Decheng Technology AG

Transcription

1 Prospectus Dated 30 May 2016 for the public offering in Germany and Luxembourg of 3,000,000 newly issued ordinary bearer shares from a capital increase for a contribution in cash to be resolved by an extraordinary general shareholders meeting of the Company presumably on 20 June 2016 (the New Shares ) and for admission to trading on the regulated market segment (Regulierter Markt) of the Frankfurt Stock Exchange (General Standard) of 30,000,000 existing ordinary bearer shares (the Existing Shares ) and of up to 3,000,000 New Shares -each such share with no par value and a notional value of Euro ( EUR ) 1.00 each and full dividend rights for the financial year of Decheng Technology AG Cologne, Germany International Securities Identification Number (ISIN): DE000A1YDDM9 German Securities Identification Number (WKN): A1YDDM Ticker Symbol: 333 Global Coordinator, Lead Manager, Underwriter and Bookrunner ACON Actienbank AG This document constitutes a prospectus for the purposes of the public offerings in Germany and Luxembourg and listing of the shares on the regulated market (Regulierter Markt) of the Frankfurt Stock Exchange (the Prospectus ). This Prospectus has been prepared in the English language with a German-language summary in accordance with the Commission Regulation (EC) No 809/2004 of 29 April 2004 and conforms to the requirements of the German Securities Prospectus Act (Wertpapierprospektgesetz). This Prospectus has been approved by the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht BaFin ) after a review for completeness of the Prospectus, including a review for coherence and comprehensibility of the presented information, according to section 13 subsection 1 of the German Securities Prospectus Act, and notified to the competent authority in Luxembourg in accordance with section 18 subsection 1 of the German Securities Prospectus Act and the European passport mechanism set out in the Prospectus Directive (No 2003/71/EC). Page 1

2 TABLE OF CONTENTS 1. SUMMARY... 8 Section A Introduction and warnings... 8 Section B Issuer... 8 Section C Securities Section D Risks Section E Offer GERMAN TRANSLATION OF THE SUMMARY (ZUSAMMENFASSUNG) Abschnitt A Einleitung und Warnhinweise Abschnitt B Emittent Abschnitt C Wertpapiere Abschnitt D Risiken Abschnitt E Angebot RISK FACTORS Risks related to DECHENG s Operations Risks related to Conducting Business in the PRC Risks Related to the Offering GENERAL INFORMATION Responsibility Statement Subject Matter of this Prospectus Statutory Auditors Documents Available for Inspection Statements Relating to Future Events, Statistical Data, Market Data and Estimates Note Regarding Financial Data and Currency Third Party Data THE OFFERING Subject Matter of the Offering Offering Period, Subscription, Offer Price and Number of Allotted Shares Rights Attached to the Offered Shares Projected Timetable for the Offering Information Concerning the Shares in the Company Allotment Criteria Page 2

3 5.7 Stock Exchange Admission and Commencement of Trading Delivery and Settlement Designated Sponsor Consent to the use of the Prospectus Market Protection Agreements (Lock up) REASONS FOR THE OFFERING, USE OF ISSUE PROCEEDS, ISSUE COSTS AND INTERESTED THIRD PARTIES Issue Proceeds and Costs Reasons for the Offering Use of the Issue Proceeds Interested Parties Involved in the Offering DIVIDEND POLICY; EARNINGS PER SHARE Dividend Rights and Dividend Policy Dividends and Earnings per Share GENERAL DESCRIPTION OF THE SHARES Class of Shares, Voting Rights Certification of Shares Dividend Rights Takeover Offers, Exclusion of Minority Shareholders (Squeeze- Out) and Shareholding Notification Requirements Transferability of the Shares Notices Securities Identification Number, Stock Symbol, Ticker Symbol Paying Agent DILUTION CAPITAL STRUCTURE AND NET FINANCIAL LIABILITIES Capitalization and Indebtedness Contingent and Indirect Liabilities Borrowing Requirements Working Capital Statement Significant Changes SELECTED FINANCIAL INFORMATION MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview of Business Key Factors affecting Results of Operations Results of Operations Balance Sheet Data Page 3

4 12.5 Liquidity and Capital Resources Off-Balance Sheet and other Arrangements Basis of Preparation Critical Accounting Policies Additional Information from the Financial Statements of the Company Additional Information from the Financial Statements of DECHENG HK BUSINESS ACTIVITIES OF DECHENG Overview History of DECHENG Competitive strength Strategies Products Production Quality Assurance Environmental Protection Research and Development (R&D) Intellectual Property Rights Information Technology Licenses and Permits Sales and Marketing Major Customers Raw Materials and Suppliers Inventory Management Credit Management Awards and Recognitions Employees Business Locations, Property, Plant and Equipment Insurances Material Contracts Loan Agreements / Credit Line Agreements Mortgage/Guarantee Agreements Legal Proceedings Investments MARKET ENVIRONMENT AND COMPETITIVE SITUATION Introduction Economic Growth in the PRC Page 4

5 14.3 Urbanization in the PRC Disposable Income of urban and rural households in the PRC Retail sales of consumer goods in the PRC Overview of the global polyurethane industry Analysis of the PU industry in the PRC Overview of PU for textile applications in the PRC Overview of PU for synthetic leather applications in the PRC REGULATORY ENVIRONMENT PRC Legal System The General Principles of the Civil Law PRC Company Law M&A Provisions Foreign Investment Regulations Foreign Exchange Regulation Dividend Distribution by WFOE Taxation of Dividends received from PRC in Hong Kong PRC Tax Laws Tort Liability Law Product Liability Law Protection of Intellectual Property Rights Labor Law The PRC Land System Environmental Laws Laws and regulations on production safety Other National and Provincial Level Laws and Regulations GENERAL INFORMATION ON THE COMPANY AND DECHENG Incorporation, Entry in the Commercial Register, Company Name and Registered Office Financial Year, Auditor and Duration Current Structure of DECHENG Restructuring of DECHENG and Corporate History Share Transfer and Capital Increase by Contribution in Kind (Sachkapitalerhöhung) Current Shareholder Structure of the Company Notices SHAREHOLDER STRUCTURE OF THE COMPANY BEFORE AND AFTER THE OFFERING Page 5

6 18. INFORMATION ON THE SHARE CAPITAL OF THE COMPANY AND GENERAL RULES Issued Share Capital Development of Share Capital Authorized Share Capital General Rules on the Increase of Share Capital General Rules on Subscription Rights General Rules Relating to Use of Profits and Dividend Payments General Rules Relating to a Liquidation of the Company CORPORATE BODIES AND MANAGEMENT Overview Management Board (Vorstand) Senior Management Supervisory Board (Aufsichtsrat) Specific Information on the Members of the Supervisory Board (Aufsichtsrat), the Management Board (Vorstand) and the Senior Management General Shareholders Meeting (Hauptversammlung) Corporate Governance Code TRANSACTIONS AND LEGAL RELATIONS WITH RELATED PARTIES Related Parties Related Party Transactions TAXATION IN GERMANY Taxation of the Company Taxation of Shareholders Taxation of Dividends Taxation of Capital Gains Inheritance and Gift Tax Other Taxes TAXATION IN LUXEMBOURG Taxation of Income Derived from and Capital Gains Realized on the Shares Held by Luxembourg Residents Other Taxes UNDERWRITING Underwriting Agreement Commissions and Fees Conditions Precedent, Termination Page 6

7 23.4 Indemnification Selling and Transfer Restrictions RECENT DEVELOPMENTS AND OUTLOOK FINANCIALINFORMATION F GLOSSARY.. G SIGNATURE. S-1 Page 7

8 1. SUMMARY Summaries are made up of disclosure requirements known as Elements. These elements are numbered in Sections A E (A.1 E.7). This summary contains all the Elements required to be included in a summary for this type of securities and issuer. Because some Elements are not required to be addressed, there may be gaps in the numbering sequence of the Elements. Even though an Element may be required to be inserted in the summary because of the type of securities and issuer, it is possible that no relevant information can be given regarding the Element. In this case a short description of the Element is included in the summary with the mention of not applicable. Section A Introduction and warnings A.1 Warnings This summary should be read as an introduction to the Prospectus. Any decision to invest in the securities should be based on consideration of the Prospectus as a whole by the investor. In the event a claim relating to the information contained in this Prospectus is brought before a court, the plaintiff investor may, under the respective national legislation of the relevant member state of the European Economic Area ( EEA ), be required to bear the costs of translating this Prospectus before legal proceedings are commenced. Decheng Technology AG, with its registered office in Cologne, Federal Republic of Germany ( Germany ) (the Company and together with its direct and indirect subsidiaries DECHENG or the Group ) as well as ACON Actienbank AG, Heimeranstraße 37, Munich, Germany ( Global Coordinator or Underwriter or ACON ) assume responsibility for the contents of this summary, including the German translation hereof, pursuant to section 5 subsection 2b no. 4 of the German Securities Prospectus Act (Wertpapierprospektgesetz - WpPG). Those persons who are responsible for the summary, including any translation thereof, or for the issuing thereof, can be held liable, however, only if this summary is misleading, incorrect or contradictory when read together with other parts of this Prospectus or it does not provide, when read together with the other parts of the Prospectus, all necessary key information. A.2 Consent for use of the prospectus, use of prospectus during offering period, conditions for use and note for the investors The consent of the Company regarding the use of the Prospectus in Germany and Luxembourg for a sale and placement of securities has been granted to ACON Actienbank AG, Heimeranstraße 37, Munich, Germany (also the Lead Manager ). The consent to the use of the Prospectus by the Lead Manager is given for the period which commences on 6 June 2016 and ends on 20 June 2016 ( Offering Period ). In the event of an offer being made by the Lead Manager, the Lead Manager will provide information to investors on the terms and conditions of the offer at the time the offer is made. Section B Issuer B.1 Legal and commercial name B.2 Domicile / legal form / legislation / country of incorporation The legal name of the Company is Decheng Technology AG. The Company acts under the commercial name Decheng Technology AG. The registered office (Satzungssitz) of the Company is in Cologne, Germany and the Company is registered with the commercial register of the local court (Amtsgericht) of Cologne under the registration number HRB The business address is c/o RSM Altavis GmbH, Martin-Luther-Platz 26, Düsseldorf, Germany. Page 8

9 The Company is a German stock corporation (Aktiengesellschaft). The legislation under which the Company operates is German Law. Country of incorporation is Germany. B.3 The Issuer s current operations and its principal activities, including the main categories of products sold and/or services performed and identification of the principal markets in which the Issuer competes The Company The current operations and principal activities of the Company are the management of companies and the administration of interests in companies, in particular companies active in the following business fields: development, production and distribution of polyurethane products. The operations of the Company include in particular the acquisition, holding and administration as well as the sale of participations in companies, their combination under common management and the provision of support and advice to them, including the provision of services on behalf of such companies. The Company may itself be directly active in the business fields specified above. The Group The Company is the ultimate holding company of DECHENG. DECHENG is a Chinese polyurethane ( PU ) resin producer. Polyurethane resins of DECHENG are used to add properties to customers textiles and leathers such as waterproofness and flame resistance as well as a range of other enhancing features. Polyurethane resin oil based products as produced by DECHENG are (i) single as well as two liquid type polyurethane resins for dry fabrics, (ii) polyurethane produced by wet winding technology and (iii) polyurethane resin for fiber coating. DECHENG produces its polyurethane resins from methylene diphenyl diisocyanate (MDI), and toluene diisocyanate (TDI), with polyester polypol mixes. DECHENG also produces bridging agents and accelerator additives which are combined with DECHENG s polyurethane resins by leather and textile customers. DECHENG s resin products are used as product enhancement mainly in the textile and leather industry. Applications for the textile industry are in particular outdoor supplies, waterproof jackets and windbreakers, fast dry clothing, tents, backpacks, sleeping bags and mats. Applications for the leather industry are in particular leather products such as leather sofas, leather clothing, shoes and footballs. The bridging agents and accelerator additives, which are produced, serve the purpose of strengthening the functions of the resin products, e.g. increasing the stickiness to textiles or facilitating the dryness of the resin. DECHENG sells its products only in the Chinese market, mainly directly to textile and leather manufacturers in Fujian, Guangdong, Zhejiang, Jiangsu, Guangxi and Shanghai. The revenue generated from polyurethane resin and additives products increased from Euro ( EUR ) million in the financial year ( FY ) 2013, to EUR million in FY 2014 as well as to EUR million in FY 2015, representing a compounded annual growth rate ( CAGR ) of 34.11%. DECHENG s profit after tax for FY 2013, FY 2014 and FY 2015 was EUR 8.46 million, EUR million as well as EUR million respectively, representing a CAGR of 45.27%. DECHENG s operating facilities are located at Pu an Leather Center, Quangang District, Quanzhou City, Fujian Province, Postal Code , People s Republic of China ( PRC or China ). DECHENG s production facilities have generated a total output of approx million kilogram ( kg ) of polyurethane resin and 0.64 million kg of additives in FY Page 9

10 As at 31 December 2015, DECHENG employed 123 employees. Until the date of this Prospectus, no material change in the number of employees has occurred. Strengths The Company believes that the following strengths are the main drivers of its future growth: Strategies Modern production technology Strong R&D expertise Good working relationship with customers Strong marketing and sales team Dedicated and experienced management team DECHENG is pursuing the following strategic objectives: Geographic expansion and strive for a greater market share Functional expansion and development of new products Increase of brand awareness Further strengthening of R&D Expertise Expansion of production facilities B.4a Most significant recent trends affecting the issuer and the industries in which it operates Growing industry in China The annual demand of the PU resin industry in China grew continuously from 6.7 million tons in 2011 to 9.4 million tons in 2015 at a CAGR of 8.8% (Source: Market research report Polyurethane Resin Industry, dated March 2016, prepared by Frost & Sullivan GIC Malaysia Sdn Bhd ( Market Research Report )). However, the annual growth rate of demand slowed down in Growing demand for textile in international and domestic market In 2014, China stood as the world s largest exporter of textiles, accounting for 35.6% of global textile exports. Textiles export grew at a CAGR of 9.8% from United States dollar ( USD ) billion in 2010 to USD billion in Revenue in China s garment industry, both wholesale and retail, also grew strongly at a CAGR of 9.5% from Renminbi ( RMB ) billion (approx. EUR 73.6 billion) in 2010 to RMB billion (approx. EUR billion) in 2014 (Source: Market Research Report). Growing demand for synthetic leather By 2014, China s production capacity accounted for more than 80% of the total global synthetic leather output (Source: Market Research Report). Chinese consumption for PU synthetic leather products experienced strong growth at a CAGR of 12.3% from 3.03 billion square meters ( sqm ) in 2010 to 4.29 billion sqm in Among the various synthetic leather products, in 2013, leather shoes represented the largest synthetic leather end-application market (at 37.4%), followed by leather furniture (18.1%), and leather clothing (16.3%). However, leather clothing was the fastest-growing end-application market with a CAGR of 28.0% from 2010 to 2013, followed by car interiors (11.3%) and leather shoes (10.9%) (Source: Market Research Report). Page 10

11 B.5 Description of the Issuer and its position within the group The Company is the ultimate holding company of the Group and the sole shareholder of Hong Kong De Cheng Holding Company Limited ( DECHENG HK ) being a limited liability company incorporated under the laws of Hong Kong. DECHENG HK is an intermediate holding company and the sole shareholder of Quanzhou De Cheng Tech Resin Co., Ltd ( DECHENG PRC ) being incorporated as a limited liability company under the laws of the PRC. The operational business of DECHENG is exclusively carried out by DECHENG PRC with its business address at Pu an Leather Center, Quangang District, Quanzhou City, Fujian Province, PRC. The current structure of DECHENG is shown in the chart below: Decheng Technology AG (Germany) 100% Hong Kong De Cheng Holding Company Limited (Hong Kong) - DECHENG HK - 100% Quanzhou De Cheng Tech Resin Co., Ltd (PRC) - DECHENG PRC - B.6 Persons who, directly or indirectly, have an interest in the issuer s capital or voting rights As of the date of this Prospectus, the Company s share capital amounts to EUR 30,000,000 divided into 30,000,000 no par value ordinary bearer shares (Inhaber-Stückaktien) ( Existing Shares ) with a structure of the following existing shareholders ( the Existing Shareholders ) as follows: Existing Shareholder Number of Shares % Mr. ZHU Xiaofang (1) 20,430, Chen Capital Limited S.à r.l. (2) 1,470, Asia Small Capital V Limited S.à r.l. (3) 1,470, South China Fund II Limited S.à r.l. (4) 1,470, All-Time-Wonderful Limited (5) 2,049, Rongshang Limited (6) 2,049, Mr. OOi Guan Hoe (7) 1,062, Total 30,000, (1) Mr. ZHU Xiaofang is a Hong Kong resident with resident address at: Flat J 24/F BLK 4, Bauhinia Garden, Tseung Kwan O NT, Hong Kong. (2) Chen Capital Limited S.à r.l. is a company incorporated under the laws of Luxembourg with its business address at: 7 rue Robert Stümper, 2557 Luxembourg. Sole shareholder is Mr. CHEN Huocan. Page 11

12 (3) Asia Small Capital V Limited S.à r.l. is a company incorporated under the laws of Luxembourg with its business address at: 7 rue Robert Stümper, 2557 Luxembourg. Sole shareholder is Mr. WU Qingquan. (4) South China Fund II Limited S.à r.l. is a company incorporated under the laws of Luxembourg with its business address at: 7 rue Robert Stümper, 2557 Luxembourg. Sole shareholder is Mr. ZHU Jianyang. (5) All-Time-Wonderful Limited is a company incorporated under the laws of the British Virgin Islands with the Company Number and with its business address at: P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands. Sole shareholder is Mr. QIAN Jiangang. (6) Rongshang Limited is a company incorporated under the laws of the British Virgin Islands with the Company Number and with its business address at: P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands. Sole shareholder is Mr. ZHU Yufang. (7) Mr. OOi Guan Hoe is a Malaysian resident with resident address at: 89, Adora, 2A Persiaran Residen, Desa Parkcity, Kepong, Kuala Lumpur, Malaysia. Each bearer share representing EUR 1.00 of the share capital and each vested with full dividend rights for the financial year Each share confers one vote in the Company s general shareholders meeting. Different voting rights of the issuer s major shareholders Whether the issuer is directly or indirectly owned or controlled and by whom and description of the nature of control B.7 Selected historical financial information Not applicable. Mr. ZHU Xiaofang as current direct majority shareholder of the Company and the other Existing Shareholders do not have different voting rights. Mr. ZHU Xiaofang currently holds directly 68.10% of the shares in the Company and the voting rights in the Company and therefore with this majority, Mr. ZHU Xiaofang controls the Company and has substantial influence in the general shareholders meeting and in the resolutions presented to the general shareholders meeting. The Company was founded as a shelf company (Vorratsgesellschaft) on 31 July 2013 and incorporated by registration in the commercial register (Handelsregister) of the local court (Amtsgericht) of Munich on 13 February The Company disclosed the economic new formation (wirtschaftliche Neugründung) to the commercial register (Handelsregister) of the local court (Amtsgericht) of Cologne following the acquisition of all shares of the Company by Mr. ZHU Xiaofang. By way of further restructuring measures, the Group structure as set out in Section B.5 above was established. The operative business of DECHENG is exclusively carried out by DECHENG PRC, which is an indirect wholly owned subsidiary of the Company. All shares in DECHENG PRC are directly held by DECHENG HK which has been incorporated on 15 August The Company is the sole shareholder of DECHENG HK. DECHENG PRC was during the reporting period the only operating subsidiary of DECHENG. Hence in order to present the business, financial condition and results of operations for the last three financial years in relation to the business of DECHENG, the Company has prepared single entity financial statements of DECHENG PRC as at and for the financial years ended on 31 December 2013 ( FY 2013 ), 31 December 2014 ( FY 2014 ) and 31 December 2015 ( FY 2015 ) in accordance with International Financial Reporting Standards and International Accounting Standards and Interpretations as endorsed for application in the EU ( IFRS ) and consolidated financial statements of Page 12

13 DECHENG HK as at and for the financial year ended on 31 December 2015 in accordance with IFRS (together the Annual Financial Statements ). The Annual Financial Statements were audited by MSW GmbH Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft, Straße des 17. Juni , Berlin, Germany ( MSW GmbH ). Furthermore, the Company has prepared its single entity financial statements in accordance with IFRS for the financial year ended on 31 December 2015 with respective comparative information and in accordance with the German Commercial Code (Handelsgesetzbuch) for the financial years ended on 31 December 2013, 31 December 2014 and 31 December The single entity financial statements were audited by MSW GmbH. The selected financial information, which is reflected in this section, was derived from the aforementioned financial statements. The aforementioned financial statements of DECHENG are, apart from the single entity financial statements of the Company for the financial years ended on 31 December 2013, 31 December 2014 and 31 December 2015 in accordance with the German Commercial Code (Handelsgesetzbuch), not the legally required financial statements of the Company, but have been prepared on a voluntary basis for the purpose of this Offering. The purpose of these financial statements is to put the investor in the position to better compare the development of the business, financial condition and the results of operations of DECHENG over the last three years. The following figures were subject to rounding adjustments that were carried out according to established commercial standards. As a result, the figures stated in a table may not exactly add up to the total values that may also be stated in the table Page 13

14 Selected Financial Statement Data DECHENG PRC All figures below are taken from the financial statements of DECHENG PRC (in EUR) Selected Statement of Comprehensive Income Revenue 38,785,440 (audited) 49,442,710 69,759,801 Cost of sales -25,963,199-31,769,960-43,054,665 Gross profit 12,822,241 17,672,750 26,705,136 Other income 44, , ,037 Selling and distribution expenses -194, , ,342 Administration expenses -1,253,043-1,120,619-2,475,675 Finance result -151, , ,697 Profit before tax 11,268,072 16,340,621 24,015,459 Tax expense -2,808,327-4,024,735-6,162,269 Profit after tax 8,459,745 12,315,886 17,853, December (audited) Selected Statement of Financial Position Non-current assets 3,095,824 2,998,502 2,718,334 Current assets 17,839,728 28,735,406 41,147,674 Total assets 20,935,552 31,733,908 43,866,008 Total equity 13,687,000 20,874,842 30,961,867 Non-current liabilities Current liabilities 7,248,552 10,859,066 12,904,141 Total liabilities 7,248,552 10,859,066 12,904,141 Total Equity and liabilities 20,935,552 31,733,908 43,866, (audited) Selected Statement of Cash Flow Profit before taxation 11,268,072 16,340,621 24,015,459 Operating profit before working capital changes 11,867,290 16,961,237 24,652,465 Net cash from operating activities 7,656,731 12,672,052 19,051,609 Net cash for investing activities -124,720 40,920 75,727 Net cash for financing activities -4,118,887-6,210,519-8,068,011 Net (decrease)/increase in cash and cash equivalents 3,413,124 6,502,453 11,059,325 Cash and cash equivalents at end of the financial year/period 11,306,180 19,867,121 31,748, Dezember Other selected Financial Data (unaudited) (1) EBIT(2) 11,448,308 16,550,555 24,274,326 EBIT margin(3) 29.5% 33.5% 34.8% Net profit margin(4) 21.8% 24.9% 25.6% Number of employees at end of the financial year/period (1) Unaudited information provided by the Company. (2) EBIT = Profit before taxation plus finance cost. (3) EBIT divided by revenue multiplied by 100. (4) Profit after Tax (Net Profit) for the period divided by revenue multiplied by 100. Page 14

15 Decheng Technology AG All figures below are taken from the IFRS financial statements of Decheng Technology AG. ASSETS 31 Dec Dec EUR EUR Current assets Cash and cash equivalents 12,500 12,500 12,500 12,500 EQUITY AND LIABILITIES 31 Dec Dec EUR EUR Equity Issued capital 50,000 50,000 Not fully paid capital (37,500) (37,500) 12,500 12,500 12,500 12,500 Significant changes to the issuer's financial condition and operating results during and subsequent to the period covered by the historical key financial information Revenue increased by 27.48% and 41.09% in FY 2014 and FY 2015 respectively. Cost of sales increased by 22.37% and 35.52% in FY 2014 and FY 2015 respectively which is in line with the increase in sales. Gross profit increased by 37.83% and 51.11% in FY 2014 and FY 2015 respectively which is in line with the increase in sales. The main reason for the increase in sales and gross profit for the past 3 years is a successful research and development, proven business model coupled with good customer feedback on DECHENG's products. The sales volume of DECHENG's products has increased by over 22.14% for the 3 months financial period ended 31 March 2016 (2016/Q1) compared to the 3 months financial period ended 31 March 2015 (2015/Q1). Due to the drop in oil based raw material prices, the selling price for most of DECHENG`s products though decreased resulting in a decrease of revenue by 6.84% in RMB (10.56% in EUR) for the same period. However, since the cost of sales for this period has also decreased by 6.62% in RMB (10.35% in EUR) compared to 2015/Q1, which is in line with the decrease in revenue and drop in raw material prices, the gross profit margin remained stable for 2016/Q1 at 39.30% compared to 39.44% for 2015/Q1. Crude oil prices have started to increase again so that this will have again a corresponding effect on the upcoming revenues for the FY The figures regarding 2016/Q1 and 2015/Q1 are unaudited and have been provided by the accounting department of DECHENG. Page 15

16 The Company was incorporated with a share capital of EUR 50,000 contributed in cash. No operational income of the Company was generated in the reporting period up to 31 December On 2 March 2016, the outstanding share capital in the amount of EUR 37,500 was fully paid in. On 25 April 2016, the Existing Shareholders entered into a contribution agreement (Einbringungsvertrag) with the Company, whereby they undertook to transfer 100% of the shares in DECHENG HK, i.e. 10,000 shares, to the Company against the issue of 29,950,000 new no par value ordinary bearer shares (Inhaber-Stückaktien) in the Company to the Existing Shareholders in relation to their shareholding ratio. The contribution agreement and the capital increase by way of contribution in kind (Sachkapitalerhöhung) were approved by an extraordinary shareholders meeting of the Company on 26 April 2016 and have been registered with the commercial register (Handelsregister) of the local court (Amtsgericht) of Cologne on 12 May Apart from the abovementioned and the payment of dividend in the amount of RMB 76,500,000 (approx. EUR 11,063,000) from DECHENG HK to Mr. ZHU Xiaofang, no significant change has occurred with respect to the financial condition or operating results of DECHENG since 31 December 2015 until the date of this Prospectus. B.8 Pro forma financial information B.9 Profit forecast or estimate B.10 Qualifications in the audit reports B.11 Insufficiency of the issuer s working capital for its present requirements Not applicable; no pro forma financial information are provided. Not applicable; no profit forecasts or estimates are provided. Not applicable; there are no qualifications in the audit reports. Not applicable; DECHENG s working capital is in the opinion of the Company sufficient for its present requirements, that means sufficient to cover those payment obligations which will become at least due within the next twelve months from the date of this Prospectus. Section C Securities C.1 Type and class of the securities being offered and admitted to trading, including any security identification number The Offering consists of 3,000,000 no par value ordinary bearer shares (lnhaber-stückaktien) of the Company, each with a notional value of EUR 1.00 and carrying full dividend rights for the financial year 2016 (the "Offered Shares"), thereof 3,000,000 newly issued no par value ordinary bearer shares from a capital increase for a contribution in cash expected to be resolved by an extraordinary general shareholders meeting of the Company on 20 June 2016 ( New Shares ). In order to be able to timely deliver the shares to investors after the Offering Period, Mr. ZHU Xiaofang will, if required, provide to the Underwriter a securities loan free of charge for an equivalent number of shares. Upon registration of the capital increase with the commercial register of the Company, the New Shares will be transferred back to Mr. ZHU Xiaofang by the Underwriter in order to fulfil its retransfer obligation under the securities loan. For the purposes of admission to trading to the regulated market segment (Regulierter Markt) of the Frankfurt Stock Exchange (General Standard) (the Listing ), this Prospectus covers a total of up to 33,000,000 ordinary bearer shares of the Company, consisting of: 30,000,000 existing ordinary bearer shares ( Existing Shares ); and Page 16

17 up to 3,000,000 newly issued ordinary bearer shares from a capital increase for a contribution in cash to be resolved by an extraordinary general shareholders meeting of the Company with a fixed amount ( New Shares ), each such share with no par value and a notional value of EUR 1.00 in the share capital and carrying full dividend rights for the financial year International Securities Identification Number (ISIN): DE000A1YDDM9 German Securities Identification Number (WKN): A1YDDM Ticker Symbol: 333 C.2 Currency of the securities issue C.3 Number of shares issued and fully paid C.4 Rights attached to the securities EUR 30,000,000 no-par value ordinary bearer shares (lnhaber-stückaktien) of the Company, each with a notional value of EUR 1.00, have been issued and fully paid. Dividend Rights The shares in the Company carry full dividend rights for the financial year Rights on Liquidation Proceeds Should the Company be dissolved, any liquidation proceeds remaining after discharging the Company s liabilities will accrue to the shareholders pursuant to the German Stock Corporation Act (Aktiengesetz) in proportion to the respective shares they hold in the Company s share capital. Subscription Rights Shareholders generally have the right to subscribe for new shares issued pursuant to any future capital increases in a ratio proportionate to the respective shares they hold in the Company s share capital (subscription right) in connection with share capital increases against cash contributions. Exemptions are made with regard to conditional capital increases or the issuance of convertible bonds, income bonds, profit participation rights or bonds with warrants as well as in respect of the sale of treasury shares. Furthermore, the general shareholders meeting (Hauptversammlung) may partially or completely exclude the subscription rights in specific cases. Voting Rights In accordance with the Company s articles of association, each share carries one vote at the general shareholders meeting (Hauptversammlung). All shares carry the same voting rights. No restrictions on voting rights exist with the exception of those stipulated by law in specific cases. Attendance of the general shareholders meeting (Hauptversammlung) and exercise of voting rights are governed by the articles of association (Satzung) and general company law. C.5 Restrictions on the free transferability of the securities C.6 Application for admission to trading for the offered Not applicable. The Company s shares are freely transferable in accordance with the legal requirements for ordinary no par value bearer shares. The Company intends to list its shares on the regulated market (General Standard) of the Frankfurt Stock Exchange irrespective of the result of the Offering. An application for admission of 30,000,000 Existing Shares and up to Page 17

18 securities C.7 Dividend policy 3,000,000 New Shares to trading on the regulated market (Regulierter Markt) of the Frankfurt Stock Exchange (General Standard) shall be filed on or around 3 June The Company expects that admission to trading on the regulated market (General Standard) will be resolved by Frankfurt Stock Exchange on 24 June 2016 and that trading will commence on 28 June DECHENG has in the recent past paid dividends. The Company intends to distribute dividends in 2017 and to also pay dividends on a regular basis thereafter, however depending on the results of operations of the Company, its business strategy, its financial situation, its need for cash and the legal, tax and regulatory environment as well as other factors. The Existing Shareholders have declared their intention to waive their dividend rights for the dividend to be distributed in the next three years Section D Risks Prior to making a decision on whether to purchase the Company s shares, investors should, in addition to the other information contained in this Prospectus, carefully consider certain risks. These risks include the major risks cited below. The business, net assets, financial condition and results of operations of DECHENG may suffer substantial harm due to the materialization of any one or several of these risks. The stock price of the Company s shares may decline considerably if any one of these risks occurs, and investors may lose all or part of their investment. The risks described below may, in retrospect, turn out not to be complete and therefore may not be the only risks to which DECHENG is exposed. Additional risks and uncertainties of which the Company is not currently aware of could have a material adverse effect on DECHENG s business, net assets, financial condition and results of operations. Investors should pay particular attention to the fact that all operating entities of DECHENG are located in the PRC and governed by a legal and regulatory environment, which in various respects differs from that of other countries. The order in which the risk factors are presented below does not indicate the likelihood of their occurrence or the magnitude or the significance of the individual risks. The risks specified below could occur individually or cumulatively. D.1 Risks related to the Issuer or its industry Risks related to DECHENG s Operations DECHENG may not be able to continue competing successfully against present and future competitors. DECHENG s business and financial results are highly dependent on demand and price levels for DECHENG s polyurethane resin products. Fluctuations in consumer spending caused by changes in macroeconomic conditions in the PRC may significantly affect DECHENG s prospects. DECHENG may not be able to provide products meeting customers demand and requirements. DECHENG operates in an environmental hazardous industry and may fail to comply with environmental protection laws and regulations in the PRC. The current PRC environmental protection laws and regulations may change to the detriment of DECHENG. DECHENG s operations may cause damage to human health and are subject to the inherent hazards and other risks associated with chemical processing, production, storage, and transportation. DECHENG s reputation may be affected by complaints from its customers and negative publicity. DECHENG has potential exposure to product liability claims. DECHENG might fail to execute its expansion plans successfully and Page 18

19 manage its growth efficiently. The implementation of DECHENG s growth strategy is capital intensive and DECHENG s growth could slow down if it could not secure additional financing. DECHENG cannot ensure long-term business relationships with its existing customer base. DECHENG is exposed to the credit risks of its customers. DECHENG may be subject to fluctuations in the prices of raw materials and is dependent on the continuous and timely supply of quality raw materials. DECHENG s business depends substantially on the continuing efforts of its management and other key personnel. Labor costs in the PRC have risen significantly in recent years and could continue to rise significantly, which increases DECHENG s operational costs. DECHENG s customers, being mainly leather and textile manufactures, may relocate outside the PRC due to rising labor costs. DECHENG is exposed to fluctuation in foreign exchange rates against the RMB. DECHENG relies on the effective protection of its patents and its confidential technical know-how. DECHENG may inadvertently infringe third-party intellectual property rights. DECHENG may not have validly acquired intellectual property rights from its former cooperation with research institutions and universities in the past. Unexpected stoppages due to technological and IT malfunctions may impact DECHENG s sales and revenues. There can be no assurance that DECHENG will not encounter disruptions in the supply of electricity and water which could cause a disruption to its production and affect its overall operation efficiencies. A material disruption of the operations of DECHENG or the operations of its suppliers from force majeure events could occur. DECHENG s operational, trading and financial planning, internal key control and management reporting systems may be inadequate and its management resources may be insufficient to successfully manage and support its future growth and to ensure accurate financial management. The Company s management board (Vorstand) is not experienced in complying with German legal requirements for listed companies and DECHENG currently does not have a comprehensive risk management system in place. The Company s supervisory board (Aufsichtsrat) may have difficulties in adequately supervising the management board (Vorstand) since the management is located in the PRC and the chairman of the supervisory board (Aufsichtsratsvorsitzender) resides in Germany. Mr. ZHU Xiaofang is majority direct shareholder of the Company as well as holds management positions in DECHENG PRC. These positions will enable him to exercise significant control over the Company and DECHENG PRC and could subject them to conflicts of interest. DECHENG does not have the insurance coverage that is customary in more economically developed countries for a business of its type and size and the insurance may not be adequate for DECHENG s operations. Page 19

20 DECHENG may not be able to maintain and/or obtain approvals and licenses from PRC authorities necessary to carry out or expand its business. DECHENG may not be able to obtain the ownership certificate for five buildings which are currently used as, inter alia, warehouses and dormitory. DECHENG may have to pay housing fund contributions for the past. The Company is a holding company the liquidity of which depends upon having access to the liquid funds of DECHENG PRC. The tax burden of DECHENG may increase as a result of tax audits. Risks related to Conducting Business in the PRC DECHENG s business, financial condition, results of operations and prospects could be materially and adversely affected by changes in the economic, political and legal environment and developments in China. Fluctuations in the global economy could materially and adversely affect the economy of the PRC. Changes in the PRC s political and economic policies could have a material and adverse effect on the business operations of DECHENG. PRC legislation on offshore special purpose vehicles ( SPV ) which are formed by PRC legal entities and/or individuals for the purpose of indirect listings and that control PRC companies directly or indirectly may have a material and adverse effect on DECHENG s business. Regulations by the State Administration of Foreign Exchange relating to offshore investments by PRC residents or passport holders, may materially and adversely affect DECHENG s business operations and financing alternatives. PRC regulations pertaining to loans and direct capital investments by offshore parent companies to PRC entities may delay or prevent DECHENG from using the proceeds of this Offering. The PRC legal system contains inherent uncertainties and inconsistencies which may make the enforcement of claims more difficult. The tax status of DECHENG PRC or tax legislation or its interpretation might change. The Company and Hong Kong De Cheng Holding Company Limited ( DECHENG HK ) may be treated as tax resident enterprises for PRC tax purposes under the PRC enterprise income tax laws and therefore be subject to PRC taxation. Greater scrutiny over acquisition and disposition transactions by the PRC tax authorities may have a negative impact on DECHENG or the investors disposition of the Company s shares. PRC accounting requirements may materially and adversely affect the ability to pay dividends. A destabilization of the political system could threaten China's economic liberalization. The PRC judiciary's lack of independence and limited experience and the difficulty of enforcing court decisions and governmental discretion in enforcing court orders could prevent DECHENG from obtaining effective remedies in a court proceeding. Seeking recognition and enforcement in China of foreign judgments against the Company, its assets, management personnel or directors might be Page 20

21 difficult or impossible for investors. Certain facts, forecasts and other statistics with respect to China, China s economy and the polyurethane industry in this Prospectus are extracted from official government publications and may not be reliable. Restrictions might be imposed upon foreign control of PRC companies. D.3 Risks related to the Offering Public trading in the Company s shares might not develop. There is no prior market for its shares and this Offering may not result in an active or liquid market for its shares. A devaluation of the RMB could have an adverse currency translation effect on the Company s financial statements. A volatile stock exchange price for the shares might develop and investors could lose all or part of their investment. Future sales or issuances of a substantial number of the Company s shares may depress the market price of the Company s shares. Future capitalization measures could lead to substantial dilution of existing shareholders interests in the Company. The Offering may not take place if the Underwriting Agreement is terminated. Forward-looking information contained in this Prospectus may prove inaccurate. Information in press articles or other media regarding DECHENG or the Offering could turn out to be incorrect and therefore it cannot be excluded that investors base their investment decision on incorrect information. The market price of the Company s shares could fall below the Offer Price at a later stage. The Offering may not be implemented in full which may negatively affect the growth prospects of DECHENG and/or the liquidity of the shares in the market. The Listing may not take place if the listing requirements are not fulfilled. Section E Offer E.1 Total net proceeds / total expenses E.2a Reasons for the offering / use of proceeds The Company believes that based on the offer price of EUR 3.50 and on the assumption that all Offered Shares will be placed, it is possible to generate approximately EUR 8,634,000 in net issue proceeds. Based on the offer price of EUR 3.50 and on the assumption that all Offered Shares will be placed, the Company estimates that it will incur costs of the Offering (including fees of the Underwriter) totaling approximately EUR 1,866,000. The net issue proceeds accruing to the Company are intended to strengthen the Company s capitalization and financial position and support the intended expansion of its activities and the implementation of its strategy, in particular by developing and selling new advanced products such as solvent-free flame retardant, waterproof / breathable PU resins. The Listing is also intended to enable the Company to sharpen its public profile as well as its profile on the international capital market. The Company plans to use the net issue proceeds accruing to it as follows: Page 21

22 Purpose EUR Approx. % R&D Marketing Working capital 4,317,000 1,726,800 2,590,200 50% 20% 30% As to the R&D part, the Company plans to purchase R&D equipment, hire new local and also foreign experts and staff, send its R&D staff to local and international universities/research centers for training, set up a R&D database related to PU resin as well as enter into new cooperation with new research institutions. As to the working capital part, the Company intends to use it to purchase raw materials without much credit terms in order to enjoy discounts and thus helping to increase the gross profit margin of DECHENG. If the net issue proceeds envisaged are not raised, DECHENG s working capital is still sufficient to cover those payment obligations which will become at least due within the next twelve months. Regarding the financing of its further growth, in such case, the Company might have to prolong existing short term bank loans in the amount of RMB 29.8 million (approx. EUR 4.3 million) or use internal funds generated from operational cash flow. DECHENG plans to use the proceeds as set out above, However, it cannot be excluded that based on the further development of the business, other uses of the proceeds will be considered. E.3 Terms and conditions of the offering Subject Matter of the Offering The Offering consists of a public offering in the Federal Republic of Germany and Luxembourg as well as private placements in other jurisdictions outside Germany, Luxembourg and the United States. The Offering consists of 3,000,000 no par value ordinary bearer shares (lnhaber-stückaktien) of the Company, each with a notional value of EUR 1.00 and carrying full dividend rights for the financial year 2016 (the "Offered Shares"), thereof 3,000,000 newly issued no par value ordinary bearer shares originate from a capital increase for a contribution in cash expected to be approved by an extraordinary general shareholders meeting of the Company on 20 June 2016 ( New Shares ). In order to be able to timely deliver the shares to investors after the Offering Period, Mr. ZHU Xiaofang will, if required, provide to the Underwriter a securities loan free of charge for an equivalent number of shares. Upon registration of the capital increase with the commercial register of the Company, the New Shares will be transferred back to Mr. ZHU Xiaofang by the Underwriter in order to fulfil its retransfer obligation under the securities loan. New Shares placed to investors will originate from a capital increase for a contribution in cash expected to be approved by an extraordinary general shareholders meeting of the Company on 20 June The existing shareholders will waive their subscription rights to the New Shares. Offering Period The Offering is expected to commence on 6 June 2016 and to end on 20 June 2016 ( Offering Period ). Purchase orders are freely revocable until the Offering Period expires. On the last day of the Offering Period, retail investors and institutional investors will be able to submit offers to purchase shares until 10:00 a.m. (Central European Time). Offer Price The Offer Price for which purchase orders may be submitted amounts to Page 22

23 EUR 3.50 per Offered Share. The Offer Price was set by the Company based upon its own valuation using typical valuation methods such as discounting cash flow. Minimum Subscription Only orders with a minimum subscription amount of one share will be accepted. Multiple Orders Multiple orders of one subscriber will not be accepted. Amendments to the Offer Terms The Company, in agreement with ACON ( also the Bookrunner ), reserves the right to reduce the number of Offered Shares, to lower or raise the Offer Price and/or to extend or shorten the Offering Period (collectively referred to as the Offer Terms ). In case of an amendment to the Offer Terms, a supplement to this Prospectus will be filed with German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht BaFin ) and published following approval thereof on the Company s website ( To the extent legally required, any changes will be published in an ad hoc disclosure. Investors will not be notified individually. Delivery of the Offered Shares It is expected that delivery of the Offered Shares will take place presumably on 24 June 2016 against payment of the Offer Price. Securities Loan To facilitate a timely delivery of up to 3,000,000 New Shares of the Company to the investors, Mr. ZHU Xiaofang will, if required, enter into a securities loan agreement with the Underwriter to provide to the Underwriter a total number of 3,000,000 no-par value ordinary bearer shares (Inhaber-Stückaktien) by way of securities loan free of charge. General Allotment Criteria The Company reserves the right to allot to investors less than the maximum possible amount of New Shares that are being offered. The Company, Mr. ZHU Xiaofang and the Bookrunner intend to comply with the Principles for the Allotment of Share Issues to Private Investors ("Grundsätze für die Zuteilung von Aktienemissionen an Privatanleger"), which were issued on 7 June 2000 by the Exchange Expert Commission (Börsensachverständigenkommission) of the German Federal Ministry of Finance (Bundesministerium der Finanzen) (the Allocation Rules ). Early Termination of the Offering The underwriting agreement which will be concluded inter alia between the Company, Mr. ZHU Xiaofang and the Underwriter within five bank working days after the date of this Prospectus ( Underwriting Agreement ) provides that the Underwriter may terminate the Underwriting Agreement under certain circumstances up to the time of delivery of the Offered Shares to the investors. Furthermore, the Company reserves the right to withdraw the Offering at any time during and after the Offering Period without giving any reasons. If the Underwriting Agreement is terminated or the Company withdraws from the Offering, the Offering will not take place. In such case, allocations of shares to investors will become invalid, and investors will have no claim for delivery. Claims relating to any subscription fees paid and costs incurred by any investor in connection with the subscription are governed solely by the legal relationship between the investor and the institution to which the investor submitted its purchase order. Page 23

24 E.4 Interests and conflicting interests E.5 Name of the entity offering to the security Lock-up agreement E.6 Amount and percentage of immediate dilution resulting from the offer / amount and percentage of immediate dilution if the existing equity holders do not subscribe to the new offer E.7 Estimated expenses charged to the investor by the issuer In connection with the Offering and the Listing of the Company s shares (the Transaction ), ACON is in a contractual relationship with the Company. The commission of ACON as the Underwriter, the Global Coordinator and Lead Manager is inter alia dependent on the amount of the offer proceeds in accordance with the Underwriting Agreement which will be concluded within five bank working days after the date of this Prospectus such that ACON has an interest in the successful implementation of the Offering. ACON or its affiliates may enter into business relations with the Company or render services to the Company in the ordinary course of business. Since the Company concluded a designated sponsor agreement with ACON, ACON also has an interest in the Offering on account of this agreement. The Offered Shares will be offered by ACON as the Underwriter. The Company, Mr. ZHU Xiaofang, All-Time-Wonderful Limited with the sole shareholder Mr. QIAN Jiangang and Rongshang Limited with the sole shareholder Mr. ZHU Yufang concluded with ACON a lock-up agreement with a lock-up period of 36 months beginning on the day of the commencement of trading (Notierungsaufnahme) of the shares of the Company on the regulated market (General Standard) of the Frankfurt Stock Exchange. As of the date of this Prospectus, the Company s share capital amounts to EUR 30,000,000 divided into 30,000,000 no par value ordinary bearer shares (Inhaber-Stückaktien). The net book value of DECHENG HK (total assets less current liabilities), which for the purpose of calculating the dilution is considered as the Company s net book value following the registration of the capital increase against contribution in kind (Sachkapitalerhöhung) of the Company on 12 May 2016, amounted to EUR 30,960,743 as of 31 December 2015 based on the consolidated financial statements of DECHENG HK for 2015 prepared in accordance with IFRS. This corresponds to approximately EUR 1.03 per share (calculated on the basis of 30,000,000 shares of the Company in issue as of the date of this Prospectus). Assuming that all 3,000,000 Offered Shares are placed and that the Offer Price amounts to EUR 3.50, the Company would obtain net proceeds of approximately EUR 8,634,000 considering costs of the Offering and of the Listing (including fees of the Underwriter) totaling approximately EUR 1,866,000. Assuming that the Offering had been implemented on 31 December 2015, the net book value of the Company at that time would have amounted to approximately EUR 39,594,743 (or approximately EUR 1.20 per share calculated on the basis of 33,000,000 shares of the Company in issue following full implementation of the capital increase against cash contributions). This corresponds to an increase in the net book value of the Company of EUR 0.17 per share corresponding to an increase of approx. 16.5% for the Existing Shareholders and a direct dilution of about EUR 2.30 per share for the purchasers of the Offered Shares based on the Offer Price, thus, investors who acquire shares at the Offer Price of EUR 3.50 per Offered Share are diluted by about 65.7%. Not applicable. Neither the Company nor ACON will charge expenses to investors. Investors will have to bear customary transaction and handling fees charged by their safe-custody account-keeping financial institutions. Page 24

25 or the offeror 2. GERMAN TRANSLATION OF THE SUMMARY (ZUSAMMENFASSUNG) Zusammenfassungen bestehen aus geforderten Angaben, die als Punkte bezeichnet sind. Diese Punkte sind in den Abschnitten A E (A.1 E.7) fortlaufend nummeriert. Diese Zusammenfassung enthält alle Punkte, die für die vorliegende Art von Wertpapieren und Emittenten in eine Zusammenfassung aufzunehmen sind. Da einige Punkte nicht behandelt werden müssen, können in der Nummerierungsreihenfolge Lücken auftreten. Selbst wenn ein Punkt wegen der Art der Wertpapiere und des Emittenten in der Zusammenfassung aufgenommen werden muss, ist es möglich, dass in Bezug auf diesen Punkt keine relevanten Informationen gegeben werden können. In diesem Fall enthält die Zusammenfassung eine kurze Beschreibung des Punkts mit dem Hinweis Entfällt. Abschnitt A Einleitung und Warnhinweise A.1 Warnhinweise Diese Zusammenfassung ist als Einführung zu diesem Prospekt zu verstehen. Anleger sollten jede Entscheidung zur Anlage in Aktien der Gesellschaft auf die Prüfung des gesamten Prospekts stützen. Für den Fall, dass vor einem Gericht Ansprüche eines Anlegers aufgrund der in diesem Prospekt enthaltenen Informationen geltend gemacht werden, könnte der als Kläger auftretende Anleger in Anwendung einzelstaatlicher Rechtsvorschriften von Staaten innerhalb des Europäischen Wirtschaftsraums ( EWR ) die Kosten für die Übersetzung des Prospekts vor Prozessbeginn zu tragen haben. Die Decheng Technology AG, mit eingetragenem Sitz in Köln, Bundesrepublik Deutschland ( Deutschland ), (die Gesellschaft und zusammen mit ihren direkten und indirekten Tochtergesellschaften DECHENG oder die Gruppe ) und ACON Actienbank AG, Heimeranstraße 37,80339 München, Deutschland ( Global Coordinator oder Underwriter oder ACON ) übernehmen im Sinne von 5 Abs. 2b Nr. 4 Wertpapierprospektgesetz (WpPG) die Verantwortung für den Inhalt dieser Zusammenfassung, einschließlich der deutschen Übersetzung hiervon. Diejenigen Personen, die die Verantwortung für die Zusammenfassung einschließlich etwaiger Übersetzung hiervon übernommen haben oder von denen der Erlass ausgeht, können haftbar gemacht werden, jedoch nur für den Fall, dass die Zusammenfassung irreführend, unrichtig oder widersprüchlich ist, wenn sie zusammen mit anderen Teilen dieses Prospekts gelesen wird, oder sie, wenn sie zusammen mit den anderen Teilen des Prospekts gelesen wird, nicht alle erforderlichen Schlüsselinformationen vermittelt. A.2 Zustimmung zur Verwendung des Prospekts, Verwendung des Prospekts während der Angebotsfrist, Bedingungen für die Verwendung sowie Hinweis für Die Zustimmung der Gesellschaft zur Verwendung des Prospekts in Deutschland und Luxemburg für die Veräußerung oder Platzierung von Wertpapieren wurde an die ACON Actienbank AG, Heimeranstraße 37,80339 München, Deutschland ( auch der Lead Manager ) erteilt. Die Zustimmung zur Verwendung des Prospekts durch den Lead Manager wurde für die Frist erteilt, die am 6. Juni 2016 beginnt und am 20. Juni 2016 endet ( Angebotsfrist ). Für den Fall, dass der Lead Manager ein Angebot macht, wird der Lead Manager die Anleger zum Zeitpunkt der Angebotsvorlage über die Angebotsbedingungen unterrichten. Page 25

26 die Investoren Abschnitt B Emittent B.1 Juristische und kommerzielle Bezeichnung B.2 Sitz / Rechtsform / Rechtsvorschriften / Gründungsstaat B.3 Art der derzeitigen Geschäftstätigkeit des Emittenten und seine Haupttätigkeiten, einschließlich der Hauptkategorien der verkauften Produkte und/oder erbrachten Dienstleistungen und Identifizierung der Hauptmärkte, auf denen der Emittent konkurriert Die juristische Bezeichnung der Gesellschaft ist Decheng Technology AG. Die Gesellschaft handelt unter der kommerziellen Bezeichnung Decheng Technology AG. Der Sitz (Satzungssitz) der Gesellschaft befindet sich in Köln, Deutschland, und die Gesellschaft ist im Handelsregister des Amtsgerichts Köln unter der Registernummer HRB eingetragen. Die Geschäftsadresse lautet: c/o RSM Altavis GmbH, Martin-Luther-Platz 26, Düsseldorf, Deutschland. Die Gesellschaft ist eine deutsche Aktiengesellschaft. Die Rechtsvorschriften, unter denen die Gesellschaft handelt, sind die des deutschen Rechts. Das Land der Gründung ist Deutschland. Die Gesellschaft Unternehmensgegenstand und Geschäftstätigkeit der Gesellschaft sind das Management anderer Unternehmen sowie die Verwaltung von Beteiligungen an Unternehmen, insbesondere solcher Unternehmen, die in den folgenden Bereichen tätig sind: Entwicklung, Produktion und Vertrieb von Polyurethanprodukten. Zu den Geschäftstätigkeiten der Gesellschaft zählen insbesondere der Erwerb, das Halten und Verwalten sowie die Veräußerung von Beteiligungen an Unternehmen, deren Zusammenfassung unter einheitlicher Leitung sowie deren Unterstützung und Beratung, einschließlich der Erbringung von Dienstleistungen für diese Unternehmen. Die Gesellschaft darf selbst in den genannten Bereichen tätig werden. Die Gruppe Die Gesellschaft ist die oberste Holdinggesellschaft von DECHENG. DECHENG ist ein chinesischer Polyurethanhersteller. Polyurethane von DECHENG werden genutzt, um den Textilien und Lederwaren der Kunden besondere Eigenschaften hinzuzufügen, wie etwa Wasserfestigkeit und Flammbeständigkeit sowie eine Reihe weiterer aufwertender Funktionen. Ölbasierte Polyurethane, die von DECHENG produziert werden, sind (i) Einzelsowie Zweifach-Flüssigstoff Polyurethane für trockene Stoffe, (ii) Polyurethan, welches mit der Nass-Wickel-Technologie produziert wird und (iii) Polyurethane für Faserbeschichtungen. DECHENG stellt seine Polyurethane her aus Methylen-Diphenyl-Diisocyanat (MDI) und Toluylen-Diisocyanat (TDI) zusammen mit Polyester-Polypol-Mischungen. DECHENG stellt auch Lösungen und Zusatzstoffe her, welche von den Leder- und Textilkunden mit DECHENGs Polyurethanen verbunden werden, und die die Anhaftung verstärken und beschleunigen. DECHENGs Polyurethanprodukte dienen der Aufwertung von Produkten, hauptsächlich in der Textil- und Lederindustrie. Anwendungsbereiche in der Textilindustrie sind insbesondere Outdoor-Zubehör, wasserdichte Jacken und Windjacken, schnell trocknende Kleidung, Zelte, Rucksäcke, Schlafsäcke und Matten. Anwendungsbereiche in der Lederindustrie sind insbesondere Lederprodukte wie Ledersofas, Lederkleidung, Schuhe und Fußbälle. Die Lösungen und Zusatzstoffe, welche produziert werden, haben den Zweck die Funktionen der Produkte zu verstärken, z.b. die Klebrigkeit an Stoffen zu Page 26

27 erhöhen oder das Trocknen der Produkte zu erleichtern. DECHENG verkauft seine Produkte nur im chinesischen Markt, hauptsächlich direkt an Textil- und Lederhersteller in Fujian, Guangdong, Zhejiang, Jiangsu, Guangxi und Shanghai. Der Umsatz, welcher durch Polyurethan- und Zusatzprodukte generiert wurde, steigerte sich von Euro ( EUR ) 38,79 Millionen im Geschäftsjahr ( GJ ) 2013 auf EUR 49,44 Millionen im GJ 2014, sowie auf EUR 69,76 Millionen im GJ 2015, was eine durchschnittliche jährliche Wachstumsrate von 34,11% darstellt. DECHENGs Gewinn nach Steuern für die GJ 2013, GJ 2014 und GJ 2015 war EUR 8,46 Millionen, EUR 12,32 Millionen bzw. EUR 17,85 Millionen, was eine durchschnittliche jährliche Wachstumsrate von 45,27% darstellt. DECHENGs Betriebsstätten befinden sich im Pu an Leather Center, Quangang District, Quanzhou City, Fujian Province, Postleitzahl , Volksrepublik China ( VR China ). DECHENGs Produktionsstätten haben ein absolutes Produktionsergebnis von ungefähr 25,47 Millionen Kg Polyurethan und 0,64 Millionen Kg Zusatzstoffe im GJ 2015 erreicht. Zum 31. Dezember 2015 hatte DECHENG 123 Arbeitnehmer angestellt. Bis zum Tag dieses Prospekts ist keine wesentliche Änderung in der Anzahl der Arbeitnehmer eingetreten. Stärken Die Gesellschaft glaubt, dass die folgenden Stärken die Haupttreiber ihres zukünftigen Wachstums sind: Moderne Produktionstechnik Starke Forschungs- und Entwicklungsexpertise Gute Kundenbeziehungen Starkes Vermarktungs- und Verkaufsteam Engagiertes und erfahrenes Managementteam Strategien DECHENG strebt die folgende strategische Ausrichtung an: Geographische Expansion und Streben nach größeren Marktanteilen Funktionale Expansion und Entwicklung von neuen Produkten Vergrößerung der Markenbekanntheit Weitere Verstärkung der Forschungs- und Entwicklungsexpertise Expansion der Produktionsanlagen B.4a Wichtigste jüngste Trends, die sich auf den Emittenten und die Branchen, in denen er tätig ist, Wachsende Industrie in China Die jährliche Nachfrage nach Polyurethane in China wuchs beständig von 6,7 Millionen Tonnen im Jahr 2011 auf 9,4 Millionen Tonnen im Jahr 2015, mit einer durchschnittlichen jährlichen Wachstumsrate von 8,8% (Quelle: Marktforschungsbericht Polyurethane Resin Industry, aus März 2016, angefertigt von Frost & Sullivan GIC Malaysia Sdn Bhd ( Marktforschungsbericht )). Allerdings verlangsamte sich die jährliche Wachstumsrate der Nachfrage im Jahr Page 27

28 auswirken Wachsende Nachfrage nach Textilien im internationalen und inländischen Markt Im Jahr 2014 war China der größte Textilexporteur der Welt, mit 35,6% der globalen Textilexporte. Der Textilexport wuchs mit einer durchschnittlichen jährlichen Wachstumsrate von 9,8% von USD 76,87 Milliarden im Jahr 2010 auf USD 111,66 Milliarden im Jahr Der Umsatz in Chinas Kleidungsindustrie, sowohl im Groß- als auch im Einzelhandel wuchs ebenfalls stark mit einer durchschnittlichen jährlichen Wachstumsrate von 9,5% von RMB 506,8 Milliarden (ca. EUR 73,6 Milliarden) im Jahr 2010 auf Renminbi ( RMB ) 729,2 Milliarden (ca. EUR 105,5 Milliarden) im Jahr 2014 (Quelle: Marktforschungsbericht). Wachsende Nachfrage nach Kunstleder Im Jahr 2014 waren Chinas Produktionskapazitäten für mehr als 80% der globalen Kunstlederproduktion verantwortlich (Quelle: Marktforschungsbericht). Der chinesische Konsum von Polyurethankunstlederprodukten erfuhr ein starkes Wachstum mit einer durchschnittlichen jährlichen Wachstumsrate von 12,3% von 3,03 Milliarden Quadratmeter ( m² ) im Jahr 2010 auf 4,29 Milliarden m² im Jahr Von den verschiedenen Kunstlederprodukten stellten Lederschuhe im Jahr 2013 den größten Kunstleder- Endanwendungsmarkt dar (mit 37,4%), gefolgt von Ledermöbeln (18,1%) und Lederkleidung (16,3%). Lederkleidung war jedoch der am schnellsten wachsende Endanwendungsmarkt mit einer durchschnittlichen jährlichen Wachstumsrate von 28,0% von 2010 bis 2013, gefolgt von Autoinnenteilen (11,3%) und Lederschuhen (10,9%) (Quelle: Marktforschungsbericht). B.5 Beschreibung des Emittenten und seiner Stellung innerhalb der Gruppe Die Gesellschaft ist die oberste Holdinggesellschaft der Gruppe und die Alleingesellschafterin von Hong Kong De Cheng Holding Company Limited ( DECHENG HK ), welche als eine Gesellschaft mit beschränkter Haftung nach dem Recht Hong Kongs gegründet wurde. DECHENG HK ist eine Zwischenholdinggesellschaft und die Alleingesellschafterin von Quanzhou De Cheng Tech Resin Co., Ltd ( DECHENG PRC ), welche als eine Gesellschaft mit beschränkter Haftung nach dem Recht der VR China gegründet wurde. Das operative Geschäft von DECHENG erfolgt ausschließlich durch DECHENG PRC mit der Geschäftsadresse in Pu an Lederzentrum, Quangang Distrikt, Quanzhou Stadt, Provinz Fujian, VR China. Die nachfolgende Grafik verdeutlicht die derzeitige Konzernstruktur von DECHENG: Page 28

29 Decheng Technology AG (Deutschland) 100% Hong Kong De Cheng Holding Company Limited (Hong Kong) - DECHENG HK - 100% Quanzhou De Cheng Tech Resin Co., Ltd (VR China) - DECHENG PRC - B.6 Personen, die eine direkte oder indirekte Beteiligung am Eigenkapital des Emittenten oder einen Teil der Stimmrechte halten Zum Datum dieses Prospektes beträgt das Grundkapital der Gesellschaft EUR eingeteilt in neue, auf den Inhaber lautende Stammaktien ohne Nennwert (Inhaber-Stückaktien) (die Bestehenden Aktien ) mit einer bestehenden Aktionärsstruktur ( Bestehende Aktionäre ) wie folgt: Bestehender Aktionär Anzahl der Bestehenden Aktien Mr. ZHU Xiaofang (1) ,10 Chen Capital Limited S.à r.l. (2) ,90 Asia Small Capital V Limited S.à r.l. (3) ,90 % South China Fund II Limited S.à r.l. (4) ,90 All-Time-Wonderful Limited (5) ,83 Rongshang Limited (6) ,83 Mr. OOI Guan Hoe (7) ,54 Total ,00 (1) Mr. ZHU Xiaofang ist Einwohner von Hongkong und wohnhaft in: Flat J 24/F BLK 4, Bauhinia Garden, Tseung Kwan O NT, Hong Kong. (2) Chen Capital Limited S.à r.l. ist eine Gesellschaft eingetragen nach dem Recht Luxemburgs mit der Geschäftsadresse: 7 rue Robert Stümper, 2557 Luxemburg. Alleiniger Gesellschafter ist Herr CHEN Huocan. (3) Asia Small Capital V Limited S.à r.l. ist eine Gesellschaft eingetragen nach dem Recht Luxemburgs mit der Geschäftsadresse: 7 rue Robert Stümper, 2557 Luxemburg. Alleiniger Gesellschafter ist Herr WU Qingquan. (4) South China Fund II Limited S.à r.l. ist eine Gesellschaft eingetragen nach dem Recht Luxemburgs mit der Geschäftsadresse: 7 rue Robert Stümper, 2557 Luxembourg. Alleiniger Gesellschafter ist Herr ZHU Jianyang. (5) All-Time-Wonderful Limited ist eine Gesellschaft eingetragen nach dem Recht der Britischen Jungferninseln unter der Registrierungsnummer und mit der Geschäftsadresse: P.O. Box Page 29

30 957, Offshore Incorporations Centre, Road Town, Tortola, Britische Jungferninseln. Alleiniger Gesellschafter ist Herr QIAN Jiangang. (6) Rongshang Limited ist eine Gesellschaft eingetragen nach dem Recht der Britischen Jungferninseln unter der Registrierungsnummer und mit der Geschäftsadresse: P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, Britische Jungferninseln. Alleiniger Gesellschafter ist Herr ZHU Yufang. (7) Herr OOI Guan Hoe ist Einwohner von Malaysia und wohnhaft in: 89, Adora, 2A Persiaran Residen, Desa Parkcity, Kepong, Kuala Lumpur, Malaysia. Jede Aktie repräsentiert EUR 1,00 am Grundkapital und verfügt über eine volle Gewinnanteilsberechtigung für das Geschäftsjahr Jede Aktie gewährt ein Stimmrecht in der Hauptversammlung der Gesellschaft. Unterschiedliche Stimmrechte der Hauptanteilseigner des Emittenten Ob an dem Emittenten unmittelbare oder mittelbare Beteiligungen oder Beherrschungsverhältnisse bestehen und wer diese Beteiligungen hält bzw. diese Beherrschung ausübt und welcher Art die Beherrschung ist B.7 Ausgewählte historische Finanzinformationen Entfällt. Herr ZHU Xiaofang als direkter Hauptaktionär der Gesellschaft und die anderen Bestehenden Aktionäre haben keine unterschiedlichen Stimmrechte. Herr ZHU Xiaofang hält aktuell 68,10% der Aktien der Gesellschaft direkt und der Stimmrechte an der Gesellschaft. Mit dieser Mehrheit kontrolliert Herr ZHU Xiaofang die Gesellschaft und hat erheblichen Einfluss in der Hauptversammlung und auf die dort vorgeschlagenen Beschlüsse. Die Gesellschaft wurde als Vorratsgesellschaft am 31. Juli 2013 errichtet und durch die Eintragung ins Handelsregister des Amtsgerichts München am 13. Februar 2014 gegründet. Die Gesellschaft veröffentlichte die wirtschaftliche Neugründung gegenüber dem Handelsregister des Amtsgerichts Köln nach dem Erwerb aller Aktien der Gesellschaft durch Herrn ZHU Xiaofang. Durch Restrukturierungsmaßnahmen wurde die Beteiligungsstruktur, wie in Kapitel B.5 dargestellt, errichtet. Das operative Geschäft von DECHENG wird ausschließlich von DECHENG PRC ausgeübt, die eine indirekte hundertprozentige Tochtergesellschaft der Gesellschaft ist. Alle Anteile der DECHENG PRC werden direkt von der DECHENG HK gehalten, welche am 15. August 2014 gegründet worden ist. Die Gesellschaft ist der alleinige Gesellschafter der DECHENG HK. DECHENG PRC war während des Berichtszeitraums die einzige operative Gesellschaft von DECHENG. Um die Geschäfte, die Finanzlage und die Geschäftsergebnisse für die letzten drei Geschäftsjahre im Hinblick auf das operative Geschäft von DECHENG darzustellen, hat die Gesellschaft daher Einzeljahresabschlüsse der DECHENG PRC für die am 31. Dezember 2013 ( GJ 2013 ), 31. Dezember 2014 ( GJ 2014 ) und 31. Dezember 2015 Page 30

31 ( GJ 2015 ) endenden Geschäftsjahre nach den International Financial Reporting Standards und International Accounting Standards and Interpretations, soweit sie von der EU zugelassen sind ( IFRS ), und einen konsolidierten Jahresabschluss der DECHENG HK für das GJ 2015 nach den IFRS erstellt (nachfolgend zusammen die Jahresabschlüsse ). Die Jahresabschlüsse wurden von MSW GmbH Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft, Straße des 17. Juni , Berlin, Deutschland ( MSW GmbH ) geprüft. Darüber hinaus hat die Gesellschaft Einzelabschlüsse für das am 31. Dezember 2015 endende Geschäftsjahr mit entsprechenden vergleichbaren Informationen nach den Vorschriften der IFRS und für die am 31. Dezember 2013, 31. Dezember 2014 und 31. Dezember 2015 endenden Geschäftsjahre in Übereinstimmung mit den Vorschriften des Handelsgesetzbuches erstellt. Diese Einzelabschlüsse wurden von MSW GmbH geprüft. Die ausgewählten Finanzangaben, die in diesem Abschnitt enthalten sind, wurden den vorgenannten Jahresabschlüssen entnommen. Mit Ausnahme des Einzelabschlusses der Gesellschaft nach den Vorschriften des Handelsgesetzbuches für die am 31. Dezember 2013, 31. Dezember 2014 und 31. Dezember 2015 endenden Geschäftsjahre sind die vorgenannten Jahresabschlüsse von DECHENG nicht die gesetzlich vorgeschriebenen Abschlüsse der Gesellschaft, sondern wurden auf freiwilliger Basis für den Zweck dieses Angebots erstellt. Der Zweck dieser Abschlüsse liegt darin, Anlegern eine bessere Vergleichbarkeit der Entwicklung der Geschäfte, der Finanzlage und der Geschäftsergebnisse von DECHENG in den letzten drei Jahren zu ermöglichen. Die folgenden Zahlenangaben wurden nach anerkannten Grundsätzen gerundet. Additionen der Zahlenangaben in einer Tabelle können daher zu anderen als den ebenfalls in der Tabelle dargestellten Summen führen: Page 31

32 Ausgewählte Finanzangaben DECHENG PRC Alle nachfolgenden Zahlen entstammen den Abschlüssen der DECHENG PRC (in EUR) Ausgewählte Angaben aus der Gesamtergebnisrechnung Umsatzerlöse (geprüft) Herstellungskosten Bruttoergebnis Sonstige Erträge Aufwendungen für Vertrieb und Verkauf Verwaltungskosten Finanzresultat Ergebnis vor Steuern Steueraufwand Ergebnis nach Steuern Dez (geprüft) Ausgewählte Angaben aus der Bilanz Anlagevermögen Umlaufvermögen Summe Vermögenswerte Eigenkapital Verbindlichkeiten Kurzfristige Verbindlichkeiten Summe der Verbindlichkeiten Summe Verbindlichkeiten und Eigenkapital (geprüft) Ausgewählte Angaben aus der Kapitalflussrechnung Ergebnis vor Steuern Netto Cash Flow aus der Geschäftstätigkeit vor Änderung des Betriebskapitals Netto Cash Flow aus der operativen Tätigkeit Netto Cash Flow für Investitionen Netto Cash Flow für Finanzierungstätigkeiten Netto(abnahme)/Zunahme von Zahlungsmitteln Zahlungsmittel zum Periodenende Dezember Weitere ausgewählte Finanzinformationen (ungeprüft) (1) EBIT(2) EBIT Marge(3) 29,5% 33,5% 34,8% Nettoergebnis-Marge(4) 21,8% 24,9% 25,6% Anzahl der Arbeitnehmer zum Periodenende (1) Ungeprüfte Informationen durch die Gesellschaft vorbereitet. (2) Ergebnis vor Steuern und Finanzaufw endungen. (3) EBIT dividiert durch Umsatzerlös x 100. (4) Ergebnis nach Steuern (Nettoertrag) für den entsprechenden Zeitraum, dividiert durch Umsatzerlös x 100. Page 32

33 Decheng Technology AG Alle nachfolgenden Zahlen entstammen den IFRS Abschlüssen der Decheng Technology AG: AKTIVA 31. Dez Dez EUR EUR Umlaufvermögen Kassenbestand und vergleichbare Vermögenswerte PASSIVA 31. Dez Dez EUR EUR Eigenkapital Gezeichnetes Kapital Ausstehende Einlagen (37.500) (37.500) Wesentliche Änderungen der Finanzlage und des Betriebsergebnisses des Emittenten in oder nach dem von den wesentlichen historischen Finanzinformationen abgedeckten Zeitraum Die Umsatzerlöse erhöhten sich um 27,48% und 41,09% in den GJ 2014 und GJ Die Herstellungskosten erhöhten sich um 22,37% und 35,52% in den GJ 2014 und GJ 2015, was im Einklang mit der Erhöhung der Verkaufszahlen steht. Das Bruttoergebnis erhöhte sich um 37,83% und 51,11% in den GJ 2014 und GJ 2015, was im Einklang mit der Erhöhung der Verkaufszahlen steht. Der Hauptgrund für die Steigerung der Umsatzerlöse und des Bruttoergebnisses in den letzten 3 Jahren ist eine erfolgreiche Forschung und Entwicklung sowie ein bewährtes Geschäftsmodell gepaart mit gutem Kunden- Feedback für DECHENGs Produkte. Das Verkaufsvolumen von DECHENGs Produkten hat sich für den am 31. März 2016 endenden dreimonatigen Finanzzeitraum (2016/Q1) um mehr als 22,14% erhöht im Vergleich zu dem am 31. März 2015 endenden dreimonatigen Finanzzeitraum (2015/Q1). Da die ölbasierten Rohmaterialpreise gesunken sind, ist aber der Verkaufspreis der meisten DECHENGs Produkte gesunken, was zu einem Rückgang der Umsatzerlöse um 6,84% in RMB (10,56% in EUR) im gleichen Zeitraum führte. Da jedoch auch die Herstellungskosten für 2016/Q1 im Vergleich zu 2015/Q1 um 6,62% in RMB (10,35% in EUR) gesunken sind, was im Einklang mit dem Rückgang des Umsatzes und der Abnahme der Rohmaterialpreise steht, ist die Bruttoergebnismarge für 2016/Q1 stabil bei 39,30% geblieben im Vergleich zu 39,44% für 2015/Q1. Die Rohölpreise haben wieder angefangen zu steigen, Page 33

34 sodass dies wieder einen entsprechenden Effekt bei den kommenden Umsätzen für das GJ 2016 haben wird. Die Zahlen bezüglich 2016/Q1 und 2015/Q1 sind nicht geprüft und wurden von der Buchhaltungsabteilung von DECHENG zur Verfügung gestellt. Die Gesellschaft wurde mit einem gezeichneten Kapital von EUR durch Bareinlage gegründet. Kein operativer Ertrag wurde in dem Berichtszeitraum bis zum 31. Dezember 2015 in der Gesellschaft erwirtschaftet. Am 2. März 2016 wurde das ausstehende Grundkapital der Gesellschaft in Höhe von EUR vollständig erbracht. Am 25. April 2016 haben die Bestehenden Aktionäre einen Einbringungsvertrag mit der Gesellschaft abgeschlossen, nach dem sie sich verpflichtet haben, 100% der Anteile an der DECHENG HK, d.h Anteile auf die Gesellschaft zu übertragen gegen Ausgabe von neuen, auf den Inhaber lautenden Stammaktien ohne Nennbetrag an die Bestehenden Aktionäre gemäß ihres Beteiligungsverhältnisses. Der Einbringungsvertrag und die Sachkapitalerhöhung wurden in einer außerordentlichen Hauptversammlung am 26. April 2016 beschlossen und genehmigt und wurden am 12. Mai 2016 im Handelsregister des Amtsgerichts Köln eingetragen. Es haben sich mit Ausnahme der oben beschriebenen Kapitalerhöhung sowie der erfolgten Auszahlung einer Dividende in Höhe von RMB (ca. EUR ) von DECHENG HK an Mr. ZHU Xiaofang, keine erheblichen Änderungen hinsichtlich der Finanzlage oder des Betriebsergebnisses von DECHENG seit dem 31. Dezember 2015 bis zum Datum des Prospektes ergeben. B.8 Pro-forma Finanzinformationen B.9 Gewinnprognosen oder Gewinnschätzungen B.10 Beschränkungen im Bestätigungsvermerk B.11 Nichtausreichen des Geschäftskapitals des Emittenten zur Erfüllung bestehender Anforderungen Entfällt. Es wurden keine Pro-forma Finanzinformationen erstellt. Entfällt. Es wurden keine Gewinnprognosen oder -schätzungen erstellt. Entfällt. Bestätigungsvermerke zu den in diesem Prospekt enthaltenen historischen Finanzinformationen wurden ohne Einschränkungen erteilt. Entfällt. Die Gesellschaft ist der Ansicht, dass das Geschäftskapital von DECHENG für seine bestehenden Anforderungen ausreichend ist. Dies bedeutet, dass das Geschäftskapital ausreicht, um die Zahlungsverpflichtungen zumindest innerhalb der nächsten zwölf Monate nach dem Datum dieses Prospektes zu erfüllen. Abschnitt C Wertpapiere C.1 Art und Gattung der angebotenen und/oder zum Handel zu- Das Angebot besteht aus auf den Inhaber lautenden Stammaktien ohne Nennbetrag (Inhaber-Stückaktien) mit einem anteiligen Betrag am Grundkapital der Gesellschaft von je EUR 1,00 und mit voller Gewinnanteilsberechtigung für das Geschäftsjahr 2016 (die Angebotsaktien ), davon neue auf den Inhaber lautende Stammaktien ohne Nennbetrag aus einer Barkapitalerhöhung gemäß einem Page 34

35 zulassenden Wertpapiere / Wertpapierkennung C.2 Währung des Wertpapier C.3 Zahl der ausgegebenen und voll eingezahlten Aktien C.4 Rechte welche mit dem Wertpapier verbunden sind Beschluss der außerordentlichen Hauptversammlung, die voraussichtlich am 20. Juni 2016 abgehalten wird ( Neuen Aktien ). Um die zeitnahe Lieferung der Aktien vor Ablauf der Angebotsfrist sicherzustellen, wird Herr ZHU Xiaofang, falls erforderlich, dem Underwriter ein unentgeltliches Wertpapierdarlehen für die gleiche Anzahl an Aktien gewähren. Nach Eintragung der Durchführung der Kapitalerhöhung in das Handelsregister der Gesellschaft werden die Neuen Aktien durch den Underwriter an Herrn ZHU Xiaofang übertragen, um die Pflicht des Underwriters zur Rückführung der Wertpapierleihe gegenüber Herrn ZHU Xiaofang zu erfüllen. Für Zwecke der Zulassung zum Handel im regulierten Markt an der Frankfurter Wertpapierbörse (General Standard) ( Listing ), bezieht sich dieser Prospekt auf bis zu Aktien an der Gesellschaft, bestehend aus: bestehende auf den Inhaber lautende Stammaktien ( Bestehende Aktien ), und bis zu neue auf den Inhaber lautende Stammaktien aus einer Barkapitalerhöhung in einer bestimmten Höhe gemäß einem Beschluss der außerordentlichen Hauptversammlung ( Neuen Aktien ), jeweils Aktien ohne Nennwert mit einem anteiligen Betrag am Grundkapital von je EUR 1,00, die über volle Gewinnanteilsberechtigung für das Geschäftsjahr 2016 verfügen. Internationale Wertpapier-Kenn-Nummer (ISIN): DE000A1YDDM9 Wertpapier-Kenn-Nummer (WKN): A1YDDM Ticker Symbol: 333 EUR nennwertlose, auf den Inhaber lautende Stammaktien (lnhaber- Stückaktien) der Gesellschaft, jede Aktie repräsentiert EUR 1,00 am Grundkapital, wurden ausgegeben und voll eingezahlt. Dividendenrechte Die Aktien der Gesellschaft sind für das Geschäftsjahr 2016 voll gewinnbezugsberechtigt. Rechte am Liquidationserlös Sollte die Gesellschaft aufgelöst werden, wird der gesamte Liquidationserlös, nach Erfüllung der Verbindlichkeiten der Gesellschaft, den Aktionären nach dem Aktiengesetz im Verhältnis zu den jeweils von ihnen gehaltenen Aktien der Gesellschaft am Grundkapital ausgeschüttet. Bezugsrechte Aktionäre haben grundsätzlich das Recht, neue Aktien im Falle einer zukünftigen Kapitalerhöhung in einem Verhältnis zu den bereits von ihnen gehaltenen Aktien am Grundkapital der Gesellschaft (Bezugsrecht) gegen eine Bareinlage zu zeichnen. Ausnahmen sind in Bezug auf bedingte Kapitalerhöhungen oder die Ausgabe von Wechselschuldverschreibungen, Gewinnschuldverschreibungen, Genussrechte oder Optionsschuldverschreibungen sowie in Bezug auf den Verkauf von eigenen Aktien zu machen. Darüber hinaus kann die Hauptversammlung dieses Bezugsecht in bestimmten Fällen teilweise oder komplett ausschließen. Page 35

36 Stimmrechte In Übereinstimmung mit der Satzung der Gesellschaft gewährt jede Aktie eine Stimme in der Hauptversammlung. Alle Aktien haben dasselbe Stimmrecht. Es bestehen keine Beschränkungen der Stimmrechte mit Ausnahme der gesetzlich geregelten Fälle. Die Teilnahme an der Hauptversammlung und die Ausübung des Stimmrechts sind in der Satzung der Gesellschaft geregelt und richten sich nach allgemeinem Gesellschaftsrecht. C.5 Einschränkung der Übertragbarkeit C.6 Zulassung zum Handel an einem regulierten Markt C.7 Dividendenpolitik Entfällt. Die Aktien der Gesellschaft sind in Übereinstimmung mit den gesetzlichen Bestimmungen für nennwertlose, auf den Inhaber lautende Stammaktien frei übertragbar. Die Gesellschaft beabsichtigt ihre Aktien zum regulierten Markt (General Standard) an der Frankfurter Wertpapierbörse ungeachtet des Ergebnisses des Angebots zuzulassen. Ein Antrag auf Zulassung von Bestehende Aktien und bis zu Neue Aktien zum regulierten Markt an der Frankfurter Wertpapierbörse (General Standard) soll am oder um den 3. Juni 2016 gestellt werden. Die Handelszulassung durch die Frankfurter Wertpapierbörse zum regulierten Markt (General Standard) wird am 24. Juni 2016 für die Aktien der Gesellschaft erwartet. Es wird erwartet, dass der Handel mit den Aktien der Gesellschaft am 28. Juni 2016 aufgenommen wird. DECHENG hat in der jüngeren Vergangenheit Dividenden ausgeschüttet. Die Gesellschaft beabsichtigt, Gewinnausschüttungen in 2017 vorzunehmen und auch danach regelmäßig Gewinnausschüttungen zu tätigen, allerdings abhängig von der Ertragslage der Gesellschaft, ihrer Geschäftsstrategie, ihrer Vermögenslage, ihrem Bedarf an liquiden Mitteln und den rechtlichen, steuerlichen und regulatorischen Rahmenbedingungen sowie anderen Faktoren. Die bestehenden Aktionäre haben ihre Absicht erklärt, auf ihre Dividendenrechte für die Dividendenausschüttungen in den nächsten drei Jahren zu verzichten. Abschnitt D Risiken Bevor Anleger die Entscheidung zum Kauf von Aktien der Gesellschaft treffen, sollten sie neben den übrigen in diesem Prospekt enthaltenen Informationen gewisse Risiken sorgfältig abwägen. Diese Risiken schließen die unten angeführten wesentlichen Risiken ein. Das Eintreten von einem oder mehreren der mit diesen Risiken verbundenen Ereignisse kann sich wesentlich nachteilig auf die Geschäftstätigkeit von DECHENG auswirken und die Vermögens-, Finanz- und Ertragslage von DECHENG erheblich beeinträchtigen. Es ist möglich, dass infolge eines mit dem Eintreten dieser Risiken verbundenen Ereignisses der Börsenkurs der Aktien sinkt und Anleger ihr investiertes Kapital ganz oder teilweise verlieren. Es könnte sein, dass die nachstehend genannten Risiken sich im Nachhinein als nicht vollständig herausstellen und daher möglicherweise nicht die einzigen Risiken darstellen, denen DECHENG ausgesetzt ist. Zusätzliche Risiken und Unsicherheiten, von denen die Gesellschaft derzeit keine Kenntnis hat, könnten erhebliche nachteilige Auswirkungen auf die Geschäftstätigkeit, die Vermögens-, Finanz- und Ertragslage von DECHENG haben. Anleger sollten insbesondere den Umstand beachten, dass alle operativen Gesellschaften von DECHENG in der VR China ansässig sind und sich damit in einem rechtlichen und regulatorischen Umfeld befinden, welches sich in verschiedenen Aspekten von dem anderer Länder unterscheidet. Die Reihenfolge der nachfolgend dargestellten Risikofaktoren gibt nicht Aufschluss über die Wahrscheinlichkeit des Eintretens oder des Umfangs oder der Erheblichkeit des einzelnen Risikos. Die unten genannten Risiken können einzeln oder kumulativ eintreten. Page 36

37 D.1 Zentrale Risiken des Emittenten und seiner Branche Risiken bezüglich der Geschäftstätigkeit von DECHENG DECHENG könnte möglicherweise zukünftig nicht mehr in der Lage sein, sich gegen derzeitige und zukünftige Wettbewerber erfolgreich durchzusetzen. DECHENGs Geschäfts- und Finanzergebnisse hängen stark von der Nachfrage nach und dem Preisniveau von DECHENGs Polyurethanprodukten ab. Schwankungen bei den Konsumausgaben, ausgelöst durch Veränderungen der marktökonomischen Bedingungen in der VR China, könnten DECHENGs Geschäftsaussichten erheblich beeinflussen. DECHENG könnte nicht dazu fähig sein, Produkte anzubieten, welche die Kundenwünsche und -anforderungen erfüllen. DECHENG operiert in einer umweltgefährdenden Industrie und könnte möglicherweise nicht in der Lage sein, die Umweltschutzgesetze und Vorschriften in der VR China einzuhalten. Die derzeitigen Umweltschutzgesetze und -verordnungen der VR China könnten sich zum Nachteil von DECHENG verändern. DECHENGs Tätigkeiten könnten gesundheitliche Schäden hervorrufen und sind Gegenstand von innewohnenden Gefahren und anderen Risiken bei der chemischer Verarbeitung, Produktion, Lagerung und dem Transport. DECHENGs Reputation könnte durch Beschwerden von seinen Kunden und negative Publicity beeinträchtigt werden. DECHENG ist potenziellen Belastungen durch Produkthaftungsansprüchen ausgesetzt. DECHENG könnte daran scheitern, seine Expansionspläne erfolgreich auszuführen und sein Wachstum effizient zu steuern. Die Umsetzung von DECHENGs Wachstumsstrategie ist kapitalintensiv und DECHENGs Wachstum könnte sich verlangsamen, falls eine zusätzliche Finanzierung nicht sichergestellt ist. DECHENG kann langfristigen Geschäftsbeziehungen mit dem bestehenden Kundenstamm nicht sicherstellen, DECHENG ist dem Kreditrisiko seiner Kunden ausgesetzt. DECHENG könnte Schwankungen der Rohmaterialpreise ausgesetzt sein und ist abhängig von der fortdauernden und zeitgerechten Lieferung von hochwertigen Rohmaterialien. DECHENGs Geschäft hängt erheblich von dem fortdauernden Einsatz seines Managements und sonstigem Schlüsselpersonal ab. Lohnkosten in der VR China sind in den letzten Jahren erheblich gestiegen und könnten weiterhin erheblich steigen, was DECHENGs Betriebskosten erhöhen würde. DECHENGs Kunden, welche hauptsächlich Leder- und Textilhersteller sind, könnten sich aufgrund der steigenden Lohnkosten außerhalb der VR China niederlassen. DECHENG ist den Wechselkursschwankungen zwischen ausländischen Währungen und dem RMB ausgesetzt. DECHENG ist auf den effektiven Schutz seiner Patente und seines vertraulichen technischen Know-hows angewiesen. DECHENG könnte unbeabsichtigt Rechte Dritter am geistigen Eigentum verletzen. DECHENG könnte in der Vergangenheit das geistige Eigentum aus früheren Kooperationen mit Forschungsinstituten und Universitäten möglicherweise nicht wirksam erworben haben. Unerwartete Stillstände aufgrund technischer oder IT-Fehlfunktionen könnten den Verkauf und Umsatz von DECHENG beeinflussen. Es kann nicht ausgeschlossen werden, dass DECHENG von Unterbrechungen in der Strom- und Wasserversorgung betroffen wird, was zu einer Unterbrechung der Produktion und zu einer Beeinträchtigung der Page 37

38 betrieblichen Abläufe führen könnte. Eine wesentliche Störung des Betriebs von DECHENG oder der Betriebe seiner Zulieferer durch höhere Gewalt könnte eintreten. Die betriebswirtschaftlichen, kaufmännischen und finanziellen Planungssysteme, das Schlüsselsystem zur internen Kontrolle und die Management Berichtssysteme könnten unzureichend sein und die Kapazitäten des Managements von DECHENG könnten nicht ausreichen, um das zukünftige Wachstum erfolgreich zu steuern und zu unterstützen sowie ein zuverlässiges Finanzmanagement sicherzustellen. Der Vorstand der Gesellschaft verfügt über keine Erfahrung im Hinblick auf die gesetzlichen Anforderungen für börsennotierte Unternehmen in Deutschland und DECHENG verfügt derzeit über kein umfassendes Risikomanagement. Die angemessene Überwachung des Vorstands durch den Aufsichtsrat von DECHENG könnte sich als schwierig gestalten, da der Vorstand in der VR China und der Aufsichtsratsvorsitzende in Deutschland ansässig ist. Herr ZHU Xiaofang ist direkter Hauptaktionär der Gesellschaft und übt Funktionen im Management von DECHENG PRC aus. Diese Positionen ermöglichen ihm, erhebliche Kontrolle über die Gesellschaft und die operativen Gesellschaften in der VR China auszuüben, was zu Interessenkonflikten führen könnte. Der Versicherungsschutz von DECHENG entspricht nicht dem Umfang, wie er üblicherweise in wirtschaftlich weiter entwickelten Ländern für Unternehmen von seiner Art und Größe besteht, und die Versicherung könnte für die Geschäftstätigkeiten von DECHENG nicht angemessen sein. DECHENG ist möglicherweise nicht in der Lage, Genehmigungen und Lizenzen von Behörden der VR China, die für die Ausübung oder die Erweiterung seiner Geschäftstätigkeit notwendig sind, aufrecht zu erhalten und/oder zu erlangen. DECHENG ist möglicherweise nicht in der Lage, Eigentumszertifikate für fünf Gebäude, welche derzeit, unter anderem, als Lagerhalle und Schlafsaal genutzt werden, zu erhalten. DECHENG könnte dazu verpflichtet werden, Beiträge zu Wohnraumfonds für die Vergangenheit zu zahlen. Die Gesellschaft ist eine Holdinggesellschaft, deren Liquidität vom Zugang zu den liquiden Mitteln von DECHENG PRC abhängt. Die steuerliche Belastung von DECHENG könnte durch das Ergebnis einer Steuerprüfung erhöht werden. Risiken bezüglich der Geschäftstätigkeit in der VR China Die Geschäftstätigkeit, Finanz- und Ertragslage und Geschäftsaussichten von DECHENG könnten in einem erheblichen Maße durch Veränderungen des wirtschaftlichen, politischen und rechtlichen Umfelds sowie durch zukünftige Entwicklungen in der VR China wesentlich und nachteilig beeinflusst werden. Fluktuationen in der globalen Wirtschaft könnten die Wirtschaft der VR China erheblich und nachteilig beeinträchtigen. Veränderungen der politischen und wirtschaftlichen Lage der VR China könnten die Geschäftsaktivitäten von DECHENG in einem erheblichen Maße negativ beeinflussen. Die Gesetzgebung in der VR China zu Zweckgesellschaften ( SPV ) mit Sitz im Ausland, die von chinesischen Gesellschaften und/oder Einzelpersonen zum Zweck einer indirekten Börsennotierung gegründet werden und Unternehmen in der VR China direkt oder indirekt kontrollieren, kann sich in erheblichem Maße negativ auf die Geschäfte von DECHENG auswirken. Die Rechtsvorschriften der State Administration of Foreign Exchange, der staatlichen Devisenverwaltung in China, in Bezug auf Offshore- Investitionen, die von in der VR China ansässigen Personen oder Inhabern Page 38

39 eines chinesischen Passes getätigt werden, könnten die geschäftlichen Aktivitäten und Finanzierungsalternativen von DECHENG negativ beeinflussen. Gesetzliche Vorgaben der VR China zu der Vergabe von Darlehen und zu direkten Investitionen durch ausländische Muttergesellschaften an chinesische Gesellschaften könnten dazu führen, dass DECHENG die Erlöse aus diesem Angebot erst zu einem späteren Zeitpunkt oder gar nicht nutzen kann. Das Rechtssystem der VR China beinhaltet inhärente Unsicherheiten und Inkonsistenzen, welche die Durchsetzung von Ansprüchen erschweren könnten. Der steuerrechtliche Status von DECHENG PRC oder die Steuergesetzgebung oder deren Auslegung könnten sich ändern. Die Gesellschaft und DECHENG HK könnten als steuerlich ansässiges Unternehmen für steuerliche Zwecke in der VR China nach dem chinesischen Körperschaftsteuergesetz angesehen werden und daher der chinesischen Besteuerung unterliegen. Eine größere Kontrolle von Übernahme- und Verkaufstransaktionen durch die Steuerbehörden der VR China könnten einen negativen Einfluss auf DECHENG oder den Verkauf von Aktien der Gesellschaft durch Investoren haben. Rechnungslegungsstandards in der VR China könnten sich negativ auf die Möglichkeit zur Ausschüttung von Dividenden auswirken. Eine Destabilisierung des politischen Systems könnte die wirtschaftliche Liberalisierung der VR China gefährden. Die mangelnde Unabhängigkeit und geringe Erfahrung der Richter in der VR China und die Schwierigkeiten bei der Vollstreckung von richterlichen Entscheidungen sowie der Ermessensspielraum der staatlichen Behörden bei der Durchsetzung von Gerichtsentscheidungen könnten DECHENG daran hindern, effektiven Rechtsschutz in einem Gerichtsverfahren zu erlangen. Die Anerkennung und Vollstreckung von ausländischen Gerichtsurteilen in der VR China gegen die Gesellschaft, ihr Management oder in die Vermögenswerte der Gesellschaft könnte für Anleger schwierig oder nicht möglich sein. Bestimmte Fakten, Prognosen und andere Statistiken in Bezug auf die VR China, die Wirtschaft der VR China und die Polyurethanindustrie in diesem Prospekt sind teilweise aus offiziellen Behördenpublikationen entnommen und könnten nicht verlässlich sein. Ausländischen Beteiligungen an chinesischen Unternehmen könnten Beschränkungen auferlegt werden. D.3 Risiken bezüglich des Angebotes Ein öffentlicher Handel mit Aktien der Gesellschaft könnte sich möglicherweise nicht entwickeln. Es gibt keinen aktuellen Markt für die Aktien und das Angebot könnte keinen aktiven und liquiden Markt für die Aktien finden. Eine Abwertung des RMB könnte einen negativen Währungseffekt auf den Jahresabschluss der Gesellschaft haben. Der Aktienkurs der Aktien könnte sich volatil entwickeln und Anleger einen Teil oder ihre gesamten Investitionen verlieren. Zukünftige Verkäufe oder Ausgabe einer größeren Anzahl von Aktien der Gesellschaft könnten den Börsenpreis der Aktien der Gesellschaft negativ beeinflussen. Zukünftige Kapitalmaßnahmen könnten zu einer erheblichen Verwässerung der Beteiligung der Investoren an der Gesellschaft führen. Das Angebot kann möglicherweise nicht stattfinden, wenn der Übernahmevertrag gekündigt wird. In die Zukunft gerichtete Informationen in diesem Prospekt könnten sich als unzutreffend erweisen. Informationen aus Presseartikeln oder sonstigen Medien über DECHENG Page 39

40 oder das Angebot könnten sich als unzutreffend erweisen, so dass nicht auszuschließen ist, dass Investoren ihre Investitionsentscheidung auf Basis unzutreffender Information treffen. Der Marktpreis der Aktien der Gesellschaft könnte zu einem späteren Zeitpunkt unter den Angebotspreis fallen. Das Angebot könnte möglicherweise nicht in vollem Umfang umgesetzt werden, was sich negativ auf die Wachstumsaussichten von DECHENG und/oder der Liquidität der Aktien auf dem Markt auswirken könnte. Die Zulassung könnte entfallen, wenn die Voraussetzungen für die Zulassung nicht erfüllt werden. Abschnitt E Angebot E.1 Gesamtnettoerlöse / Gesamtkosten E.2a Gründe für das Angebot / Zweckbestimmung Auf Basis der festgesetzten Angebotspreises von EUR 3,50 und unter Annahme der vollständigen Platzierung aller Angebotsaktien geht die Gesellschaft davon aus, dass ein Nettoemissionserlös von EUR erreichbar ist. Auf Basis des festgesetzten Angebotspreises von EUR 3,50 und unter Annahme der vollständigen Platzierung aller Angebotsaktien schätzt die Gesellschaft die Gesamtkosten für das Angebot (einschließlich der Provision für den Underwriter) auf einen Betrag von ca. EUR Die Gesellschaft beabsichtigt, den Nettoemissionserlös zur Stärkung der Kapitalbasis und der Vermögenslage der Gesellschaft zu nutzen und um die beabsichtigten Expansionspläne und die Umsetzung der strategischen Ziele zu unterstützen, insbesondere durch Entwicklung und Verkauf neuer fortschrittlicher Produkte wie lösemittelfreiem Flammschutzmittel, wasserfestem / luftdurchlässigem Polyurethane. Das Listing soll es der Gesellschaft auch ermöglichen, ihr öffentliches Profil als auch ihr Profil auf dem Finanzmarkt zu schärfen. Die Gesellschaft plant den Nettoerlös wie folgt zu verwenden: Zweck EUR Ca. % Forschung & Entwicklung Marketing Betriebsmittel % 20% 30% In Bezug auf die Forschung & Entwicklung plant die Gesellschaft neue Ausrüstung für die Forschung und Entwicklung zu erwerben, weitere lokale und ausländische Experten und Angestellte einzustellen, das Personal aus der Forschung & Entwicklung zu Ausbildungszwecken an lokale und internationale Universitäten / Forschungszentren zu senden, eine Forschungs- und Entwicklungsdatenbank aufzubauen sowie neue Kooperationen mit Forschungszentren aufzunehmen. In Bezug auf die Betriebsmittel plant die Gesellschaft, mit diesen die Rohmaterialen mit weniger Kredit zu erwerben, um so in den Genuss von Rabatten zu kommen und damit zur Erhöhung der Bruttoergebnismarge von DECHENG beizutragen. Sollte der von der Gesellschaft geplante Nettoemissionserlös nicht erzielt werden, sind die Betriebsmittel von DECHENG immer noch ausreichend, um solchen Zahlungsverpflichtungen nachkommen zu können, die mindestens in den nächsten 12 Monaten fällig werden. Bezüglich der Finanzierung des weiteren Wachstums wird die Gesellschaft in diesem Fall ggf. bestehende Page 40

41 kurzfristige Bankdarlehen in Höhe von RMB 29,8 Millionen (ca. EUR 4,3 Millionen) verlängern oder interne Mittel aus dem operativen Cashflow nutzen müssen. DECHENG plant den Nettoerlös so zu verwenden wie zuvor beschrieben. Gleichwohl kann nicht ausgeschlossen werden, dass auf Grundlage der weiteren Geschäftsentwicklung eine andere Verwendung des Nettoerlöses in Betracht gezogen wird. E.3 Angebotskonditionen Angebotsgegenstand Das Angebot besteht aus einem öffentlichen Angebot in der Bundesrepublik Deutschland und Luxemburg sowie Privatplatzierungen außerhalb Deutschlands, Luxemburgs und den Vereinigten Staaten von Amerika. Das Angebot besteht aus auf den Inhaber lautenden Stammaktien ohne Nennbetrag (Inhaber-Stückaktien) mit einem anteiligen Betrag am Grundkapital der Gesellschaft von je EUR 1,00 und mit voller Gewinnanteilsberechtigung für das Geschäftsjahr 2016 (die Angebotsaktien ), davon neue auf den Inhaber lautende Stammaktien ohne Nennbetrag aus einer Barkapitalerhöhung gemäß einem Beschluss der außerordentlichen Hauptversammlung, die voraussichtlich am 20. Juni 2016 abgehalten wird ( Neuen Aktien ). Um die zeitnahe Lieferung der Aktien vor Ablauf der Angebotsfrist sicherzustellen, wird Herr ZHU Xiaofang, falls erforderlich, dem Underwriter ein unentgeltliches Wertpapierdarlehen für die gleiche Anzahl an Aktien gewähren. Nach Eintragung der Durchführung der Kapitalerhöhung in das Handelsregister der Gesellschaft werden die Neuen Aktien durch den Underwriter an Herrn ZHU Xiaofang übertragen, um die Pflicht des Underwriters zur Rückführung der Wertpapierleihe gegenüber Herrn ZHU Xiaofang zu erfüllen. Die angebotenen Neuen Aktien stammen aus einer Barkapitalerhöhung gemäß einem Beschluss der außerordentlichen Hauptversammlung, die voraussichtlich am 20. Juni 2016 abgehalten wird. Die Bestehenden Aktionäre verzichten auf ihr Bezugsrecht für die Neuen Aktien. Angebotsfrist Das Angebot beginnt voraussichtlich am 6. Juni 2016 und endet am 20. Juni 2016 ( Angebotsfrist ). Kaufangebote können bis zum Ablauf der Angebotsfrist frei widerrufen werden. Am letzten Tag der Angebotsfrist können Privatanleger und institutionelle Anleger bis um 10:00 Uhr (Mitteleuropäische Zeit) ihre Kaufangebote abgeben. Angebotspreis Der Angebotspreis, für den Kaufangebote abgegeben werden können, beträgt EUR 3,50 je Angebotsaktie. Der Angebotspreis wurde von der Gesellschaft nach ihrer eigenen Bewertung unter Anwendung von typischen Bewertungsmethoden wie Discounted Cash Flow festgelegt. Mindestvolumen einer Zeichnung Es werden lediglich Kaufangebote über Zeichnungen mit einem Mindestvolumen von einer Aktie akzeptiert. Mehrfachzeichnungen Mehrfache Kaufangebote eines Aktienzeichners werden nicht akzeptiert. Änderung der Angebotsbedingungen Die Gesellschaft behält sich das Recht vor, in Abstimmung mit ACON ( Bookrunner ), die Anzahl der Angebotsaktien zu verringern, den Angebotspreis zu reduzieren oder zu erhöhen, und/oder die Angebotsfrist zu verlängern oder zu verkürzen (zusammen als die Angebotsbedingungen bezeichnet). Im Falle einer Änderung der Angebotsbedingungen wird ein Nachtrag bei der Bundesanstalt für Finanzdienstleistungsaufsicht ( BaFin ) eingereicht und nach der Billigung auf der Internetseite der Gesellschaft Page 41

42 ( veröffentlicht. Soweit dies gesetzlich erforderlich ist, wird jede Änderung als ad-hoc Mitteilung veröffentlicht. Eine individuelle Unterrichtung der Anleger erfolgt nicht. Lieferung der Angebotsaktien Die Angebotsaktien werden vorrausichtlich am 24. Juni 2016 gegen Zahlung des Angebotspreises geliefert. Wertpapierdarlehen Um die zeitnahe Lieferung von bis zu Neuen Aktien der Gesellschaft an die Anleger zu ermöglichen, wird Herr ZHU Xiaofang, falls erforderlich, einen Wertpapierdarlehensvertrag mit dem Underwriter abschließen und dabei dem Underwriter auf den Inhaber lautende Stammaktien ohne Nennbetrag (Inhaber-Stückaktien) als unentgeltliches Wertpapierdarlehen zur Verfügung stellen. Allgemeine Zuteilungskriterien Die Gesellschaft behält sich das Recht vor, den Anlegern weniger als die maximal mögliche Anzahl von angebotenen Neuen Aktien zuzuteilen. Die Gesellschaft, Herr ZHU Xiaofang und der Bookrunner beabsichtigen, die Grundsätze für die Zuteilung von Aktienemissionen an Privatanleger, die am 7. Juni 2000 von der Börsensachverständigenkommission des Bundesministeriums der Finanzen herausgegeben wurden (die Zuteilungsgrundsätze ), zu beachten. Vorzeitige Beendigung des Angebots Der Übernahmevertrag, der u.a. zwischen der Gesellschaft, Herr ZHU Xiaofang und dem Underwriter innerhalb von fünf Bankarbeitstagen nach dem Datum dieses Prospekts abgeschlossen wird (der Übernahmevertrag ), sieht vor, dass der Underwriter den Übernahmevertrag bei Vorliegen von bestimmten Umständen bis zum Tag der Lieferung der Aktien kündigen kann. Darüber hinaus behält sich die Gesellschaft vor, jederzeit während und nach dem Angebot ohne weitere Angaben von Gründen vom Angebot zurückzutreten. Im Falle einer Kündigung des Übernahmevertrags oder eines Rücktritts seitens der Gesellschaft findet das Angebot nicht statt. In einem solchen Fall werden Aktienzuteilungen an die Anleger für ungültig erklärt und die Anleger haben keinen Lieferanspruch. Ansprüche aus gezahlten Zeichnungsgebühren und den Anlegern im Zusammenhang mit der Zeichnung entstandene Kosten werden ausschließlich nach Maßgabe der rechtlichen Verhältnisse zwischen dem jeweiligen Anleger und der Institution, bei der dieser ein Kaufangebot abgegeben hat, geregelt. E.4 Interessen / Interessenkonflikte bezüglich der Emission/ des Angebots Im Zusammenhang mit dem Angebot und dem Listing der Gesellschaftsaktien (die Transaktion ), steht ACON in einer vertraglichen Beziehung mit der Gesellschaft. Die Vergütung von ACON als Underwriter, Global Coordinator und Lead Manager hängt unter anderem von der Höhe des Angebots in Übereinstimmung mit dem Übernahmevertrag ab, der innerhalb von fünf Bankarbeitstagen nach dem Datum dieses Prospekts abgeschlossen wird. Insoweit hat ACON ein Interesse an der erfolgreichen Umsetzung des Angebots. ACON oder ihre Tochtergesellschaften könnten in Geschäftsbeziehungen mit der Gesellschaft treten bzw. im Geschäftsalltag Dienstleistungen an die Gesellschaft erbringen. Da die Gesellschaft mit ACON eine Designated-Sponsor-Vereinbarung getroffen hat, hat ACON darüber hinaus ein Interesse an dem Angebot auf Page 42

43 Grund dieser Vereinbarung. E.5 Name des Unternehmens, das das Wertpapier zum Verkauf anbietet Lock-Up Vereinbarung E.6 Verwässerung E.7 Schätzung der Ausgaben, die dem Anleger vom Emittenten oder Anbieter in Rechnung gestellt werden Die Angebotsaktien werden von der ACON als Underwriter angeboten. Die Gesellschaft, Herr ZHU Xiaofang, All-Time-Wonderful Limited mit dem alleinigen Gesellschafter Herrn QIAN Jiangang und Rongshang Limited mit dem alleinigen Gesellschafter Herrn ZHU Yufang haben mit ACON eine Lockup Vereinbarung mit einer Lock-Up-Frist von 36 Monaten, beginnend am Tag der Notierungsaufnahme der Aktien der Gesellschaft im regulierten Markt (General Standard) der Frankfurter Wertpapierbörse, abgeschlossen. Zum Datum dieses Prospektes beträgt das Grundkapital der Gesellschaft EUR eingeteilt in auf den Inhaber lautende Stammaktien ohne Nennbetrag (Inhaber-Stückaktien). Der Nettobuchwert von DECHENG HK (Summe der Vermögenswerte abzüglich kurzfristiger Verbindlichkeiten), welcher für den Zweck der Berechnung der Verwässerung als Nettobuchwert der Gesellschaft im Anschluss an die Eintragung der Sachkapitalerhöhung der Gesellschaft am 12. Mai 2016 betrachtet wird, beträgt zum 31. Dezember 2015 EUR basierend auf dem konsolidierten Jahresabschluss von DECHENG HK nach IFRS für das GJ Dies entspricht etwa EUR 1,03 pro Aktie (kalkuliert auf der Basis von Aktien der Gesellschaft zum Datum dieses Prospektes). Unter der Annahme, dass alle Angebotsaktien platziert werden und dass der Angebotspreis EUR 3,50 beträgt, würde die Gesellschaft Netto- Emissionserlöse von ca. EUR erhalten, unter Berücksichtigung der Gesamtkosten für das Angebot (einschließlich der Provision für den Underwriter) mit ca. EUR Unter der Annahme, dass das Angebot am 31. Dezember 2015 umgesetzt worden wäre, würde der Nettobuchwert der Gesellschaft zu diesem Zeitpunkt ca. EUR betragen (oder ca. EUR 1,20 pro Aktie auf der Grundlage von Aktien der Gesellschaft in der Ausgabe nach vollständiger Durchführung der Kapitalerhöhung gegen Bareinlagen). Dies entspricht einer Zunahme des Nettobuchwertes der Gesellschaft von ca. EUR 0,17 pro Aktie entsprechend einer Zunahme von ca. 16,5% für die bestehenden Aktionäre. Dies stellt eine direkte Verwässerung von EUR 2,30 pro Aktie für die Käufer der angebotenen Aktien dar, basierend auf dem Angebotspreis. Investoren, welche Aktien zum Angebotspreis von EUR 3,50 pro angebotene Aktie kauften, haben somit eine Verwässerung von ca. 65,7%. Entfällt. Weder die Gesellschaft noch ACON werden den Anlegern Gebühren in Rechnung stellen. Die Investoren werden von ihren depotführenden Finanzinstituten mit den üblichen Transaktions- und Bearbeitungsgebühren belastet werden. Page 43

44 3. RISK FACTORS In addition to the other information included in this Prospectus, potential investors should peruse and carefully consider the specific risk factors described below before coming to a decision about purchasing shares of Decheng Technology AG (the Company ). The business operations and net assets, financial condition and results of operations of the Company and its direct and indirect subsidiaries (together DECHENG or the Group ) could be materially and adversely affected due to the materialization of any one or several of these risks. The risks described below are not the only risks to which DECHENG is exposed. Other uncertainties and risks which are currently unknown to the Company may also impair the operations of DECHENG and materially and adversely affect its business and its net assets, financial position and results of operations. Investors should pay particular attention to the fact that the operating entity of DECHENG is incorporated in the People s Republic of China ( PRC or China ) and subject to a legal and regulatory environment which in various respects may differ from that of other countries. The sequence in which the following risks are presented does not contain any statement about the probability that they will occur or the extent of the financial impact if the risks mentioned below materialize. The market price of the Company s shares might decline considerably and/or the Company may become insolvent and wound-up if any one of these risks occurs and investors might lose all or part of their investment. 3.1 Risks related to DECHENG s Operations DECHENG may not be able to continue competing successfully against present and future competitors. The Company believes that the polyurethane ( PU ) resin industry is quite competitive. DECHENG and its competitors compete with each other based on, amongst other things, brand image, product variety, product functionality, quality and price. Competitors may have significantly greater financial, technical and marketing resources, stronger brand name recognition and a larger existing customer base than DECHENG. In addition, competitors may have the ability to respond more quickly to new or emerging technologies, may adapt more quickly to changes in customer requirements and may devote greater resources to the development, promotion and sales of their products than DECHENG. DECHENG s current competitors are mainly domestic and, to a lesser extent, international polyurethane resin manufacturers. There are entry barriers for new competitors in China as new licenses for production companies in the polyurethane industry and in particular environmental certificates are in practice given out restrictively by the PRC authorities, in particular taking into account the discharge of waste gas such as sulphur dioxide (SO2) and mono-nitrogen oxide (NOx) in the process of the production. Nevertheless, there is no assurance that DECHENG will be able to continue competing successfully against present and future competitors. The Company believes that important factors to achieving success in the polyurethane resin industry include maintaining customer loyalty by cultivating long-term customer relationships, achieving consistent product renewal and maintaining the quality of products and services. If DECHENG is unable to attain these factors, it may lose its customers to its competitors, which would in turn result in DECHENG not being able to maintain or increase its market share. Increased competition may also force DECHENG to lower its prices. Further, matured technology requires longterm accumulation of experience and R&D investment, which sets high barriers for ordinary manufacturers to entry and also challenges for existing manufacturers to maintain their competitiveness. The success of DECHENG has relied substantially on its R&D capacity. The expenses thereof without personnel costs accounted to approx. Euro ( EUR ) 0.34 million on average in the last three financial years ( FY ) and DECHENG is planning to further increase its R&D investment. There is however no assurance that these R&D expenses will bear fruit, i.e. technologies which can be used to manufacture Page 44

45 competitive products. Also, local competitors might instead of developing own technology obtain licenses for technology and formulae from international manufactures, which would speed up the time to market new polyurethane resin products and would increase competition for DECHENG. If DECHENG is unable to compete effectively with existing or new competitors in the future, in particular in light of the changing and competitive market environment, DECHENG s business and its net assets, financial condition and results of operations may be materially and adversely affected DECHENG s business and financial results are highly dependent on demand and price levels for DECHENG s polyurethane resin products. The selling prices and operating costs associated with producing DECHENG s products are volatile and are determined by market conditions. Due to the slower growth of demands and excess production capacity, the average price for polyurethane resin per ton in China has slumped from Renminbi ( RMB ) 18,932 (approx. EUR 2,735) in 2013 to RMB 16,840 (approx. EUR 2,435) in 2014 and further decreased to RMB 13,989 (approx. EUR 2,025) in It is expected the prices remain low and fluctuate at RMB 14,000 (approx. EUR 2,025) per ton from 2016 to For DECHENG s products, the selling price has not slumped to the same extent. Prices for polyurethane resin products are the main determinants of DECHENG s income and its decisions regarding total output volumes. Prices for polyurethane resin products may have an adverse impact on DECHENG s operating activity in case of their decrease. Selling prices for polyurethane resin products and operating costs associated therewith are volatile and are determined by unpredictable factors, which are beyond DECHENG s control. Demand for DECHENG s products might also decline in case new and innovative substitute products, such as new synthetic materials, solvent-free or waterborne PU resin, are developed by other players in the market. Such decline in demand might result in a decrease of the selling price and output volume. If any or all of these factors depress prices or increase DECHENG s operating costs, its business, results of operations and financial condition may be adversely affected Fluctuations in consumer spending caused by changes in macroeconomic conditions in the PRC may significantly affect DECHENG s prospects. DECHENG only sells its products on the Chinese market mainly to domestic textile and leather production-oriented enterprises which use them to manufacture their own end-products. Therefore, the success of the business of DECHENG indirectly depends on the condition and growth of the PRC consumer market, which, in turn, depends on worldwide economic conditions and individual income levels and their impact on levels of consumer spending. The slowdown of gross domestic product ( GDP ) growth rates in the PRC in 2013, 2014 and 2015 which is, amongst others, due to the development of the global economy, could lead to a toughened competition and increased pressure on prices. There are many factors affecting the level of consumer spending, including but not limited to interest rates, currency exchange rates, recession, inflation, deflation, political uncertainty, taxation, stock market performance, unemployment level and general consumer confidence. The growth rate of PRC s economy has slowed down since 2014 in comparison to the previous years and may continue to decline. Further, there can be no assurance that projected growth rates of the PRC economy and the PRC consumer market will be realized. Any further slowdowns or declines in the PRC economy or consumer spending may materially and adversely affect DECHENG s business and its net assets, financial condition and results of operations. Page 45

46 3.1.4 DECHENG may not be able to provide products meeting customers demand and requirements. DECHENG s customer may demand products with certain new/improved functionality or environmentally friendly materials, such as solvent-free and waterborne PU resin, which DECHENG currently cannot produce. As a result, customer may order products from competitors, if the Research & Development ( R&D ) department of DECHENG is not able to maintain and meet the demand of the customers. DECHENG s quality control may also fail to discover deficiencies and DECHENG may deliver products that do not meet the quality requirements of its customers. In such event, DECHENG may be required to deliver replacement products at its own expense or pay damages. Such failures could also result in reputational harm and confidence loss of its customers which might lead to lower volumes of orders of customers or even losing of important customers. Not fulfilling the expectations of the customers and the failure to gain market acceptance of products introduced in the future may have an adverse impact on DECHENG s net assets, financial conditions and results of operations DECHENG operates in an environmental hazardous industry and may fail to comply with environmental protection laws and regulations in the PRC. Businesses in China like DECHENG that generate pollutants in the production process, such as waste gas in the form of sulphur dioxide (SO 2 ) and mononitrogen oxide (NO x ) by burning coal for heating, are subject to environmental laws and regulations. These laws and regulations require enterprises engaged in the manufacturing that may cause environmental pollution to limit or adopt effective measures to control and properly dispose of industrial waste. Under PRC laws, any enterprise which discharges pollutants is required to register with the relevant PRC governmental authorities and to obtain the necessary approvals, such as pollutant discharge permit. DECHENG has obtained the required pollutant discharge permit, which has been issued by the Quanzhou Environment Protection Bureau on 14 July 2015 and has a duration term of 5 years. Under the pollutant discharge permit, DECHENG is authorized to discharge waste gas up to 8,958,000 standard cubic meters per year, SO 2 up to 2.51 tons per year, NO x up to 2.45 tons per year and flue dust up to 2.34 tons per year. However, against the background of heavy environmental pollution in China and the efforts of the PRC government to reduce such, the allowed volume of discharge may be reduced upon the next extending of the pollutant discharge permit. It also cannot be excluded that factories like DECHENG have to halt their production for a certain time due to environmental pollution reasons or that the allowed volume of discharge will even be reduced before the expiration of the pollutant discharge permit. Lower limits could impact DECHENG s ability to produce polyurethane resins or require additional environmental protection investments or the use of more expensive higher energy less polluting coal. Compliance with the environmental laws and the conditions of the pollutant discharge permit is subject to periodical inspection from relevant government authorities. According to the latest assessment by the Fujian Kerui Environmental Testing Ltd. Co. issued on 30 December 2015, the current discharge of waste gas in the form of SO 2, NO x and flue dust by DECHENG amounted to kilogram/hour ( kg/h ), kg/h and kg/h, respectively. Subject to the actual usage of the production capacity, the amount of authorized discharge under the permit could be exceeded. DECHENG is therefore currently planning to replace coal with natural gas for heating, which is planned to be put into use in the first quarter of Fines may be imposed for pollution discharges, which fail to meet the relevant environmental standards. Relevant governmental authorities may also refuse to issue or renew a pollutant discharge permit, if an enterprise fails to pass Page 46

47 environmental inspections, and are also empowered to close down any enterprise in cases of severe violations of the relevant environmental standards. DECHENG s compliance with environmental laws and regulations in the past has been confirmed by the competent authority Quanzhou Quangang District Environment Protection Bureau, which issued on 18 January 2016 a letter certifying that DECHENG PRC was in compliance with the laws and regulations in relation to environment protection since its incorporation, that no environmental pollution accident or any discharge pollutant beyond pollution limits had occurred during the operation of DECHENG PRC, and there was no administrative investigation or penalty had been imposed on DECHENG PRC for violation of environment protection regulations since its incorporation. However, there is no assurance that DECHENG PRC would continue to comply with the applicable environmental protection laws and regulations in the future and fines, penalties or other sanction measures would be imposed on DECHENG PRC. If DECHENG should fail to comply with the applicable environmental protection laws and regulations or if the above mentioned risks occur, this may result in penalties and other sanctions like a shut down. As a result, DECHENG s business and its net assets, financial condition and results of operation may be materially and adversely affected The current PRC environmental protection laws and regulations may change to the detriment of DECHENG. There can be no assurance that the PRC government will not change the existing environmental laws and regulations or impose additional or stricter laws and regulations in the chemical manufacturing industry, especially after some recent massive chemical explosions on production sites in China. Compliance with any of these additional or stricter laws or regulations may cause DECHENG to incur additional capital expenditure, which DECHENG may be unable to pass over to the customer through higher prices for DECHENG s products. This could have a material adverse effect on DECHENG s business and its net assets, financial condition and results of operations. Furthermore, if DECHENG should be unable to comply with more stringent environmental protection standards, penalties may be imposed on it and/or its operations and business may be shut down or adversely impaired, which would also have a material adverse effect on DECHENG s net assets, financial condition and results of operations DECHENG s operations may cause damage to human health and are subject to the inherent hazards and other risks associated with chemical processing, production, storage, and transportation. For the production of polyurethane and additives, DECHENG operates several reaction kettles processing chemicals at its production facilities. The employees can suffer chemical burns from spilling chemicals in the production process or from inhaling hazardous fumes. Other potential hazards associated with chemical production and operations include accidents, explosions, fires, inclement weather, transport risks, terrorist attacks, natural disasters, mechanical failure, transportation interruptions, remediation, pipeline leaks and ruptures, storage tank leaks, chemical spills, discharges or releases of toxic or hazardous substances or gases and other risks. These hazards could expose workers, suppliers, the community and others to toxic chemicals and other hazards, contaminate property and the environment, damage property, result in personal injury or death, lead to an interruption, relocation or suspension of operations and materially adversely affect the productivity of DECHENG, and result in governmental enforcement, regulatory shutdowns, the imposition of government fines and penalties and claims brought by governmental entities or third parties. Although DECHENG has implemented precautionary measures and safety procedures in its operations and has not violated any safe production laws and regulations and there was no production accident occurred during the operation since its incorporation as certified by Quanzhou Quangang Safe Page 47

48 Production Supervision and Administration Bureau dated 18 January 2016, it cannot be assured that the process does not endanger the human health of the employees involved, neighboring population or the environment. Any major industrial accident can result in a permanent damage whether due to DECHENG s fault or not, and may give rise to potential claims against DECHENG. Also, the government might introduce tighter controls as to chemical plant safety standards resulting in higher costs for compliance. The social security for DECHENG covers health damage of its employees and a liability insurance of safe production for 28 front-line workers in the production. However, it cannot be assured that the social security and the liability insurance of safe production are sufficient to cover all potential claims of employees against DECHENG. In the event any claims are not covered by the insurance, DECHENG may be liable to cover the amounts claimed, which would also have a material adverse effect on DECHENG s, business, net assets, financial condition and results of operations DECHENG s reputation may be affected by complaints from its customers and negative publicity. DECHENG s business also relies on its brand reputation. The Company believes that maintaining and enhancing DECHENG s brand, which will depend on the success of DECHENG s marketing efforts and ability to provide its customers with high quality products, is important to retaining its market share and market penetration and growing the business in the future. DECHENG s ability to maintain and enhance its brand will depend largely on its ability to continue to provide high quality products. In the event that DECHENG s brand or reputation is damaged, for example as a result of complaints from its customers, whether valid or invalid, product liability claims, negative press coverage or general negative perceptions about DECHENG s polyurethane products, this could adversely impact DECHENG s reputation. In the event that DECHENG s brand or reputation is adversely affected, this could have a material adverse effect on DECHENG s business, net assets, financial condition and results of operations DECHENG has potential exposure to product liability claims Many of DECHENG s products provide critical performance attributes to customers products, which are in turn sold to consumers. If a product fails to perform in a manner consistent with quality specifications, a customer could seek replacement of the product or damages for costs incurred as a result of the product failing to perform as designed and marketed. The sale of these products may also give rise to product liability claims or other claims based on damage caused by DECHENG s products. If a consumer were to bring a product liability claim with respect to a product that contains DECHENG s products, DECHENG could be named as a defendant in that claim or could become subject to separate litigation brought by one of its customers. A successful claim or series of claims against DECHENG could cause reputational harm and could result in a loss of customers. In addition, DECHENG s product portfolio contains some substances that are as such harmful to human health. Other products of DECHENG that are not currently considered harmful to human health may be discovered to be harmful to human health in the future, which could lead to liability claims. In addition, DECHENG s products, once integrated into consumer end products, may also be found to be harmful as medical knowledge about health risks related to exposure evolves. Any allegation of harm caused by a product of DECHENG may significantly negatively affect DECHENG s reputation. Any threatened or actual future claims for damages based on product liability could significantly harm DECHENG s reputation and, in turn, could materially adversely affect DECHENG s business, financial condition, results of operations and prospects. Page 48

49 DECHENG might fail to execute its expansion plans successfully and manage its growth efficiently. DECHENG has expanded its business significantly in recent years. For FY 2013, FY 2014 and FY 2015, DECHENG recorded revenues of EUR 38,785,440, EUR 49,442,710 and EUR 69,759,801 respectively. DECHENG intends to further advance such growth. In particular, such growth shall be achieved by geographical expansion into other provinces, but also by expanding DECHENG s current production facilities. The expansion of the current production facilities shall in particular also serve the purpose of producing newly developed polyurethane resin products. There can however be no assurance that DECHENG may, in part or at all, be successful in these activities. DECHENG s anticipated future growth, combined with the requirements the Company will face as a public listed company, will place a significant strain on DECHENG s management, systems and resources. There is a risk that DECHENG will have difficulty or will fail to integrate satisfactorily new personnel, operations, products and services into its operations. To accommodate its growth, DECHENG will need to implement new and upgraded financial systems, procedures and controls, including the ongoing improvement of its accounting and other internal management systems, all of which require substantial management efforts. DECHENG will also need to continue to expand, train, manage and motivate its workforce and manage its customer relationships. Moreover, as DECHENG introduces new products or extends its presence to other PRC provinces, DECHENG may face new operational risks and challenges, with which DECHENG is unfamiliar. All of these endeavors will involve risks and require substantial management effort and skill. DECHENG may be unable to manage its growth effectively and any failure to do thus may have a material and adverse effect on DECHENG s business and its net assets, financial condition and results of operations The implementation of DECHENG s growth strategy is capital intensive and DECHENG s growth could slow down if it could not secure additional financing. In order to finance its growth strategy, DECHENG may have to raise additional capital in the future through debt or equity offerings, if DECHENG cannot maintain sufficient working capital for its expansion plans. DECHENG cannot be certain that suitable financing will be available in the required amounts or on acceptable terms. DECHENG s growth could slow down, if it could not secure additional financing. If additional equity or equity-linked securities are issued, this may result in the dilution of existing shareholders' holdings. If additional debt is incurred, this would result in debt service obligations, which could have a negative impact on profitability and could expose DECHENG to general adverse economic conditions. In addition, the terms of any financing agreement could limit DECHENG s ability to pay dividends or restrict DECHENG s flexibility in planning for, or reacting to, changes in its business or its industry. DECHENG is also subject to foreign exchange registration and approval, if it intends to borrow funds from entities outside of the PRC. In addition, DECHENG needs to obtain approval or registration from Chinese government agencies, if it intends to secure financing through equity contributions from non- PRC residents. In the event that DECHENG cannot obtain necessary financing on reasonable terms, or at all, it may be forced to scale back its plans for future business expansion and DECHENG s growth could slow down. The occurrence of any of the aforementioned risks, restrictions or exposure could have material and adverse effects on DECHENG s business and its net assets, financial condition and results of operations. Page 49

50 DECHENG cannot ensure long-term business relationships with its existing customer base. DECHENG currently sells its products to approx. 72 textile and leather manufacturers who themselves use the product to manufacture its own end products such as outdoor supplies, waterproof jackets, tents and mats in the textile industry and leather sofas, leather and sport shoes as well as footballs in the leather industry. DECHENG does not control nor participate in the operations of these manufacturers. Out of the 72 customers in 2015, in total about 63 customers are repeated customers, while the other customers have been newly acquired by DECHENG. Since DECHENG does not have long-term contracts with its customers, DECHENG s customers may, at any point in time, cease or alter to DECHENG s disadvantage the present arrangements with DECHENG. Further, due to the increase of new capacity in synthetic leather industry in recent years, competition among synthetic leather manufacturers is expected to be intensified. Further decrease in end product prices coupled with rising labour costs will prohibit vast majority of synthetic leather manufacturers to remain profitable. Hence synthetic leather manufacturers might opt to move towards upstream. This is also expected to intensify competition within the leather PU resin industry and customers of DECHENG might become its competitors. This may have a material and adverse effect on DECHENG s business and its net assets, financial condition and results of operations DECHENG is exposed to the credit risks of its customers. DECHENG s business and DECHENG s financial results are dependent on the credit worthiness of its major customers. DECHENG s contracts with its customers generally provide a credit term of one month for 20% and two months for 40% of the total order price after final delivery. Any deterioration in the financial position of DECHENG s customers, particularly its major customers, may affect DECHENG s profits and cash flow, as these customers may default on their payments to DECHENG. Although DECHENG reviews the credit risk of its customers on a yearly basis, DECHENG cannot assure that such defaults will not take place in the future or that it will not experience cash flow problems as a result of such defaults. The occurrence of any default in payment may materially and adversely affect DECHENG s business and its net assets, financial condition and results of operations DECHENG may be subject to fluctuations in the prices of raw materials and is dependent on the continuous and timely supply of quality raw materials. The costs of raw materials accounted for approximately 93.0%, 93.1% and 92.6% of DECHENG s total costs of goods sold for the FY 2013, FY 2014 and FY 2015 respectively, which included in particular dimethylformamide ( DMF ) and methylene diphenyl diisocyanate ( MDI ) as well as pure adipic acid ( AA ). As DECHENG does not have long-term arrangements with its suppliers for such key raw materials, in particular the annual supply contract does not contain any pricing for the period due to the volatility of crude oil price, there is no assurance that DECHENG will be able to obtain, or continue to obtain, quality raw materials at competitive prices. Although DECHENG s raw materials turnover days are maintained at 10 days, the continuous and timely supply of quality raw materials is, however, the basis for quality products. Market prices of such raw materials may fluctuate due to crude oil price fluctuation or due to changes in the level of global demand and supply. Any substantial increase in the prices of these raw materials is likely to have a material adverse impact on DECHENG s production costs. In the event of any significant increase in the costs of such materials and should DECHENG be unable to hedge the risk or to pass on such costs to DECHENG s customers or do so on a timely basis, DECHENG s Page 50

51 business and its net assets, financial condition and results of operations may be materially and adversely affected DECHENG s business depends substantially on the continuing efforts of its management and other key personnel. DECHENG s future success substantially depends upon the continued services of its management and other key employees. DECHENG s success to date has been largely attributable to the efforts of its management team, in particular Mr. ZHU Xiaofang as chairman of the management board (Vorstandsvorsitzender) of the Company, who has more than 10 years of experience in the polyurethanes industry. DECHENG PRC is headed by the Company s chairman Mr. ZHU Xiaofang, who is closely supported by DECHENG PRC s general manager Mr. ZHU Xiaohua, also having more than 10 years of experience in the polyurethane resin industry, and by the vice-general manager Mr. CHEN Shuo, who is heading the sales and marketing team. The Company s CFO Mr. OOI Guan Hoe and the key R&D staff also substantially contribute to DECHENG s success. If one or more of its management or key personnel are unable or unwilling to continue in their present positions, DECHENG might not be able to replace them easily or at all. Furthermore, if any of its management or key personnel, e.g. key R&D staff, would join a competitor or form a competing company, DECHENG may lose customers, suppliers, expertise and key professionals and staff members. There can be no assurance that DECHENG will be successful in retaining its management or key employees or will be able to hire qualified management personnel to replace them, should such a need arise. The demand for such experienced personnel is intense and the search for personnel with the relevant skills set can be time consuming. In any of the abovementioned events, DECHENG s business may be severely disrupted and its net assets, financial condition and results of operations may be materially and adversely affected Labor costs in the PRC have risen significantly in recent years and could continue to rise significantly, which increases DECHENG s operational costs. The workforce of DECHENG is located in the PRC. As of 31 December 2015, DECHENG employed 123 employees. Labor costs comprise wages, social security contributions and other welfare benefits. The average annual wage per capita of employees of private companies in the PRC increased in 2013 from RMB 32,706 (approx. EUR 4,730) by 11.3% to RMB 36,390 (approx. EUR 5,265) in 2014 (Source: National Bureau of Statistics of China). The legal minimum monthly salary in Pu an Leather Center, Quangang District, Quanzhou City, Fujian Province, PRC, where DECHENG s facilities are located, amounts to RMB 1,350 (approx. EUR 195) since 2015, whereas the legal minimum hourly salary amounts to RMB (approx. EUR 2.07) (Source: Circular of the People s Government of the Fujian Province regarding the Standards of the Minimum Wages in Fujian Province, Min Zheng (2015) No. 38). The average salary for workers of DECHENG PRC has increased from RMB 3,363 (approx. EUR 486) per month in 2013 by 4% to RMB 3,510 (approx. EUR 508) per month in 2014 and by 7% to RMB 3,814 (approx. EUR 552) per month in Although the salary of DECHENG s employees complies with the minimum salary requirements and is above average, it cannot be excluded that increases in minimum wages affect the wages, which DECHENG must pay in order to remain an attractive employer. This may also result in increased prices for its products and services, making DECHENG potentially less competitive, even though DECHENG s labor costs account only for approx. 2% of the total costs of goods sold. In addition, new obligations imposed on employers and Page 51

52 enhanced employee protection measures, such as restrictions on the dismissal of employees, and the requirement to pay a severance payment in case of prior termination of an employment agreement may also lead to an increase in DECHENG s labor costs. In the future, labor costs could continue to increase significantly and additional legislation could be enacted that further increases an employer s obligation to pay employee benefits. In case any of the above mentioned risks materialize, this could have a material and adverse effect on its business and its net assets, financial condition and results of operations DECHENG s customers, being mainly leather and textile manufactures, may relocate outside the PRC due to rising labor costs. DECHENG mainly distributes its products to leather and textile manufactures in the PRC. The production of leather and textile goods is quite labor intensive and the labor costs constitute a substantial part of the operational costs of those manufactures. Rising labor costs in the PRC, as seen in the past and expected to potentially rise in the future, could force the manufactures to relocate their production facilities outside the PRC into other Asian countries. As a result, the manufacturers might more likely procure polyurethane resin products locally and thus DECHENG might lose customers. In such case, this could have a material and adverse effect on DECHENG s business and its net assets, financial condition and results of operations DECHENG is exposed to fluctuation in foreign exchange rates against the Renminbi ( RMB ). Fluctuations in foreign exchange rates against the Renminbi ( RMB ), in particular a strengthening RMB, may cause the price of goods produced in the PRC to be relatively high as compared to products from other countries. Such fluctuations might harm the competitiveness of DECHENG s exporting customers compared to international manufacturers and hence reduce the demand for DECHENG s products. Also, rising RMB could make import substitution of Chinese resin production more attractive. Thus, fluctuations in the RMB exchange rate could have a material and adverse effect on DECHENG s business and its net assets, financial condition and results of operations DECHENG relies on the effective protection of its patents and its confidential technical know-how. DECHENG believes that the continuous development of new resin formulae by its R&D department and the know-how in the manufacturing of its products materially contributes to its business success. Typically, DECHENG develops more than 10 new resin formulae per year. DECHENG has registered 12 utility model patents in China, which are used in the manufacturing process. The patents mainly referred to the formulas of the polyurethane resin products. Due to delayed payment, all of these patents have been deregistered. However, DECHENG has already applied for re-registration, which has been denied by the patent office in the first instance. DECHENG has though filed an appeal against this decision. The formulaes which had been protected by the deregistered patents have however anyway already changed over the time and new patents have been applied for. Therefore, even in the case of a rejection of failure of the appeal, the Company does not believe it will have an adverse impact on its business, operation or competitiveness. Nevertheless, effective protection of the know-how in its production process is critical to DECHENG s business. DECHENG has therefore applied for 13 new patents in China, out of which 8 utility model patents have been granted and five patent applications have been accepted by the Chinese patent office. However, there is no assurance that as to the five applications patents will be Page 52

53 granted to DECHENG. Further, even if know-how is patented, this may however not be sufficient to protect the respective rights. Competitors might therefore try to copy DECHENG s products. Also, since other technical know-how is not patented, DECHENG relies on confidentiality restrictions to protect such intellectual property rights. DECHENG is thus exposed to unauthorized disclosure of such proprietary information to its competitors. There is no assurance that DECHENG s controls to maintain confidentiality will be effectively implemented. In the event that any of its competitors infringes the patent rights of DECHENG or its other know-how should be leaked to its competitors, DECHENG s business and its net assets, financial condition and results of operations may be materially and adversely affected DECHENG may inadvertently infringe third-party intellectual property rights. DECHENG is not aware of, nor has DECHENG received any claims from third parties for any violations or infringements of intellectual property rights of third parties by DECHENG as of the date of this Prospectus. Nevertheless, there can be no assurance that new products developed by DECHENG would not inadvertently infringe the intellectual property rights of others, or others would not assert infringement claims against DECHENG or claim that DECHENG has infringed their intellectual property rights. Such claims against DECHENG, even if untrue or baseless, could result in significant costs, legal or otherwise, cause product shipment delays, require DECHENG to develop non-infringing products, enter into licensing agreements or seriously harm the reputation of DECHENG and its brand image. Licensing agreements, if required, may not be available on terms acceptable to DECHENG or at all. In the event of a successful claim of intellectual property rights infringement against DECHENG and its failure or inability to develop non-infringing products or to license the infringed intellectual property rights in a timely or cost-effective basis, DECHENG s business and its net assets, financial condition and results of operations may be materially and adversely affected DECHENG may not have validly acquired intellectual property rights from its former cooperation with research institutions and universities in the past. DECHENG s research and development activities rely to a significant extent on the cooperation with external partners, such as research institution and universities, e.g. DECHENG PRC has entered into research arrangements with Haixi Institute of Chinese Academy of Sciences (Fujian Material Structure Institute) ( Fujian Material Structure Institute ) and Quangang Petrochemical Research Institute of Fujian Normal University ( Quangang Petrochemical Research Institute ). It is possible that DECHENG may not have validly acquired intellectual property rights from its former cooperation and its cooperation partners may demand the registration of the intellectual property rights solely in their name and/or claim damages from DECHENG, prohibiting DECHENG from using the relevant technologies. It can also not be excluded that cooperation partners may have claims regarding inventions made within the scope of cooperation which have not been fully fulfilled by DECHENG. However, according to the current cooperation agreements with Fujian Material Structure Institute and Quangang Petrochemical Research Institute, it has been explicitly agreed that (i) DECHENG shall have a sole right to apply for patent for all technological developments arising from the cooperation; (ii) DECHENG has the exclusive right to use all of the technology developments arising from the cooperation; (iii) Fujian Material Structure Institute and Quangang Petrochemical Research Institute shall not authorize any third party to use any Page 53

54 of the technology developments or patents, or transfer any of the technology developments or patents to a third party. Nevertheless, it cannot be excluded that cooperation partners may register patents solely in their own name, in spite of the contractual agreements. Further, cooperation partners may still continue to independently develop research to an end product after recognizing the potential during cooperation with DECHENG. In such cases, DECHENG s business, financial condition, net assets and results of operations may be materially and adversely affected Unexpected stoppages due to technological and IT malfunctions may impact DECHENG s sales and revenues. Polyurethane resin production is a complex process which is subject to strict technical and technological requirements. During such operations, various kinds of stoppages can occur due to planned and unplanned technical interruptions (e.g., malfunctions). Unplanned stoppages, e.g. in the processing of the kettles, caused by serious malfunctions may have a material impact on the volume of production and sales and the punctuality of deliveries DECHENG s customers. DECHENG s production is also highly automated and hence materially dependent on controlling software, computer and data processing systems. Disruptions or malfunctions may lead to adverse impact on DECHENG s production and business. Any of these events can have a material adverse effect on DECHENG s business, financial condition, net assets and results of operations There can be no assurance that DECHENG will not encounter disruptions in the supply of electricity and water which could cause a disruption to its production and affect its overall operation efficiencies. DECHENG s production facilities consume substantial amount of electricity and water which are supplied from state owned enterprises. There can be no assurance that DECHENG will not encounter disruptions in the supply of electricity and water caused by problems in the respective hydroelectricity power plants, problems with electricity supply lines, contamination of its source of water, natural calamities such as droughts or earthquakes, governmental acts such as prohibition from or withdrawal of the approval on the use of the water resources or any other factors which could cause a disruption to its production and affect its overall operation efficiencies. In any of these events, DECHENG may not be able to obtain alternative supply in time or at all, DECHENG s business and its net assets, financial condition and results might be materially adversely affected A material disruption of the operations of DECHENG or the operations of its suppliers from force majeure events could occur. The operations of DECHENG are subject to uncertainties and contingencies beyond its control that could result in material disruptions and adversely affect its results of operations. These include war, riot, public disorder, civil commotion, fire, earthquake, flood, volcano eruption and other natural calamity, epidemic, outbreak of infectious disease, terrorism, whether locally or nationwide, or incidents such as industrial accidents or other operational problems, strikes or other labor difficulties and disruptions of public infrastructure such as roads, ports or utilities. Any such disruption of the operations of DECHENG could cause it to disrupt, limit or delay its production, prevent it from meeting customer orders, increase its costs of production or require it to spend additional capital expenditures, each of which could materially and adversely affect its results of operations. Force majeure events may also materially and adversely affect the operations, performance of its suppliers or the sales and demand of its products in the relevant markets. In Page 54

55 such event, DECHENG s business and its net assets, financial condition and results of operations may be materially and adversely affected DECHENG s operational, trading and financial planning, internal key control and management reporting systems may be inadequate and its management resources may be insufficient to successfully manage and support its future growth and to ensure accurate financial management. DECHENG s operational, trading and financial planning, internal key control and management reporting systems may not be fully adequate and thus not provide DECHENG s management with as much or accurate information as required, or not provide the required information in time. Also, the bookkeeping and accounting department may not be able to fully comply with all accounting or trading standards and procedures, such as proper documentation for all transactions, as the basis for reporting and accounting, in particular the bookkeeping and accounting department might fail to fully comply with IFRS standards since these differ from those standards in the PRC. Moreover, the shortage of qualified management and accounting personnel in the PRC in general and in the Fujian region in particular may hinder DECHENG from building sufficient personnel resources to ensure accurate financial management. Any inability to maintain operational, trading and financial planning and management reporting systems, as well as any inability to hire further qualified personnel, may hinder DECHENG s future successful growth. This may have a material and adverse effect on DECHENG s business and net assets, financial condition and results of operations The Company s management board (Vorstand) is not experienced in complying with German legal requirements for listed companies and DECHENG currently does not have a comprehensive risk management system in place. DECHENG has until recently operated as a private Chinese group and maintains a small finance and accounting department. DECHENG is therefore not experienced in dealing with increased legal, accounting transparency, in particular with respect to the International Financial Reporting Standards and International Accounting Standards and Interpretations as endorsed for application in the EU ( IFRS ), and administrative requirements imposed on a publicly listed company in Germany. The obligation to comply with certain reporting, notification, documentation and publication obligations resulting from the admission of the Company s shares to trading in the regulated market (General Standard) of the Frankfurt Stock Exchange will put increased demand on its finance and accounting departments. In addition, the preparation of interim financial reports and annual consolidated financial statements in accordance with IFRS, which the Company will be required to produce after the listing of its shares on the Frankfurt Stock Exchange and the additional reporting requirements it will face as a publicly listed company may pose problems for DECHENG s current financial reporting system. DECHENG may not have an adequate number of management and accounting personnel sufficiently qualified to assist with the preparation of the IFRS financial statements, to install and operate adequate management reporting systems and to meet reporting requirements as a publicly listed company. If the Company should fail to timely issue complete and correct financial statements and reports, it will potentially be exposed to fines and penalties and a decrease in investor confidence thus resulting in a decrease of its share price. In addition, DECHENG has not yet established a formalized risk reporting system and risk management system as may be customary in European or US listed companies, as such risk management systems are not standard in the PRC. The lack of such formalized systems increases DECHENG s susceptibility to the aforementioned risks. In addition, any gaps or shortcomings of the existing compliance system, especially against the background that compliance Page 55

56 standards in the PRC differ from such in the European Union, or the Company s policies and procedures could lead to a restriction of DECHENG s ability to timely recognize and respond to risks and future developments. If DECHENG fails to comply with its obligations as a publicly listed company or if any risks materialize which could have been prevented by a formalized risk management system, this could have a material adverse effect on DECHENG s business and its net assets, financial condition and results of operations The Company s supervisory board (Aufsichtsrat) may have difficulties in adequately supervising the management board (Vorstand) since the management is located in the PRC and the chairman of the supervisory board (Aufsichtsratsvorsitzender) resides in Germany. DECHENG s business is located in the PRC and all of its senior management members and directors reside there. The Company is currently a holding company without any significant operational business of its own. The chairman of the supervisory board (Aufsichtsratsvorsitzender) resides in Germany and he is, together with the other members of the supervisory board (Aufsichtsrat), responsible for the supervision of the Company s management board (Vorstand). However, it may be more difficult for them to fulfill their supervisory duties arising from the German Stock Corporation Act (AktG) vis-à-vis the management residing in the PRC, e.g. according to section 111 AktG, and/or to receive the reports required from the management board (Vorstand), e.g. according to section 90 AktG. It may in particular be difficult for the chairman of the supervisory board (Aufsichtsratsvorsitzender) to organize the supervision and to communicate with the management board (Vorstand) and to receive at any time all documents that are required to inspect and examine the books and the records of the Company. These circumstances could have a material and adverse effect on DECHENG s business and its net assets, financial condition and results of operations Mr. ZHU Xiaofang is majority direct shareholder of the Company as well as holds management positions in DECHENG PRC. These positions will enable him to exercise significant control over the Company and DECHENG PRC and could subject him to conflicts of interest. Immediately upon closing of the Offering, Mr. ZHU Xiaofang will still have more than 50% of the voting rights. Through this shareholding, he will be in a position, irrespective of the voting behavior of other shareholders, to exercise considerable influence over all major decisions and developments of the Company. In particular, he will be able to exercise considerable influence at general shareholders meetings (Hauptversammlungen), and consequently, over decisions regarding measures which are presented for a vote at the general shareholders meeting (Hauptversammlung) (including the election of the supervisory board (Aufsichtsrat) and the approval for important capital measures). Mr. ZHU Xiaofang is also chairman of the management board (Vorstand) of the Company and legal representative of DECHENG PRC. His interest as majority shareholder could conflict with his duties as member of the management in DECHENG PRC to act in the best interests of DECHENG and/or the interests of other investors. Also, as legal representative of DECHENG PRC, Mr. ZHU Xiaofang has full control over all business affairs of DECHENG PRC. The position of legal representative is crucial for the ongoing operations of DECHENG PRC. Under the laws of the PRC and given that Mr. ZHU Xiaofang as majority shareholder of the Company has ultimate control over the business of DECHENG, any changes in the position of the legal representative potentially required due to any conflicts of interests between Mr. ZHU Xiaofang personally and the business operations of DECHENG PRC are very difficult to implement. Page 56

57 Any conflicts of interest described above could have a material and adverse effect on DECHENG s business and its net assets, financial condition and results of operations DECHENG does not have the insurance coverage that is customary in more economically developed countries for a business of its type and size and the insurance may not be adequate for DECHENG s operations. In the PRC, it is not customary to take out an extensive insurance protection for businesses as in more developed economies. DECHENG has taken out three property insurances covering basic risks for its real estate located at Pu an, Quangang District, Quanzhou City, Fujian Province, PRC such as fire and explosions as well as certain natural disasters, and one corporate insurance covering risks such as the loss related to the assets, the equipment damage, the loss of cash, the close of business, public liability, and the employer's liability. However, DECHENG may become subject to liabilities for events that cannot be insured against, e.g. riots, general strikes, acts of terrorism or against which it may elect not to be so insured because of high premium costs or other reasons. A lack of insurance coverage may expose DECHENG to substantial financial risks, for which it may not be adequately compensated. DECHENG does not maintain separate funds or otherwise set aside reserves for these types of events. Any uninsured occurrence of loss or damage, litigation or business disruption may result in DECHENG incurring substantial costs and the diversion of resources, which could have a material and adverse effect on DECHENG s business and its net assets, financial condition and results of operations DECHENG may not be able to maintain and/or obtain approvals and licenses from PRC authorities necessary to carry out or expand its business. DECHENG requires certain licenses (in particular business license, production permits and environmental certificates) to conduct its current business. Also in case of the expansion of its business, e.g. by way of establishing additional production facilities, new permits, such as construction permits, are required. The respective authorizations are subject to periodic renewal by the competent PRC authorities, and the standards of compliance required may change. DECHENG is subject to the supervision of the authorities, each of which may be able to revoke or refuse to grant and/or to extend the licenses. DECHENG has obtained all required certificates. However, there can be no assurance that DECHENG will obtain and keep all necessary licenses or permits in the future. In particular, the business license could be canceled due to the following matter: According to Article 5 of the Non-Resident Enterprise Income Tax Withholding Regulation Tentative Provisions of the PRC ("Withholding Regulation"), if the involving both parties in an overseas share transfer transaction are non-resident enterprises, the domestic target company shall file a copy of the share transfer contract with the tax authority when the domestic target company change its tax registration. The Withholding Regulation is silent on the legal consequence in case of failure to file the share transfer agreement, but it provides in Article 22 Withholding Regulation that in case of failure to duly change the tax registration, the tax authority shall follow the Article 42 of the Administrative Measures for Tax Registration of the PRC to handle the case. According to this Article 42 and Article 60 of the Tax Collection and Administration Law, the tax authority may impose a penalty of up to RMB10, 000 and ask the company to remedy the tax registration within a deadline. In case that a company refuses to make tax registration within the deadline imposed by the tax authority, the tax authority may apply to the Administration for Industry and Commerce ( AIC ) to cancel its business license. Golden Times Trading Co. transferred 100% of its shares in DECHENG PRC to Page 57

58 Hong Kong De Cheng Holding Company Limited which was registered with the competent PRC authority on 26 February However, DECHENG PRC has not yet filed a copy of the share transfer agreement nor changed its tax registration for the share transfer with the competent tax authority. Although Mr. ZHU Xiaofang, also as sole owner of Golden Times Trading Co., has given his written undertaking that he will pay income tax (if any) regarding the above mentioned share transfer as well as any penalty imposed by the tax authority on DECHENG PRC for failure to file the share transfer agreement and change the tax registration, there can be no assurance that DECHENG PRC would not be imposed with non-monetary penalties or DECHENG PRC s business license or other licenses would not be canceled or imposed with constraints in the future. If any of the activities carried out by DECHENG fails to meet the requirements of current and future rules or regulations and DECHENG is held liable or responsible, or if DECHENG fails to obtain the grant or renewal of the required licenses, such failure and any potential penalties could have a material and adverse effect on DECHENG s business and its net assets, financial condition and results of operations DECHENG may not be able to obtain the ownership certificate for five buildings which are currently used as, inter alia, warehouses and dormitory. DECHENG has constructed on its location in Pu an, Quangang City, Quangang District, Quanzhou City, Fujian Province, PRC, five buildings, out of which two are used as warehouses, one as dormitory, one as boiler room and one as transformer room. However, DECHENG has not yet obtained the ownership certificate for these buildings. DECHENG has submitted the application to the competent authority with all documents required and the certificate is expected to be granted in the second half of the year However, there is no assurance that the ownership certificate will be granted. According to the PRC law, in the absence of the ownership certificate, the competent authority may impose fines on DECHENG and could as a last measure even request the demolition of the buildings. In such a case, DECHENG may not be able to find substitute rooms for storage and dormitory as well as boiler and transformer timely. In case the competent authority rejects to issue the ownership certificate to DECHENG or even imposes fines, DECHENG s business and its net assets, financial condition and results of operations would be materially adversely affected DECHENG may have to pay housing fund contributions for the past. DECHENG PRC has been obliged to pay housing funds contributions for its employees in the past. However, DECHENG PRC only paid housing funds for part of its employees before 1 January 2016 and started to pay the housing funds for all its employees since 1 January According to the confirmation letter issued by Quanzhou Housing Funds Management Center on 21 January 2016, the authority would though not require DECHENG PRC to pay any outstanding housing contributions for the previous years before 1 January 2016 and would not impose any penalty and surcharge on DECHENG PRC. However, in spite of the confirmation letter there can be no assurance that DECHENG PRC will not be required by the authority to pay the default amount of the housing funds for its employees or even administrative fines may be imposed on DECHENG. In such a case, DECHENG s business and its net assets, financial condition and results of operations could be negatively affected. Page 58

59 The Company is a holding company the liquidity of which depends upon having access to the liquid funds of DECHENG PRC. The Company is a holding company without any operating business of its own. DECHENG s assets and operations are located in the PRC. The Company s liquidity therefore depends upon having access to dividend distributions from its indirect PRC subsidiary through the Company s direct subsidiary, which is a holding company based in Hong Kong. Given that the Company has no direct access and control over the funds in the PRC, the Company is dependent on the compliance of the local management in the PRC. Current PRC regulations also permit the payment of dividends only out of accumulated profits determined in accordance with PRC accounting standards and regulations. In addition, a PRC company is required to set aside at least 10% of its after-tax profits each year to fund a statutory capital reserve fund until such reserves in aggregate reach 50% of its registered capital and may be required to further set aside a portion of its after-tax profits to fund the employee welfare fund. These reserves are not distributable as cash dividends. Due to the three tier holding structure (Germany, Hong Kong, PRC) and regulatory and accounting constraints, it may take some time for the profits of DECHENG PRC to be distributed to the Company. For example, distributable profits generated by DECHENG PRC in 2016 may in principle only be distributed to DECHENG HK in 2017 and passed on by DECHENG HK to the Company in 2018, which means that it may happen that the shareholders of the Company receive any distributable profits generated by DECHENG PRC in 2016, if distributed, not until Further, under PRC foreign exchange rules and regulations, payments of recurring account items, including profit distributions and operating-related expenditures, may generally be made in foreign currencies without prior approval but are subject to procedural requirements. Strict foreign exchange controls generally apply to certain capital account transactions. These transactions must be approved by and/or registered with the State Administration of Foreign Exchange ( SAFE ) or its local counterparts. There can be no assurance that the entity of DECHENG will be able to meet all of their foreign currency obligations under PRC laws or to remit profits out of PRC. Should DECHENG PRC be, or become, restricted and/or legally prohibited from and/or unable to pay dividends or to make other distributions outside the PRC, this could have a material and adverse effect on the net assets, financial condition and results of operations of the Company The tax burden of DECHENG may increase as a result of tax audits. In the past, none of the entities of DECHENG has undergone a special tax investigation from the relevant tax authorities. A future tax investigation or tax review may reveal that the tax authorities have views on tax regulations and circumstances that are different from those of DECHENG. In particular, the possibility cannot be excluded that DECHENG PRC will be required to make additional tax payments. Under China s tax collection laws, any entity is subject to a late payment fee for any delay in tax payment at 0.05% of the unpaid tax for each delayed day. Taxpayers with underpaid tax may also be subject to penalties ranging from 50% to 500% of the underpaid tax. Taxpayers who fail to withhold and pay tax may be subject to penalties ranging from 50% to 300% of the tax not withheld. Given the above, DECHENG PRC is liable for any outstanding tax payments and any late payment fees related thereto. In connection with the burden of any additional tax payments, there is also an interest risk as, typically after a grace period, interest must be paid on additional tax payments. Furthermore, there is a risk that tax penalties could be triggered. Page 59

60 In any of the abovementioned events, DECHENG s business and its net assets, financial condition and results of operations could be materially and adversely affected. 3.2 Risks related to Conducting Business in the PRC DECHENG s business, financial condition, results of operations and prospects could be materially and adversely affected by changes in the economic, political and legal environment and developments in China. All of DECHENG's business operations are conducted and all revenue is generated by DECHENG PRC. Investors should thus be aware that DECHENG's operations are subject to greater risks than operations in more developed markets, including significant legal, economic and political risks. Moreover, emerging economies like China are subject to rapid change and the information set out herein may therefore become outdated quickly. Investments in emerging markets or in companies that operate in emerging markets are generally exposed to additional risks and are generally only suitable for sophisticated investors who fully appreciate the significance of the risks involved. Investors are urged to consult with their own legal and financial advisors before making an investment Fluctuations in the global economy could materially and adversely affect the economy of the PRC. The economy of the PRC is vulnerable to market downturns and to economic slowdowns elsewhere in the world. As has happened in the past, financial problems or an increase in the perceived risks associated with investing in the PRC or in emerging economies in general could dampen foreign investment in the PRC and businesses could face severe liquidity constraints, further materially adversely affecting these economies. As a result, disruptions in the development of the global economy could have material and adverse effects on the business, financial condition and results of operations of DECHENG Changes in the PRC s political and economic policies could have a material and adverse effect on the business operations of DECHENG. The PRC economy differs from the economies of most developed countries in many respects, including structure, level of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. The PRC economy has been transitioning from a planned economy to a more market oriented economy. The PRC government has implemented economic reform measures emphasizing utilization of market forces in the development of the PRC economy for the past three decades, and is continuing to play a significant role in regulating industries by imposing industrial policies. While the Chinese economy has grown significantly in the past 30 years, the growth has been uneven geographically among various sectors of the economy, and during different periods. There can be no assurance that the Chinese economy will continue to grow, or that if there is growth, such growth will be steady and uniform, or that if there is a slowdown, such slowdown will not have a negative effect on DECHENG s business. Although the Company believes that the continuing economic reforms will have a positive effect on the PRC s overall and long-term development, the Company cannot exclude any changes in the political, economic and social conditions in the PRC which will have a material and adverse effect on its current or future business, results of operations or financial condition PRC legislation on offshore special purpose vehicles ( SPV ) which are formed by PRC legal entities and/or individuals for the purpose of indirect Page 60

61 listings and that control PRC companies directly or indirectly may have a material and adverse effect on DECHENG s business. On 8 August 2006, six PRC regulatory agencies, including the Ministry of Commerce ( MOFCOM ) and the China Securities Regulatory Commission ( CSRC ), promulgated the Provisions for the Mergers and Acquisitions of Domestic Enterprises by Foreign Investors ( M&A Provisions ) which came into effect on 8 September 2006 and were further amended by MOFCOM on 22 June The M&A Provisions provide, among others, that an offshore SPV which is formed by PRC legal entities and/or individuals for listings and that directly or indirectly controls PRC companies through merger and acquisition of domestic companies must obtain the approval of CSRC prior to the listing and trading of its shares on an overseas stock exchange. On 21 September 2006, CSRC published on its official website a notice specifying the documents and materials required to be submitted to it by SPVs seeking CSRC approval of an overseas listing, the violation of which may lead to regulatory actions or other sanctions from CSRC or other Chinese regulatory agencies. In addition to the provisions relating to foreign indirect listings, the M&A Provisions also stipulate that a domestic natural person or legal person must obtain approval from MOFCOM before acquiring an affiliated domestic company via a foreign company established or controlled by such domestic natural or legal person. This requirement may not be circumvented by using a foreign-invested enterprise as an acquisition vehicle or otherwise. Various transactions were concluded during the corporate restructuring of DECHENG prior to listing of the Company. The structure adopted by DECHENG, is commonly used by some Chinese entities undergoing an overseas listing and has not yet been challenged by the Chinese authorities. The Company believes that the M&A Provisions do not apply to the incorporation and restructuring procedures of the PRC entity and to the listing of the shares of the Company because, among others, since its establishment Quanzhou De Cheng Tech Resin Co., Ltd ( DECHENG PRC ) had been held by Hong Kong entities which have been actually controlled and held by Mr. ZHU Xiaofang, who is a Hong Kong citizen. The Company believes further that the M&A Provisions do not apply to the transfer of the shares of DECHENG HK to the Company, because the M&A Provisions only apply to merger and acquisition of domestic companies (meaning share swaps involving shares in PRC domestic entities and not extending to share swaps involving foreign entities as in the case on hand, i.e. shares in DECHENG HK being swapped against shares in the Company). However, there has been no official interpretation or clarification of the M&A Provisions since their adoption. There is uncertainty as to how these provisions will be interpreted or implemented. There can be no assurance that CSRC and/or MOFCOM will agree with these views, and recent corporate restructuring, including but not limited to the transfer of the shares of DECHENG HK to the Company, or in connection with the listing of the Company's shares. If the M&A Provisions are applicable, it cannot be ruled out that CSRC and/or MOFCOM will ultimately refuse to grant an approval. If an approval is required and as long as such approval has not been granted, DECHENG may face sanctions by the PRC regulatory agencies for failure to seek the approval for this offering. These sanctions may include fines and penalties on DECHENG s operations in the PRC, limitations on its operating privileges in the PRC, delays or restrictions on the repatriation of the proceeds from this offering into the PRC, restrictions on or prohibition of the payments or remittance of dividends by DECHENG PRC, or other actions that could have a material adverse effect on DECHENG s business, financial condition, results of operations, reputation and prospects, as well as the trading price of the Company s shares. Page 61

62 The PRC regulatory agencies may also take actions requiring DECHENG, or making it advisable, to halt this offering before the settlement and delivery of the shares that the Company is offering. Consequently, if investors engage in market trading or other activities in anticipation of and prior to the settlement and delivery of the shares the Company is offering, they would be doing so at the risk that the settlement and delivery may not occur. The application of the M&A Provisions could have a material and adverse effect on DECHENG s business and its net assets, financial condition and results of operations Regulations by the State Administration of Foreign Exchange relating to offshore investments by PRC residents or passport holders, may materially and adversely affect DECHENG s business operations and financing alternatives. DECHENG is subject to the PRC rules and regulations on currency conversion. In the PRC, the State Administration of Foreign Exchange ( SAFE ) regulates the conversion of RMB into foreign currencies. Before 1 June 2015, foreign invested enterprises ( FIE ) were required to apply to SAFE or its local counterpart for Foreign Exchange Registration Certificates for FIEs and DECHENG has obtained such registration certificates. With such registration certificates (which need to be examined annually), FIEs are allowed to open foreign currency accounts including the recurring items account and capital items account. Since 1 June 2015, the FIEs may apply to the local competent bank for the Foreign Exchange Registration. Currently, conversion within the scope of the recurring items account (e.g. remittance of foreign currencies for payment of dividends, etc.) can be effected without requiring the approval of SAFE. However, conversion of currency in the capital items account (e.g. for capital items such as direct investments, loans, securities, etc.) still requires the approval of SAFE. The applicable law in respect of conversion of RMB into other currencies is the Regulation for Foreign Exchange Controls of the PRC ( Regulation ) which came into effect on 1 April 1996 and was amended as of 14 January 1997 and 1 August Under the Regulation conversion of RMB into foreign currencies for the use of recurring items, including the distribution of dividends and profits to foreign investors of FIEs is permissible and the approval of SAFE is not required, and FIEs are permitted to remit foreign currencies from their foreign currency bank accounts in the PRC upon presentation of relevant resolutions to the banks which authorize the distribution of profits or dividends and subject to other requirements being satisfied. However, conversion of RMB into foreign currencies for capital items, such as repatriation of capital, repayment of loans and for securities investment, is still under control and needs the approval of SAFE. In addition, the Notice on Issues concerning Foreign Exchange Management in Financing and investment by PRC Residents by Overseas Special Purpose Vehicle ( SPV ) and Roundtrip Investments ( SAFE Notice 37 ) promulgated by SAFE which came into force on 4 July 2014 would also apply to the repatriation of revenues by DECHENG PRC to the Company through DECHENG HK in the form of dividend income or otherwise. Pursuant to SAFE Notice 37, SPVs are foreign companies that are established by or controlled by PRC residents for raising financing or investment outside of PRC. Such PRC residents ( Relevant PRC Residents ) are required to file an overseas investment foreign exchange registration before making capital contribution to such SPV and subsequently, to update such registration on the occurrence of specified events such as (i) the change on the basic information such as individual shareholders, name, business term, etc. of the PRC entity; (ii) material event such as capital increase, capital decrease, share transfer or swap, merger, division, etc.. Subject to completion of the aforesaid registration, payment of dividends, profits and other payments to such SPV will be permitted. Page 62

63 DECHENG has requested its current shareholders and beneficial owners to disclose whether they or their shareholders or beneficial owners fall within the scope of SAFE Notice 37 and its relevant guidance. SAFE Notice 37 does not apply to Mr. ZHU Xiaofang and Mr. WU Qingquan with regard to their ownership of the Company, as well as changes in their ownership of the Company in connection with the restructuring exercise for the Listing, because Mr. ZHU Xiaofang is a Hong Kong passport holder and Mr. WU Qingquan is a Macau passport holder who are not regarded as Relevant PRC Resident under SAFE Notice 37. Mr. CHEN Huocan, Mr. QIAN Jiangang, Mr. ZHU Yufang and Mr. ZHU Jianyang as shareholders of the Company are deemed to be Relevant PRC Residents under SAFE Notice 37. They are therefore required to obtain the aforesaid registration with the local SAFE with regard to their ownership of the Company, as well as changes in their ownership of the Company in connection with the restructuring exercise for the Listing in compliance with the requirements of SAFE Notice 37. DECHENG has informed them of their registration obligation and requested them to file the necessary registrations with relevant local authority of SAFE. DECHENG may not at all times be fully aware or informed of the identities of all shareholders or beneficial owners who are PRC residents and DECHENG may not always be able to compel shareholders or beneficial owners to comply with SAFE Notice 37. Also, the relevant authorities may take a different view as to whether or not the current shareholders or beneficial owners shall register under SAFE Notice 37. As a result, DECHENG cannot assure that all shareholders or beneficial owners who are PRC residents will at all times comply with SAFE Notice 37 and the related rules. However, there can be no assurance that SAFE will not continue to issue new rules and regulations and/or further interpretations of SAFE Notice 37 that will further tighten the foreign exchange control. If new rules are promulgated, there is no assurance that DECHENG will be able to make or obtain any applicable registrations or approvals required by such rules. As DECHENG PRC generates all of DECHENG s sales and these sales are denominated mainly in RMB, the ability of DECHENG to pay dividends or make other distributions to the Company may be restricted by PRC foreign exchange control restrictions in the future. There can be no assurance that the relevant regulations will not be amended to the detriment and that the ability of DECHENG to distribute dividends to shareholders will not be adversely affected PRC regulations pertaining to loans and direct capital investments by offshore parent companies to PRC entities may delay or prevent DECHENG from using the proceeds of this Offering. In utilizing the proceeds of this Offering to finance DECHENG s business, the Company, as a holding company, may make loans or additional capital contributions through DECHENG HK to DECHENG PRC. Any loan by an offshore parent company to a PRC subsidiary is subject to approval and/or registration requirements and must be within the margin between each of their total investment amount and registered capital. Further, loans to any of its PRC subsidiaries have to be registered with SAFE or its local counterpart. In addition, if the Company finances DECHENG PRC through additional capital contributions, the amount of these capital contributions must first be approved by the competent government authority. There can be no assurance that DECHENG will be able to obtain these government registrations or approvals on a timely basis, if at all, with respect to future loans or capital contributions by the Company to DECHENG PRC. If DECHENG fails to obtain such registrations or approvals, the ability to use the proceeds of this Offering and its ability to fund and expand the operational business in China could be adversely affected, which could have material adverse effects on the business, financial condition and results of operations of DECHENG. On 8 April 2015, SAFE promulgated the Circular of the State Administration of Foreign Exchange Concerning the Reform of the Administrative Approaches to Page 63

64 Settlement of Foreign Exchange Capital of Foreign-invested Enterprises ( Circular 19 ). According to the Circular 19, the use of Renminbi converted from foreign capital to purchase equity interests in Chinese companies or to establish Chinese companies is subject to the existing PRC regulations on domestic reinvestments and the domestic reinvestment registration with SAFE or the authorized bank, unless the equity investment is within the approved business scope of a foreign-invested enterprise ( FIE ). In addition, the utilization of FIEs capital shall be subject to the principles of authenticity and self-use within the business scope. FIEs' capital and RMB funds from their settlement shall not be used for the following purposes: (I) directly or indirectly used for payment beyond the business scope or prohibited activities under the laws and regulations of the PRC; (II) directly or indirectly used for securities investments, unless otherwise prescribed under the laws and regulations; (III) directly or indirectly used for the extension of RMB entrusted loans (unless permitted by the business scope), repayments of inter-enterprise borrowings (including third-party advances), and repayments of RMB bank loans already refinanced to any third party; (IV) used for the payment of expenses related to the purchase of real estate not for self-use, except for foreign-invested real estate enterprises. Violation of this Circular 19 will result in severe penalties, such as significant fines. If DECHENG fails to receive the necessary registrations or approvals, the ability to use the proceeds of this Offering and its ability to fund and expand the operating business in China could be adversely affected, which could have material and adverse effects on DECHENG s business and its net assets, financial condition and results of operations The PRC legal system contains inherent uncertainties and inconsistencies which may make the enforcement of claims more difficult. The PRC s legal system is based on written statutes. Prior legal decisions and judgments have limited precedential value. The PRC is still in the process of developing a comprehensive statutory framework and its legal system is still considered to be underdeveloped in comparison with the legal systems in some western countries. Since 1979, the PRC legislative bodies have promulgated laws and regulations dealing with such economic matters as foreign investment, corporate organization and governance, commerce, taxation and trade. Since then, there has been a tendency in legislation towards giving increasing protection to foreign investors and significant progress has been made in the legal system of the PRC. Despite significant improvement in its developing legal system, however, the PRC does not have a comprehensive system of laws. The enforcement of existing laws and regulations may be uncertain or inconsistent, and the interpretation of these laws and regulations may change from time to time. Any such change could have an adverse impact on DECHENG s business and its net assets, financial condition and results of operations. Furthermore, many laws, regulations and legal requirements have only recently been adopted by the central or local governments, and their implementation, interpretation and enforcement may involve uncertainty due to the lack of established practice available for reference. Depending on the government agency or how an application or a case is presented to such agency, DECHENG may receive less favorable interpretations of law than its competitors. In addition, any litigation in the PRC may be protracted and result in substantial legal costs and diversion of resources and management attention. Similarly, legal uncertainty in the PRC may limit the legal protection available to potential litigants. The occurrence of one or several of these risks could have material and adverse effects on DECHENG s business and its net assets, financial condition and results of operations. Page 64

65 3.2.8 The tax status of DECHENG PRC or tax legislation or its interpretation might change. The current tax rules and their interpretation relating to DECHENG PRC may be subject to adverse changes in the future. The applicable tax rates may change in the future. Any change in the DECHENG PRC s tax status or in taxation legislation or its interpretation could affect the value of the investments held by the Company, its ability to provide returns to shareholders and/or alter the posttax returns to shareholders. Statements in this Prospectus concerning the taxation of DECHENG and the Company s investors are based on current tax laws and practices which are subject to change. In addition, the taxation regime applicable in China may change again and could have an adverse impact on the after-tax profits of DECHENG. As all operational profits are generated by DECHENG PRC, which is subject to the tax legislation of the PRC, the materialization of the above risks could have a material and adverse effect on DECHENG s business and its net assets, financial condition and results of operations The Company and Hong Kong De Cheng Holding Company Limited ( DECHENG HK ) may be treated as tax resident enterprises for PRC tax purposes under the PRC enterprise income tax laws and therefore be subject to PRC taxation. The Enterprise Income Tax Law ( EIT-Law ) introduced the concept of tax resident enterprise ( TRE ) defined as an enterprise which is established in the PRC under the PRC laws and regulations, or which has its de facto management body in the PRC. TREs are subject to the PRC enterprise income tax ( EIT ) for their worldwide income, including income received from their subsidiaries. According to Article 4 of the Implementing Rules of the EIT Law (the Implementing Rules ), de facto management body refers to the management body that exercises essential management and control over the enterprise. As a result, if a holding company located outside the PRC is actually managed by a management body in China, the overseas company may be regarded as a TRE and subject to enterprise income tax for its worldwide income. According to the interpretation of Article 4 of the Implementing Rules given by the Chinese State Administration of Taxation ( SAT ) on its website, the location of the de facto management body shall be determined by a substance-over-form method. In particular, mere off-shore board meetings shall not be sufficient for the de facto management body being located outside of China. Dividends received by one TRE from another TRE (not listed in the Chinese stock market or in case of being listed whose stocks are held for continuous 12 months by the former) are exempted from enterprise income tax. Most of DECHENG s management is currently located in China and DECHENG expects its management to continue to be located in China. However, due to a lack of clear guidance on the criteria pursuant to which the PRC tax authorities will determine DECHENG s tax residency under the EIT Law, it remains unclear whether the PRC tax authorities will treat the Company and DECHENGHK as PRC tax resident enterprises. Currently, neither the Company nor DECHENG HK has been notified by the PRC tax authorities that they are to be treated as a PRC tax resident enterprise. However, if the Company and DECHENG HK are deemed to be PRC tax resident enterprises, the following PRC tax implications will apply: The Company and DECHENG HK might both be subject to an enterprise income tax at the rate of 25 % on their worldwide income, which could have an impact on DECHENG s effective tax rate and an adverse effect on DECHENG s net income and result of operations. However, the EIT Law provides that dividend income between qualified tax resident enterprises is exempted income, which the Implementing Rules have clarified to mean a dividend derived by a tax resident enterprise on equity interest it directly owns in another resident Page 65

66 enterprise. It is possible, therefore, that dividends the Company receives through DECHENG HK from DECHENG PRC would be exempted income under the EIT Law and its Implementation Rules. If the Company is deemed to be a PRC tax resident enterprise, the Company would then be obliged under the EIT Law to withhold PRC withholding tax on the gross amount of dividends the Company pays to shareholders who are non-prc tax residents. The withholding tax rate is 10% for enterprise investors and 20% for individual investors, unless otherwise provided under the applicable double taxation treaties between China and other countries. Under the double taxation treaty between China and Germany, the withholding tax rate of 10% for enterprise investors and individual investors on dividends applies. Under the EIT Law, such withholding tax on dividends is to be deducted by the tax resident enterprise from the gross dividends and paid to the competent PRC tax authorities on behalf of the non-prc tax resident shareholders. As the Company has issued bearer shares, and no practical guidance has been issued by the SAT about the treatment of dividends paid by foreign entities considered TREs, the Company may not be able to ascertain whether or not its shareholders are non-prc tax residents, and may not be able to fully comply with the withholding requirement in case it is considered a TRE, which subjects it to additional uncertainty. Further, if the Company is deemed to be a PRC tax resident enterprise, any gains realized on the transfer of shares in the Company by non- PRC resident investors will also be subject to a 10% (if the investor is a company) or 20% (if the investors is a natural person) PRC withholding tax, under the EIT Law or PRC Individual Income Tax Law, if such gains are then regarded as income derived from sources within China, unless the applicable double taxation treaty provides otherwise. In case the 10% or 20% PRC withholding tax respectively is payable for the gains, under PRC tax law, the non-prc resident investors are obliged to declare such tax by themselves with the competent PRC tax authorities. If any of the aforementioned risks materializes, the value of an investment in the shares of the Company may be materially adversely affected and the non-prc resident investors may be subject to tax compliance obligations, including tax filings and charges, in the PRC Greater scrutiny over acquisition and disposition transactions by the PRC tax authorities may have a negative impact on DECHENG or the investors disposition of the Company s shares. The operations and transactions of DECHENG are subject to review by the PRC tax authorities pursuant to relevant PRC laws, rules and regulations. However, these laws, regulations and legal requirements change frequently, and their interpretation and enforcement involve uncertainties. For example, on 10 December 2009, the SAT issued the Notice on Strengthening the Administration of Enterprise Income Tax on Income from the Transfer of Shares by Non-PRC Resident Enterprises (the Notice 698 ), which became effective retroactively as of 1 January 2008, and on 3 February 2015, the SAT issued the Announcement of the State Administration of Taxation of the PRC on Issues Relating to Enterprise Income Tax on Gains from Indirect Transfer of Assets by Non-Tax Resident Enterprises ( Circular 7 ) which became effective retroactively as of 3 February Under Notice 698 and Circular 7, where a non-prc resident enterprise transfers the equity interests of a PRC resident enterprise indirectly by disposition of the equity interests of an overseas holding company (excluding buying and selling shares of a PRC resident enterprise on a public stock exchange), or Indirect Transfer, the transferor, the transferee and the PRC resident enterprise whose equity interests is indirectly transferred may Page 66

67 report this Indirect Transfer to the competent tax authorities for the PRC resident enterprise. Using a substance over form principle, the PRC tax regulatory authorities may disregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of reducing, avoiding or deferring any PRC tax. As a result, gains derived from such Indirect Transfer may be subject to the PRC withholding tax at a rate of up to 10%. In addition, Notice 698 provides that, where a non-prc resident enterprise transfers its equity interests in a PRC resident enterprise to its related parties at a price lower than the fair market value, the relevant PRC tax authorities can, at their discretion, make a reasonable adjustment to the taxable income of the transaction. There is uncertainty as to the application of Notice 698 and Circular 7. For example, while the term Indirect Transfer is not clearly defined, it is understood that the relevant PRC tax authorities have jurisdiction regarding requests for information over a wide range of foreign entities having no direct contact with the PRC. It is not clear to what extent the shareholders of the Company may be subject to these requirements. Moreover, although several issues related to Notice 698 were clarified through the Notice Regarding Several Issues on the Administration of Non-resident Enterprise Income Tax dated 28 March 2011 by the SAT, or Circular 24, which became effective on 1 April 2011, there is little guidance or precedent regarding the application of Circular 24, and the process and format for reporting the Indirect Transfer to the competent PRC tax authorities remain unclear. DECHENG has conducted offshore acquisitions and dispositions involving complex corporate structures, and it may not be able to make timely filings with the PRC tax authorities as required. The PRC tax authorities may, at their discretion, impose or adjust the capital gains of those acquisitions and dispositions or request DECHENG to submit additional documentation for their review in connection with any relevant acquisition or disposition, and thus cause DECHENG to incur additional costs. Besides, the investors that are non-prc resident enterprises may be required by the PRC tax authorities to make a filing upon the transfer of the shares of the Company, and may be required to pay PRC tax on gains realized from such transfer at a rate of 10% even if the Company is not treated as a PRC resident enterprise PRC accounting requirements may materially and adversely affect the ability to pay dividends. The ability of DECHENG PRC to make dividends and other payments to the Company is restricted by PRC laws and regulations, which permit payment of dividends only out of accumulated profits, after making up prior year losses and allocations to various non-distributable reserve funds, as determined in accordance with generally accepted accounting principles in the PRC (the PRC GAAP ) and applicable regulations, such as statutory capital reserve. These regulations may restrict the amount of profit available for distribution from DECHENG PRC, which could affect the Company s liquidity and its ability to pay dividends. Moreover, the determination of profit available for distribution under PRC GAAP may differ from profit determined in accordance with IFRS. As a result, it is possible that the Company might not receive distributions from DECHENG PRC through DECHENG PRC, even if its IFRS financial statements indicate that its operations have been profitable A destabilization of the political system could threaten China's economic liberalization. While the PRC economy has changed fundamentally from a centrally planned system to a more market-oriented economy over the last three decades, the political system in China still operates under communist control. Although political conditions in China seem to be generally stable, changes may occur in its political system which might affect the ownership or operation of Page 67

68 DECHENG's interests, including, among others, changes in government as well as in legislative and regulatory regimes. A material change in China's economic liberalization triggered by political disruptions or by other means could impact the country's economic growth in general and DECHENG's business in particular. Social instability could increase public support for renewed centralized authority, and nationalism or violence could lead to a tougher stance by the Chinese government on foreign investors operating in China or on foreign investment in general. Any such developments could have material and adverse effects on DECHENG s business and its net assets, financial condition and results of operations The PRC judiciary's lack of independence and limited experience and the difficulty of enforcing court decisions and governmental discretion in enforcing court orders could prevent DECHENG from obtaining effective remedies in a court proceeding. PRC's judicial system may not be as independent or immune to economic, political and nationalistic influences as judicial systems in European jurisdictions. The court system in China is largely understaffed and underfunded. Since courts in the PRC are financially dependent on the respective local governments, judges tend to favor the economic interests of the municipalities or provinces and the enterprises located there. The independence of judges is further undermined by the fact that Chinese judges are only appointed for a limited period of time and may be dismissed during their term of office. Many older judges have not had any prior legal education. Courts in China are often inexperienced in the area of business law. Not all PRC legislation and court decisions are readily available to the public or organized in a manner that facilitates understanding. Enforcement of court orders can, in practice, be very difficult in the PRC. Additionally, court decisions are often used in furtherance of political and commercial aims. DECHENG might be subjected to such claims by competitors or other parties and may not be able to receive a fair hearing in the course of the respective trial or legal procedure. Judicial decisions in China can also be unpredictable and may not provide effective remedies. These uncertainties also extend to property rights. Expropriation or nationalization of any of the Company's PRC subsidiaries, their assets or portions thereof, potentially without adequate compensation, could have material and adverse effects on Group s business and its net assets, financial condition and results of operations Seeking recognition and enforcement in China of foreign judgments against the Company, its assets, management personnel or directors might be difficult or impossible for investors. The main operational assets of the Group are with DECHENG PRC located in China and most of its management personnel and directors reside there. The Company is a holding company without any significant operational business of its own. China has not entered into treaties or arrangements providing for the recognition and enforcement of judgments made by the courts of Germany or most other jurisdictions, including judgments obtained in relation to claims investors may make with regard to this Offering. As a result, it will be difficult or impossible for investors to affect service of process or enforce judgments from courts of other jurisdictions against the Company or its assets, management personnel or directors in China Certain facts, forecasts and other statistics with respect to China, China s economy and the polyurethane industry in this Prospectus are extracted from official government publications and may not be reliable. Certain facts, forecasts and other statistics in this Prospectus relating to the PRC, PRC s economy and the polyurethane industry have been extracted from official government publications generally believed to be reliable. However, the quality or reliability of such source materials is uncertain. They have not been Page 68

69 prepared or independently verified and, therefore, no representation as to the accuracy or completeness of such facts, forecasts and statistics, which may not be consistent with other information, compiled within or outside the PRC is made. Due to possibly flawed or ineffective collection methods or discrepancies between published information and market practice and other problems, such statistics may be inaccurate or may not be comparable to statistics produced for other economies and should not be unduly relied upon. Further, there is no assurance that they are stated or compiled on the same basis or with the same degree of accuracy or completeness as may be the case elsewhere. In all cases, investors should give consideration as to how much weight or importance they should attach to or place on such facts, forecasts or statistics extracted from the official government publications and should not place undue reliance on any of such information and statistics Restrictions might be imposed upon foreign control of PRC companies. As part of PRC s accession to the World Trade Organization ( WTO ) in 2001, the PRC undertook to eliminate certain trade-related investment measures and to open up specified industry sectors that had previously been closed to foreign investment. Even though the PRC has lived up to most of its WTO commitments, foreign investors still encounter barriers in practice as some of the newly enacted or modified laws and regulations are enforced in an inconsistent manner by different authorities. Additionally, there can be no assurance that the PRC government will not toughen its stance on foreign investors in other areas not covered by the WTO commitments. MOFCOM and the National Development and Reform Commission (the NDRC ) have issued the Foreign Investment Industry Guidance Catalogue that divides certain investment projects into three categories: encouraged, restricted and prohibited, with industries and sectors that are not mentioned or listed deemed to be permitted. The Foreign Investment Industry Guidance Catalogue is regularly revised. It has last been amended in 10 March 2015 and became effective on 10 April Should the polyurethane industry in particular be subjected to restrictions or prohibitions in the course of this revision or any further revision, this could have material adverse effects on the business, financial condition and results of operations of DECHENG. 3.3 Risks Related to the Offering Public trading in the Company s shares might not develop. There is no prior market for its shares and this Offering may not result in an active or liquid market for its shares. Prior to the Offering, there was no public trading in the Company s shares. As a result, no assurance can be given that liquid trading in the shares of the Company will develop after the Offering and that the stock exchange price will not fall below the final selling price for the Offered Shares (the Offer Price ). The Offer Price for the shares will not necessarily provide any indication of the stock exchange price at which the shares will subsequently be traded at the Frankfurt Stock Exchange. The Company cannot forecast to what extent investors interest in its shares will foster trading, nor whether a liquid trading market will develop, in particular if the number of shares allotted to investors in the course of the Offering will be substantially less than envisaged. The stock exchange price of the Company s shares could become subject to greater volatility and consequently buy and sell orders might be executed less efficiently. Under certain circumstances, investors might not be able to sell their shares at the purchase price fixed for the Offering or at a higher stock exchange price, or might not be able to sell them at all. Page 69

70 3.3.2 A devaluation of the RMB could have an adverse currency translation effect on the Company s financial statements. The financial statements contained in this Prospectus were prepared in EUR and the Company s future consolidated financial statements will be prepared in EUR, while DECHENG's operating currency is RMB, which is currently not a freely convertible currency. The value of RMB is controlled by PRC authorities. During the years 2013, 2014 and 2015, the RMB fluctuated against the EUR. Devaluations of the RMB against the EUR would have an adverse currency translation effect on the Company's consolidated financial statements and the value of the potential dividend payments by the Company to its shareholders. Besides, DECHENG has in the past not bought and will not in the future buy any hedging instruments against a devaluation of the RMB. Furthermore, DECHENG s proceeds from this Offering may decrease in value if the Company chooses not to or is unable to convert the proceeds into RMB and the EUR devalues against the RMB during such period A volatile stock exchange price for the shares might develop and investors could lose all or part of their investment. After this Offering, the stock exchange price of the Company s shares could fluctuate considerably, especially because of fluctuating actual or forecasted results, revised earnings outlooks, the failure to meet analysts expectations, changed economic conditions in general, limited liquidity in the shares or other factors. The general volatility of stock exchange prices could also exert pressure on the stock exchange price of the Company s shares without there being any direct connection with DECHENG s business, financial condition, results of operations or its business prospects. Because the shares are growth stocks, the Company s shares are particularly susceptible to fluctuations Future sales or issuances of a substantial number of the Company s shares may depress the market price of the Company s shares. Future capitalization measures could lead to substantial dilution of existing shareholders interests in the Company. Sales of substantial amounts of the Company s shares in the public market following this Offering or the perception that these sales could occur, could cause the market value of its shares to decline. These sales could also make it more difficult for the Company to sell equity or equity-related securities in the future at a time and price that it considers appropriate. In addition, the Company s issuance of additional equity securities or securities with rights to convert into equity could potentially reduce the market price of its shares and would dilute the economic and voting rights of existing shareholders if made without granting subscription rights to these shareholders. As at the date of this Prospectus, Mr. ZHU Xiaofang as the majority shareholder, as well as All-Time-Wonderful Limited and Rongshang Limited hold 68.10% and 6.83% and 6.83% stake respectively in the Company. All of these shares are bound by lock-up agreements with the Underwriter for a period of 36 months after admission of the Company s shares to trading in the regulated market segment of the Frankfurt Stock Exchange. However, the shares of the other existing minority shareholders are not locked. Also, it cannot be excluded that the existing shareholders with a contractual lock-up sell their shares in the Company during the lock-up period despite the contractual arrangements. Furthermore, it cannot be predicted whether substantial numbers of the Company s shares will be sold by the shareholders following the expiry of the respective lock-up periods. A sale of a substantial number of these shares or the perception that these sales could occur could cause the market value of the Company s shares to decline. Page 70

71 3.3.5 The Offering may not take place if the Underwriting Agreement is terminated. The underwriting agreement, which will be concluded, inter alia, between the Company, Mr. ZHU as the majority shareholder of the Company and the Underwriter within five bank working days after the date of this Prospectus (the Underwriting Agreement ), provides that the Underwriter may, under certain conditions, terminate the Underwriting Agreement. If the Underwriting Agreement is terminated, the Offering will not take place. Claims relating to any securities commissions already paid and costs incurred by any investor in connection with the subscription shall be controlled solely by the legal relationship between the investor and the institution to which the investor submitted its order. Any allotments already made to investors will be invalidated. In such cases, investors will have no claim for delivery of shares in the Company. Any investors who have engaged in so-called short sales will bear the risk of being unable to cover such short sales through the delivery of shares Forward-looking information contained in this Prospectus may prove inaccurate. This Prospectus contains certain statements that are forward-looking. These statements include, among other things, future earnings, projections and expectations as to the operations and management of DECHENG, growth, profits, economic and regulatory conditions and other factors to which DECHENG is exposed. Investors are cautioned that reliance on any forward looking statement involves risk and uncertainties and that any or all of those assumptions could prove to be inaccurate and as a result, the forward-looking statements based on those assumptions could also be incorrect. The uncertainties in this regard include those identified in the risk factors discussed above. In the light of these and other uncertainties, the inclusion of forwardlooking statements in this Prospectus should not be regarded as representations or warranties by the Company that its plans and objectives will be achieved and these forward-looking statements should be considered in the light of various important factors, including those set forth in this section. These forward-looking statements will not be up-dated. Investors should not place undue reliance on such forward looking information Information in press articles or other media regarding DECHENG or the Offering could turn out to be incorrect and therefore it cannot be excluded that investors base their investment decision on incorrect information. Prior to the date of this Prospectus, there might have been press and media coverage regarding DECHENG or the Offering which included certain information about DECHENG that does not appear in this Prospectus. The Company has not authorized the disclosure of any such information in the press or media and does not accept any responsibility for any such press or media coverage or the accuracy or completeness of any such information. The Company makes no representation as to the appropriateness, accuracy, completeness or reliability of any such information or publication. The Company disclaims all responsibilities and liabilities for any information appearing in publications other than this Prospectus which is inconsistent or conflicts with the information in this Prospectus. Investors should not rely on any such information and should only rely on information included in this Prospectus in making any decision as to whether to purchase the shares in the Company in the Offering. The information in the press and media could be incorrect and therefore it cannot be excluded that investors base their investment decision on incorrect information. Page 71

72 3.3.8 The market price of the Company s shares could fall below the Offer Price at a later stage. The Offer Price to be paid by an investor who purchased shares of the Company in the Offering exceeds the pro rata book value of the equity capital which is attributed to such share. Therefore, the Offer Price implicates a high company value. There is no guarantee that such a company value can be realized in future. Accordingly, investors will purchase the Company's shares by way of this Offering pay an Offer Price which exceeds the value of the Company's tangible assets after deduction of liabilities. Should the investors' expectations concerning the company value not be realizable, the investors could suffer losses due to a decrease in the share price after the Offering The Offering may not be implemented in full which may negatively affect the growth prospects of DECHENG and/or the liquidity of the shares in the market. The Offering relates to 3,000,000 no par value ordinary bearer shares consisting of 3,000,000 New Shares ( Offered Shares ) and the Offering is expected to commence on 6 June 2016 and to end on 20 June 2016 ( Offering Period ). Thus, in case, all of the Offered Shares are allotted to investors, the Company s new free float will amount to 25.7% of its total share capital. However, the actual number of Offered Shares that will be allotted to investors, i.e. the placement volume and in consequence the amount of the capital increase to be resolved after the end of the Offering Period, will be jointly determined by the Company and the Lead Manager based on the orders received and will also depend on certain allotment criteria. There is no guarantee that all of the Offered Shares will eventually be placed with investors. If the amount of Offered Shares placed with investors is significantly lower, resulting in lower net proceeds than envisaged, the Company may not be able to fund certain of the investments for which it intends to use the proceeds from this Offering in full or at all which may affect the Company s growth strategy. In addition, if the overall placement volume is significantly lower than the number of Offered Shares which form the subject matter of the Offering, the free float will be significantly lower than the percentage stated above, which may have a material adverse effect on the tradability of the shares and on the shareholder structure of the Company. The materialization of any of the above risks could have a material adverse effect on the value of the shares of the Company The Listing may not take place if the listing requirements are not fulfilled. The Company intends to list its shares on the Frankfurt Exchange. If the Company fails to fulfill the respective listing requirements such as free float requirements, a listing on the Frankfurt Stock Exchange will not take place. In such case, investors who have purchased shares in the Company are not able to trade these shares on the Frankfurt Stock Exchange. Page 72

73 4. GENERAL INFORMATION 4.1 Responsibility Statement Decheng Technology AG, Cologne, Germany (the Company and together with its direct and indirect subsidiaries DECHENG or the Group ), as well as ACON Actienbank AG, Heimeranstraße 37, Munich, Germany (the Global Coordinator or Underwriter or ACON ) assume responsibility for the content of this securities prospectus (the Prospectus ) pursuant to section 5 subsection 4 of the German Securities Prospectus Act (Wertpapierprospektgesetz - WpPG) and declare that to their knowledge the information contained in this Prospectus is correct and that no material facts are omitted. Notwithstanding section 16 WpPG, neither the Company nor the Underwriter is required by law to update this Prospectus. If an investor files claims in court on the basis of the information contained in this Prospectus, the plaintiff investor may be required by the laws of the individual member state of the EEA to bear the costs of translating the Prospectus before the legal proceedings may be commenced. 4.2 Subject Matter of this Prospectus For the purposes of the public offering in Germany and Luxembourg and private placement in certain other jurisdictions this Prospectus covers 3,000,000 ordinary bearer shares, each such share with no par value and a notional value of EUR 1.00 each in the share capital and full dividend rights for the financial year 2016 (the Offering ), consisting of 3,000,000 newly issued no par value ordinary bearer shares from a capital increase against contribution in cash expected to be resolved by the extraordinary general shareholders meeting of the Company with a fixed amount depending on the placement volume on 20 June 2016 (the New Shares ). In order to be able to timely deliver the shares to investors after the Offering Period, Mr. ZHU Xiaofang will, if required, provide to the Underwriter a securities loan free of charge for an equivalent number of shares. Upon registration of the capital increase with the commercial register of the Company, the New Shares will be transferred back to Mr. ZHU Xiaofang by the Underwriter in order to fulfil its retransfer obligation under the securities loan. For the purposes of admission to trading to the regulated market segment (Regulierter Markt) of the Frankfurt Stock Exchange (General Standard) (the Listing ), this Prospectus covers a total of up to 33,000,000 ordinary bearer shares of the Company, consisting of: 30,000,000 existing ordinary bearer shares ( Existing Shares ); and up to 3,000,000 New Shares, each such share with no par value and a notional value of EUR 1.00 in the share capital and carrying full dividend rights for the financial year Statutory Auditors The Company s general shareholders meeting (Hauptversammlung) appointed MSW GmbH Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft, Straße des 17. Juni , Berlin, Germany ( MSW GmbH ) as statutory auditor for the financial year ending on 31 December MSW GmbH is a member of the German Chamber of Public Accountants (Wirtschaftsprüferkammer). The following financial statements contained in this Prospectus have been audited by MSW GmbH (Please also refer to Section 25 Financial Information ) and each is accompanied by an unqualified auditors report, copies of which are included in this Prospectus: the single entity financial statements in accordance with International Financial Reporting Standards and International Accounting Standards and Interpretations as endorsed for application in the EU ( IFRS ) of Page 73

74 DECHENG PRC as at and for the financial years ended on 31 December 2013, 31 December 2014 and 31 December 2015; the consolidated financial statements in accordance with IFRS of DECHENG HK as at and for the financial year ended on 31 December 2015; single entity financial statements in accordance with IFRS of the Company for the financial year ended on 31 December 2015 with respective comparative information; single entity financial statements in accordance with the German Commercial Code (Handelsgesetzbuch) of the Company for the financial years ended on 31 December 2013, 31 December 2014 and 31 December Documents Available for Inspection For the duration of the validity of this Prospectus, hard copies of the following documents may be inspected during regular business hours at the Company s office at c/o RSM Altavis GmbH, Martin-Luther-Platz 26, Düsseldorf, Germany: the Company s articles of association (Satzung) and the rules of procedure (Geschäftsordnung) for the management board and the supervisory board; an excerpt from the commercial register of the Company (Handelsregisterauszug); the audited single entity financial statements in accordance with International Financial Reporting Standards and International Accounting Standards and Interpretations as endorsed for application in the EU ( IFRS ) of DECHENG PRC as at and for the financial years ended on 31 December 2013, 31 December 2014 and 31 December 2015; the audited consolidated financial statements in accordance with IFRS of DECHENG HK as at and for the financial year ended on 31 December 2015; single entity financial statements in accordance with IFRS of the Company for the financial year ended on 31 December 2015 with respective comparative information; single entity financial statements of the Company in accordance with the German Commercial Code (Handelsgesetzbuch) for the financial years ended on 31 December 2013, 31 December 2014 and 31 December 2015; Market research report Polyurethane Resin Industry, dated March 2016, prepared by Frost & Sullivan GIC Malaysia Sdn Bhd ( Frost & Sullivan ), with its business address at Suite C-11-02, Block C, Plaza Mont Kiara, 2, Jalan Kiara, Mont Kiara, Kuala Lumpur, Malaysia ( Market Research Report ). All future annual and interim reports of the Company will be available at the Company s offices and on the Company s website: Statements Relating to Future Events, Statistical Data, Market Data and Estimates This Prospectus contains certain forward-looking statements. A forward-looking statement is any statement that does not relate to present or historical facts and events. This applies in particular to statements in this Prospectus containing information on future earning capacity, plans and expectations regarding DECHENG s business and management, growth and profitability and general economic and regulatory conditions and other factors to which DECHENG is exposed. Page 74

75 Forward-looking statements in this Prospectus are based on estimates and assessments made to the best of the Company s present knowledge. These forward-looking statements are subject to risks, uncertainties and other factors which could cause actual results, including the financial condition and results of operations of DECHENG, to differ materially from and be worse than the results the Company has expressly or implicitly assumed or described in these forward-looking statements. Statements made using wording such as expects, intends, plans or anticipates are forward-looking statements. The forward-looking statements are based on assumptions, uncertainties and other factors, the occurrence or non-occurrence of which could cause DECHENG s actual results, including the financial position and profitability of DECHENG, to differ materially from or fail to meet the expectations expressed or implied in the forward-looking statements. In light of the uncertainties and assumptions, it is also possible that the future events mentioned in this Prospectus might not occur. In addition, the forward-looking estimates and forecasts included in this Prospectus from third-party reports could prove to be inaccurate (also see Section 4.6 of this Prospectus Note Regarding Financial Data and Currency and Section 4.7 of this Prospectus Third Party Data below). Actual results, performance or events may differ materially from those in such statements. DECHENG s business is also subject to a number of risks and uncertainties that could cause a forward-looking statement, estimate or prediction in this Prospectus to become inaccurate. Accordingly, investors are strongly advised to consider the Prospectus as a whole and particularly ensure that they have read the following sections of this Prospectus: Risk Factors, Management s Discussion and Analysis of Financial Condition and Results of Operations, Business Activities of DECHENG, Market Environment and Competitive Situation, Regulatory Environment, and Recent Developments and Outlook. These sections contain a detailed description of the factors having an impact on the development or the current situation of DECHENG s business and the market in which DECHENG operates. Neither the Company, its management board (Vorstand), its supervisory board (Aufsichtsrat) nor the Underwriter can guarantee that expectations represented in this Prospectus will prove accurate or that the developments predicted will actually occur. It should also be noted that neither the Company nor the Underwriter assume any obligation to update such statements relating to future events or to adapt them to future events or developments, except as required by law (esp. the duty to publish supplements pursuant to section 16 subsection 1 WpPG). 4.6 Note Regarding Financial Data and Currency Some figures cited in this Prospectus (including percentages) have been subjected to commercial rounding. Such commercially rounded figures and the associated percentages cited in the tables may not necessarily add up precisely to the totals given in the tables. However, the percentages used in the text were computed based not on commercially rounded values, but on actual values. Therefore, the percentages in the text may differ in some cases from percentages calculated based on rounded values. All currency data in this Prospectus refers to EUR. If numerical data in other currencies are cited, this is expressly noted by specification of the appropriate currency or currency symbol. The functional currency of DECHENG PRC is RMB, whereas the financial statements are made in the presentation currency EUR. The RMB financial data has been translated to EUR using the following exchange rates: Financial Year / Period Ended Period End Rates RMB per EUR 1.00 Average Rates RMB per EUR December December December Page 75

76 DECHENG HK has its legal and business seat in Hong Kong. The currency of Hong Kong is Hong Kong Dollar ( HKD ). The HKD financial data has been translated to RMB prior to its consolidation using the following exchange rates: Financial Year / Period Ended Period End Rates HKD per RMB 1.00 Average Rates HKD per RMB December The presentations of the financial statements in EUR for the periods under review are not fully comparable to each other because different RMB/EUR and RMB/HKD exchange rates were used for each period under review. The exchange rates have been extracted from for the relevant time period. If not explicitly stated otherwise in this Prospectus, average rates for the year 2015 have been used for the conversion. Please refer to Section 25 Financial Information whether period end rates or average rates have been used in the financial statements. Amounts used in industries reports may have been based on different exchange rates. 4.7 Third Party Data This Prospectus contains a number of references to third party data, statistical information and studies, especially regarding the market environment and similar matters. Information in this prospectus that is sourced from third parties has been accurately reproduced and, as far as the Company is aware and is able to ascertain from information published by that third party, no facts have been omitted which would render the reproduced information inaccurate or misleading. Market studies are often based on information and assumptions which may be neither precise nor accurate, and their methodology is inherently predictive and speculative. This Prospectus also contains estimates made by the Company relating to market data of third parties that are based on published market data of figures from publicly available sources. Neither the Company nor the Underwriter has independently verified the figures, market data and other information used by third parties in their studies. Accordingly, the Company and the Underwriter assume no responsibility and make no representation or warranty as to the accuracy of any information derived from information and studies of third parties included in this Prospectus. In compiling this Prospectus, the Company relied on the sources mentioned below: Market research report Polyurethane Resin Industry, dated March 2016, prepared by Frost & Sullivan, with its business address at: Suite C-11-02, Block C, Plaza Mont Kiara, 2, Jalan Kiara, Mont Kiara, Kuala Lumpur, Malaysia; International Monetary Fund ( IMF ) World Economic Outlook Database, April 2016; PRC National Bureau of Statistics, 2016; Circular of the People s Government of the Fujian Province regarding the Standards of the Minimum Wages in Fujian Province (Min Zheng (2015) No. 38). The Market Research Report has been prepared at the request of the Company. Frost & Sullivan with its business address at Suite C-11-02, Block C, Plaza Mont Kiara, 2, Jalan Kiara, Mont Kiara, Kuala Lumpur, Malaysia are business consultants and do not have any material interest in the Company. Frost & Sullivan has consented to the inclusion of the Market Research Report in the form and context in which it is included into this Prospectus. Page 76

77 5. THE OFFERING 5.1 Subject Matter of the Offering The Offering will be made and trading in the Offered Shares will take place in Euro ( EUR ). The Offered Shares are denominated in EUR. The Offering consists of a public offering in Germany and Luxembourg as well as private placements in other jurisdictions outside Germany, Luxembourg and the United States. No fixed tranches have been reserved for any particular group of investors or for the intended private placement. The Offering comprises of 3,000,000 ordinary bearer shares of the Company with no par value (Inhaber-Stückaktien), each such share with a notional value of EUR 1.00 and with full dividend rights for the financial year 2016, thereof 3,000,000 New Shares. To facilitate a timely delivery of up to 3,000,000 New Shares of the Company allocated to the investors during the Offering, Mr. ZHU Xiaofang will, if required, enter into a securities loan agreement with the Underwriter to provide to the Underwriter a total number of 3,000,000 no-par value ordinary bearer shares by way of securities loan free of charge (see section 23.1 of this Prospectus Underwriting Agreement ). In order to fulfil its retransfer obligation vis-à-vis Mr. ZHU Xiaofang from the securities loan, the Underwriter will, after the end of the Offering Period, subscribe for an equivalent number of New Shares from a capital increase for a contribution in cash to be approved by an extraordinary general shareholders meeting of the Company as described below and transfer these shares back to Mr. ZHU Xiaofang. Any New Shares placed to investors will originate from a capital increase against contribution in cash expected to be resolved by an extraordinary general shareholders meeting of the Company on 20 June 2016 in accordance with Sections 182 eq. German Stock Corporation Act (Aktiengesetz). The existing shareholders will waive their subscription rights to the New Shares. The application for registration of the resolution on the capital increase is expected to be made with the commercial register of the local court (Amtsgericht) of Cologne on or around 21 June It is expected that registration and effectiveness of the capital increase will take place on or around 22 June 2016 and that the Company will issue a respective global share certificate that will be lodged with Clearstream Banking AG, Mergenthalerallee 61, Eschborn, on the same day. Assuming that the maximum number of New Shares is issued, the share capital of the Company after the capital increase will amount to EUR 33,000,000 consisting of 33,000,000 no par value ordinary bearer shares with a notional value of EUR 1.00 per share. Depending on the extent to which the Offered Shares are placed with investors, the Offered Shares will represent a calculated total of up to EUR 3,000,000 of the Company s share capital (after registration of the respective capital increase in the commercial register). Thus, taking into account the maximum placement volume of the Offered Shares, up to 10% of the Company s shares will be offered under the Offering (calculated on the basis of 33,000,000 shares of the Company in issue following full implementation of the capital increases against cash contributions). The Offered Shares which constitute the subject-matter of the Offering carry the same rights as all other shares of the Company and confer no additional rights or benefits. The net proceeds from the sale of the New Shares under the Offering will accrue to the Company. ACON is acting as the bookrunner of the Offering (the Bookrunner ). 5.2 Offering Period, Subscription, Offer Price and Number of Allotted Shares The Offer Price for which purchase orders may be submitted amounts to EUR 3.50 per Offered Share. The Offer Price was set by the Company based upon its own valuation using typical valuation methods such as discounting cash flow. The Offering will be denominated in EUR. Page 77

78 The Offering Period, during which investors will be given the opportunity to submit orders for the Offered Shares, is expected to begin on 6 June 2016 and is expected to end on 20 June On the final day of the Offering Period, retail investors and institutional investors will be able to submit offers to purchase shares until 10:00 a.m. (Central European Time). Orders are freely revocable until the respective Offering Period expires. During the Offering Period, retail investors may submit orders for the public offering in the Federal Republic of Germany via the Xetra subscription functionality of the Frankfurt Stock Exchange in the XETRA trading system for the collection and settlement of purchase orders. Institutional investors may submit their orders directly to the Bookrunner only. Retail investors who want to submit purchase orders for the Offer Shares via the Xetra Subscription Functionality must submit them to their respective depositary bank during the Offer Period. This requires that the depositary bank (i) has been admitted as a trading participant to the Frankfurt Stock Exchange or has access to trading on the Frankfurt Stock Exchange via an accredited trading participant; (ii) is connected to Xetra, and (iii) is authorized and able to use the Xetra Subscription Functionality according to the terms and conditions for use of the Frankfurt Stock Exchange (the "Trading Participant"). Upon the investor's request, the Trading Participant submits a purchase order on behalf of the investor via the Xetra Subscription Functionality. ACON in its capacity as the bookrunner collects the purchase orders of the Trading Participants in the order book until the end of the Offer Period. Investors in Luxembourg whose depositary bank is not a Trading Participant may instruct a Trading Participant via their depositary bank to submit a purchase order and execute it after acceptance by ACON together with the depositary bank of the investor. Orders must be submitted for a minimum of one share. Multiple orders of one subscriber will not be accepted. The Company, in agreement with the Bookrunner, reserves the right to reduce the number of Offered Shares, to lower or raise the Offer Price and/or to extend or shorten the Offering Period (collectively referred to as the Offer Terms ). In case of an amendment to the Offer Terms, a supplement to this Prospectus will be filed with BaFin and published following approval thereof on the Company s website ( To the extent legally required, any changes will be published in an ad hoc disclosure. Printed copies of the supplement will also be available free of charge during regular business hours at the Company s offices at c/o RSM Altavis GmbH, Martin-Luther-Platz 26, Düsseldorf, Germany and at the office of the Bookrunner. Investors will not be notified individually. Changes to the Offer Terms will not invalidate orders that have already been submitted. If any change requires the publication of a supplement, investors who have already submitted orders prior to such publication are entitled under the German Securities Prospectus Law to revoke their orders within two business days of such publication. The revocation must be declared in text form to the party specified in the supplement as the recipient of such revocation; revocations are to be deemed timely if dispatched before the notice period expires. Instead of revoking their orders, investors may within two days of the publication of the supplement opt to modify orders submitted prior thereto or to submit new limit or market orders. For information on cases involving a termination of the Offering in connection with the termination of the Underwriting Agreement by the Underwriter, please refer to Section 23.4 of this Prospectus Underwriting -Conditions Precedent, Termination. After the Offering Period expires, the Company and the Bookrunner will use the order book to determine the number of shares to be allocated to investors ( Placement Volume ). This determination is expected to be made on 20 June The Placement Volume will be set based on the orders submitted by investors during the Offering Period and collected in the order book. Allotments will be based, among other factors, on the perceived quality and geographical spread of investors as well as on a reasonable expectation that the share price will demonstrate relatively steady performance in the aftermarket given the demand for the Company s shares reflected in the order book. Accordingly the final allocation of shares will be based on the composition of the group of shareholders in the Company (so-called investor mix ). For further information regarding Page 78

79 allotment criteria see Section 5.6 of this Prospectus The Offering -Allotment Criteria. The Placement Volume is expected to be published on 20 June 2016 in an ad hoc disclosure, by means of electronic media such as Reuters or Bloomberg, on the websites of the Company ( Investors who have submitted their orders directly to the Bookrunner should be able to obtain the information from the Bookrunner as to the number of shares they have been allotted starting, at the earliest, on the banking day immediately following determination of the Placement Volume, presumably on 21 June Trading in the Company s shares may commence before investors are notified of the number of shares they have been allotted. The delivery of the allotted shares in book-entry form against payment of the Offer Price is expected to take place presumably on 24 June Particularly in the event that the Placement Volume proves insufficient to satisfy all the orders submitted, the Bookrunner reserve the right not to accept orders or to accept only parts thereof. The Company reserves the right to withdraw the Offering at any time during the Offering Period without giving any reasons and even thereafter until the final allotment of the Offered Shares to the investors, even if the trading with the shares of the Company has already commenced. In case of the withdrawal of the Offering, any subscription monies already paid by the investors will be refunded in full. No interest is payable. 5.3 Rights Attached to the Offered Shares The New Shares will rank pari passu with the Existing Shares and thus have subscription rights to future capital increases on the same terms and to the same extent as the Existing Shares. For information in relation to the rights attached to the shares, see Section 5.5 of this Prospectus The Offering - Information Concerning the Shares in the Company below and Section 18 of this Prospectus Information on the Share Capital of the Company and General Rules. Page 79

80 5.4 Projected Timetable for the Offering The projected timetable for the Offering is as follows: 30 May 2016 Approval of the Prospectus by the German Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht - BaFin ) Notification of approval of the Prospectus to the Luxembourg Financial Supervisory Authority (Commission de Surveillance du Secteur Financier) Publication of the Prospectus on the website of the Company ( 6 June 2016 Commencement of the Offering Period, the period in which investors can submit their buying orders 20 June 2016 End of the Offering Period at 10:00 a.m. (Central European Time) for retail investors and institutional investors. Determination of the Placement Volume Allotment of the Offered Shares to investors Publication of the Placement Volume as well as the allotment criteria in an ad-hoc disclosure, on an electronic information system and on the websites of the Company ( 22 June 2016 Registration of the implementation of the capital increase for creating the New Shares with the commercial register 24 June 2016 Listing approval issued by the Frankfurt Stock Exchange Book-entry delivery of the allotted Offered Shares to investors against payment of the Offer Price (expected value date) 28 June 2016 Commencement of trading of the Company s Shares on the Frankfurt Stock Exchange This Prospectus and any supplements thereto will be published on the Company s website ( Print copies of the Prospectus and any supplements thereto will also be available upon request and free of charge during regular business hours at the Company s offices at c/o RSM Altavis GmbH, Martin- Luther-Platz 26, Düsseldorf, Germany and at the office of the Bookrunner from the day of publication. 5.5 Information Concerning the Shares in the Company Rights on Liquidation Proceeds Should the Company be dissolved, any liquidation proceeds remaining after discharging the Company s liabilities will accrue to the shareholders pursuant to the German Stock Corporation Act in proportion to the respective shares they hold in the Company s share capital Subscription Rights Shareholders generally have the right to subscribe for new shares issued pursuant to any future capital increases in a ratio proportionate to the respective shares they hold in the Company s share capital (subscription right) in connection with share capital increases against cash contributions. Exemptions are made in regard to conditional capital increase or the issuance of convertible Page 80

81 bonds, income bonds, profit participation rights or bonds with warrants as well as in respect of the sale of treasury shares. Furthermore, the general shareholders meeting may partially or completely exclude the subscription rights in specific cases. Any exclusion of the subscription rights needs to be permissible by law with regard to the German Stock Corporation Act (for further details, see Section 18.5 of this Prospectus Information on the Share Capital of the Company and General Rules - General Rules on Subscription Rights ) Voting Rights In accordance with the Company s articles of association, each share carries one vote at the general shareholders meeting. All shares carry the same voting rights. No restrictions on voting rights exist with the exception of those stipulated by law in specific cases. Attendance of the general shareholders meeting and exercise of voting rights are governed by the articles of association and general company law (for further details, see Section 19.6 of this Prospectus Corporate Bodies and Management - General Shareholders Meeting (Hauptversammlung) ) Form and Representation of the Shares All of the Company s shares are or will be issued as no-par value ordinary bearer shares (Inhaber-Stückaktien). The shares will be represented by several global certificates without dividend coupons. The shares are deposited with Clearstream Banking AG, Mergenthalerallee 61, Eschborn, as securities clearing and depository bank. The same applies to the New Shares from the capital increase, which will be represented by an additional global certificate and also be deposited with Clearstream Banking AG, Mergenthalerallee 61, Eschborn. The articles of association of the Company exclude the shareholders claim to be issued with share certificates, unless such certificates are required under the regulations of a stock exchange on which the shares are listed Dividend Rights The Existing Shares of the Company as well as the New Shares from the capital increase against cash contribution carry full dividend rights for the financial year Dividends are paid in Euro to each shareholder s account through the systems of the central depository (Clearstream Banking AG, Mergenthalerallee 61, Eschborn) to the custodian bank which will pay them to the shareholders accounts. The distribution of dividends on the Company s shares for the past financial year is subject to the general shareholders meeting (for further details, see Section 18.6 of this Prospectus Information on the Share Capital of the Company and General Rules - General Rules Relating to Use of Profits and Dividend Payments ). No restrictions on dividends or special procedures apply to holders of the shares who are not residents of Germany. Reference is made to the Section 21 of this Prospectus Taxation in Germany and Section 22 of this Prospectus Taxation in Luxembourg for a description of the tax treatment of dividends under the laws of Germany and Luxembourg, respectively. Shareholders whose shares are entered into custodial accounts via foreign institutions should inform themselves about the procedure applicable at such institutions Transferability and Lock-Up The shares are freely transferable. With the exception of the restrictions set out in Section 5.11 of this Prospectus Market Protection Agreements (Lock up), there are no lock-up requirements or restrictions on the transferability of the Company s shares. Page 81

82 5.5.7 WKN/ISIN/Ticker Symbol 5.6 Allotment Criteria The German Securities Identification Number (WKN) of the shares is A1YDDM, the International Securities Identification Number (ISIN) is DE000A1YDDM9 and the Ticker Symbol is General Allotment The Company reserves the right to allot to investors less than the maximum possible amount of New Shares that are being offered. No agreements exist between the Company, Mr. ZHU Xiaofang and the Bookrunner with respect to the allotment procedure prior to the commencement of the Offering Period. The Company, Mr. ZHU Xiaofang and the Bookrunner intend to comply with the Principles for the Allotment of Shares Issues to Private Investors ( Grundsätze für die Zuteilung von Aktienemissionen an Privatanleger ). These principles were issued on 7 June 2000 by the Exchange Expert Commission (Börsensachverständigenkommission) of the German Federal Ministry of Finance (Bundesministerium für Finanzen). Qualified investors under the WpPG, as well as professional clients and suitable counterparties under the German Securities Trading Act (Wertpapierhandelsgesetz - WpHG) are not viewed as private investors within the meaning of the Allocation Rules. The Company, Mr. ZHU Xiaofang and the Bookrunner will determine and publish the specific details of the allotment procedure in accordance with the Principles for the Allotment of Shares Issues to Private Investors once the Offering Period has expired Minimum Allotment Any minimum allotment will be determined once the order book has been closed and will be published in accordance with the allotment principles. No right to allotment exists. 5.7 Stock Exchange Admission and Commencement of Trading The Company intends to list its shares at Frankfurt Stock Exchange irrespective of the result of the Offering. An application for admission of 30,000,000 Existing Shares and up to 3,000,000 New Shares to trading on the regulated market (Regulierter Markt) of the Frankfurt Stock Exchange (General Standard) shall be filed on or around 3 June The Company expects that admission to trading will be resolved by Frankfurt Stock Exchange on 24 June It is expected that trading of the Company s shares will commence on 28 June Delivery and Settlement The allocated shares will be delivered through Clearstream Banking AG, Mergenthalerallee 61, Eschborn, Germany, to the investors securities deposit account maintained by a bank or broker through a depository chain with Clearstream Banking AG, Mergenthalerallee 61, Eschborn. Delivery of the allocated shares to investors against payment of the Offer Price is expected to take place on 24 June Exceeding payments made by investors will be refunded accordingly. The shares will be made available to shareholders as co-ownership interests in the respective global certificate. 5.9 Designated Sponsor ACON will assume the function of a designated sponsor (the Designated Sponsor ) for the Company s shares trading on the Frankfurt Stock Exchange. According to the designated sponsor agreement which the Company concluded with ACON, ACON will submit binding buying and selling orders (limit orders) into the electronic trading system (Xetra) of the Frankfurt Stock Exchange during regular trading hours. This is designed, in particular, to achieve higher liquidity in the trading of the shares. The Designated Sponsor Page 82

83 will receive an annual remuneration for those services in accordance with market standards Consent to the use of the Prospectus The consent of the Company regarding the use of the Prospectus in Germany and Luxembourg for a sale and placement of securities has been granted to ACON Actienbank AG, Germany ( Lead Manager ). The consent to the use of the Prospectus by the Lead Manager is given for the Offer Period. Any new information with respect to the Lead Manager unknown at the date of the Prospectus will be published at least on the Company s website ( The Company accepts responsibility for the content of the Prospectus also with respect to a subsequent resale or final placement of securities by the Lead Manager which was given consent to use the Prospectus. In the event of an offer being made by the Lead Manager, the Lead Manager will provide information to investors on the terms and conditions of the offer at the time the offer is made Market Protection Agreements (Lock up) The Company undertakes vis-à-vis ACON that for a period of 36 months following the commencement of trading (Notierungsaufnahme) of the shares of the Company on the regulated market (General Standard) of the Frankfurt Stock Exchange, that it will not, without the prior written approval of ACON, (i) implement any capital increase from authorized capital, (ii) propose any capital increase to the Company s general shareholders meeting, (iii) announce, implement or propose to the Company s general shareholders meeting any issue of any financial instruments carrying conversion or option rights with respect to the shares in the Company or any transaction having an equivalent economic effect, (iv) directly or indirectly sell, offer, market, distribute, transfer, encumber or in any other way dispose of shares in the Company and (v) enter into transactions (including derivative transactions) that result in the economic equivalent of any of the above (the Company s Lock-Up ). The Existing Shareholders, with the exception of Chen Capital Limited S.à r.l., Asia Small Capital V Limited S.à r.l. and South China Fund II Limited S.à r.l. as well as Mr. OOi Guan Hoe, undertake vis-à-vis ACON for a period of 36 months following the commencement of trading (Notierungsaufnahme) of the shares of the Company on the regulated market (General Standard) of the Frankfurt Stock Exchange, that they will not, without the prior written consent of ACON, (i) initiate or consent to any of the measures set out above for the Company s Lock-Up, (ii) directly or indirectly initiate or consent that the shares in the Company or other financial instruments, which may be converted into shares or which give a right to acquire shares in the Company, are issued, sold, offered, marketed or otherwise disposed of or that an offer to any of such transactions is announced, or (iii) directly or indirectly sell, offer, market distribute, transfer or in any other way dispose of shares not being part of the Offering or other financial instruments in the Company referring to a participation of 50% plus one share; the same applies to any transactions constituting the economic equivalent of a sale, such as the issue of option or conversion rights to shares of the Company and other comparable transactions (including derivative transactions) (the Lock-Up Existing Shareholders ). The Lock-Up Existing Shareholders does not apply to the Offered Shares to be offered to investors in connection with the Offering, but to the New Shares which will be transferred back to Mr. ZHU Xiaofang by the Underwriter in order to fulfill its retransfer obligation under the securities loan. The above mentioned lock-up restrictions do not apply for (i) the issuance of shares in the Company for the purpose of making acquisitions and for a capital increase from own funds (Kapitalerhöhung aus Gesellschaftsmitteln). Further, the above stated restrictions shall not apply either to the issuance of shares in the Company or options to purchase such shares to management personnel or employees of the Company or its affiliates in connection with a future profit-sharing plan for management personnel or employees; or (ii) the encumbrance or pledge of Existing Shares of the Lock-Up Existing Shareholder connection with future financing measures (e.g. loan agreements). Page 83

84 6. REASONS FOR THE OFFERING, USE OF ISSUE PROCEEDS, ISSUE COSTS AND INTERESTED THIRD PARTIES 6.1 Issue Proceeds and Costs The gross issue proceeds from the sale of the New Shares less the issue costs to be borne by the Company (the net issue proceeds) accrue to the Company under the Offering. The amount of the gross issue proceeds depends on the number of the New Shares actually placed and the Offer Price. Assuming that all of the New Shares are placed, the gross issue proceeds from the Offering attainable by the Company will be EUR 10,500,000. Due to the fact that the costs are contingent on the total number of Offered Shares placed, which determine the amount of commissions, it is not possible at present to reliably predict the amount of the costs. The commission to be paid to the Underwriter is owed by the Company. Based on the Offer Price of EUR 3.50 and on the assumption that all Offered Shares will be placed, the Company estimates that it will incur costs of the Offering (including fees of the Underwriter) totaling approximately EUR 1,866,000. The Company estimates that the costs excluding the commission of the Underwriter will amount to approximately EUR 1,341,000. These include professional fees for auditors, lawyers, bank institutions and other consultants which for the FY 2015 were already charged in the amount of EUR 435,000. Subject to the aforementioned uncertainties, the Company believes that based on the Offer Price of EUR 3.50 and on the assumption that all Offered Shares will be placed, it is possible to generate approximately EUR 8,634,000 in net issue proceeds. 6.2 Reasons for the Offering The net issue proceeds accruing to the Company are intended to strengthen DECHENG s capitalization and financial position and support the intended expansion of its activities and the implementation of its strategy, in particular by developing and selling new advanced products such as solvent-free flame retardant, waterproof / breathable PU resins. The Listing is also intended to enable the Company to sharpen its public profile, especially in the relevant industry in China and on the international capital market, and to have access to Europe s top chemical companies, preferably in terms of technology and business cooperation. 6.3 Use of the Issue Proceeds The Company plans to use the net issue proceeds accruing to it from the sale of the New Shares to finance DECHENG s further growth and to implement and finance its strategic objectives and for general business purposes as follows: Purpose EUR Approx. % R&D Marketing Working capital 4,317,000 1,726,800 2,590,200 50% 20% 30% As to the R&D part, the Company plans to purchase R&D equipment, hire new local and also foreign experts and staff, send its R&D staff to local and international universities/research centers for training, set up a R&D database related to PU resin as well as enter into new cooperation with new research institutions. As to the working capital part, the Company intends to use it to purchase raw materials without much credit terms in order to enjoy discounts and thus helping to increase the gross profit margin of DECHENG. If the net issue proceeds envisaged are not raised, DECHENG s working capital is still Page 84

85 sufficient to cover those payment obligations which will become at least due within the next twelve months. Regarding the financing of its further growth, in such case, the Company might have to prolong existing short term bank loans in the amount of RMB 29.8 million (approx. EUR 4.3 million) or use internal funds generated from operational cash flow. DECHENG plans to use the proceeds as set out above, However, it cannot be excluded that based on the further development of the business, other uses of the proceeds will be considered. 6.4 Interested Parties Involved in the Offering In connection with the Offering and the Listing of the Company s shares (the Transaction ), ACON is in a contractual relationship with the Company. The commission of ACON as the Underwriter, the Global Coordinator, Bookrunner and Lead Manager is inter alia dependent on the amount of the offer proceeds in accordance with the Underwriting Agreement expected to be concluded within five bank working days after the date of this Prospectus. Such that ACON has an interest in the successful implementation of the Offering. ACON or its affiliates may enter into business relations with the Company or render services to the Company in the ordinary course of business. ACON also has an interest in the Offering on account of its Designated Sponsor agreement (see Section 5.9 of this Prospectus The Offering -Designated Sponsor ). Besides the ones mentioned above there are no other interested parties involved in the Offering. Page 85

86 7. DIVIDEND POLICY; EARNINGS PER SHARE 7.1 Dividend Rights and Dividend Policy The shares in the Company carry full dividend rights for the financial year The shares of individual shareholders in the profit of the Company are determined in accordance with the number of shares they hold in the registered capital (section 60 subsection 1 of the German Stock Corporation Act ( AktG )). The adoption of resolutions regarding the distribution of dividends on the Company s shares for a given financial year is the responsibility of the general shareholders meeting (Hauptversammlung) held during the following financial year, which resolves on the utilization of the Company s distributable profits on the basis of the non-binding proposal of the management board (Vorstand) and the supervisory board (Aufsichtsrat). If the majority shareholder Mr. ZHU Xiaofang holds an effective or, depending on its presence at the general shareholders meeting (Hauptversammlung) of the Company, a factual majority of the voting rights present or represented at the general shareholders meeting (Hauptversammlung), it may exercise further influence on the utilization of the Company s profits and/or the dividend policy (see Section 3.1 of this Prospectus Risk Factors Risks Related to DECHENG s Operations ). Under German law a resolution concerning dividends and the utilization of distributable profits may be adopted only on the basis of a balance sheet profit (Bilanzgewinn) shown in the Company s adopted annual separate financial statements(festgestellter Jahresabschluss) to be prepared in accordance with generally accepted German accounting principles, i.e. the accounting provisions of the German Commercial Code (Handelsgesetzbuch). In determining the balance sheet profit available for distribution, the annual net income (Jahresüberschuss) or annual net loss (Jahresfehlbetrag) of the respective year must be adjusted for profits and losses carried forward from the previous year and for deposits into or withdrawals from reserves. Certain reserves are to be created by law and must be deducted, where applicable, when calculating the balance sheet profits available for distribution. In a resolution regarding the utilization of balance sheet profits, the general shareholders meeting (Hauptversammlung) can include further amounts in retained earnings or carry them forward as profit. Dividends resolved by the general shareholders meeting (Hauptversammlung) are paid annually, shortly after the general shareholders meeting (Hauptversammlung), in compliance with the rules of the respective clearing system. Dividend claims are subject to a three-year limitation period. Dividends which were not exercised by shareholders within this period shall be retained by the Company. The shares carry full dividend rights for the financial year The Company intends to distribute dividends in 2017 and to also pay dividends on a regular basis thereafter, however depending on the results of operations of the Company, its business strategy, its financial situation, its need for cash and the legal, tax and regulatory environment as well as other factors. The Existing Shareholders have declared their intention to waive their dividend rights for the dividend to be distributed in the next three years To report net profits available for distribution, the Company as a holding company depends on profit distributions from its subsidiary. The expenditures and costs of this Offering will have a one-time impact that will adversely affect its results of operations in Dividend income is subject to German dividend withholding tax (Abgeltungsteuer) (see Section 21 of this Prospectus Taxation in Germany ). 7.2 Dividends and Earnings per Share The Company was incorporated in 2013 and did so far not generate any profits. No dividends were therefore paid by the Company in the past. DECHENG PRC as the operating company of DECHENG did however generate profits and has in the recent past paid dividends. On the basis of the single financial statements of DECHENG PRC in accordance with Page 86

87 IFRS as at and for the financial years ended on 31 December 2013, 31 December 2014 and 31 December 2015, the following summary shows the profit for the respective financial year of DECHENG PRC, and earnings per share (rounded to two decimal points), each in accordance with IFRS and its distributed dividends as of and for the years ended on 31 December 2013, 31 December 2014 and 31 December For comparability with the share capital structure of the Company, it has been assumed that the number of shares used to calculate earnings per share and dividends per share is the number of shares in the Company following the effectiveness of the capital increase against contribution in kind of shares in DECHENG HK to the Company in the amount of EUR 29,950,000. FY 2013 unaudited (1) FY 2014 unaudited (1) FY 2015 unaudited (1) Profit for the year (in EUR 000) 8,460 12,316 17,853 Dividends (in EUR 000) 4,863 7,348 8,677 Assumed number of shares 30,000,000 30,000,000 30,000,000 Earnings per share in EUR Dividends per share in EUR (1) Unaudited Information provided by the accounting department of the Company with the exception of Profit for the year which was audited. Page 87

88 8. GENERAL DESCRIPTION OF THE SHARES 8.1 Class of Shares, Voting Rights All shares in the Company are ordinary bearer shares (auf den Inhaber lautende Stammaktien) with no par value (no-par value bearer shares) representing EUR 1.00 of the share capital each. In accordance with the Company s articles of association (Satzung), each share carries one vote at the Company s General Shareholder s meeting (Hauptversammlung). All shares carry the same voting right. No restrictions on voting rights exist with the exception of those stipulated by law in specific cases. Attendance of the general shareholder s meeting and exercise of voting rights are governed by the articles of association (Satzung) and General Company law (for further details, see Section 19 of this Prospectus Corporate Bodies and Management ). 8.2 Certification of Shares The shares will be represented by one or more global share certificates without dividend coupons which will be deposited with Clearstream Banking AG, Mergenthalerallee 61, Eschborn, Germany as securities clearing and depository bank. The Company s articles of association (Satzung) constitute that shareholders are not entitled to be issued with share certificates, unless requested by the regulations of the stock exchange on which the shares are listed. The determination of the form and substance of the shares, e.g. the form of the global certificate, as well as dividend and renewal coupons is carried out by the management board (Vorstand) and is subject to approval of the supervisory board. 8.3 Dividend Rights The shares carry full dividend rights for the financial year The share of individual shareholders in the profit of the Company is determined in accordance with the number of shares they hold in the registered capital (section 60 subsection 1 of the German Stock Corporation Act (AktG)). Distributions of dividends on shares for a given financial year are generally determined by a process in which the management board (Vorstand) and supervisory board (Aufsichtsrat) submit a proposal to the annual general shareholders meeting (Hauptversammlung) held in the subsequent financial year and such annual general shareholders meeting (Hauptversammlung)adopts a resolution. German law provides that a resolution concerning dividends and distribution thereof may be adopted only on the basis of a balance sheet profit (Bilanzgewinn) shown in the Company s adopted annual single entity financial statements (festgestellter Jahresabschluss). In determining the profit available for distribution, the result for the relevant year must be adjusted for profits and losses brought forward from the previous year and for withdrawals from or transfers to reserves. Certain reserves are required by law and must be deducted when calculating the profit available for distribution. Dividends on shares resolved by the general shareholders meeting (Hauptversammlung) are paid annually, shortly after the annual shareholders meeting (Hauptversammlung), in compliance with the rules of the respective clearing system. Dividend payment claims by shareholders are subject to a three-year statute of limitations. Details concerning any dividends resolved by the annual shareholders meeting (Hauptversammlung) and the respective paying agents specified by the Company will be published in the electronic version of the Federal Gazette (elektronischer Bundesanzeiger) and in at least one official national publication for statutory stock market notices approved by the Frankfurt Stock Exchange. Dividend income is in general subject to withholding tax (Kapitalerstragssteuer) (see Section 21 of this Prospectus Taxation in Germany and 22.1 of the Prospectus Taxation in Luxembourg ). Page 88

89 8.4 Takeover Offers, Exclusion of Minority Shareholders (Squeeze-Out) and Shareholding Notification Requirements Mandatory Takeover Offers The Company as a stock corporation (Aktiengesellschaft) which will be listed on a regulated market within the meaning of art.4, para. 1 no. 14 of the EU- Directive 2004/39/EC will in accordance with the provisions of the German Securities Acquisition and Takeover Act (Wertpapiererwerbs- und Übernahmegesetz WpÜG) be considered as a so-called target company (Zielgesellschaft) if a public offer is launched (öffentliches Erwerbs- oder Übernahmeangebot) to acquire part or all of the Company s shares. In such cases the management board (Vorstand) has to work in cooperation with the supervisory board (Aufsichtsrat) to prepare and announce a detailed statement (Stellungnahme) concerning the public takeover bid. Under the German Securities Acquisition and Takeover Act any party whose voting rights reach or exceed the threshold of 30% of the voting rights of the Company after admission to listing has to publish this fact, including the percentage of the voting rights held, within seven calendar days via Internet and over an electronic financial news service. Unless an exemption is granted, the party subsequently has to submit a mandatory public tender offer to all shareholders of the Company Squeeze-out of Minority Shareholders and Integrations The general shareholders' meeting (Hauptversammlung) can, pursuant to the provisions of German Stock Corporation Act, at the request of a shareholder holding 95% of the share capital ( Principal Shareholder ), pass a resolution concerning the transfer of the shares of the remaining minority shareholders to the Principal Shareholder. The minority shareholders will in return receive a payment of an appropriate cash settlement. Decisive for the actual amount which is paid to the minority shareholders is the Company's situation at the time the resolution was passed. The amount of the cash settlement must reflect the Company's situation and is based on the full value of the Company, which is determined using the capitalized earnings value calculation (Ertragswertberechnung). The registration of the resolution of the general shareholders' meeting (Hauptversammlung) on the squeeze out in the commercial register automatically leads to the transfer of the minority's shares to the Principal Shareholder. Furthermore, a bidder that holds 95% of the voting share capital of a target company within the meaning of the German Securities Acquisition and Takeover Act (Wertpapiererwerbs- und Übernahmegesetz WpÜG) after a public takeover or mandatory bid may file an application with the regional court in Frankfurt/Main to issue a court order that transfers the remaining voting shares in return for an adequate compensation. This application has to be filed within a period of three months following the expiration of the acceptance period. A resolution by the general shareholders' meeting (Hauptversammlung) is not a precondition for this. The compensation offered has to correspond to the compensation offered in connection with the takeover or mandatory bid and is deemed an appropriate settlement if the bidder has acquired shares from 90% of the share capital addressed by the bid. The provisions relating to the stock corporation law squeeze-out do not apply during the takeover law squeeze-out procedure which is initiated by the bidder. These rules may only apply again after a binding court ruling with respect to the squeeze-out proceedings has been issued. The integration (Eingliederung) of a corporation is subject to a resolution of the general shareholders' meeting (Hauptversammlung). Precondition to such integration is that at least 95% of the shares of the Company to be integrated are held by the future principal company. The former shareholders of the integrated Company can claim a suitable settlement. This compensation must Page 89

90 generally be granted in the form of shares of the principal company. The amount of the settlement is calculated using a "merger value ratio" (Verschmelzungswertrelation) between the two companies, i.e. the exchange ratio that would be deemed to be appropriate in the event of a merger of the two companies Disclosure of Shareholdings in Listed Companies, Reporting and Notification Requirements in Relation to Share Ownerships The German Securities Trading Act (Wertpapierhandelsgesetz - WpHG) requires that anyone who acquires, sells or in some other way reaches, exceeds or falls below 3%, 5%, 10%, 15%, 20%, 25%, 30%, 50% or 75% of the voting rights in an issuer whose country of origin is Germany must immediately but no later than within four trading days after the individual or company is aware or should have been aware of the respective changes in voting rights notify the issuer and at the same time the BaFin. The notice can be drafted in either German or English and either sent in writing or via telefax. The notice must include, among other things, the individual or entity's address, the share of voting rights held and the date of reaching, exceeding or falling below the respective threshold. As a domestic issuer, the Company must publish such notices immediately but no later than within three trading days after receiving them via media outlets, including those which one can assume will disseminate the information throughout the EU and in the non-eu contracting parties to the Agreement and the EEA. The Company must also transmit the notice to BaFin and to the electronic Company Register (elektronisches Unternehmensregister) for storage. There are exceptions to the notice requirement: trading activities of investment services enterprises involving up to 5% of voting rights, shares held solely for clearing and settlement purposes or held in safekeeping for short periods of time and acquisitions and sales made for market making purposes. In connection with the disclosure requirements, the German Securities Trading Act (Wertpapierhandelsgesetz - WpHG) contains various provisions to ensure that shareholdings are allocated to the person who actually controls the voting rights attached to the shares. For example, shares belonging to a third party are allocated to a party required to report if the reporting party controls the third party. Similarly, shares held by a third party on behalf of a party required to report, or held by an entity controlled by the party required to report, are allocated to the party that is required to report. If a shareholder willfully fails to file a notice or provides false information, the shareholder is excluded from exercising the rights attached to its shares (including voting and dividend rights) for the duration of the delay. If the failure relates specifically to the share of voting rights held and the shareholder acted willfully or was grossly negligent, the shareholder is generally not permitted to exercise the administrative (voting) rights attaching to its shares for a period of six months after it files the necessary notification. In addition, a fine may be imposed for failure to comply with the notification obligation. Moreover, under the German Securities Trading Act (Wertpapierhandelsgesetz - WpHG), any person who directly or indirectly holds financial instruments that grant the holder the unilateral right under a legally binding agreement to acquire previously issued voting shares of an issuer whose country of origin is the Federal Republic of Germany is subject to a notification obligation if the sum of the shares they can so acquire, together with any voting right stakes they may already hold in the issuer or which are attributable to them, reaches, exceeds or falls below any of the thresholds of 5%, 10%, 15%, 20%, 25%, 30%, 50% or 75%. Furthermore, the German Securities Trading Act (Wertpapierhandelsgesetz - WpHG) requires any shareholder whose holdings reach or exceed the 10% threshold or a higher threshold to notify the issuer of the aims being pursued with the acquisition of the voting rights and the origin of the funds used for the acquisition within 20 trading days of the date on which the respective threshold is met or exceeded. Once this information is received, and even if no Page 90

91 information is received, the issuer has to publish it in the form discussed above, or give notice that the disclosure requirement was not met, within no more than three trading days. The issuer's articles of association (Satzung) may stipulate that the shareholders are not subject to a notification obligation, but this is not the case for the Company's articles of association (Satzung). In addition, under the German Securities Acquisition and Takeover Act (Wertpapiererwerbs- und Übernahmegesetz - WpÜG), anyone whose voting rights reach or exceed 30% of the voting shares of the Company is obligated to disclose this fact and the percentage of voting rights held within seven calendar days over the internet and over an electronic financial news service and thereupon, unless granted an exemption, to launch a public mandatory offer to all holders of shares in the Company. The German Securities Acquisition and Takeover Act (Wertpapiererwerbs- und Übernahmegesetz WpÜG) contains a number of provisions intended to ensure that share ownership is correctly attributed to the person who actually controls the voting rights conferred by the shares. Shareholders who fail to disclose that their holdings meet or exceed the 30% threshold or fail to make a public mandatory offer are prohibited from exercising the rights conferred by these shares (including voting rights and the right to receive dividends) until the failure has been remedied. Breaches of the duty of disclosure are also punishable by a fine Disclosure of Transactions by Persons Exercising Executive Responsibilities at a Listed Company According to the provision of the German Securities Trading Act (Wertpapierhandelsgesetz WpHG) any person discharging managerial responsibilities ( Executives ) within a company, whose shares are admitted to trading or for whose shares admission to trading or a domestic organized market has been requested, is obliged to disclose the purchase and sale of the Company's shares and related financial instruments whenever the value of such transactions amounts to EUR 5, or more within a calendar year. Executives are, among others, members of the management board (Vorstand) or of the supervisory board (Aufsichtsrat) or any other executives who are authorized to make decisions on material corporate matters on behalf of the company and who have regular access to insider information. The notification obligation also applies to natural persons who are closely related to the Executives of the Company such as spouses, registered civil partners, children for whom the Executive is liable for maintenance or relatives who, at the time of the purchase or sale of the Company's shares, have shared the household for at least a year. Furthermore, legal entities and other organizations are also subject to the notification obligation regarding the purchase or sale of the company s shares (i) if the Executives or persons who are closely related to the Executives discharge managerial responsibilities in such legal entities and organizations, (ii) or the Executives or persons who are closely related to the Executives directly or indirectly control the legal entity or the other organizations, (iii) or if the legal entities or other organizations were set up for the benefit of the Executives or persons who are closely related to the Executives or the economic interests of the legal entity, (iv) or the other organizations are substantially equivalent to those of the Executives or persons who are closely related to the Executives. Notification of the purchase or sale must be made within five business days of the trade date to the Company and the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht - BaFin). This means that the notification must be received by both, the Company and BaFin no later than at the fifth business day following the trade date (excluding the trade date). When the Company receives the notification, the Company is required to publish the notification without undue delay and the proof of publication must be forwarded to BaFin without undue delay. The Company also has to submit the Page 91

92 notification to the business register without undue delay, following the publication of the notification. The provisions of the German Securities Trading Act (Wertpapierhandelsgesetz WpHG) regarding the disclosure of transactions by persons exercising executive responsibilities at a listed company will be replaced by provisions of the Market Abuse Regulation (Marktmissbrauchsverordnung - MAR) with effect of July 3, According to the provisions of the Market Abuse Regulation (Marktmissbrauchsverordnung - MAR) persons discharging managerial responsibilities, as well as persons closely associated with them shall notify the issuer of every transaction conducted on their own account relating to the shares or debt instruments of the issuer or to derivatives or financial instruments linked thereto. This shall apply to any subsequent transaction once a total amount of EUR 5,000 has been reached within a calendar year. This threshold can be increased up to EUR 20,000 within a calendar year by the European Securities and Markets Authority (ESMA). Issuers shall notify the person discharging managerial responsibilities of their obligations under the respective regulation of the Market Abuse Regulation (Marktmissbrauchsverordnung - MAR) in writing and they shall draw up a list of all persons discharging managerial responsibilities and persons closely associated with them. Persons discharging managerial responsibilities shall notify the persons closely associated with them of their obligations under the Market Abuse Regulation (Marktmissbrauchsverordnung - MAR) in writing and shall keep a copy of this notification. Without prejudice to the aforementioned disclosure obligation, a person discharging managerial responsibilities within an issuer shall not conduct any transactions on its own account or for the account of a third party, directly or indirectly, relating to the shares or debt instruments of the issuer or to derivatives or other financial instruments linked to them during a closed period of 30 calendar days before the announcement of an interim financial report or a year-end report which the issuer is obliged to make public according to the rules of the trading venue where the issuer s shares are admitted to trading or national law. 8.5 Transferability of the Shares The shares are freely transferrable. With the exception of the restrictions set out in Section 5.11 of this Prospectus Market Protection Agreements (Lock up), there are no lock-up requirements or restrictions on the transferability of the Company s shares. 8.6 Notices In accordance with its articles of association (Satzung), notices of the Company will be made in the electronic version of the German Federal Gazette (elektronischer Bundesanzeiger). Publications required by stock exchange laws will be made in a national journal designated for such purposes by the Frankfurt Stock Exchange. Notices in connection with the approval of the Prospectus and the approval of any supplements to the Prospectus will be made in accordance with section 14 subsection 1 of the German Securities Prospectus Act (Wertpapierprospektgesetz) and will be published in the form intended for prospectuses, i.e., on the internet website of the Company with a printed version available at the office of the Company. 8.7 Securities Identification Number, Stock Symbol, Ticker Symbol German Securities Identification Number (WKN): A1YDDM International Securities Identification Number (ISIN): DE000A1YDDM9 Ticker Symbol: Paying Agent The paying agent (Zahlstelle) for the shares in the Company is Bankhaus Neelmeyer Aktiengesellschaft with business address at Am Markt 14-16, Bremen, Germany. Page 92

93 9. DILUTION The net book value of DECHENG HK (total assets less current liabilities), which for the purpose of calculating the dilution is considered as the Company s equity attributable to the Company s shareholders following the registration of the capital increase against contribution in kind (Sachkapitalerhöhung) of the Company on 12 May 2016, amounted to EUR 30,960,743 as of 31 December 2015 based on the consolidated financial statements of DECHENG HK for 2015 prepared in accordance with IFRS. This corresponds to approximately EUR 1.03 per share (calculated on the basis of 30,000,000 shares of the Company in issue as of the date of this Prospectus). Assuming that all 3,000,000 Offered Shares are placed and that the Offer Price amounts to EUR 3,50, the Company would obtain net proceeds of approximately EUR 8,634,000 considering costs of the Offering (including fees of the Underwriter) totaling approximately EUR 1,866,000. Assuming that the Offering had been implemented on 31 December 2015, the net book value of the Company at that time would have amounted to approximately EUR 39,594,743 (or approximately EUR 1.20 per share calculated on the basis of 33,000,000 shares of the Company in issue following full implementation of the capital increase against cash contributions). This corresponds to an increase in the net book value of the Company of approximately EUR 0.17 per share corresponding to an increase of approx. 16.5% for the Existing Shareholders and a direct dilution of about EUR 2.30 per share for the purchasers of the Offered Shares based on the Offer Price and, thus, investors who acquire shares at the Offer Price of EUR 3.50 per Offered Share are diluted by about 65.7%. The table below illustrates the amount by which the mid-point of the price range per share would exceed the total share capital per share (immediate dilution per share): Offer Price per share EUR 3.50 Net book value of the Company per share as of 31 December 2015 calculated on the basis of 30,000,000 Existing Shares Amended net book value of the Company per share as of 31 December 2015, adjusted under the assumption of full implementation of the capital increases Percentage by which the amended net book value of the Company per share for the Existing Shareholders exceeds the net book value of the Company per share Amount by which the Offer Price per share exceeds the amended net book value of the Company per share for the investors Percentage by which the Offer Price per share exceeds the amended net book value of the Company per share for the investors EUR 30,960,743 EUR 39,594,743 approx. 16.5% EUR 2.30 approx % Page 93

94 10. CAPITAL STRUCTURE AND NET FINANCIAL LIABILITIES 10.1 Capitalization and Indebtedness The data presented in the following table provides an overview of the capital structure and net financial liabilities of the Company as at 31 March 2016 on a consolidated basis as if all shares in DECHENG HK had already been held by the Company as at 31 March The data is unaudited and has been prepared by the accounting department of DECHENG in accordance with IFRS. As a result of the net proceeds obtained in the Offering the capitalization of DECHENG will change following the Offering. (1) Interest bearing bank borrowings have been secured by the company's buildings and prepaid land lease payments, personal guarantees by the company s major shareholder and CEO, Mr. ZHU Xiaofang, and his wife Ms. ZHU Yuling as well as by corporate guarantee provided by a third party. All short term bank borrowings fall due within twelve months. Page 94

95 10.2 Contingent and Indirect Liabilities DECHENG has no contingent and indirect liabilities Borrowing Requirements In order to finance the intended growth of DECHENG, further borrowing (in particular bank loans) may be required by renewing the existing short term bank loans in the amount of RMB 29.8 million (approx. EUR 4.3 million). The financing through bank loans shall be obtained mainly from the banks by way of mortgaging DECHENG s fixed assets or providing for guarantees in principle the same as the current financing arrangements Working Capital Statement The Company believes that, based on DECHENG s current needs, DECHENG s current working capital is sufficient for its present requirements that means sufficient to cover those payment obligations which will become at least due within the next twelve months from the date of this Prospectus Significant Changes The sales volume of DECHENG's products has increased by over 22.14% for the 3 months financial period ended 31 March 2016 (2016/Q1) compared to the 3 months financial period ended 31 March 2015 (2015/Q1). Due to the drop in oil based raw material prices, the selling price for most of DECHENG`s products though decreased resulting in a decrease of revenue by 6.84% in RMB (10.56% in EUR) for the same period. However, since the cost of sales for this period has also decreased by 6.62% in RMB (10.35% in EUR) compared to 2015/Q1, in line with the decrease in revenue and drop in raw material prices, the gross profit margin remained stable for 2016/Q1 at 39.30% compared to 39.44% for 2015/Q1. Crude oil prices have started to increase again so that this will have again a corresponding effect on the up-coming revenues for the FY The figures regarding 2016/Q1 and 2015/Q1 are unaudited and have been provided by the accounting department of DECHENG. On 25 April 2016, the Existing Shareholders entered into a contribution agreement with the Company whereby they undertook to transfer 100% of the shares in DECHENG HK, i.e. 10,000 shares, to the Company against the issue of 29,950,000 new no par value ordinary bearer shares in the Company to the Existing Shareholders according to their shareholder ratio (Einbringungsvertrag). The contribution agreement and the capital increase by way of contribution in kind (Sachkapitalerhöhung) were approved by an extraordinary shareholders meeting of the Company on 26 April 2016 and have been registered with the commercial register (Handelsregister) of the local court (Amtsgericht) of Cologne on 12 May On 25 January 2016, DECHENG PRC declared the dividend in the amount of RMB 85,000,000 (approx. EUR 12,292,000) to its shareholder DECHENG HK. On 5 February 2016, DECHENG HK received RMB 76,500,000 (approx. EUR 11,063,000) net of 10% withholding tax and paid the same amount directly to its sole shareholder Mr. ZHU Xiaofang. Apart from the abovementioned, there have been no significant changes in DECHENG s financial or trading position between 31 December 2015 and the date of this Prospectus. Page 95

96 11. SELECTED FINANCIAL INFORMATION The Company was founded as a shelf company (Vorratsgesellschaft) on 31 July 2013 and incorporated by registration in the commercial register (Handelsregister) of the local court (Amtsgericht) of Munich on 13 February The Company disclosed the economic refoundation (wirtschaftliche Neugründung) to the commercial register (Handelsregister) of the local court (Amtsgericht) of Cologne following the acquisition of all shares in the Company by Mr. ZHU Xiaofang. The business of DECHENG is mainly carried out by DECHENG PRC, which is an indirect wholly owned subsidiary of the Company. All shares in DECHENG PRC are directly held by DECHENG HK, which has been incorporated on 15 August The Company is the sole shareholder of DECHENG HK. DECHENG PRC was during the reporting period actually the only operating subsidiary of DECHENG. Hence in order to present the business, financial condition and result of operations for the last three financial years in relation to the business of DECHENG, the Company has prepared single entity financial statements of DECHENG PRC as at and for the financial years ended on 31 December 2013 ( FY 2013 ), 31 December 2014 ( FY 2014 ) and 31 December 2015 ( FY 2015 ) in accordance with International Financial Reporting Standards and International Accounting Standards and Interpretations as endorsed for application in the EU ( IFRS ) and consolidated financial statements of DECHENG HK as at and for the financial year ended on 31 December 2015 in accordance with IFRS (together the Annual Financial Statements ). The Annual Financial Statements were audited by MSW GmbH. Furthermore, the Company has prepared its single entity financial statements in accordance with IFRS for the financial year ended on 31 December 2015 with respective comparative information. For the financial years ended on 31 December 2013, 31 December 2014 and 31 December 2015 the Company has also prepared its single entity financial statement in accordance with the German Commercial Code (Handelsgesetzbuch). These financial statements were audited by MSW GmbH. The selected financial information, which is reflected in this section, was derived from the aforementioned financial statements for the FY 2013, FY 2014 and FY The aforementioned financial statements of DECHENG are, apart from the separate financial statement of the Company for the financial years ended on 31 December 2013, 31 December 2014 and 31 December 2015 in accordance with the German Commercial Code (Handelsgesetzbuch), not the legally required financial statements of the Company, but have been prepared on a voluntary basis for the purpose of this Offering. The purpose of these financial statements is to put the investor in the position to better compare the development of the business, financial condition and the results of operations of DECHENG over the last three years. The following figures were subject to rounding adjustments that were carried out according to established commercial standards. As a result, the figures stated in a table may not exactly add up to the total values that may also be stated in the table. Page 96

97 Selected Financial Statement Data DECHENG PRC All figures below are taken from the financial statements of DECHENG PRC (in EUR) Selected Statement of Comprehensive Income Revenue 38,785,440 (audited) 49,442,710 69,759,801 Cost of sales -25,963,199-31,769,960-43,054,665 Gross profit 12,822,241 17,672,750 26,705,136 Other income 44, , ,037 Selling and distribution expenses -194, , ,342 Administration expenses -1,253,043-1,120,619-2,475,675 Finance result -151, , ,697 Profit before tax 11,268,072 16,340,621 24,015,459 Tax expense -2,808,327-4,024,735-6,162,269 Profit after tax 8,459,745 12,315,886 17,853, December (audited) Selected Statement of Financial Position Non-current assets 3,095,824 2,998,502 2,718,334 Current assets 17,839,728 28,735,406 41,147,674 Total assets 20,935,552 31,733,908 43,866,008 Total equity 13,687,000 20,874,842 30,961,867 Non-current liabilities Current liabilities 7,248,552 10,859,066 12,904,141 Total liabilities 7,248,552 10,859,066 12,904,141 Total Equity and liabilities 20,935,552 31,733,908 43,866, (audited) Selected Statement of Cash Flow Profit before taxation 11,268,072 16,340,621 24,015,459 Operating profit before working capital changes 11,867,290 16,961,237 24,652,465 Net cash from operating activities 7,656,731 12,672,052 19,051,609 Net cash for investing activities -124,720 40,920 75,727 Net cash for financing activities -4,118,887-6,210,519-8,068,011 Net (decrease)/increase in cash and cash equivalents 3,413,124 6,502,453 11,059,325 Cash and cash equivalents at end of the financial year/period 11,306,180 19,867,121 31,748, Dezember Other selected Financial Data (unaudited) (1) EBIT(2) 11,448,308 16,550,555 24,274,326 EBIT margin(3) 29.5% 33.5% 34.8% Net profit margin(4) 21.8% 24.9% 25.6% Number of employees at end of the financial year/period (1) Unaudited information provided by the Company. (2) EBIT = Profit before taxation plus finance cost. (3) EBIT divided by revenue multiplied by 100. (4) Profit after Tax (Net Profit) for the period divided by revenue multiplied by 100. Page 97

98 Decheng Technology AG All figures below are taken from the IFRS financial statements of Decheng Technology AG. ASSETS 31 Dec Dec EUR EUR Current assets Cash and cash equivalents 12,500 12,500 EQUITY AND LIABILITIES 12,500 12, Dec Dec EUR EUR Equity Issued capital 50,000 50,000 Not fully paid capital (37,500) (37,500) 12,500 12,500 12,500 12,500 On 2 March 2016, the outstanding share capital in the amount of EUR 37,500 was fully paid in. Page 98

99 12. MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following management s discussion and analysis of the financial condition and results of operations of DECHENG should be read in conjunction with the other information in this Prospectus, including the financial statements and the related notes which are reproduced in this Prospectus starting on page F-1 and Section 11 Selected Financial Information. The discussion and analysis regarding the key factors affecting results of operations contains some forward-looking statements that are subject to known and unknown risks and uncertainties. The actual results and the timing of events could differ materially from those expressed or implied by such forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Prospectus, particularly in Section 3 Risk Factors. The financial and other data is presented in the text below primarily in millions of Euro and in the tables below in thousands of Euro and is commercially rounded to one decimal point. The percentages stated in the text and tables below have also been commercially rounded to one decimal point. As a result, the figures shown in the text and tables below may not add up exactly to the totals given, and the percentages may not add up to 100% Overview of Business DECHENG is a Chinese polyurethane resin producer. Polyurethane resins of DECHENG are used to add properties to customers textiles and leathers such as waterproofness and flame resistance as well as a range of other enhancing features. Polyurethane resin oil based products as produced by DECHENG are (i) single as well as two liquid type polyurethane resins for dry fabrics, (ii) polyurethane produced by wet winding technology and (iii) polyurethane resin for fiber coating. DECHENG produces its polyurethane resins from methylene diphenyl diisocyanate (MDI), and toluene diisocyanate (TDI), with polyester polypol mixes. DECHENG also produces bridging agents and accelerator additives which are combined with DECHENG s polyurethane resins by leather and textile customers. DECHENG s resin products are used as product enhancement mainly in the textile and leather industry. Applications for the textile industry are in particular outdoor supplies, waterproof jackets and windbreakers, fast dry clothing, tents, backpacks, sleeping bags and mats. Applications for the leather industry are in particular leather products such as leather sofas, leather clothing, shoes and footballs. The bridging agents and accelerator additives, which are produced, serve the purpose of strengthening the functions of the resin products, e.g. increasing the stickiness to textiles or facilitating the dryness of the resin. DECHENG sells its products only in the Chinese market, mainly directly to textile and leather manufacturers in Fujian, Guangdong, Zhejiang, Jiangsu, Guangxi and Shanghai. The revenue generated from polyurethane resin and additives products increased from EUR million in FY 2013, to EUR million in FY 2014 as well as to EUR million in FY 2015, representing a compounded annual growth rate ( CAGR ) of 34.11%. DECHENG s profit after tax for FY 2013, FY 2014 and FY 2015 was EUR 8.46 million, EUR million as well as EUR million respectively, representing a CAGR of 45.27%. DECHENG s operating facilities are located at Pu an Leather Center, Quangang District, Quanzhou City, Fujian Province, Postal Code DECHENG s production facilities have generated a total output of approx million kilogram ( kg ) of polyurethane resin and 0.64 million kg of additives in FY As at 31 December 2015, DECHENG employed 123 employees. Until the date of this Prospectus, no material change in the number of employees has occurred. Please refer to Section 13 of this Prospectus on Business Activities of DECHENG for further details. Page 99

100 12.2 Key Factors affecting Results of Operations The Company believes that the following factors had and/or will continue to have a material effect on its results of operation and financial condition: Growth of the PRC economy DECHENG mainly sells its products to domestic textile and leather productionoriented enterprises which use DECHENG s products for the manufacturer of their own products. Therefore the success of the business of DECHENG indirectly depends on the condition and growth of the PRC consumer market, which, in turn, depends on worldwide economic conditions and individual income levels and their impact on levels of consumer spending. The slowdown of GDP growth rates in the PRC in FY 2013, FY 2014 and FY 2015 which is, amongst others, due to the development of the global economy, could lead to a toughened competition and increased pressure on prices. There are many factors affecting the level of consumer spending, including but not limited to interest rates, currency exchange rates, recession, inflation, deflation, political uncertainty, taxation, stock market performance, unemployment level and general consumer confidence. There can be no assurance that historical growth rates of the PRC economy will continue or that projected growth rates of the PRC economy and the PRC consumer market will be realized. Any future slowdowns or declines in the PRC economy or consumer spending may materially and adversely affect DECHENG s business and its net assets, financial condition and results of operations Competition in the PRC market The Company believes that the polyurethane resin industry is highly competitive. Its major competitors include international and domestic producers and/or processors. They compete with each other based on, amongst other things, product quality, specification, price and brand image. Competitors may have significantly greater financial, technical and marketing resources, stronger brand name recognition and a larger existing customer base than DECHENG. In addition, competitors may have the ability to respond more quickly to new or emerging technologies, may adapt more quickly to changes in customer requirements and may devote greater resources to the development, promotion and sales of their products than DECHENG. There is no assurance that DECHENG will be able to continue competing successfully against present and future competitors. The Company believes that important factors to achieving success in the polyurethane industry include achieving consistent product renewal and maintaining the quality of products and services and maintaining customer loyalty by cultivating long-term customer relationships. If DECHENG is unable to attain these factors, it may lose its customers to its competitors. Increased competition may also force DECHENG to lower its prices. If DECHENG is unable to compete effectively with existing or new competitors in the future, in particular in light of the changing and competitive market environment, DECHENG s business and its net assets, financial condition and results of operations may be materially and adversely affected Changes in raw material prices The costs of raw materials accounted for approximately 92.99%, 93.13% and 92.61% of DECHENG s total costs of goods sold for FY 2013, FY 2014 and FY 2015 respectively, which included in particular dimethylformamide ( DMF ) and methylene diphenyl diisocyanate ( MDI ) as well as pure adipic acid ( AA ). As DECHENG does not have long-term arrangements with its suppliers for such key raw materials, in particular the annual supply contract does not contain any pricing for the period due to the volatility of crude oil price, there is no assurance that DECHENG will be able to obtain, or continue to obtain, quality raw materials at competitive prices. Although DECHENG s raw materials turnover Page 100

101 days are maintained at 15.4 days, the continuous and timely supply of quality raw materials is, however, the basis for quality products. Market prices of such raw materials may fluctuate due to changes in the level of global demand and supply. Any substantial increase in the prices of these raw materials is likely to have a material adverse impact on DECHENG s production costs. In the event of any significant increase in the costs of such materials and should DECHENG be unable to hedge the risk or to pass on such costs to DECHENG s customers or do so on a timely basis, DECHENG s business and its net assets, financial condition and results of operations may be materially and adversely affected Effect of currency fluctuations The Annual Financial Statements of DECHENG for the period under audit were prepared in EUR and the Company's future consolidated financial statements will be prepared in EUR, while DECHENG s operating currency is RMB, which is currently not a freely convertible currency. A devaluation of RMB versus EUR would therefore have an adverse foreign currency translation effect on DECHENG s consolidated financial statements. As the value of RMB is controlled by PRC authorities, it is possible that foreign exchange policies of the PRC government could have a significant impact on foreign currency exchange rates. An increase in the value of RMB against EUR would therefore increase DECHENG s profitability measured in EUR while alternatively a decrease in the value of RMB against EUR would decrease DECHENG s profitability measured in EUR. DECHENG has in the past not bought and will not in the future buy any hedging instruments against a devaluation of the RMB Ability to keep up with the latest research and development and provide products meeting customers demand and requirements 12.3 Results of Operations DECHENG s customer may demand products with certain new/improved functionality or environmentally friendly materials, such as solvent-free and waterborne PU resin, which DECHENG currently cannot produce. As a result, customer may order products from competitors, if the R&D department of DECHENG is not able to maintain and meet the demand of the customers. Such failures could lead to lower volumes of orders of customers or even losing important customers. Not fulfilling the expectations of the customers and the failure to gain market acceptance of products introduced in the future may have an adverse impact on DECHENG s net assets, financial conditions and results of operations. The following table presents the income statement data of DECHENG PRC for the years ended 31 December 2013, 31 December 2014 and 31 December 2015, which was taken from the audited Annual Financial Statements. Statement of Comprehensive Income: EUR'000 EUR'000 EUR'000 Revenue 38,785 49,443 69,760 Cost of sales (25,963) (31,770) (43,055) Gross profit 12,822 17,673 26,705 Other income Selling and distribution expenses (194) (223) (285) Administration expenses (1,253) (1,121) (2,475) Finance cost (152) (166) (179) Profit before tax 11,268 16,341 24,015 Page 101

102 Tax expenses (2,808) (4,025) (6,162) Net profit for the financial year 8,460 12,316 17, Revenues DECHENG s core products can be classified into 5 categories, namely two liquid type polyurethane resin for dry fabrics, Polyurethane produced by the wet winding technology, Polyurethane resin for fiberic coating, Single liquid type polyurethane resin for dry fabrics and coating additives. Sales analysis by product Revenue EUR '000 % EUR '000 % EUR '000 % Sales analysis by products Two liquid type polyurethane resin for dry fabrics 5, % 7, % 11, % Polyurethane produced by the wet winding technology 9, % 7, % 7, % Polyurethane resin for fiberic coating 13, % 19, % 29, % Single liquid type polyurethane resin for dry fabrics 8, % 12, % 18, % Coating additives 1, % 2, % 3, % Comparison of FY 2013, FY 2014and FY , % 49, % 69, % Revenue increased by 27.48% and 41.09% in FY 2014 and FY 2015 respectively. All of DECHENG's products have recorded significant increase in revenue over the last three years except for the polyurethane produced by the wet winding technology. Polyurethane resin for fiberic coating is DECHENG s top sales contributor, accounted for 35.53%, 39.91% and 42.35% of the total sales in FY 2013, FY 2014 and FY 2015 respectively. It has recorded an increase of 43.19% in sales in FY2014 and then a further increase of 49.71% in sales in FY2015. The increase in sales in FY 2014 compare to FY 2013 is mainly due to the increase in sales volume by 39.52% and sales price by 2.63% while the increase in sales in FY 2015 compare to FY 2014 is mainly due to the increase in sales volume by 40.85% and sales price by 6.29%. Single liquid type polyurethane resin for dry fabrics accounted for 23.10%, 25.06% and 26.75% of total sales in FY 2013, FY 2014 and FY 2015 respectively. It has recorded an increase of 38.27% in sales in FY 2014 and then a further increase of 50.62% in sales in FY The increase in sales in FY 2014 compared to FY 2013 is mainly due to the increase in sales volume by 35.98% and sales price by 1.68% while the increase in sales in FY 2015 compared to FY 2014 is mainly due to the increase in sales volume by 32.53% and sales price by 13.65%. Two liquid type polyurethane resin for dry fabrics accounted for 12.91%, 14.71% and 15.99% of total sales in FY 2013, FY 2014 and FY 2015 respectively. It has recorded an increase of 45.23% in sales in FY 2014 and then a further increase of 53.40% in sales in FY The increase in sales in FY 2014 compared to FY 2013 is mainly due to the increase in sales volume by 37.11% and sales price by 5.92% while the increase in sales in FY 2015 compared to FY 2014 is mainly due to the increase in sales volume by 45.59% and sales price by 5.36%. Coating additives accounted for 3.02%, 5.07% and 4.85% of total sales in FY 2013, FY 2014 and FY 2015 respectively. It has recorded an increase of % in sales in FY 2014 and then a further increase of 34.99% in sales in FY The increase in sales in FY 2014 compared to FY 2013 is mainly due to the increase in sales volume by % and slight decrease of sales price by 0.48% while the increase in sales in FY 2015 compared to FY 2014 is mainly due to the increase in sales volume by 8.31% and sales price by 24.63%. Page 102

103 The main reason for the increase in sales for the past 3 years for the 4 products above is a successful research and development, proven business model coupled with good customer feedback on DECHENG's products. Polyurethane produced by the wet winding technology accounted for 25.44%, 15.26% and 10.06% of total sales in FY 2013, FY 2014 and FY 2015 respectively. It has recorded a decrease of 23.54% in sales in FY 2014 and then a further decrease of 6.93% in sales in FY The main reason for the decrease in sales for the past 3 years is due to the management strategy to reduce emphasis on this product as more competitors are producing this product and the selling price is getting lower in the market. Sales analysis by province EUR '000 % EUR '000 % EUR '000 % Fujian 17, % 23, % 33, % Guangdong 10, % 13, % 15, % Jiangsu 9, % 12, % 18, % Shanghai % % % Zhejiang % % % Guangxi % % % Comparison of FY 2013, FY 2014 and FY 2015 Currently, DECHENG sells its products to textile and leather manufacturers in 6 provinces in China, namely Fujian, Guangdong, Jiangsu, Shanghai, Zhejiang and Guangxi. DECHENG's top 3 provinces by sales value are Fujian, Guangdong and Jiangsu. When combined, they accounted for 98.93%, 98.73% and 97.53% of the total sales for FY 2013, FY 2014 and FY 2015 respectively Cost of Sales 38, % 49, % 69, % The main components of DECHENG s cost of sales are raw materials, staff costs, manufacturing overhead and taxes. The costs of sales for the period under review are as follows: EUR '000 % EUR '000 % EUR '000 % Raw material 24, % 29, % 39, % Staff cost % % % Manufacturing overhead 1, % 1, % 1, % Taxes % % % Comparison of FY 2013, FY 2014 and FY , % 31, % 43, % Cost of sales increased by 22.37% and 35.52% in FY 2014 and FY 2015 respectively which is in line with the increase in sales of 27.48% and 41.09% in FY 2014 and FY 2015 respectively. Raw material cost, the single largest cost component, accounted for 92.99%, 93.13% and 92.61% of the cost of sales in FY 2013, FY 2014 and FY 2015 respectively. It has increased by 22.54% and 34.76% in FY 2014 and FY 2015 in line with the increase in sales. Page 103

104 Manufacturing overhead, the second largest cost component, accounted for 3.93%, 3.77% and 4.00% of the cost of sales in FY 2013, FY 2014 and FY 2015 respectively. It has increased by 17.37% and 43.95% in FY 2014 and FY 2015 in line with the increase in sales. Staff cost, the third largest cost component, accounted for 1.96%, 1.92% and 1.98% of the cost of sales in FY 2013, FY 2014 and FY 2015 respectively. It has increased by 19.60% and 39.72% in FY 2014 and FY 2015 in line with the increase in sales. Raw material purchases Raw material analysis (*) EUR % EUR % EUR % DMF (S-100) 5,634, % 5,934, % 8,123, % MDI (I-250) 3,772, % 4,484, % 5,196, % AA (A-1000) 2,915, % 2,971, % 3,993, % PE-20(PO-3020) 1,214, % 1,853, % 2,282, % TOL (S-300) 981, % 1,807, % 2,098, % Methyl Formate (S- 1000) 883, % 1,141, % 1,393, % 1.4BG 1,006, % 923, % 1,271, % PTMEG ) (PO- 1,294, % 1,608, % 1,230, % OK-412 (MA-900) 336, % 621, % 846, % MEG (DO-2062) 554, % 511, % 784, % Others 5,665, % 7,821, % 11,730, % 24,257, % 29,679, % 38,950, % (*) DMF = Dimethylformamide, AA = Pure Adipic Acid, MDI = Methylene Diphenyl Diisocyanate, PE- 20 = Polyethylene Glycol, PTMEG= Polytetramethylene Ether Glycol, TOL = Toluene, 1.4BG = 1.4 Butanediol, PTMEG-2000 = Polytetramethylene Ether Glycol, OK-412 = Acematt, MEG = Ethylene Glycol. Comparison of FY 2013, FY 2014 and FY 2015 Purchase of DMF, the single largest raw material component, accounted for 23.23%, 20.00% and 20.86% of the total raw material purchases for FY 2013, FY 2014 and FY 2015 respectively. It has increased by 5.33% and 36.89% in FY 2014 and FY 2015 respectively. DMF are used as raw material for the production of all of DECHENG's products. The increase of 36.89% in FY 2015 is mainly due to the increase in usage for the production of two liquid type polyurethane resin for dry fabrics, polyurethane resin for fiberic coating and single liquid type polyurethane resin for dry fabrics. Purchase of MDI, the second largest raw material component, accounted for 15.55%, 15.11% and 13.34% of the total raw material purchases for FY 2013, FY 2014 and FY 2015 respectively. It has increased by 18.88% and 15.86% in FY 2014 and FY 2015 respectively. MDI are used as raw material for the production of all of DECHENG's products. Page 104

105 Purchase of AA, the third largest raw material component, accounted for 12.02%, 10.01% and 10.25% of the total raw material purchases for FY 2013, FY 2014 and FY 2015 respectively. It has increased by 1.93% and 34.39% in FY 2014 and FY 2015 respectively. AA is used as raw material for the production of all of DECHENG's products. The increase of 34.39% in FY 2015 is mainly due to the increase in usage for the production of two liquid type polyurethane resin for dry fabrics, polyurethane resin for fiberic coating and single liquid type polyurethane resin for dry fabrics Gross profit and gross profit margin The following tables show a breakdown of gross profit and gross profit margin generated from different business segments for the past three years ended 31 December 2013, 2014 and Gross Profit EUR '000 % EUR '000 % EUR '000 % Two liquid type polyurethane resin for dry fabrics 1, % 2, % 4, % Polyurethane produced by the wet winding technology 3, % 2, % 2, % Polyurethane resin for fiberic coating 4, % 7, % 11, % Single liquid type polyurethane resin for dry fabrics 3, % 4, % 7, % Coating additives % % 1, % Comparison of FY 2013, FY 2014 and FY 2015 Gross profit has increased by 37.83% and 51.11% in FY 2014 and FY 2015 respectively in line with the increase in revenue of 27.48% and 41.09% in FY 2014 and FY 2015 respectively. Polyurethane resin for fiberic coating is the top contributor to DECHENG's gross profit. It accounted for 37.04%, 40.86% and 43.92% in FY 2013, FY 2014 and FY 2015 respectively. Its gross profit has increased by 52.05% and 62.40% in FY 2014 and FY 2015 in line with the increase of sales of polyurethane for fiberic coating by 43.19% and 49.71% in FY 2014 and FY 2015 respectively. Single liquid type polyurethane resin for dry fabrics is the second contributor to DECHENG's gross profit. It accounted for 23.73%, 25.61% and 26.79% in FY 2013, FY 2014 and FY 2015 respectively. Its gross profit has increased by 48.75% and 58.08% in FY 2014 and FY 2015 in line with the increase of sales of single liquid type polyurethane for dry fabrics by 38.27% and 50.62% in FY 2014 and FY 2015 respectively. Two liquid type polyurethane resin for dry fabrics is the third contributor to DECHENG's gross profit. It accounted for 12.72%, 14.56% and 15.64% in FY 2013, FY 2014 and FY 2015 respectively. Its gross profit has increased by 57.78% and 62.32% in FY 2014 and FY 2015 in line with the increase of sales of two liquid type polyurethane resin for dry fabrics by 45.23% and 53.40% in FY 2014 and FY 2015 respectively. Gross Profit Margin: 12, % 17, % 26, % GP Margins Two liquid type polyurethane resin for dry fabrics 32.56% 35.38% 37.44% Polyurethane produced by the wet winding technology 30.85% 32.85% 35.47% Polyurethane resin for fiberic coating 34.46% 36.60% 39.70% Single liquid type polyurethane resin for dry fabrics 33.96% 36.54% 38.35% Coating additives 30.42% 34.86% 34.15% Total Gross Profit Margin 33.06% 35.74% 38.28% Page 105

106 Comparison of FY 2013, FY 2014 and FY 2015 DECHENG has recorded a gross profit margin of 33.06%, 35.74% and 38.28% in FY 2013, FY 2014 and FY 2015 respectively. All of DECHENG's products enjoyed a steady increase in GP margin in FY 2014 and FY 2015 except for coating additives which has stabilized at around 34.15% in FY The increase in GP margin in most of DECHENG's products in FY 2014 and FY 2015 is mainly due to the successful research and development, proven business model coupled with good customer feedback on DECHENG's products Other income Other income consists of government grants and rental income Selling and distribution expenses EUR '000 EUR '000 EUR '000 Other income Selling and Distribution EUR '000 % EUR '000 % EUR '000 % Staff salaries and bonuses % % % Advertisement % % % Others % % % Comparison of FY 2013, FY 2014 and FY 2015 Staff salaries and bonuses being the largest selling and distribution expenses accounted for 75.98%, 77.10% and 77.54% in FY 2013, FY 2014 and FY 2015 respectively. The increase of 16.46% and 28.65% in FY 2014 and FY 2015 is due to the increase in salaries and higher bonuses. Advertisement expenses relate to billboard advertisement General and Administrative expenses % % % General and administrative expenses EUR '000 % EUR '000 % EUR '000 % Staff salaries and related cost % % % Depreciation % % % Amortisation of land use rights % % % Research and Development % % % Office related expenses % % % Property tax and quit rent % % % Others % % % Comparison of FY 2013, FY 2014 and FY , % 1, % 2, % General and administrative expenses decreased by 10.57% in FY 2014 and increased by % in FY The decrease of general and administrative expenses in FY 2014 is mainly due to the lower research and development expenses incurred while the increase in general and administrative expenses in FY 2015 is mainly due to higher staff salaries and related costs, research and development expenses and professional fees. Staff salaries and related costs consist mainly of salaries, bonuses and social insurance. It accounted for 45.89%, 57.99% and 36.51% of the general and Page 106

107 administrative expenses in FY 2013, FY 2014 and FY 2015 respectively. The increase of 13.02% in FY 2014 and 39.16% in FY 2015 is due to an increase in salaries, higher bonuses and social security insurance. Research and development expenses relate to the research and development fee incurred with our research partners such as Quangang Petrochemical Research Institute and Fujian Material Structure Institute. It accounted for 22.90%, 6.57% and 26.90% of the general and administrative expenses in FY 2013, FY 2014 and FY 2015 respectively. The decrease of 74.53% in FY 2014 is mainly due to the fact that no new agreements were concluded with the university/research centers while the increase in research and development expenses in FY 2015 is mainly due to a new agreement being entered with Fujian Material Structure Institute. Professional fees for auditors, lawyers, bank institutions and other consultants in relation to this Offering and the admission of the Company s shares to the Frankfurt Stock Exchange amounting to EUR 0,435 million were charged to FY Finance result Finance result relates to interest expenses less interest income. The weighted average interest rates are 6.45%, 6.28% and 6.01% in FY 2013, FY 2014 and FY 2015 respectively EUR '000 EUR '000 EUR '000 Interest expenses Interest income Finance result -152* *due to rounding-up Profit before taxation Profit before taxation has increased by 45.02% and 46.97% in FY 2014 and FY 2015 respectively in line with the increase in sales and gross profit EUR '000 EUR '000 EUR '000 Profit before taxation 11,268 16,341 24, Income tax and tax rates DECHENG s profit before taxation was solely derived from China and subject to a tax rate of 25% under the tax law of China. However, due to certain calculations as required under the tax law, the actual income tax incurred may be slightly different from the standard rate of 25%. The average tax rate is 24.92%, 24.63% and 25.66% in FY 2013, FY 2014 and FY 2015 respectively EUR '000 EUR '000 EUR '000 Profit before taxation 11,268 16,341 24,015 Taxation 2,808 4,025 6,162 Tax rate 24.92% 24.63% 25.66% Page 107

108 12.4 Balance Sheet Data EUR'000 EUR'000 EUR'000 Assets Non-current assets Property, plant and equipment 2,782 2,653 2,363 Prepaid land lease payment Total non-current assets 3,096 2,999 2,718 Current assets Inventories 1,965 2,251 1,377 Trade receivables 4,493 6,618 7,786 Other receivables Cash and bank balances 11,306 19,867 31,748 Total current assets 17,840 28,735 41,148 Total assets 20,936 31,734 43,866 Equity and Liabilities Equity Equity attributable to owner of the Company Share capital 5,763 5,763 5,763 Retained earnings 6,879 10,527 19,331 Foreign exchange reserve (328) 1,892 2,802 Statutory reserve 1,373 2,694 3,065 Total equity 13,687 20,875 30,962 Liabilities Current liabilities Trade payables 2,542 3,664 2,601 Other payables 1,050 1,984 4,201 Tax payable 712 1,220 1,539 Borrowings 2,945 3,992 4,209 Amount due to director Total current liabilities 7,249 10,859 12,904 Total liabilities 7,249 10,859 12,904 Total Equity and Liabilities 20,936 31,734 43,866 Page 108

109 Non-current assets Non-current assets comprise of property, plant and equipment as well as prepaid land lease payment. Property, plant and equipment Plant and Motor Pipe-line Office Buildings Machineries Vehicles equipment Equipment Renovation Total Net carrying amount EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR' December , , December , , December , ,363 Comparison of FY 2013, FY 2014 and FY 2015 As 31 December FY 2013, FY 2014 and FY 2015, net carrying amount of the property, plant and equipment amounted to EUR million, EUR million and EUR million respectively. At 31 December FY 2015, property, plant and equipment comprises mainly of buildings of EUR million, plant and machineries of EUR million, motor vehicles of EUR million, office equipment of EUR million, renovation of EUR million and pipe-line equipment of EUR million. Prepaid land lease payments Prepaid land lease payment relates to 2 parcels of lands acquired in FY The decrease over the years is due to the amortization charge Current assets Inventories (*) For FY 2013, FY 2014 and FY 2015, inventory turnover days are calculated using the formula: (average inventories/cost of sales) 365 days. Comparison of FY 2013, FY 2014 and FY EUR '000 EUR '000 EUR '000 Consumables Raw materials 1, , , Finished goods Work in progress ,965 2,251 1,377 Inventories turnover days * Inventories amounted to EUR million, EUR million and EUR million at end of FY 2013, FY 2014 and FY 2015 respectively. The increase in inventories by 14.56% in FY 2014 is mainly due to the increase in cost of sales while the decrease in inventories by 38.80% in FY 2015 is mainly due to the early deliveries of finished goods to the customers. Inventories turnover days stood at 27.4 days, 24.2 days and 15.4 days in FY 2013, FY 2014 and FY 2015 respectively. The decrease of 3.2 days in FY 2014 as compared to FY 2013 is due to higher cost of sales while the decrease of 8.8 days in FY 2015 as compared to FY 2014 is due to a lower number of raw materials and finished goods in hand. Page 109

110 Trade receivables (*) For FY 2013, FY 2014 and FY 2015, trade receivables turnover days = (average trade receivables/revenue) 365 days. Comparison of FY 2013, FY 2014 and FY 2015 Trade receivables amounted to EUR million, EUR million and EUR million at end of FY 2013, FY 2014 and FY 2015 respectively. The increase in the financial years under review is in line with the increase in revenue. Trade receivables turnover days stood at 37.5 days, 41.0 days and 37.7 days in FY 2013, FY 2014 and FY 2015 respectively. The increase of 3.5 days in FY 2014 as compared to FY 2013 is mainly due to a slower collection from customers while the decrease of 3.3 days in FY 2015 as compared to FY 2014 is mainly due to better credit management. Other receivables EUR '000 EUR '000 EUR '000 Trade receivables 4,493 6,618 7,786 Trade receivables turnover days * Other receivables EUR '000 EUR '000 EUR '000 Advance payment to suppliers Prepayment of expenses Comparison of FY 2013, FY 2014 and FY 2015 Other receivables in FY 2015 comprise of advance payments to suppliers amounting to EUR million and prepayment of expenses to advisers in relation to the IPO amounting to EUR million. Cash and cash equivalents Comparison of FY 2013, FY2014and FY 2015 Cash and bank balances comprise of cash in the bank and cash on hand, which together amounted to EUR million, EUR million and EUR million at the end of FY 2013, FY 2014 and FY 2015 respectively. The increase in cash and bank balances in FY 2014 and FY 2015 is mainly attributable to the increase in net profit Shareholders Equity EUR '000 EUR '000 EUR '000 Cash and bank balances 11,306 19,867 31, Shareholders' Equity EUR '000 EUR '000 EUR '000 Share capital 5,763 5,763 5,763 Retained earnings 6,879 10,527 19,331 Foreign Exchange Reserve (328) 1,892 2,802 Statutory Reserve 1,373 2,694 3,065 13,687 20,875 30,962 Page 110

111 Shareholders' equity accounted for EUR million, EUR million and EUR million at the end of FY 2013, FY 2014 and FY 2015 respectively. The increase over the financial years under review is attributable mainly to the rising net profit of the Group Current Liabilities Trade payables (*) For FY 2013, FY 2014 and FY 2015, trade payables turnover days = (average trade payables/purchases of raw materials) 365 days. Comparison of FY 2013, FY 2014 and FY 2015 Trade payables amounted to EUR million, EUR million and EUR million at the end of FY 2013, FY 2014 and FY 2015 respectively. Trade payables turnover days stood at 40.1 days, 38.3 days and 28.7 days in FY 2013, FY 2014 and FY 2015 respectively. The decrease of 1.8 days in FY 2014 as compared to FY 2013 is mainly due to faster payment to suppliers while the decrease of 9.6 days in FY 2015 as compared to FY 2014 is mainly due to continuing effort in improving the payment to suppliers. Dividend paid Dividend paid amounted to EUR million, EUR million and EUR million at end of FY 2013, FY 2014 and FY 2015 respectively. Other payables Comparison of FY 2013, FY 2014 and FY EUR '000 EUR '000 EUR '000 Trade payables # 2,542 3,664 2,601 Trade payables turnover days * EUR '000 EUR '000 EUR '000 Dividend paid 4,863 7,348 8, Other payables EUR '000 EUR '000 EUR '000 Witholding tax on dividend payable 475 1,339 2,260 Non-trade payables VAT payables Bonus provision Fuel provision Audit fee provision Accruals 242 1,050 1,984 4,201 Withholding tax on dividend payable amounted to EUR million, EUR million and EUR million at the end of FY 2013, FY 2014 and FY 2015 respectively. This relates to the withholding tax on the dividend paid to the shareholder which has subsequently been paid to the tax authorities. Non-trade payables amounted to EUR million, EUR million and EUR million at the end of FY 2013, FY 2014 and FY 2015 respectively. Non-trade payables in FY 2015 relate mainly to research and development expenses amounting to EUR million and accessories for the plant amounting to EUR million. Page 111

112 VAT payables amounted to EUR million, EUR million and EUR million at the end of FY 2013, FY 2014 and FY 2015 respectively. The increase is in line with the increase in sales. Bonus provision amounted to EUR million, EUR million and EUR million at the end of FY 2013, FY 2014 and FY 2015 respectively. The increase is in line with the increase of the company's performance. Borrowings Comparison of FY 2013, FY 2014 and FY 2015 Borrowings accounted for EUR million, EUR million and EUR million at the end of FY 2013, FY 2014 and FY 2015 respectively. This borrowings bear interest rates ranging from 6.00% to 8.53% in FY 2013, 6.00% to 6.30% in FY 2014 and 5.89% to 6.30% in FY 2015 and are secured by the company's buildings and prepaid land lease payments, personal guarantees by the company s mayor shareholder and CEO, Mr. ZHU Xiaofang, and his wife Ms. ZHU Yuling as well as by corporate guarantee provided by a third party. Income tax payable Income tax payable accounted for EUR million, EUR million and EUR million at the end of FY 2013, FY 2014 and FY 2015 respectively Liquidity and Capital Resources Comparison of FY 2013, FY 2014 and FY EUR '000 EUR '000 EUR '000 Borrowings 2,945 3,992 4, EUR '000 EUR '000 EUR '000 Income tax payable 712 1,220 1, EUR '000 EUR '000 EUR '000 Net cash from operating activities 7,657 12,672 19,052 Net cash from/(used in) investing activities (125) Net cash used in financing activities (4,119) (6,211) (8,068) Net increase in cash and cash equivalents 3,413 6,502 11,059 Cash and cash equivalents at beginning of the financial year 8,060 11,306 19,867 Net effect of foreign exchange differences (167) 2, Cash and cash equivalents at end of the financial year 11,306 19,867 31,748 DECHENG recorded positive net cash from operating activities for the financial years under review at EUR million, EUR million and EUR million in FY 2013, FY 2014 and FY 2015 respectively. DECHENG recorded negative net cash from investing activities for FY 2013 at EUR million mainly due to acquisition of property, plant and equipment while it recorded positive net cash from investing activities at EUR million and EUR million in FY 2014 and FY 2015 respectively mainly due to interest received. DECHENG recorded negative cash from financing activities for the financial years under review at EUR million, EUR million and EUR million in FY 2013, FY 2014 and FY 2015 respectively mainly due to the dividend paid amounting to EUR million, EUR million and EUR million respectively. Page 112

113 12.6 Off-Balance Sheet and other Arrangements DECHENG does not have any off-balance sheet obligations or transactions. There are no other obligations or risks which were not reflected in the financial statements of DECHENG s entities or disclosed in the notes of the financial statements Basis of Preparation DECHENG has prepared single entity financial statements of DECHENG PRC for the years ended 31 December 2013, 31 December 2014 and 31 December 2015, which were prepared in accordance with the provisions of the International Financial Reporting Standards (IFRS) along with the interpretations of the International Financial Reporting Interpretations Committee (IFRIC) as adopted in the EU. DECHENG has prepared single financial statements for the Company in accordance with IFRS for the financial year ended 31 December 2015 with respective comparative information and in accordance with the German Commercial Code (Handelsgesetzbuch) for the financial years ended 31 December 2013, 31 December 2014 and 31 December Critical Accounting Policies DECHENG has identified the following critical accounting policies which require its management to make assumptions about matters that were uncertain at the time those policies were applied and with respect to which the management could reasonably have made different assumptions in the relevant period or with respect to which changes in the assumptions were reasonably likely to occur from period to period or would have a material impact on the presentation of DECHENG s financial condition, changes in financial conditions or results of operations. For a detailed description of DECHENG s critical accounting policies, see notes 2 and 3 to the Audited Financial Statements DECHENG PRC for the financial year ended 31 December 2013, 2014 and 2015, included in the Section 25 Financial Information Critical accounting estimates and judgment Estimates and judgments are continually evaluated and are based on historical experiences and other factors, including expectations of future events that the Company believes might reasonably occur under specific circumstances. DECHENG makes estimates and assumptions concerning the future. The resulting accounting estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below Functional and Foreign Currencies The Company conducts its business predominately in the PRC and hence its functional currency is in RMB. The financial statements of the Company are presented in EUR as DECHENG HK will be brought-in to the Company Key sources of estimation uncertainty Useful Lives and Residual Values of Depreciable Assets Property, plant and equipment are depreciated on a straight-line basis over their estimated useful lives after taking consideration of residual value, which the Company assesses at 35% of the initial cost. The Company estimates the useful lives of property, plant and equipment to be within 5 to 20 years. Changes in the expected level of usage and technological developments could impact the economic useful lives and the residual value of these assets, therefore future residual value and depreciation charges could be revised. Page 113

114 Lease Prepayment Lease prepayments represent prepayments of land use rights paid to the various PRC land bureaus. Lease prepayments are carried at cost less amortization and accumulated impairment losses. Amortization is recognized in profit or loss on a straight-line basis over the period of the land use rights, which are 50 years from the respective dates that they are available for use. Inventories Inventories are measured at the lowest of cost and net realizable value. Cost is determined by weighted average method. The cost of finished goods and workin- progress comprise of raw materials, labor and other overheads that incurred in bringing the inventories to their present location and condition. Net realizable value is the estimated cost of the selling price in the ordinary course of business, less the estimated cost of completion and the estimated costs necessary to make the sale. Trade and other Receivables Trade and other receivables are recognized initially at fair value and subsequently at amortized cost using the effective interest method, less any impairment losses. An allowance for impairment of receivables is established when there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of the receivables. Liabilities and Interest Bearing Liabilities Trade and other payables and term loan are classified as financial liabilities measured at amortized cost, and are recognized initially at fair value and subsequently at amortized cost using the effective interest method. Interestbearing liabilities are recognized initially at costs less attributable transaction costs. Subsequent to initial recognition, interest-bearing liabilities are stated at amortized cost with any difference between cost and redemption value being recognized in profit or loss over the period of the borrowings on effective interest basis. Financial Liabilities Financial liabilities within the scope of IAS 39 are classified as either financial liabilities measured at amortized costs such as interest-bearing liabilities and trade and other payables, or financial liabilities designated at fair value through profit or loss. Financial liabilities are derecognized if the Company s obligations specified in the contract expire or are discharged or cancelled. Revenue Recognition Provided it is probable that the economic benefits will flow to the Company and the revenue and costs, if applicable, can be measured reliably, revenue is recognized in the profit or loss as follows: Sale of Goods Revenue is recognized when goods are delivered to the customers premises or collected by the customers at the Company s premises which is taken to be the point in time when the customer has accepted the goods and the related risks and rewards of ownership. Interest Income Interest income is recognized on a time proportion basis using the effective interest method. Page 114

115 Government grants Grants that compensate the Company for expenses incurred are recognized in profit or loss as other income on a systematic basis in the same periods in which the expenses are recognized Critical judgment made in applying accounting policies Impairment of Loans and Receivables The Group assesses at each reporting date whether there is any objective evidence that a financial asset is impaired. To determine whether there is objective evidence of impairment, the Group considers factors such as the probability of insolvency or significant financial difficulties of the receivables and default or significant delay in payments. Where there is objective evidence of impairment, the amount and timing of future cash flows are estimated based on historical loss experience for assets with similar credit risk characteristics. Income Tax DECHENG has exposure to income tax arising from their operations in the PRC. Significant judgment is required in determining the provision for income taxes. There are also claims for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognizes liabilities for expected tax issues based on estimates of whether additional taxes will be due. When the final tax outcome of these matters is different from the amounts that were initially recognized, such differences will impact the income tax expense and deferred tax provisions in the period in which such determination is made Additional Information from the Financial Statements of the Company The single entity financial statement of the Company (formerly 49 Profi-Start Vermögensverwaltungs AG) for the financial year ended on 31 December 2015 was prepared under the German Commercial Code (Handelsgesetzbuch) and under IFRS. The single entity financial statements of the Company for the period ended on 31 December 2013 and 31 December 2014 were prepared under the German Commercial Code (Handelsgesetzbuch). The single entity financial statements of the Company abovementioned are reproduced in Section 25 of this Prospectus Financial Information. The Company has not commenced any operations as of the end of As at 31 December 2015 and 31 December 2014, total equity stood at EUR 12,500 and EUR 12,500 respectively. The outstanding share capital in the amount of EUR 37,500 was paid in on 2 March Additional Information from the Financial Statements of DECHENG HK The consolidated financial statements of DECHENG HK ended on 31 December 2015 were prepared under IFRS. The consolidated financial statements of DECHENG HK abovementioned are reproduced in Section 25 of this Prospectus Financial Information. As at 31 December 2015, total equity of DECHENG HK stood at EUR 30,960,743 and DECHENG HK generated a profit after tax in the amount of EUR 17,765,185. Page 115

116 13. BUSINESS ACTIVITIES OF DECHENG 13.1 Overview The Company is the ultimate holding company of DECHENG. DECHENG is a Chinese polyurethane resin producer. Polyurethane resins of DECHENG are used to add properties to customers textiles and leathers such as waterproofness and flame resistance as well as a range of other enhancing features. Polyurethane resin oil based products as produced by DECHENG are (i) single as well as two liquid type polyurethane resins for dry fabrics, (ii) polyurethane produced by wet winding technology and (iii) polyurethane resin for fiber coating. DECHENG produces its polyurethane resins from methylene diphenyl diisocyanate (MDI), and toluene diisocyanate (TDI), with polyester polypol mixes. DECHENG also produces bridging agents and accelerator additives which are combined with DECHENG s polyurethane resins by leather and textile customers. DECHENG s resin products are used as product enhancement mainly in the textile and leather industry. Applications for the textile industry are in particular outdoor supplies, waterproof jackets and windbreakers, fast dry clothing, tents, backpacks, sleeping bags and mats. Applications for the leather industry are in particular leather products such as leather sofas, leather clothing, shoes and footballs. The bridging agents and accelerator additives, which are produced, serve the purpose of strengthening the functions of the resin products, e.g. increasing the stickiness to textiles or facilitating the dryness of the resin. DECHENG sells its products only in the Chinese market, mainly directly to textile and leather manufacturers in Fujian, Guangdong, Zhejiang, Jiangsu, Guangxi and Shanghai. The revenue generated from polyurethane resin and additives products increased from EUR million in FY 2013, to EUR million in FY 2014 as well as to EUR million in FY 2015, representing a compounded annual growth rate ( CAGR ) of 34.11%. DECHENG s profit after tax for FY 2013, FY 2014 and FY 2015 was EUR 8.46 million, EUR million as well as EUR million respectively, representing a CAGR of 45.27%. DECHENG s operating facilities are located at Pu an Leather Center, Quangang District, Quanzhou City, Fujian Province, Postal Code , PRC. DECHENG s production facilities have generated a total output of approx million kg of polyurethane resin and 0.64 million kg of additives in FY As at 31 December 2015, DECHENG employed 123 employees. Until the date of this Prospectus, no material change in the number of employees has occurred. Page 116

117 13.2 History of DECHENG The most important milestones in the history of DECHENG are set out below: Competitive strength DECHENG plant with a built-up area of 19,267 square meters ( sqm ) and 11 reaction kettles commenced operations. Annual production capacity of polyurethane resin was 27,600 tons. DECHENG increased its plant and facilities to 13 reaction kettles. Annual production capacity of polyurethane resin amounted to 36,600 tons. DECHENG established a polymer research and development center with Fujian Material Structure Institute and established a polyurethane resin research center with Quangang Petrochemical Research Institute. Decheng Technology AG was incorporated (formerly 49 Profi-Start Vermögensverwaltungs AG). DECHENG has been awarded with the award National High-tech enterprise and Fujian Engineering and Technology Research Center of Polyurethane Material. DECHENG obtained ISO14001 environmental management system certification for related environmental management activities of the production of synthetic leather with polyurethane resin from Beijing NCY Certification Centre Co., Ltd. DECHENG obtained ISO9001 quality management system certification for the production of synthetic leather with polyurethane resin from Beijing NCY Certification Centre Co., Ltd. DECHENG carried out a joint research on high permeability polyurethane coating with Fujian Provincial Economic and Information Technology Commission. DECHENG considers itself as an advanced player in the Chinese polyurethane resin market and believes that it is well positioned to benefit from the new direction of the Chinese government to promote environmentally-friendly PU resin in the 13th Five Year Plan. Overall, the Company believes that the following competitive strengths are the main drivers of its future growth: Modern production technology DECHENG s production facilities are modern and comparable with industry leading players. Its production facilities with a capacity of up to 36,600 tons are capable of producing various polyurethane resins. Strong R&D expertise One of DECHENG s main competencies is derived from scientific and technological innovation. DECHENG is able to develop new products and enhance existing products. Typically, DECHENG develops more than 10 new or enhanced resin formulae per year. DECHENG also works closely with research institutes and universities, such as Fujian Material Structure Institute and Quangang Page 117

118 Petrochemical Research Institute to carry out researches such as on waterborne PU and heat resistance, hydrolysis resistance, yellowing resistance, waterproof and moisture permeable or flame-retardant resin. Good working relationship with customers DECHENG has established good working relationship with its customers. This enables DECHENG to have a good understanding of their production requirements, demand and workflow and hence allow DECHENG to better meet customers expectations and demands. DECHENG s working relationship has also enabled DECHENG to maintain customer loyalty as customer generally would prefer to engage and retain the services of suppliers who are able to meet their production requirements. Strong marketing and sales team DECHENG s products are sold to more than 72 customers in 6 provinces/cities in the PRC, namely Fujian, Guangdong, Zhejiang, Jiangsu, Guanxi and Shanghai. DECHENG s marketing and sales team comprises of 11 staff members and is led by the Marketing Director, Mr. CHEN Shuo, who has more than 31 years of experience in marketing and sales activities. Dedicated and experienced management team DECHENG is led by the Company s chairman, Mr. ZHU Xiaofang, who has more than 10 years of experience in the polyurethane industry. He is supported by DECHENG s general manager Mr. ZHU Xiaohua also having more than 10 years of experience in the same industry. Both have played a pivotal role in the growth and development of DECHENG. They have conceptualized DECHENG s strategies in the past and successfully steered DECHENG. They are closely supported by the senior management team with extensive experience in their respective fields of research & development, sales and marketing, production and financial management Strategies DECHENG plans to become one of the Chinese market leaders for polyurethane resin production. Thus, DECHENG is pursuing the following strategic objectives: Geographic expansion and strive for a greater market share Currently, DECHENG s main market is in Fujian, Guangdong, Jiangsu, Zhejiang, Guangxi Province and Shanghai City. DECHENG also plans to expand to other geographical markets in China according to the location of the downstream customers. Functional expansion and development of new products DECHENG plans for the next years to enhance and develop new types of polyurethane to expand its customer base and thus enlarge its market shares. Within the next two years DECHENG plans to develop, inter alia, polyester polypol and polyurethane developed solvent-free flame retardant, waterproof / breathable resins, synthesis of polyurethane hydrolysis, wear-resistant polyurethane synthesis, anti-yellowing polyurethane synthesis, flame retardant polyol synthesis and fireretardant polyurethane tons materials. Furthermore, DECHENG plans in the next three to five years to develop, inter alia, environmentally friendly solvent-free polyurethane resin synthetic leather, solventfree polyurethane adhesive and flame retardant polyurethane foam resin. In order to cater for its expansion into the development and commercialization of new products, DECHENG intends to purchase high-end polyurethane polymer research and development equipment in the future. Also, DECHENG intends to intensify its collaborations with universities/research institute in China and overseas to develop new products in the future. Thus, DECHENG plans to enter into a co- Page 118

119 operation or a joint venture with a German or European chemical company, university or other research institute to do a joint R&D program within the next 12 to 24 month since DECHENG intends to get a better awareness with German or European customers in the future. Increase of brand awareness Besides the expansion of the product variety, DECHENG plans to participate in trade associations and high technology forum (including those organized by DECHENG 's upstream and downstream partners), which shall help improve DECHENG 's influence in the industry and participate in the industry's leading research journals which shall improve DECHENG s brand awareness. This shall be supported also by advertisement in television media, online media, journal and magazines. Further strengthening of R&D Expertise Currently DECHENG s R&D team comprises of 17 staffs and is led by its R&D Director, Mr. HAN Chun Woo. DECHENG intends to hire more local and foreign R&D expertise to work with DECHENG in the future. DECHENG also intends to send its R&D staff to local and international universities/research centers for training. This will expose its R&D staff to the latest updates and developments in terms of research and development in the polyurethane industry. In addition, DECHENG intends to set up a R&D database in relation to polyurethane resin on product information, research and development and market information. This will keep DECHENG updated on the latest developments in the polyurethane industry. Expansion of production facilities Currently, DECHENG has a maximum annual production capacity of 36,600,000 kg calculated based on two shifts with 6-8 hours each per day and 300 days a year. By adding further shifts or by outsourcing the production of polyester polypol, the capacity of the production facilities can be increased. However, in line with the strategy to develop new products, DECHENG considers to invest into new production facilities on its current business premises as the need for it increases Products DECHENG s oil based products can be broadly categorized into (i) polyurethane resin and (ii) additives. Polyurethane products mainly include (i) single as well as two liquid type polyurethane resins for dry fabrics, (ii) polyurethane produced by wet winding technology and (iii) polyurethane resin for fiber coating. The main functions and characteristics of (i) single as well as two liquid type polyurethane resin for dry fabrics and (ii) polyurethane produced by wet winding technology are cold and abrasion resistant, non-yellowing, flexible and comfortable. These polyurethane products are mainly used for leather sofa, leather clothing, shoes and sneakers, footballs and other leather applications. The main functions and characteristics of (iii) polyurethane resin for fiber coating are water-resistant, permeable to moisture, resistant to pressure and washable, mainly used for outdoor products, jackets and wind breakers, fast drying clothes, tents, backpacks, sleeping bags and moisture-proof pads or cushion as well as other textile applications. Additives products mainly include melamine bridging agent, polyurethane bridging agent and urethane accelerator, which serve the purpose of facilitating the combination of the polyurethane resin and textile/leather e.g. increasing the stickiness to textiles or facilitating the dryness of the polyurethane resin. Ancillary bridging additives, accounting for just some 5% of DECHENG s sales, are not key products but some clients require Page 119

120 single sourcing for all their chemicals in order for the chemical to be compatible and to be able to identify the company source if there are potential problems Production DECHENG manufactures polyurethane resin and additives at its own facilities located in Pu an, Quangang District, Quanzhou City, Fujian Province, PRC Manufacturing process of polyurethane The following illustrates the main phases of the manufacturing process of the polyurethane resin products: Raw material Prepolymerization Chain Growth Polymeric thickening Dilution Chain ends Reduce temperature and filtration Packaging and transfer to warehouse After receiving an order, the raw material chemicals (mainly dimethylformamide ( DMF ), methylene diphenyl diisocyanate ( MDI ), pure adipic acid ( AA ), polyethylene glycol ( PE 20 ) and toluene ( TOL )) are piped from storage tanks into kettles in the processing plant, where they are mixed and heated for typically six to eight hours. DECHENG has a two-step production process to produce polyurethane resins. First, polyester polyols (alcohols containing multiple hydroxyl groups) are produced with raw material chemicals. Second, polyester polyols are mixed with other raw material chemicals to produce polyurethane resins with specific or Page 120

121 enhanced features depending on the exact processing and mix of ingredients. Details of this second step is described below. First of all, NCO-terminated polyurethane prepolymer (a process to reduce the NCO (Nitrogen, Carbon and Oxygen)) with lower molecular weight and viscosity is prepared (prepolymerization). This will then together with the chain extender be used to produce polyurethane with higher molecular weight (chain growth). To further increase the molecular weight, polymeric with its thickening function will be added (polymeric thickening). After that, the polyurethane solution will be diluted with organic solvents to lower the viscosity of the polyurethane solution (dilution). Finally, unreacted isocyanate in the polyurethane solution will via adding methanol into the polyurethane solution be consumed to avoid side reactions (chain ends). In the following, temperatures in the kettles will be reduced and the filtration starts following the transfer of the produced polyurethane resin to the warehouse where they are filled into steel drums. The whole process will be monitored to check the temperatures and electrical properties which indicate the stage of the process Processing Facilities DECHENG currently operates one plant which is located in Pu an, Quangang District, Quanzhou City, Fujian Province, PRC, occupying in total an approximate land area of 45,777 sqm and built-up area of 19,267 sqm, being owned by DECHENG. DECHENG has constructed on its location in Pu an, Quangang City, Quangang District, Quanzhou City, Fujian Province, PRC, another five buildings, out of which two are used as warehouses, one as dormitory, one as boiler room and one as transformer room. However, DECHENG has not yet obtained the ownership certificate for these buildings. DECHENG has submitted the application to the competent authority with all documents required and the certificate is expected to be granted in the second half of the year Upon issuing of the ownership certificate of these five buildings the built-up area of DECHENG will increase by 5, sqm. Equipment for the polyurethane resin processing includes mainly the reaction kettles. The average utilization rates of DECHENG s production facilities for polyurethane and additives products for the past three financial years on the basis of a two shift are shown as follows: Production of polyurethane resin and additives Year 13.7 Quality Assurance Maximum capacity (kg)(1) Actual Output (kg) Utilization Rate FY ,600,000 17,377,139 47% FY ,600,000 21,202,460 58% FY ,600,000 26,104,449 71% (1) The maximum annual production capacity for the production of polyurethane and additives is calculated based on two shifts with 6-8 hours each per day and 300 days a year. In FY 2015, DECHENG produced million kg of polyurethane resin and 0.64 million kg of additives. The Company believes that the quality of products is the key to its continued growth and success. DECHENG places great emphasis on quality assurance and on consistent quality of its products and services at all stages of the production and business process. As of 31 December 2015, DECHENG s quality assurance team comprised of 4 employees, which are full time responsible for quality assurance. The quality assurance Page 121

122 team is headed by Mr. HAN Chun Woo. DECHENG ensures the consistency of the quality of its products by having its quality assurance staff undertake inspections at various stages of the production process starting with the procurement of the raw materials, the manufacturing process itself and the storage of the finished goods. As requested by certain customers, the world leading inspection, verification, testing and certification institute Société Générale de Surveillance ( SGS ), headquartered in Switzerland, will also test samples of DECHENG s products and provide written reports which are presented to DECHENG s customers. These SGS certificates will confirm quality, content and features of DECHENG s products, such as the level of waterproof. DECHENG also has formulated a company standard regarding the high water vapor transmission polyurethane resin for textile coating on 1 November 2014, and has registered the standard with Fujian Province Quality and Technical Supervision Bureau (Registration Number: Min QB/ ), the registration is valid from 28 November 2014 to 31 October This standard serves according to the Company as the current benchmark for the production of this type of product. The key quality assurance certifications received by DECHENG are as follows: Certificate Scope Certifying Authority Date of Expiry Quality Management System (ISO 9001:2008) Production of synthetic leather with polyurethane resin Beijing NCY Certification Centre Co., Ltd. 21 December 2017 DECHENG s quality control program requires all its employees to undergo training conducted internally in relation to its quality control policies, targets and procedures as well as production and processing techniques. For that purpose, DECHENG has prepared quality inspection guidelines which are part of the quality assurance training Environmental Protection DECHENG s production process generates waste to a certain extent. Waste is however treated and reused. It is not discharged. Raw materials are used as cleaning agents and then reused to produce resins. Waste resin batches are extremely rare and can usually be recycled into new saleable end products. Pollutants in form of sulphur dioxide (SO 2 ) and mono-nitrogen oxide (NO x ) result from the burning of the coal to heat up the kettles. DECHENG is, inter alia, in possession of the required pollutant discharge permit, issued by Quanzhou Environment Protection Bureau, which expires in 2020, but is renewable. Under the pollutant discharge permit, DECHENG is authorized to dispose of up to 8,985,000 standard cubic meters waste gas, 2.51 ton SO 2, 2.45 ton NO x and 2.34 ton flue dust respectively per year. Subject to the actual usage of the production capacity, the amount of authorized discharge under the permit could be exceeded. DECHENG is therefore currently planning to replace coal with natural gas for heating, which is planned to be put into use in the first quarter of The local authorities pay regularly unannounced visits at the premises of DECHENG to check the waste disposal and environmental protection. DECHENG s compliance with environmental laws and regulations in the past has been confirmed by the competent authority Quanzhou Quangang District Environment Protection Bureau, which issued on 18 January 2016 a letter certifying that DECHENG PRC was in compliance with the laws and regulations in relation to environment protection since its incorporation, that no environmental pollution accident or any discharge pollutant beyond pollution limits had occurred during the operation of DECHENG PRC, and there was no administrative investigation or penalty had been imposed on DECHENG PRC for violation of environment protection regulations since its incorporation. Furthermore, to the Company s knowledge, there is no soil contamination which already existed on the land where DECHENG PRC s operation facilities are located before DECHENG PRC acquired the land use right. Moreover, according to PRC law the person Page 122

123 who caused the contamination shall be held liable for environment pollution including soil pollution. Further, DECHENG s environmental management activities have been certified by the following certificate issued by International Organization for Standardization. Certificate Scope Certifying Authority Date of Expiry Environmental Management System (ISO 14001:2004) Production of synthetic leather with polyurethane resin Beijing NCY Certification Centre Co., Ltd. 21 December Research and Development (R&D) DECHENG is very innovative and the Company believes to be one of the leaders in polyurethane resin research for leather and textile coating in the PRC. DECHENG s research & development department has in-house facilities with currently 17 staff members, divided into three sub-departments with 11 employees in the research, 2 employees in the technical and 4 employees in the quality control sub-department. The research and development team is headed by Mr. HAN Chun Woo, senior expert from Korea, graduated from the Department of Polymer Science and Engineering from Seoul National University and having more than 27 years of experience. Mr. HAN is supported by two research institutes under existing collaboration agreements (cf. Sec Material Contracts), in particular assisted by the following two representatives of the respective institutes: Mr. CHEN Denglong, vice-director of Quangang Petrochemical Research Institute, graduated with a PhD in Polymer Chemistry and Physics, Mr. LI Wenmu, researcher of Fujian Material Structure Institute, graduated with PhD in Organic Chemistry and working on the functional development of polymer resin and the corresponding additives. Mr. LI has published more than 20 papers in scientific journals. The R&D activities of DECHENG are crucial to keep up with the ongoing change in market trends and to meet the expectation of its customers. Product life cycles are generally between 3-5 years because customers seek to continually enhance the product s features. By the end of 2015 DECHENG had cumulatively developed some 100 chemical formulae mixes of which half were being actively used. DECHENG typically develops around more than ten new or enhanced resin formulae per year. Research includes R&D for specific client needs and is currently focused on developing continual improvements to product features through enhancement. Current projects for example in sportswear seek to develop a balance between water repelling properties and allowing garments to let sweat to escape. In synthetic leather, DECHENG continues to improve the existing function such as cold resistance, flexibility, non-yellowing and better grip. The main future focus of R&D for DECHENG shall be the production of environmental friendly solvent-free and flame retardant insulation products for the construction industry. The expenses for R&D without personnel costs in FY 2013, FY 2014 and FY 2015 were approx. EUR 0.29 million, EUR 0.07 million and EUR 0.67 million respectively Intellectual Property Rights Patent Licensing/Patents Licensing Agreement On June 1, 2014, DECHENG PRC and Shanghai Jiaotong University entered into an exclusive patent licensing agreement under which DECHENG PRC has the exclusive right from 1 June 2014 to 30 May 2020 to use a method for Page 123

124 preparing phase change thermal insulation polyurethane resin for a total consideration of RMB 60, (approx. EUR 8,675). Patents In the past, DECHENG has registered 12 patents, which have been deregistered in the meantime. Currently, DECHENG has been granted 8 new utility model patents and filed five new applications for registration of invention patents in the PRC as follows. Granted patents: Name Patent No. Type Term of Protection Country A new structure of polyurethane coating for fire doors Utility model patents 18 May 2015 to 17 May 2025 PRC A kind of waterproof breathable fabrics Utility model patents 18 May 2015 to 17 May 2025 PRC A polyurethane umbrella fabric structure Utility model patents 18 May 2015 to 17 May 2025 PRC A polyurethane reaction kettle of cooling device Utility model patents 18 May 2015 to 17 May 2025 PRC A new fabric structure for polyurethane material life jacket Utility model patents 18 May 2015 to 17 May 2025 PRC A type of polyurethane fabric structure Utility model patents 18 May 2015 to 17 May 2025 PRC A new type of polyurethane fabric structure X Utility model patents 18 May 2015 to 17 May 2025 PRC A new type of polyurethane floor structure with moisture proof function Utility model patents 18 May 2015 to 17 May 2025 PRC Patent applications: Name Patent applica tion No. Status Type Date of Application Country Synthesis of phosphorus containing polyester polyol and application of phosphorus containing polyester polyol in polyurethane Patents pending Invention Patents 22 January 2015 PRC Highly moisture permeable modified polyurethane and preparation method thereof Patents pending Invention Patents 22 January 2015 PRC A kind of none-sticky waterborne polyurethane resin and preparation method thereof Patents pending Invention Patents 7 January 2016 PRC Page 124

125 Name Patent applica tion No. Status Type Date of Application Country Preparation method of polyurethane used for image X Patents pending Invention Patents 7 January 2016 PRC A kind of high permeability and solvent-free, twocomponent polyurethane and its synthetic process thereof Patents pending Invention Patents 7 January 2016 PRC Trademarks Even though DECHENG is only involved in the b2b-business, the Company believes that brand awareness is of major importance for the success of the business operations of DECHENG in the PRC, and DECHENG depends in part on the further increase of brand recognition. To protect its brand, DECHENG has registered four trademarks in the PRC. The following trademark, which is owned by DECHENG PRC, is the main trademark currently used in its business operations: Trademark Reg. No. Class Goods Term of Protection Polypropylene, polyvinyl chloride resin, casein resin, urea resin, unprocessed acrylic resins, unprocessed artificial resins, silicone resin, ion exchange resins. Ester, propylene glycol, sizing and finishing agent for textile, sizing agent (chemicals), unprocessed synthetic resin, urea resin, chemicals for leather surface treatment, Adhesives for industrial purposes, polyurethane, adhesive for leather. 7 March 2011 to 6 March Domains DECHENG has registered the following domain names, which are currently used in the business of DECHENG: Information Technology DECHENG uses, inter alia, PLC main system and WINCC software developed by Wuxi Mity Modern Machinery Manu-facture Co., Ltd. The main feature of PLC main system is Page 125