China Jushi FY2011: Operating risks and business commitments

The listed issuer acquired the remaining 49% of Jushi Group by issuing 154,361,000 A shares at a stated CNY 19.03 per share, rather than raising fresh cash for construction. The recipients were CNBM with 36,227,582 shares, Zhenshi Holding Group with 34,652,469, Pearl Success International with 58,279,153 and Surest Finance with 25,201,796. The four amounts sum to the new issue and increased total shares from 427,392,000 to 581,753,000. The recipients promised a 36-month transfer restriction; the table gives 4 August 2014 as the expected release date, not evidence of an already completed release. The source separately dates ownership registration 29 July 2011, the acquisition-table purchase 1 August 2011 and new-share registration 4 August 2011. These identify different steps. The transaction table reports CNY 2,937,489,800 as the acquisition price and CNY 103,056,400 of profit contributed from purchase to year-end, or 35.26% of listed-company owner profit. Multiplying issue shares by the stated price gives CNY 2,937,489,830, only CNY 30 above the rounded table amount. The parent investment note separately reports CNY 4,914,854,240 of additions to its Jushi investment. That accounting amount is not substituted for the transaction-table consideration or treated as cash paid; the cited passages do not provide a complete bridge between them.

Issued shares at reporting date / 2011 / jushi minority acquisition fy2011

154,361,000 shares

Reported share issue price / 2011 / jushi minority acquisition fy2011

19.03 CNY/share

Reported shareholder share base / 2011 / pre acquisition share base fy2011

427,392,000 shares

Reported shareholder share base / 2011 / year end total fy2011

581,753,000 shares

Reported share issue recipient shares / 2011 / cnbm acquisition recipient

36,227,582 shares

Reported share issue recipient shares / 2011 / zhenshi acquisition recipient

34,652,469 shares

Reported share issue recipient shares / 2011 / pearl success acquisition recipient

58,279,153 shares

Reported share issue recipient shares / 2011 / surest finance acquisition recipient

25,201,796 shares

Reported acquisition consideration / 2011 / jushi49pct management table

RMB 2,937,489,800

Reported acquisition profit contribution / 2011 / jushi49pct purchase to year end

RMB 103,056,400

Reported parent investment additions / 2011 / jushi investment parent account

RMB 4,914,854,240

The commitment table names CNBM and Zhenshi Holding Group as promising share compensation if Jushi Group failed its owner-net-profit forecasts during 2011–2013. The disclosed targets were CNY 539,280,000 for FY 2011 and CNY 770,860,000 for each of FY 2012 and FY 2013. Compensation would be calculated from the shortfall and their original Jushi interests, and delivered to the listed issuer in shares. These are contractual tests, not a cash loan repayment or a forecast for every listed-group operation. The issuer says Jushi achieved the FY 2011 forecast, but this passage does not give the precise actual owner-profit amount used in that test. The subsidiary summary net profit is another measure and is not silently substituted. The four recipients in the acquisition account should not automatically all be named as promissors from this two-party commitment table. A later agreement or assessment belongs to its own period. The generic statement that no new annual earnings forecast was prepared does not negate this specific acquisition commitment.

Reported compensation target / 2011 / jushi fy2011 owner profit

RMB 539,280,000

Closing guarantee balances were CNY 3,098,799,523.39 in source category A and CNY 1,446,995,280 in category B, totaling CNY 4,545,794,803.39. The reported 131.82% ratio reconciles against CNY 3,448,612,899.44 of equity attributable to parent owners, rather than including minority equity. The A heading excludes guarantees to subsidiaries, yet its rows identify Jushi guarantees for Jiujiang, Chengdu and Panding subsidiaries within the group. The source categories are retained without presenting all A obligations as support for unrelated outsiders. Annual guarantee occurrence of CNY 4,078,074,191 in A and CNY 2,696,349,330 in B is a period measure, not extra closing exposure to add to the total. Guarantees are contingent commitments, not cash paid or automatically additional consolidated debt. The table lists CNY 1,986,000,000 for beneficiaries above 70% debt-to-assets and CNY 835,488,353.67 in its excess-over-half-net-assets category; these labels do not establish separately additive obligations or a called guarantee. Guarantees received from Zhenshi in the financial note have the opposite direction and are excluded from these outward totals.

Closing subsidiary-guarantee balance / 2011 / source category a fy2011

RMB 3,098,799,523.39

Closing subsidiary-guarantee balance / 2011 / source category b fy2011

RMB 1,446,995,280

Closing subsidiary-guarantee balance / 2011 / total outward fy2011

RMB 4,545,794,803.39

Reported guarantee occurrence / 2011 / source category a annual fy2011

RMB 4,078,074,191

Reported guarantee occurrence / 2011 / source category b annual fy2011

RMB 2,696,349,330

Reported guarantee net assets ratio / 2011 / total outward as reported fy2011

131.82%

Reported guarantee ratio denominator / 2011 / consolidated owner equity fy2011

RMB 3,448,612,899.44

Reported guarantee classification amount / 2011 / beneficiaries above70pct fy2011

RMB 1,986,000,000

Reported guarantee classification amount / 2011 / source excess50pct category fy2011

RMB 835,488,353.67

On 28 December 2011 Beixin sold 21% of Shenzhen Pearl Junancem Cement Products to Shenzhen Jianning Real Estate Investment for a reported CNY 32,272,800. The management table records a CNY 24,424,000 disposal gain, equivalent to 8.36% of listed-company owner profit. The financial investment note retains a 29% equity-method interest in Junancem, with a CNY 7,559,029.06 closing carrying amount. This was a partial disposal of a legacy non-glass business, not the sale of all subsidiaries or recurring glass-fiber sales. The transaction table marks the ownership transfer complete but says the associated claims and debts had not all transferred; that statement is not confirmation that the full sale price had been collected. The prior-year 30% disposal mentioned in the comparative explanation is a different transaction. Group long-term-investment disposal income of CNY 24,608,595.47 is a broader accounting total and is not substituted for this rounded transaction-specific gain. The counterparty is recorded as disclosed without extending research into its other activities.

Reported disposed ownership percentage / 2011 / junancem disposal fy2011

21%

Disposal cash-and-equity consideration / 2011 / junancem management table

RMB 32,272,800

Reported disposal gain / 2011 / junancem management table

RMB 24,424,000

Reported retained associate interest / 2011 / junancem after disposal fy2011

29%

Reported associate carrying amount / 2011 / junancem year end fy2011

RMB 7,559,029.06

Reported investment disposal income / 2011 / group total fy2011

RMB 24,608,595.47

At year-end the shareholder table reports China National Building Material Co., Ltd, or CNBM Co., with 190,729,790 shares and 32.79% of the issuer. The report identifies that company as the controlling shareholder and the separate China National Building Material Group Co., Ltd as the actual controller; it says neither changed during FY2011. The historical ownership chart places the state-assets regulator above the group. Reported control therefore must not be reduced to a claim that the immediate shareholder held more than half of the listed shares. Zhenshi Holding Group held 120,283,509 shares, or 20.68%, of which 110,631,040 were reported pledged. This is a restriction involving a shareholder’s stake, distinct from the operating group’s asset collateral and outward guarantees. The table does not establish a default, enforcement or realized change of control. CNBM Co. is shown with no pledged or frozen shares in that table. The minority-interest acquisition issued additional shares to the four selling shareholders under the separately explained acquisition terms; those shares carried a stated transfer restriction, so issuance, ownership and transferability require separate treatment. These are historical disclosure facts, without extending research into the shareholders’ other businesses.

Reported shareholder shares / 2011 / cnbm year end fy2011

190,729,790 shares

Reported shareholder percentage / 2011 / cnbm year end fy2011

32.79%

Reported shareholder shares / 2011 / zhenshi year end fy2011

120,283,509 shares

Reported shareholder percentage / 2011 / zhenshi year end fy2011

20.68%

Reported shareholder pledged shares / 2011 / zhenshi year end fy2011

110,631,040 shares

The report identifies foreign-exchange exposure because exports form a substantial part of the business and renminbi movements directly affect export revenue. Management proposes process and raw-material changes, lower unit costs, some offset through imported materials and equipment, a larger domestic market, stronger international pricing and overseas production. These are disclosed responses, not a quantified hedge or evidence that exchange-rate losses were eliminated. The report says antidumping investigations concerning Chinese glass-fiber exports to the European Union, Turkey and India reached final decisions during FY2011 and characterizes the outcomes as relatively favorable. It supplies neither the duty schedules nor complete product scope in these passages, and this historical account cannot establish current trade treatment. Management nevertheless expects continuing protectionist risk and proposes customer communication and changes in market strategy. Natural gas, electricity, oxygen and labor costs are identified as production-cost pressures. Proposed responses include greater mechanization and automation, higher drawing output per unit, lower unit energy consumption, improved equipment running rates and finished-product yield. The resource-intensity figures elsewhere provide specific reported measures; this risk discussion itself does not quantify realized savings from each response.

At year-end the fixed-asset note lists buildings without completed property certificates with a combined net carrying amount of CNY 46,985,164.45. The components are CNY 9,247,825.06 at Zhejiang Beite, CNY 13,876,735.19 at Jushi Jiujiang and CNY 23,860,604.20 at Baoyu Industrial. The report says the underlying land associated with Baoyu’s buildings was not owned by Baoyu, preventing completion of the property certificates. It describes the Beite and Jiujiang certificates as being processed and expects completion for Beite in April of the following year; that expectation is not evidence of subsequent completion. The disclosure concerns title documentation and a specific land-ownership obstacle. It does not state that these facilities were shut down, seized or unusable, nor does it quantify a resulting interruption in production. The same note separately lists fixed assets restricted because they were used as collateral for bank borrowing. Those collateral balances explain financing restrictions and should not be merged with the uncertificated-building amount as if every item had the same problem or the two totals represented disjoint assets.

Reported untitled buildings net / 2011 / consolidated year end fy2011

RMB 46,985,164.45

Reported untitled buildings net / 2011 / beite year end fy2011

RMB 9,247,825.06

Reported untitled buildings net / 2011 / jiujiang year end fy2011

RMB 13,876,735.19

Reported untitled buildings net / 2011 / baoyu year end fy2011

RMB 23,860,604.2

The financial audit report gives an unmodified opinion on the issuer’s parent-company and consolidated financial statements prepared under Chinese Accounting Standards for Business Enterprises. Its scope includes year-end balance sheets, annual income, cash-flow and equity statements, and the notes. The auditors explain that considering internal control when assessing misstatement risk helps design financial-audit procedures; that financial audit is expressly not intended to provide an opinion on control effectiveness. Management separately reports that its year-end self-evaluation found no major deficiencies. The annual report also refers to an accountant’s separate special report on controls related to financial reporting and says its result was consistent with the self-evaluation. The cited reference is not a substitute for reading that separate report, and it should not be attributed to the financial audit opinion as an additional assurance conclusion. The planned control audit for the following year is prospective. These disclosures explain the financial-reporting assurance and the limits of the annual report’s control narrative. They do not establish absence of every operating risk, nor do they constitute an independent editorial review of this website’s English explanations.