak means Daybreak Corporation Limited, a company incorporated in Hong Kong, which is ultimately controlled by Achieva Capital Management.
Directors means the directors of the Company.
Existing Shares means the 500,000,000 Shares in the Company on issue at the date of this Prospectus.
Exposure Period means the period of 7 days after the date of lodgement of this prospectus which period may be extended by ASIC by up to a further 7 days pursuant to section 727(3) of the Corporations Act.
Financial Year means a period of 12 months ending on 30 June.
Full Subscription means the maximum subscription amount of $5,000,000 by the issue of 25,000,000 Shares at 20 cents each pursuant to this Prospectus.
Group means the Company and the Subsidiaries and Group Company means any of them.
Hong Kong Victor means Hong Kong Victor International Enterprise Management Co., Ltd (incorporated in Hong Kong).
Issue means the issue of Shares in accordance with the Offer.
Lead Manager means BlueMount Capital.
Lead Manager Agreement means the agreement between Hong Kong Victor and BlueMount Capital, as summarised at Section 8.2.
Listing Rules means the listing rules of ASX.
Minimum Subscription means the raising of $3,000,000 million by the acceptance of 15,000,000million Shares at 20 cents each pursuant to this Prospectus.
NED means non-executive Director.
Offer means the offer of Shares pursuant to this Prospectus.
Offer Price means 20 cents per share.
Official List means the official list of ASX.
Opening Date means the opening date of the Offer as set out in the “Key Offer Details”.
PRC means the People’s Republic of China.
Price Sierakowski Corporate means Price Sierakowski Pty Ltd (ABN 83 662 050 668) trading as Price Sierakowski Corporate.
Prospectus means this prospectus dated 27 February 2014.
Shanghai Kesheng means Kesheng Enterprise Management and Consulting (Shanghai) Co., Ltd (incorporated in the PRC).
Share means a fully paid ordinary share in the capital of the Company.
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Shareholder means a holder of Shares.
Share Registry means Boardroom Pty Limited (ABN 14 003 209 836).
Subsidiaries means Hong Kong Victor and Shanghai Kesheng, and Subsidiary means either of them.
WST means Perth Western Australian local time.
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