山
東
威
高 骨
科
材
料
股
份
有
限
公
司
Shandong Weigao Orthopaedic Device Company Limited
*(the
‘‘
Company
’’
)
(A joint stock company incorporated in the People’s Republic of China with limited liability)
WARNING
The publication of this Application Proof is required by The Stock Exchange of Hong Kong Limited (the ‘‘Exchange’’) and the Securities and Futures Commission (the ‘‘Commission’’) solely for the purpose of providing information to the public in Hong Kong.
This Application Proof is in draft form. The information contained in it is incomplete and is subject to change which can be material. By viewing this document, you acknowledge, accept and agree with the Company, its sponsor, advisers or members of the underwriting syndicate that:
(a) this document is only for the purpose of providing information about the Company to the public in Hong Kong and not for any other purposes. No investment decision should be based on the information contained in this document;
(b) the publication of this document or supplemental, revised or replacement pages on the Exchange’s website does not give rise to any obligation of the Company, its sponsor, advisers or members of the underwriting syndicate to proceed with an offering in Hong Kong or any other jurisdiction. There is no assurance that the Company will proceed with the offering;
(c) the contents of this document or supplemental, revised or replacement pages may or may not be replicated in full or in part in the actual final listing document;
(d) the Application Proof is not the final listing document and may be updated or revised by the Company from time to time in accordance with the Listing Rules;
(e) this document does not constitute a prospectus, offering circular, notice, circular, brochure or advertisement offering to sell any securities to the public in any jurisdiction, nor is it an invitation to the public to make offers to subscribe for or purchase any securities, nor is it calculated to invite offers by the public to subscribe for or purchase any securities;
(f) this document must not be regarded as an inducement to subscribe for or purchase any securities, and no such inducement is intended;
(g) neither the Company nor any of its affiliates, advisers or underwriters is offering, or is soliciting offers to buy, any securities in any jurisdiction through the publication of this document;
(h) no application for the securities mentioned in this document should be made by any person nor would such application be accepted;
(i) the Company has not and will not register the securities referred to in this document under the United States Securities Act of 1933, as amended, or any state securities laws of the United States;
(j) as there may be legal restrictions on the distribution of this document or dissemination of any information contained in this document, you agree to inform yourself about and observe any such restrictions applicable to you; and
(k) the application to which this document relates has not been approved for listing and the Exchange and the Commission may accept, return or reject the application for the subject public offering and/or listing.
If an offer or an invitation is made to the public in Hong Kong in due course, prospective investors are reminded to make their investment decisions solely based on the Company’s prospectus registered with the Registrar of Companies in Hong Kong, copies of which will be distributed to the public during the offer period.
If you are in any doubt about any of the contents of this document, you should obtain independent professional advice.
山
東
威
高 骨
科
材
料
股
份
有
限
公
司
Shandong Weigao Orthopaedic Device Company Limited
*(A joint stock company incorporated in the People’s Republic of China with limited liability)
[REDACTED]
Number of [REDACTED] : [REDACTED] H Shares (subject to the Over-allotment Option)
Number of [REDACTED] : [REDACTED] H Shares (subject to adjustment) Number of [REDACTED] : [REDACTED] H Shares (subject to adjustment
and the Over-allotment Option, including [REDACTED] under the [REDACTED])
Maximum [REDACTED] : HK$[REDACTED] per H Share in Hong Kong
dollars, plus brokerage of 1%, Stock Exchange trading fee of 0.005% and SFC transaction levy of 0.0027%, payable in full on application subject to refund on final pricing
Nominal Value : RMB1.00 per H Share
Stock Code : [REDACTED]
Joint Sponsors
Joint Global Coordinators, Joint Bookrunners and Joint Lead Managers [REDACTED]
Hong Kong Exchanges and Clearing Limited, The Stock Exchange of Hong Kong Limited and Hong Kong Securities Clearing Company Limited take no responsibility for the contents of this document, make no representation as to its accuracy or completeness, and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this document.
A copy of this document, having attached thereto the documents specified in Appendix VII‘‘Documents delivered to the Registrar of Companies in Hong Kong and Available for Inspection’’to this document, has been registered by the Registrar of Companies in Hong Kong as required by section 342C of the Companies (Winding up and Miscellaneous Provisions) Ordinance of Hong Kong (Chapter 32 of the Laws of Hong Kong). The Securities and Futures Commission and the Registrar of Companies in Hong Kong take no responsibility for the contents of this document or any other document referred to above.
The [REDACTED] is expected to be fixed by agreement between the Joint Global Coordinators (on behalf of the Underwriters) and us on the Price Determination Date. The Price Determination Date is expected to be on or about [REDACTED] and, in any event, not later than [REDACTED]. The [REDACTED] will be not more than HK$[REDACTED] and is currently expected to be not less than HK$[REDACTED]. Applicants for [REDACTED] are required to pay, on application, the maximum [REDACTED] of HK$[REDACTED] for each [REDACTED] together with brokerage of 1%, SFC transaction levy of 0.0027% and Stock Exchange trading fee of 0.005%, subject to refund if the [REDACTED] should be lower than HK$[REDACTED]. If, for any reason, the Joint Global Coordinators (on behalf of the Underwriters) and us are unable to reach an agreement on the [REDACTED], the [REDACTED] will not proceed and will lapse.
The Joint Global Coordinators (on behalf of the Underwriters, and with our consent) may reduce the number of [REDACTED] and/or the indicative [REDACTED] that stated in this document at any time prior to the morning of the last day for lodging applications under the [REDACTED]. In such a case, a notice of the reduction in the number of [REDACTED] and/or the indicative [REDACTED] range will be published in the South China Morning Post (in English) and Hong Kong Economic Times (in Chinese) not later than the morning of the last day for lodging applications under the [REDACTED]. Further details are set forth in the sections entitled‘‘Structure of the Global Offering–[REDACTED]’’and‘‘How to Apply for the Hong Kong Offer Shares and Reserved Shares’’in this document. If applications for [REDACTED] have been submitted prior to the day which is the last day for lodging applications under the [REDACTED], then such applications can be subsequently withdrawn if the number of [REDACTED] and/or the indicative [REDACTED] range is so reduced.
We are incorporated, and substantially all of our businesses are located, in China. Potential investors should be aware of the differences in legal, economic and financial systems between the PRC and Hong Kong and that there are different risk factors relating to investments in PRC-incorporated companies. Potential investors should also be aware that the regulatory framework in China is different from the regulatory framework in Hong Kong and should take into consideration the different market nature of our H Shares. Such differences and risk factors are set out in‘‘Risk Factors,’’ ‘‘Appendix IV–Summary of Principal PRC and Hong Kong Legal and Regulatory Provisions’’and‘‘Appendix V–Summary of the Articles of Association’’to this document. Prior to making an investment decision, potential investors should consider carefully all of the information set out in this document, including the risk factors set out in‘‘Risk Factors.’’
The obligations of the Hong Kong Underwriters under the Hong Kong Underwriting Agreement to subscribe for, and to procure applicants for the subscription for, the [REDACTED], are subject to termination by the Joint Global Coordinators (on behalf of the Hong Kong Underwriters) if certain grounds arise prior to 8:00 a.m. on the day that trading in the H Shares commences on the Stock Exchange. Such grounds are set out in the section entitled‘‘Underwriting–Underwriting Arrangements and Expenses–the [REDACTED]–Grounds for Termination’’in this document. It is important that you refer to that section for further details.
Prior to making an investment decision, prospective investors should consider carefully all the information set forth in this document, including but not limited to the risk factors set forth in the section entitled‘‘Risk Factors’’in this document.
The [REDACTED] have not been and will not be registered under the U.S. Securities Act or any state securities law in the United States and may not be offered, sold, pledged or transferred within the United States, except that the [REDACTED] may be offered, sold or delivered (i) within the United States in reliance on an exemption from registration under the U.S. Securities Act provided by, and in accordance with the restrictions of, Rule 144A under the U.S. Securities Act or another exemption from registration under the U.S. Securities Act; and (ii) in offshore transactions outside the United States in reliance on Regulation S under the U.S. Securities Act.
IMPORTANT NOTICE TO INVESTORS
This document is issued by Shandong Weigao Orthopaedic Device Company Limited solely in connection with the [REDACTED] and the [REDACTED] and does not constitute an offer to sell or a solicitation of an offer to buy any security other than the [REDACTED] and the [REDACTED] offered by this document pursuant to the [REDACTED] and the [REDACTED]. This document may not be used for the purpose of, and does not constitute, an offer to sell, or a solicitation of an offer to subscribe for or buy, any security in any other jurisdiction or in any other circumstances. No action has been taken to permit a [REDACTED] of the [REDACTED], or the distribution of this document, in any jurisdiction other than Hong Kong. The distribution of this document and the [REDACTED] and sale of the [REDACTED] in other jurisdictions are subject to restrictions and may not be made except as permitted under the applicable securities laws of such jurisdictions pursuant to registration with or authorization by the relevant securities regulatory authorities or an exemption therefrom.
You should rely only on the information contained in this document and the [REDACTED] to make your investment decision. We have not authorized anyone to provide you with information that is different from what is contained in this document. Any information or representation not made in this document must not be relied on by you as having been authorized by us, the Joint Sponsors, Joint Global Coordinators, Joint Bookrunners and Joint Lead Managers, any of the Underwriters, any of our or their respective directors, officers or representatives, or any other person or party involved in the [REDACTED]. Pages EXPECTED TIMETABLE . . . i CONTENTS . . . v SUMMARY . . . 1 DEFINITIONS . . . 13
GLOSSARY OF TECHNICAL TERMS . . . 28
FORWARD-LOOKING STATEMENTS . . . 31
Pages
INFORMATION ABOUT THIS PROSPECTUS AND THE GLOBAL OFFERING . . . . 70
DIRECTORS, SUPERVISORS AND PARTIES INVOLVED IN THE GLOBAL OFFERING . . . 75
CORPORATE INFORMATION . . . 80
INDUSTRY OVERVIEW . . . 83
REGULATORY OVERVIEW . . . 99
HISTORY, REORGANIZATION AND CORPORATE STRUCTURE . . . 108
BUSINESS . . . 121
RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS . . . 180
CONNECTED TRANSACTIONS . . . 189
DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT . . . 197
WAIVERS FROM STRICT COMPLIANCE WITH THE LISTING RULES . . . 208
SHARE CAPITAL . . . 210
SUBSTANTIAL SHAREHOLDERS . . . 214
CORNERSTONE INVESTORS . . . 216
FINANCIAL INFORMATION OF THE GROUP . . . 219
FUTURE PLANS AND USE OF PROCEEDS . . . 273
UNDERWRITING . . . 275
STRUCTURE OF THE GLOBAL OFFERING . . . 288
HOW TO APPLY FOR THE HONG KONG OFFER SHARES AND RESERVED SHARES . . . 302
Pages
APPENDIX I – ACCOUNTANTS’REPORT . . . I-1
APPENDIX II – UNAUDITED PRO FORMA FINANCIAL INFORMATION . . . II-1
APPENDIX III – PROPERTY VALUATION REPORT . . . III-1
APPENDIX IV – SUMMARY OF PRINCIPAL PRC AND HONG KONG
LEGAL AND REGULATORY PROVISIONS . . . IV-1
APPENDIX V – SUMMARY OF THE ARTICLES OF ASSOCIATION . . . V-1
APPENDIX VI – STATUTORY AND GENERAL INFORMATION . . . VI-1
APPENDIX VII – DOCUMENTS DELIVERED TO THE REGISTRAR OF
COMPANIES IN HONG KONG AND
This summary aims to give you an overview of the information contained in this document. As this is a summary, it does not contain all the information that may be important to you. You should read this document in its entirety before you decide to invest in the [REDACTED].
There are risks associated with any investment. Some of the particular risks in investing in the [REDACTED] are set out in the section entitled ‘‘Risk Factors’’ in this document. You should read that section carefully before you decide to invest in the [REDACTED].
OVERVIEW
We are a medical device company in China specializing in the research and development, production and sale of spine, trauma and joint orthopedic implants. According to the PICO
Report, we were the largest domestic orthopedic implant company(1) in the fast-growing
orthopedic implant market in China, with the largest market share in the spine and trauma market segments in terms of revenue in each of 2012, 2013 and 2014. Our revenue in 2012, 2013 and 2014 was significantly higher than the second largest domestic player in the Chinese orthopedic implant market. In 2012, 2013 and 2014, our market share among all orthopedic implant companies in China in terms of revenue was 4.0%, 4.2% and 4.3%, respectively. According to the PICO Report, we were one of the first domestic orthopedic implant companies in China entering the premium orthopedic implant market segment.
Of the major domestic orthopedic implant companies in China, we were one of only three that covered all of the three major categories of orthopedic implant products, namely spine, trauma and joint implants as of December 31, 2014, according to the PICO Report. Our comprehensive portfolio of orthopedic implant products address a broad range of orthopedic disorders and suit the needs of patients with different body shapes and in different age groups. As of June 30, 2015, we manufactured 38 spine products, 201 trauma products and 24 joint products. We also design and produce high quality surgical instruments tailored for use with our orthopedic implant products, which help improve the efficacy, efficiency and safety of the surgical operations using our implant products.
Benefiting from the quality and reliability of our products, we enjoy strong brand
recognition in China. We sell products primarily under our ‘‘Wego Ortho（威高骨科）’’ brand,
which focuses on the mid-range and premium orthopedic implant market segments in China. We
also sell mid-range and economy market segment products under our‘‘Yahua（亞華）’’and ‘‘Jianli
Bangde（健力邦德）’’ brands. The multiple brand strategy coupled with clear positioning and
marketing focus strategy for each brand allow us to capture opportunities in all these market segments.
Note:
(1) Wholly-owned PRC subsidiaries of multinational corporations (MNCs), which are treated as MNCs throughout this document, are excluded and joint ventures set up by foreign companies and PRC companies in China are included when determining such ranking.
We focus our research and development efforts on providing comprehensive solutions to orthopedic surgeons. As of June 30, 2015, our research and development team consisted of 89 personnel. Through our in-house research and development efforts and our collaborations with third party research institutions and universities, we successfully developed and commercialized 19 spine products, 97 trauma products and seven joint products during the Track Record Period. During the Track Record Period, we received 510(k) clearance for five series of our products from the U.S. FDA covering nine spine products and 122 trauma products. We also obtained CE certifications for nine spine products and 201 trauma products in 2011. These certifications evidence the internationally recognized quality standards of our products. As of June 30, 2015, we had five types of spine products, five types of trauma products and three types of joint products under development.
Consistent with industry practice, we sell all our orthopedic implant products to distributors which then on-sell to hospitals either directly or through secondary distributors. From August 2008 to December 2012, we sold our products in China exclusively through the Distribution JV which acted as our sole distributor in China. In December 2012, Weigao Medical Polymer and Medtronic, the joint venture partners which formed the Distribution JV, reached an agreement to terminate the Distribution JV, as a result of which we started to sell our products directly to distributors since January 2013. As of June 30, 2015, we had established an extensive network of distributors comprising 541 distributors covering all 22 provinces, five autonomous regions and four municipalities in China. As of the same date, this extensive network covered more than 806 Class III hospitals. Our strong sales and marketing team, comprising 115 staff as of June 30, 2015, manages our distributors and works closely with them to promote our orthopedic implant products to hospitals and surgeons. We had a high concentration of sales in 2012 as we sold our orthopedic implant products in China exclusively to the Distribution JV which represented 69.4% of our revenue for 2012. In 2012, sales to our five largest customers were RMB174.8 million, representing 99.0% of our revenue for 2012. In 2013, 2014 and the six months ended June 30, 2015, sales to our five largest customers were RMB109.4 million, RMB118.6 million and RMB61.6 million, respectively, representing 21.6%, 20.0% and 17.3% of our revenue, respectively, for the same periods.
Under our product return and exchange policies, all product returns and exchanges must go through our strict internal procedures. Generally, product returns or exchanges are only allowed for products that are proved to be defective after our internal inspection. We typically do not offer refunds or accept product returns. We exchange products with our other products of the same value under limited circumstances. In 2012, 2013, 2014 and the six months ended June 30, 2015, our returned and exchanged products amounted to approximately RMB4,600 (exclusive of the amount of products transferred to us by the Distribution JV), RMB136,400, RMB346,300 and RMB1,212,100, respectively, representing 0.003%, 0.03%, 0.06% and 0.3% of our revenue during such periods, respectively. As a result of the termination of the Distribution JV, the Distribution JV transferred to us unsold orthopedic implant products in an aggregate amount of RMB97.5 million in 2012.
We sell orthopedic implant products primarily in China. Our products are classified as medical devices by the CFDA and therefore are not subject to price control by the NDRC in the form of maximum retail price ceilings. We also sell some of our orthopedic implant products as well as OEM instruments to overseas markets. In 2012, 2013, 2014 and the six months ended June 30, 2015, revenue derived from sales in the PRC accounted for 69.4%, 90.6%, 92.6% and 93.9%, respectively, of our total revenue.
OUR PRODUCTION FACILITIES
As of June 30, 2015, we had three production facilities located in Weihai, Shandong Province, Beijing and Changzhou, Jiangsu Province. Our production facilities are equipped with advanced machinery and equipment purchased from suppliers in Switzerland, Germany, Japan, United States, Italy and Taiwan as well as domestic manufacturers, including computer numerical control (CNC) machining centers and turning centers. We own all the machinery and equipment at
our production facilities. See‘‘Business – Production Facilities’’on page 137 of this document for
detailed information.
The table below sets forth the annual production capacity, production volume and utilization rate of our production facilities during the periods indicated:
For the year ended December 31,
2012 2013 2014
For the six months ended June 30, 2015 Maximum production capacity(1) (thousand units) Production volume (thousand units) Utilization rate(2) Maximum production capacity(1) (thousand units) Production volume (thousand units) Utilization rate(2) Maximum production capacity(1) (thousand units) Production volume (thousand units) Utilization rate(2) Maximum production capacity(1) (thousand units) Production volume (thousand units) Utilization rate(2) Weigao Ortho Spine products 1,364.1 1,014.9 74.4% 1,157.6 857.8 74.1% 1,191.4 897.1 75.3% 648.9 489.1 75.4% Trauma products 1,710.5 1,272.6 74.4% 1,374.0 1,018.1 74.1% 1,447.5 1,090.0 75.3% 957.4 721.6 75.4% Joint products – – – – – – – – – 4.8 3.5 72.6% Surgical instruments(3) 6.0 4.1 68.4% 8.9 6.0 67.5% 9.0 6.1 68.0% 4.3 2.9 68.9% OEM instruments 240.5 177.0 73.6% 227.8 164.0 71.6% 73.1 47.0 64.3% 38.9 25.3 65.0% Beijing Yahua Spine products 239.5 178.2 74.4% 108.9 80.7 74.1% 344.6 259.5 75.3% 223.1 168.2 75.4% Joint products 110.6 53.3 48.2% 118.8 39.6 33.3% 129.5 94.5 73.0% 71.0 43.0 60.6% Surgical instruments(3) 0.4 0.3 68.4% 1.6 1.1 67.5% 2.1 1.4 68.0% 0.9 0.6 68.9% Jianli Bangde Trauma products 843.5 477.4 56.6% 487.4 116.0 23.8% 921.8 472.9 51.3% 303.6 160.9 53.2% Surgical instruments(3) 0.4 0.2 56.6% 1.3 0.3 23.8% 1.2 0.6 51.3% 0.4 0.2 53.2% Notes:
(1) Maximum production capacity for Weigao Ortho is calculated based on 301 working days per year and 150 working days for ths six months ended June 30, 2015, and three work shifts of eight hours per day. Maximum production capacity for Beijing Yahua and Jianli Bangde is calculated based on 301 working days per year and 150 working days for ths six months ended June 30, 2015, and two work shifts of eight hours per day.
(2) Discrepancies may result from rounding.
(3) These surgical instruments are offered to hospitals and are calculated based on boxes and not units (although the OEM instruments are calculated based on units), with each box containing 15 to 80 surgical instruments.
For our calculation method, see ‘‘Business – Production Facilities – Our Production
Capacity’’on page 138 of this document.
According to the PICO Report, demand for orthopedic implant products in China is expected to increase at a CAGR of 17.6% from 2015 to 2019. Accordingly, we plan to expand our product range and related production capacities to capture new business opportunities. We plan to expand
Weigao Ortho’s production capacity for spine, trauma and joint products at its production
facilities in Weihai by purchasing additional machinery and equipment. We expect to incur total capital expenditure of approximately RMB200 million for such capacity expansion for spine and trauma products and approximately RMB400 million for joint products. We began installation of certain new machinery and equipment in the first half of 2015. We expect to increase our production capacity for spine and trauma products by 80,000 units and our production capacity for joint products by 75,000 units by implementing such expansion plans.
OUR SUPPLIERS
The principal materials for our orthopedic implant products are titanium, titanium alloy,
stainless steel, Polyether ether ketone（PEEK 樹脂）, CoCrMo（鈷鉻鉬）, UHMWPE（超高分子量
聚乙烯）and XLPE（高交聯聚乙烯）. We source our raw materials from suppliers both in China
and overseas, such as the United Kingdom and the United States, and have developed stable relationships with our key suppliers. We source PEEK (used for our spine products) from a sole supplier, and UHMWPE and XLPE (used for our spine products) from another sole supplier as there are a very limited number of suppliers in the world that can produce these materials of the standard we require. Our PEEK supplier constituted one of our five largest suppliers in 2012, 2013 and 2014 and was our largest supplier for 2013 and 2014. In 2012, 2013, 2014 and the six months ended June 30, 2015, purchase of PEEK from this sole supplier represented approximately 11.2%, 14.5%, 22.5% and 0.1% of our total purchases for the same periods, and purchase of UHMWPE and XLPE from another sole supplier accounted for 1.2%, 1.3%, 3.7% and 3.1% of
our total purchases for the same periods. See ‘‘Business – Suppliers and Procurement’’ on page
OUR COMPETITIVE STRENGTHS
We believe that the following strengths differentiate us from our competitors:
• Largest domestic company in the fast growing Chinese orthopedic implant market;
• Extensive market coverage with a focus on mid-range and premium market segments;
• A comprehensive product portfolio of high-quality products;
• Strong research and development capabilities;
• Extensive network of distributors supported by a strong sales and marketing team; and
• Dedicated and experienced management team.
OUR BUSINESS STRATEGIES
We aspire to become a world-class orthopedic implant company. We intend to achieve our objective by implementing the following strategies:
• Enter into the premium joint market segment;
• Solidify our leading position in spine and trauma markets;
• Further broaden the market coverage and strengthen the market penetration;
• Strengthen our research and development efforts; and
• Actively seek acquisition and cooperation opportunities.
SUMMARY FINANCIAL INFORMATION
The following is a summary of the consolidated financial information of our Group as of and for the years ended December 31, 2012, 2013 and 2014 and as of and for the six months ended June 30, 2015. We have derived the summary from our consolidated financial information
set forth in the Accountants’ Report in Appendix I. The below summary should be read together
with the consolidated financial information in Appendix I to this document, including the
accompany notes and the information set forth in ‘‘Financial Information of the Group’’starting
from page 219 in this document. Our consolidated financial information was prepared in accordance with Hong Kong Financial Reporting Standards.
Selected Consolidated Statements of Profit or Loss and Other Comprehensive Income The table below sets forth selected financial information extracted from our consolidated statements of profit or loss and other comprehensive income for the periods indicated:
For the year ended December 31,
For the six months ended June 30,
2012 2013 2014 2014 2015
(unaudited) (RMB in thousands, except percentages)
Revenue 176,552 505,947 591,894 300,281 356,002
Cost of sales (53,054) (99,284) (155,559) (76,668) (97,023)
Gross profit 123,498 406,663 436,335 223,613 258,979
Profit before taxation 75,990 258,023 259,915 140,285 159,247
Profit and total comprehensive
income for the year/period 64,547 219,056 218,329 117,652 134,316
Gross profit margin 69.9% 80.4% 73.7% 74.5% 72.7%
We generate revenue primarily from sales of orthopedic implant products: spine products, trauma products and joint products, and from manufacturing surgical instruments on an OEM basis. The fluctuations in our selected financial information above between 2012 and 2013 were primarily due to the termination of the Distribution JV in December 2012. As a result of the termination and the transfer of unsold orthopedic implant products back to us from the Distribution JV, we recorded reversals in revenue and cost of sales in 2012 of RMB97.5 million and RMB50.5 million, respectively, which affected our gross profit in 2012. The change in our sales model as we directly managed our distributors beginning in 2013 contributed to an increase in revenue in 2013, as we captured the price difference that would otherwise have been retained by the Distribution JV in the past. For further details on the effects of the termination of the
Distribution JV on our results of operations, see ‘‘Financial Information of the Group – Factors
Affecting our Results of Operation – Termination of the Distribution JV in 2012’’ starting from
Selected Consolidated Statements of Financial Position
The table below sets forth selected financial information extracted from our consolidated statements of financial position as of the dates indicated:
As of December 31, As of June 30, 2015 2012 2013 2014 (RMB in thousands) Non-current assets 207,476 263,608 299,834 333,728 Current assets 359,824 472,204 463,146 514,349 Current liabilities 208,307 576,763 385,602 285,380
Net current assets/(liabilities) 151,517 (104,559) 77,544 228,969
Equity attributable to owners of
the Company 358,993 159,049 377,378 562,697
Within current assets, our inventories balance as of December 31, 2012, 2013 and 2014 and June 30, 2015 were RMB221.6 million, RMB216.5 million, RMB226.1 million and RMB226.9 million, respectively. Approximately RMB50.5 million of our inventories balance as of December 31, 2012 represented the transferred inventory from the Distribution JV to us in December 2012 as part of its dissolution arrangement. Our inventory turnover days for 2012, 2013, 2014 and the six months ended June 30, 2015 were 1,155.4 days, 794.3 days, 512.1 days and 422.5 days, respectively. While most of the transferred inventory were sold in 2013 and we prudently managed our inventory level at a relatively stable level over the Track Record Period, our inventory turnover days in 2012 and 2013 were affected by the impact of the termination of the
Distribution JV. For further information, see ‘‘Financial Information of the Group – Description
of Certain Items in the Consolidated Balance Sheet – Inventories – Inventory Turnover’’starting
on page 250. For further details on the effects of the termination of the Distribution JV on our
financial position, see ‘‘Financial Information of the Group – Factors Affecting our Results of
Operation– Termination of the Distribution JV in 2012’’starting on page 221.
Key Financial Ratios
As of or for the year ended December 31,
As of or for the six months ended June 30, 2015 2012 2013 2014
Current ratio (times) 1.73 0.82 1.20 1.80
Quick ratio (times) 0.64 0.44 0.61 1.00
Net cash ratio (times) 0.42 0.32 0.38 0.35
Gross profit margin (%) 69.9 80.4 73.7 72.7
Net profit margin (%) 36.6 43.3 36.9 37.7
Return on equity (%) 18.0 137.7 57.9 23.9
Return on assets (%) 11.4 29.8 28.6 15.8
For further discussion on our key financial ratios, see ‘‘Financial Information of the Group –
OUR CONTROLLING SHAREHOLDERS
Our operating subsidiaries used to be an integral part of Weigao Medical Polymer, the shares of which are listed on the Main Board of the Stock Exchange. Our Company was established in the PRC as a limited liability company on April 6, 2005 and converted into a joint stock company with limited liability on November 3, 2014. Weigao Medical Polymer and Weigao International are promoters of our Company. Immediately after completion of the [REDACTED] (assuming the Over-allotment Option is not exercised), our Controlling Shareholders, being Weigao Medical Investment, Weigao Holding, Weigao Medical Polymer, Weigao International and Mr. Chen Xueli, will be deemed to be interested in approximately [REDACTED] of our
Company’s total issued share capital. Weigao Medical Investment is principally engaged in
investment activities. Weigao Holding and its subsidiaries (excluding our Group) is principally engaged in production and sale of pharmaceutical, medical equipment and property development in the PRC. Weigao Medical Polymer and its subsidiaries (excluding our Group) is principally engaged in research and development, production and sale of single-use medical devices and blood purification products.
None of our Controlling Shareholders is interested in any business which is, whether directly or indirectly, in competition with our business. To ensure that competition will not exist in the future, each of our Controlling Shareholders has entered into the Deed of Non-Competition in favor of our Company to the effect that each of them will not, and will procure each of their respective close associates not to, directly or indirectly participate in, or hold any right or interest, or otherwise be involved in any business which may be in competition with our businesses. See
‘‘Relationship with Our Controlling Shareholders’’ starting from page 180 for detailed
information. [REDACTED]
[REDACTED] size
: Initially [REDACTED] of the enlarged share capital of our
Company (subject to the Over-allotment Option) [REDACTED]
structure
: Initially [RED AC TED ] for [RED AC TED ] (subject to
adjustment) and [REDACTED] for [REDACTED] (subject to adjustment and the Over-allotment Option, including the [ R E D A C T E D ] f o r t h e [ R E D A C T E D ] ( a m o u n t i n g t o [REDACTED] of the total [REDACTED] initially available under the [REDACTED]))
Over-allotment Option
: Up to [REDACTED] of the number of [REDACTED] initially
available under the [REDACTED] [REDACTED]
Per Share
Based on [REDACTED] per Share of HK$[REDACTED] per H Share Based on [REDACTED] per Share of HK$[REDACTED] per H Share
Market capitalization of our Shares(2). . . . HK$[REDACTED] million HK$[REDACTED] million
Unaudited pro forma adjusted net tangible
asset value per Share(3) . . . HK$[REDACTED] HK$[REDACTED]
Notes:
(1) All statistics in this table are based on the assumption that the Over-allotment Option is not exercised. (2) The calculation of market capitalization is based on [REDACTED] H Shares expected to be issued under the
[REDACTED], and assuming that [REDACTED] Shares are issued and outstanding immediately following the completion of the [REDACTED].
(3) The unaudited pro forma adjusted net tangible asset per Share is calculated after making the adjustments referred to in‘‘Appendix II–Unaudited Pro Forma Financial Information’’of this document and on the basis that [REDACTED] Shares are issued and outstanding immediately following the completion of the [REDACTED].
DIVIDEND POLICY
In 2012 and 2013, we declared dividend of RMB70.0 and RMB419.0 million to our Shareholders, respectively. In 2014, we did not declare any dividends to our Shareholders. As of the Latest Practicable Date, we had dividends payable of approximately RMB143.9 million. We expect to settle such dividends payable within one month from the Listing Date by utilizing the proceeds from the [REDACTED] and our internal resources.
After the completion of the [REDACTED], our Shareholders will be entitled to receive dividends we declare. The recommendation of any dividends will be, subject to approval by our Shareholders, at the discretion of our Board. Our Board may recommend the payment of dividends in the future depending on, among other things, our results of operations, cash flows, financial condition, cash requirements and availability, capital expenditure, future development requirements, interests of our Shareholders and other factors as our Board may deem relevant. Any declaration and payment as well as the amount of the dividends will be subject to applicable laws and regulations and our constitutional documents. Investors should take note that dividends paid in prior years may not be indicative of future dividend payments. We cannot guarantee
when, if and in what form dividends will be paid in the future. See‘‘Financial Information of the
Group– Dividends and Dividend Policy’’ on page 269 of this document.
LISTING EXPENSES
We expect to incur Listing expenses (inclusive of underwriting commissions) of RMB[REDACTED] million in connection with the [REDACTED], of which RMB[REDACTED] million is expected to be charged to our consolidated statements of profit or loss as expenses and RMB[REDACTED] million to be charged to share premium. In 2014 and the six months ended June 30, 2015, we incurred RMB[REDACTED] million and RMB[REDACTED] million of Listing expenses of which RMB[REDACTED] million and RMB[REDACTED] million was recognized in our consolidated statements of profit or loss, respectively. We do not expect such Listing expenses to have a material impact on our results of operations for the year ending
December 31, 2015. See ‘‘Financial Information of the Group – Listing Expenses’’ on page 272
FUTURE PLANS AND USE OF PROCEEDS
The net proceeds of the [REDACTED] we expect to receive (after deduction of underwriting fees and estimated expenses payable by us in relation to the [REDACTED] and assuming that the Over-allotment Option is not exercised and assuming an [REDACTED] of HK$[REDACTED] per [REDACTED], being the midpoint of the stated [REDACTED] range of HK$[REDACTED] to HK$[REDACTED] per [REDACTED]), the net proceeds of the [REDACTED] would be approximately HK$[REDACTED] million which we presently plan to use as follows:
Approximate amount
of net proceeds Intended application
20% or approximately HK$[REDACTED] million
: expansion of our manufacturing facilities for joint
products
10% or approximately HK$[REDACTED] million
: expansion of our manufacturing facilities for spine and
trauma products
15% or approximately HK$[REDACTED] million
: research and development
15% or approximately HK$[REDACTED] million
: acquisition of properties from Weigao Medical Polymer
through Weigao Asset Management
20% or approximately HK$[REDACTED] million
: acquisition of potential target companies in our industry
that complement our product portfolio, research and development initiatives or market coverage. As of the date of this document, we have not identified any acquisition targets
10% or approximately HK$[REDACTED] million
: settlement of the remaining amount of dividend payable
to Weigao Medical Polymer
10% or approximately HK$[REDACTED] million
: working capital and other general corporate purposes
See ‘‘Future Plans and Use of Proceeds’’on page 273 of this document.
RISK FACTORS
We believe a few of the more significant or special risks relating to our business include:
• We rely heavily on distributors for our sales;
• We may not be able to effectively manage our network of distributors and the actions
taken by our distributors;
• We may not be able to develop and successfully market new products;
• We are subject to intense competition in the highly competitive PRC orthopedic
implant market;
• Changes in government’s healthcare policies may have a material adverse effect on our
• We are subject to product liability exposure and have limited insurance coverage; and
• We have made sales to certain countries that are subject to evolving economic
sanctions.
See ‘‘Risk Factors’’starting on page 33 of this document for a detailed discussion of the risk
factors affecting our operation and the [REDACTED]. You should read the whole ‘‘Risk Factors’’
section carefully before you decide to invest in the [REDACTED].
HISTORICAL BUSINESS DEALINGS RELATED TO SANCTIONED COUNTRIES
The United States and other jurisdictions, including the EU, its Member States, Australia and the United Nations, maintain comprehensive economic sanctions against Sanctions Targets. During the Track Record Period, we sold a small amount of our orthopedic products to customers in certain Sanctioned Countries, namely Cuba, Iran, Lebanon and Egypt. The revenue derived therefrom in aggregate accounted for less than 1.5%, 0.5%, 0.5% and 0.4%, of our total revenue for the years ended December 31, 2012, 2013 and 2014 and for the six months ended June 30,
2015, respectively. For further details, see ‘‘Business – Historical Business Dealings Related to
Sanctioned Countries’’ on page 175 of this document. We confirm that we have not been notified
of any sanctions that will be imposed on us as to our business activities and operations during the Track Record Period and up to the Latest Practicable Date.
We undertake to the Stock Exchange that we will not use the proceeds from the [REDACTED], as well as any other funds raised through the Stock Exchange, to finance or facilitate, directly or indirectly, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or any other person or entity to finance or facilitate any activities or business with, or for the benefit of, any person that is at the time of such funding or facilitation a Sanctioned Person, or to fund or facilitate any activities of or business in any of the Sanctioned Countries. In addition, we will not undertake any future business that would cause us, the Stock Exchange, HKSCC, HKSCC Nominees and our Shareholders to violate or become a target of sanctions laws of the EU, its Member States, the United Nations, the United States or Australia.
MATERIAL PROPERTIES
We have engaged an independent property valuer to inspect the premises at No. 26 Xiangjiang Street, Zhangcun Industrial Park, Huancui District, Weihai City, Shandong Province, the PRC. We entered into an agreement with Weigao Medical Polymer on December 24, 2014, pursuant to which we acquired 100% equity interest of Weigao Asset Management from Weigao Medical Polymer, through which we expect to obtain the title of such properties. The valuation of such properties was carried out on a cost approach and was made on the assumption that the seller sells the property interest in the market without the benefit of a deferred term contract, leaseback, joint venture, management agreement or any similar arrangement, which could serve to affect the value of the property interest. For details of the property, please refer to the property valuation report in Appendix III to this document.
NEGATIVE PUBLICITY
During a product inspection in December 2014, the CFDA found that one batch of a model
of Jianli Bangde’s metal locking screws did not meet certain prescribed standards under its
product registration certificate. Subsequently, on January 23, 2015, the Sichuan Drug and Medical
Devices Centralized Procurement Assembly Office（四川省藥械集中採購聯席會議辦公室）issued
a notice to suspend the sale of this product through this procurement center for six months. We had recalled all the products in this batch prior to the occurrence of this incident. During the Track Record Period, the revenue generated from this product model was insignificant. See
‘‘Business– Quality Control – Our Quality Control Measures’’on pages 164 and 165 for details.
On January 13, 2015, Jianli Bangde was included in a proposed bidding blacklist published
by the Centralized Procurement Center for Medical Device（江蘇省藥品集中採購中心）for
alleged false information provided in a tender, on the basis that Jianli Bangde purportedly provided inflated sales figures for 2012 in a tendering document. Jianli Bangde has filed an explanation with the Jiangsu Procurement Center. During the Track Record Period, revenue generated from sales of Jianli Bangde products was insignificant. As of the Latest Practicable Date, the Jiangsu Procurement Center had not included Jianli Bangde in any official bidding
blacklist. See ‘‘Business – Sales and Marketing – Our Network of Distributors – Domestic
Market’’on pages 141 to 151 for details.
RECENT DEVELOPMENTS
On December 24, 2014, we entered into an equity transfer agreement with our Controlling Shareholder, Weigao Medical Polymer, to acquire the entire equity interest held by Weigao Medical Polymer in Weigao Asset Management at a consideration of RMB259.6 million. We obtained legal title to the entire equity interest in Weigao Asset Management on January 12, 2015. Weigao Asset Management was established on December 17, 2014 and is principally engaged in asset custody, and its material assets are certain properties to be injected by Weigao
Medical Polymer. See‘‘– Material Properties.’’As of the Latest Practicable Date, Weigao Medical
Ploymer had not obtained the building ownership certificate in respect of these properties. Weigao Medical Polymer is in the process of obtaining the building ownership certificate and as confirmed by our PRC legal advisor, there is no material legal impediment for Weigao Medical Polymer to obtain the building ownership certificate. We are under no obligation to pay the consideration for the equity interest transfer before the issuance of the building ownership certificate. Weigao Asset Management has not carried out any business activities since the date of its establishment. As a result, the acquisition does not involve business integration of Weigao Asset Management. However, the acquisition requires significant financial commitment from us and, if not well planned, could have a material adverse effect on our financial position. See
‘‘History, Reorganization and Corporate Structure – Our Subsidiaries – Weigao Asset
Management’’on page 112 for further details.
No Material Adverse Change
Save as mentioned in the paragraph headed ‘‘Recent Developments’’ above, our Directors
confirm that there has been no material adverse change in our financial position or prospects since June 30, 2015, being the date to which our latest audited consolidated financial statements have been prepared, and there has been no event since June 30, 2015 which would materially affect the
In this document, unless the context otherwise requires, the following expressions have the following meanings:
‘‘Alltrade Investment’’ Alltrade Investment Holdings Limited, a limited liability
company incorporated in Hong Kong on December 1, 2014, a company which is wholly owned by Ms. Chan Yuk Ying, an employee of Weigao Medical Polymer. It will directly hold approximately [REDACTED] of the issued
s har e ca pit al of our Co mpa ny immed iat ely u po n
completion of the [REDACTED] (assuming the Over-allotment Option is not exercised)
[REDACTED]
‘‘Articles of Association’’ or ‘‘Articles’’
the articles of association of the Company adopted on January 7, 2015, which will become effective upon the Listing Date, as amended from time to time, a summary of which is set out in Appendix V to this document
‘‘associate(s)’’ has the meaning ascribed to it under the Listing Rules
[REDACTED]
‘‘Beijing Yahua’’ Beijing Weigao Yahua Prosthetic Joints Development
C o m p a n y（北京威高亞華人工關節開發有限公司）, a
limited liability company established in the PRC on May 18, 1993, and a wholly owned subsidiary of our Company [REDACTED]
‘‘Business Day’’ or‘‘business day’’ a day on which banks in Hong Kong are generally open for normal banking business to the public and which is not a Saturday, a Sunday or a public holiday in Hong Kong
‘‘CBRC’’ the China Banking Regulatory Commission（中國銀行業監
督管理委員會）
‘‘CCASS’’ the Central Clearing and Settlement System established and
operated by HKSCC
‘‘CCASS Clearing Participant’’ a person admitted to participate in CCASS as a direct
participant or a general clearing participant
‘‘CCASS Custodian Participant’’ a person admitted to participate in CCASS as a custodian
participant
‘‘CCASS Investor Participant’’ a person admitted to participate in CCASS as an investor
participant who may be an individual, joint individuals or a corporation
‘‘CCASS Participant’’ a CCASS Clearing Participant, a CCASS Custodian
Participant or a CCASS Investor Participant
‘‘CFDA’’ China Food and Drug Administration of the PRC（國家食
品藥品監督管理局總局）, the PRC government authority
responsible for comprehensive supervision on safety management of pharmaceutical products, medical devices, food, health food and cosmetics
‘‘China’’ or the ‘‘PRC’’ the People’s Republic of China, but for the purpose of this
document and for geographical reference only and except where the context requires, references in this document to
‘‘China’’ and the ‘‘PRC’’ do not include Hong Kong,
Macau and Taiwan
‘‘Chinese government’’ or‘‘PRC
government’’
the central government of the PRC and all governmental subdivisions (including provincial, municipal and other regional or local government entities) and instrumentalities thereof or, where the context requires, any of them
‘‘CIETAC’’ the China International Economic and Trade Arbitration
‘‘close associate(s)’’ has the meaning ascribed to it under the Listing Rules
‘‘Companies Ordinance’’ the Companies Ordinance (Chapter 622 of the laws of
Hong Kong), as amended, supplemented or otherwise modified from time to time
‘‘Companies (Winding up and
Miscellaneous Provisions)
Ordinance’’
the Companies (Winding up and Miscellaneous Provisions) Ordinance (Chapter 32 of the laws of Hong Kong), as amended, supplemented or otherwise modified from time to time
‘‘Company’’,‘‘the Company’’, ‘‘our Company’’,
or‘‘Weigao Ortho’’
Shandong Weigao Orthopaedic Device Company Limited
（山東威高骨科材料股份有限公司）, a limited liability
company established in the PRC on April 6, 2005 and converted into a joint stock company with limited liability on November 3, 2014
‘‘Connected Person(s)’’ or ‘‘connected person(s)’’
has the meaning ascribed to it under the Listing Rules
‘‘Controlling Shareholder(s)’’ has the meaning ascribed to it under the Listing Rules and,
unless the context requires otherwise, refers to Weigao Medical Investment, Weigao Holding, Weigao Medical Polymer, Weigao International and Mr. Chen Xueli
‘‘core connected person(s)’’ has the meaning ascribed to it under the Listing Rules
‘‘Corporate Reorganization’’ the corporate reorganization of our Group conducted in
preparation for the Listing, details of which are set out in
the paragraph headed ‘‘Reorganization’’ under the section
headed ‘‘History, Reorganization and Corporate Structure’’
in this document
‘‘CSRC’’ China Securities Regulatory Commission（中國證券監督管
理委員會）, a regulatory body responsible for the
supervision and regulation of the PRC national securities markets
‘‘Deed of Indemnity’’ the deed of indemnity dated [•], 2015 executed by our
Controlling Shareholders in favor of our Company (for ourselves and for each of our subsidiaries), as further
described under the section headed ‘‘Statutory and General
Information – D. Other Information – 2. Indemnities’’ in
‘‘Deed of Non-Competition’’ the deed of non-competition dated [•], 2015 executed by our Controlling Shareholders in favor of our Company, as
further described under the section headed ‘‘Relationship
with our Controlling Shareholders – Deed of
Non-Competition’’in this document
‘‘Director(s)’’ the director(s) of our Company as of the date of this
document
‘‘Distribution JV’’ Medtronic Weigao Orthopaedic Device Company Limited
（美敦力威高骨科器械有限公司）, a l i m i t e d l i a b i l i t y
company incorporated in the PRC on July 22, 2008, a joint venture in which Weigao Medical Polymer holds a 49% interest and Medtronic, through its wholly owned subsidiary, holds a 51% interest. It was established for the distribution of our orthopedic implant products in China. Weigao Medical Polymer and Medtronic entered into an agreement to terminate the joint venture in December 2012 and such joint venture is under the process of winding up
‘‘Domestic Shares’’ ordinary shares in our capital, with a nominal value of
RMB1.00 each, which are subscribed for and paid up in Renminbi
‘‘EIT Law’’ The Enterprise Income Tax Law of the PRC（中華人民共
和國企業所得稅法）, as ame nde d, su pplem ented or
otherwise modified from time to time
‘‘Exchange Participant(s)’’ a person: (a) who, in accordance with the Listing Rules,
may trade on or through the Stock Exchange; and (b) whose name is entered in a list, register or roll kept by the Stock Exchange as a person who may trade on or through the Stock Exchange
‘‘EU’’ European Union
‘‘Foreign Shares’’ the Shares issued by the Company and subscribed by
foreign investors with foreign currency or Shares held by foreign investors acquired from the domestic Shareholders [REDACTED]
[REDACTED]
‘‘Group’’,‘‘the Group’’, ‘‘our Group’’,‘‘we’’ or‘‘us’’
our Company and, except where the context otherwise requires, all of its subsidiaries or where the context refers to any time prior to its incorporation, the business which its predecessors or the predecessors of its present subsidiaries were engaged in and which were subsequently assumed by it
[REDACTED]
‘‘HKFRS’’ Hong Kong Financial Reporting Standards, which
collectively include Hong Kong Accounting Standards and related interpretations, promulgated by the Hong Kong Institute of Certified Public Accountants
‘‘HKIAC’’ Hong Kong International Arbitration Centre
‘‘HKSCC’’ Hong Kong Securities Clearing Company Limited, a
wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited
‘‘HKSCC Nominees’’ HKSCC Nominees Limited, a wholly-owned subsidiary of
HKSCC ‘‘HK$’’or ‘‘Hong Kong dollars’’
or‘‘HK dollars’’or ‘‘cents’’
Hong Kong dollars and cents respectively, the lawful currency of Hong Kong
‘‘Hong Kong’’ the Hong Kong Special Administrative Region of the PRC
[REDACTED]
‘‘Hong Kong Underwriters’’ the underwriters of the [REDACTED] listed in the section
headed ‘‘Underwriting – Hong Kong Underwriters’’ in this
document
‘‘Hong Kong Underwriting
Agreement’’
the underwriting agreement dated [REDACTED] relating to the [REDACTED] entered into among our Company, our Controlling Shareholders, Weigao International, the Joint Sponsors, the Joint Global Coordinators, the Joint Bookrunners, the Joint Lead Managers and the Hong Kong Underwriters as further described in the section headed ‘‘U n d e r w r i t i n g – U n d e r w r i t i n g A r r a n g e m e n t s a n d
Expenses’’ in this document
‘‘Howell (HK)’’ Howell (Hong Kong) Co., Limited（華威（香港）有限公司）,
a limited liability company established in Hong Kong on December 17, 1992, which was a previous Shareholder of our Company
‘‘H Share(s)’’ overseas listed foreign shares in our ordinary share capital
with a nominal value of RMB1.00 each, to be subscribed for and traded in Hong Kong dollars and listed on the Stock Exchange
‘‘H Share Registrar’’ [REDACTED]
‘‘Independent Third Party(ies)’’ an individual or a company who, as far as the Directors are
aware after having made all reasonable enquiries is not a connected person of the Company within the meaning of the Listing Rules
[REDACTED]
‘‘International Underwriters’’ the group of international underwriters, led by the Joint
Global Coordinators, that is expected to enter into the International Underwriting Agreement to underwrite the [REDACTED]
‘‘International Underwriting
Agreement’’
the underwriting agreement expected to be entered into on or around [REDACTED] by, among others, our Company, the Joint Global Coordinators, the Joint Bookrunners and t h e I n t e r n a t i o n a l U n d e r w r i t e r s i n r e s p e c t o f t h e [REDACTED], as further described in the section headed
‘‘Underwriting– [REDACTED]’’ in this document
‘‘Jianli Bangde’’ Changzhou Jianli Bangde Medical Devices Co. Ltd.（常州
健力邦德醫療器械有限公司）, a limited liability company
established in the PRC on March 4, 2003, and a wholly owned subsidiary of our Company
‘‘Joint Bookrunners’’,‘‘Joint Lead
Managers’’
[REDACTED]
‘‘Joint Global Coordinators’’ [REDACTED]
‘‘Joint Sponsors’’ U B S S e c u r i t i e s H o n g K o n g L i m i t e d a n d C h i n a
International Capital Corporation Hong Kong Securities Limited
‘‘Latest Practicable Date’’ September [•], 2015, being the latest practicable date for
the purpose of ascertaining certain information in this document prior to its publication
‘‘Listing’’ listing of our H Shares on the Stock Exchange
‘‘Listing Date’’ the date, expected to be on or about [REDACTED], on which our H Shares are listed and from which dealings therein are permitted to take place on the Stock Exchange
‘‘Listing Rules’’ the Rules Governing the Listing of Securities on The Stock
Exchange of Hong Kong Limited
‘‘Main Board’’ the stock exchange (excluding the option market) operated
by the Stock Exchange, which is independent from and operated in parallel with the Growth Enterprise Market of the Stock Exchange
‘‘Mandatory Provisions’’ the Mandatory Provisions for Articles of Association of
Companies to be Listed Overseas（到境外上市公司章程必
備條款）, as promulgated by the State Council Securities
Commission and the State Restructuring Commission on August 27, 1994 and became effective on the same date, as the same may be amended and supplemented or otherwise modified from time to time
‘‘Medtronic’’ Medtronic Inc., a company established in the United States
with limited liability in 1949 and our former joint venture partner holding a 51% interest in the Distribution JV which was terminated in December 2012
‘‘MNC’’ multi-national corporation
‘‘MOFCOM’’ PRC Ministry of Commerce（中華人民共和國商務部）
‘‘MOH’’ the National Health and Family Planning Commission of
the PRC（中華人民共和國國家衛生和計劃生育委員會）
‘‘MOHRSS’’ the Ministry of Personnel of the PRC（中華人民共和國人
事部）(now known as Ministry of Human Resources and
Social Security)（中華人民共和國人力資源和社會保障部）
‘‘NDRC’’ The National Development and Reform Commission of the
PRC（中華人民共和國國家發展和改革委員會）
‘‘NPC’’ PRC National People’s Congress（中華人民共和國全國人
民代表大會）and its Standing Committee
‘‘OFAC’’ the Office of Foreign Assets Control of the U.S.
Department of the Treasury, administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals against targeted foreign countries and regimes, terrorists, international narcotics traffickers, those engaged in activities related to the proliferation of weapons of mass destruction, and other threats to the national security, foreign policy or economy of the United States
[REDACTED]
‘‘Over-allotment Option’’ the option expected to be granted by our Company to the
International Underwriters, exercisable by the Joint Global Coordinators (on behalf of the International Underwriters) pursuant to the International Underwriting Agreement, pursuant to which our Company may be required to allot and issue up to an aggregate of [REDACTED] additional H Shares at the [REDACTED] to, among other things, cover over-allocations in the [REDACTED], if any, further details of which are described in the section headed
‘‘Structure of the Global Offering’’in this document
‘‘Overseas Weigao Shareholders’’ registered holders of Weigao Shares whose addresses on
the registers of members of Weigao Medical Polymer are in jurisdictions outside Hong Kong, PRC and Macau
‘‘Party’’ the Communist Party of China, the ruling party of the PRC
‘‘PBOC’’ the People’s Bank of China（中國人民銀行）, the central
bank of the PRC
‘‘People’s Congress’’ The PRC’s legislative apparatus, including the National
People’s Congress and all the local people’s congresses
(including provincial, municipal and other regional or local
people’s congresses) as the context may require, or any of
them
‘‘PICO’’ Guangzhou Biaodian Medicine Information Company
Limited (also known as Guangzhou PICO Medicine
Information Company Limited)（廣州標點醫藥信息有限公
司）, the reseach area and affiliate of Southern Medicine
and Economy Research Institute（南方醫藥經濟研究所）, a
direct reporting unit（直屬單位）of CFDA
‘‘PICO Report’’ 2010 – 2014 China Medical Devices and Orthopedic
Implantable Devices Industry Report（2010-2014年中國醫
療器械及骨科植入器械行業報告）, released by PICO
‘‘PRC Company Law’’ Company Law of the People’s Republic of China（中華人
民共和國公司法）, as amended and adopted by the
Standing Committee of the Tenth National People’s
Congress on October 27, 2005 and effective on January 1, 2006
‘‘PRC GAAP’’ generally accepted accounting principles in the PRC
‘‘PRC Securities Law’’ the Securities Law of the PRC（中華人民共和國證券法）,
as enacted by the 6th meeting of the 9th Standing Committee of the NPC on December 29, 1998 and became effective on July 1, 1999, as the same may be amended, supplemented or otherwise modified from time to time [REDACTED]
‘‘Price Determination Agreement’’ the agreement to be entered into by the Joint Global Coordinators (on behalf of the Hong Kong Underwriters) and our Company on the Price Determination Date to record and fix the [REDACTED]
‘‘Price Determination Date’’ the date, expected to be on or around [REDACTED] (Hong
Kong time) on which the [REDACTED] is determined, or such later time as the Joint Global Coordinators (on behalf of the Hong Kong Underwriters) and our Company may agree, but in any event no later than [REDACTED]
[REDACTED]
‘‘QIBs’’ a qualified institutional buyer within the meaning of Rule
144A [REDACTED]
‘‘Regulation S’’ Regulation S under the U.S. Securities Act
‘‘RMB’’or ‘‘Renminbi’’ Renminbi, the lawful currency of the PRC
[REDACTED]
‘‘Rule 144A’’ Rule 144A under the U.S. Securities Act
‘‘SAFE’’ the State Administration of Foreign Exchange of the
PRC（中華人民共和國國家外匯管理局）
‘‘SAIC’’ the State Administration for Industry and Commerce of the
‘‘Sanctioned Countries’’ countries or territories that are the target of general, country-wide or territory-wide economic sanctions imposed by the U.S., the EU, Australia, the United Nations or any other relevant sanctioning authority, including, without limitation, Cuba, Iran, North Korea, Sudan, Syria and the Crimea region of Ukraine
‘‘Sanctioned Persons’’ individuals or entities that are the target of or subject to
economic sanctions imposed by any relevant authority, including, without limitation, (i) those named on the Specially Designated Nationals List, or the Consolidated Sanctions List maintained by OFAC, and any entity owned or controlled by any of the foregoing; (ii) the Consolidated List of persons, groups and entities subject to EU financial sanctions maintained by the European External Action Service; or (iii) the Consolidated List of persons and entities subject to targeted financial sanctions or travel bans under Australian sanctions laws maintained by
Australia’s Department of Foreign Affairs and Trade
‘‘Sanctions Targets’’ Sanctioned Persons together with Sanctioned Countries
‘‘SAT’’ PRC State Administration of Taxation（中華人民共和國國
家稅務總局）
‘‘SDFDA’’ Shandong Food and Drug Administration (山東省食品藥品
監督管理局)
‘‘Securities and Futures Ordinance’’
or‘‘SFO’’
the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong), as amended, supplemented or otherwise modified from time to time
‘‘SFC’’ the Securities and Futures Commission of Hong Kong
‘‘Share(s)’’ shares in the share capital of our Company, with a nominal
value of RMB1.00 each, comprising our Domestic Shares and our H Shares
‘‘Special Regulations’’ Special Regulations of the State Council on the Overseas Offering and Listing of Shares by Joint Stock Limited
Companies（國務院關於股份有限公司境外募集股份上市
的特別規定）, promulgated by the State Council on August
4, 1994
‘‘Specified Territories’’ in respect of the [REDACTED], means any territories
outside Hong Kong, PRC and Macau which our Directors and our Company consider it necessary or expedient to exclude from the [REDACTED] on account of the legal restrictions under the laws of the relevant jurisdiction or the requirements of the relevant regulatory body or stock exchange in that jurisdiction
‘‘Stabilizing Manager’’ [REDACTED]
‘‘State Council’’ State Council of the People’s Republic of China（中華人民
共和國國務院）
‘‘Stock Exchange’’ The Stock Exchange of Hong Kong Limited
‘‘subsidiary(ies)’’ has the meaning ascribed thereto in section 15 of the
Companies Ordinance
‘‘substantial shareholder(s)’’ has the meaning ascribed to it under the Listing Rules
‘‘Supervisor(s)’’ member(s) of our Company
‘‘Supervisory Board’’ the board of supervisors of our Company
‘‘Takeovers Code’’ the Codes on Takeovers and Mergers and Share Buy-backs
issued by the SFC, as amended, supplemented or otherwise modified from time to time
‘‘Track Record Period’’ the period comprising the years ended December 31, 2012,
2013 and 2014 and the six months ended June 30, 2015
‘‘Underwriters’’ the Hong Kong Underwriters and the International
Underwriters
‘‘Underwriting Agreements’’ the Hong Kong Underwriting Agreement and the
International Underwriting Agreement
‘‘United States’’or ‘‘U.S.’’ the United States of America, its territories, its possessions
‘‘Unlisted Foreign Shares’’ ordinary shares issued by our Company, with a nominal value of RMB1.00 each and are held by persons other than PRC nationals or PRC corporate entities and are not listed on any stock exchange
‘‘U.S. dollars’’ or‘‘US$’’ United States dollars, the lawful currency of the United
States
‘‘U.S. FDA’’ the Food and Drug Administration of the United States
‘‘U.S. Securities Act’’ the United States Securities Act of 1933, as amended and
supplemented or otherwise modified from time to time, and the rules and regulations promulgated thereunder
‘‘Weigao Asset Management’’ Weihai Weigao Asset Management Co., Ltd.（威海威高資
產管理有限公司）, a limited liability company established
in the PRC on December 17, 2014, which is a wholly owned subsidiary of our Company
‘‘Weigao Holding’’ Weigao Holding Company Limited（威高集團有限公司）, a
limited liability company established in the PRC on August 4, 1998 and one of our Controlling Shareholders
‘‘Weigao International’’ Weigao International Medical Co. Limited（威高國際醫療
有限公司）, a limited liability company incorporated in
Hong Kong on May 3, 2006, and wholly owned by Weigao Medical Polymer. It will directly hold approximately [REDACTED] of the issued share capital of our Company immediately upon completion of the [REDACTED] (assuming the Over-allotment Option is not exercised)
‘‘Weigao Medical Investment’’ Weihai Weigao International Medical Investment Holding
Company Limited（威海威高國際醫療投資控股有限公司）,
a limited liability company established in the PRC on December 1, 2014 and one of our Controlling Shareholders
‘‘Weigao Medical Polymer’’ Shandong Weigao Group Medical Polymer Company
L i m i t e d（山東威高集團醫用高分子製品股份有限公
司）(stock code: 1066), a joint stock company incorporated
in the PRC with limited liability and the H shares of which are listed on the Main Board of the Stock Exchange. It will directly hold approximately [REDACTED] of the issued
s har e ca pit al of our Co mpa ny immed iat ely u po n
completion of the [REDACTED] (assuming the Over-allotment Option is not exercised)
‘‘Weigao Shares’’ shares of RMB0.10 each in the share capital of Weigao Medical Polymer, comprising the non-listed domestic shares and the listed foreign invested H shares
‘‘Weihai Fumaite’’ Weihai Fumaite Trading Company Limited（威海富邁特貿
易有限公司）, a limited liability company established in the
PRC on March 29, 2005, which was a previous Shareholder of our Company
‘‘Weihai Haixing’’ Weihai Haixing Medical Device Company Limited（威海海
星醫療器械有限公司）, a limited liability company
established in the PRC on January 24, 2007, which is an Independent Third Party
‘‘WHFDA’’ Weihai Food and Drug Administration（威海市食品藥品
監督管理局）
‘‘WFOE’’ wholly foreign-owned enterprise
[REDACTED]
Certain amounts and percentage figures included in this document have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be an arithmetic aggregation of the figures preceding them.
For ease of reference, the names of the PRC laws and regulations, governmental authorities, institutions, natural persons or other entities (including certain of our subsidiaries) have been included in the document in both the Chinese and English languages and in the event of any inconsistency, the Chinese versions shall prevail. English translations of official Chinese names are for identification purpose only.
In this document, unless the context otherwise requires, explanations and definitions of certain terms used in this document in connection with our Group and our business shall have the meanings set out below. The terms and their meanings may not correspond to standard industry meaning or usage of these terms.
‘‘510(k) clearance’’ Section 510(k) of the US Federal Food, Drug, and
Cosmetic Act requires manufacturers to notify the U.S. FDA at least 90 days in advance of their intent to market a medical device. A medical device that has obtained 510(k) clearance can be marketed and sold in the United States
‘‘CE marks’’ a product certification mark that is placed on products
compliant to the New Approach Directives of the EU. The CE mark is required for manufacturers (from anywhere in the world) who wish to sell their products into the European Economic Area. The CE mark indicates conformity with all the essential safety and environmental requirements set out in the European
