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Profile of project promoter

This project is initiated after multiple investigations of Taishan Industrial Town conducted by the president of Futon (Shenzhen) Adhesive Products Co., Ltd (“Futon”) and his management team, and through an in-depth research of local environment, industrial prospect, potential social and economic benefits conducted by relevant leaders and experts. Through defining project organization structure, Hong Kong Flexible Packaging Group Limited (“Group”) is identified as the project promoter.

The promoter is a company incorporated in Hong Kong, which will be responsible for dealing with external parties and investors in project promotion. According to a preliminary plan, types of companies to be formed in Taishan include adhesive products companies, film manufacturing companies, printed products companies, metal and stationery products companies, and technology trading companies.

Under the group structure, this project involves a complicated business system and a well-defined company function system. In terms of shareholder structure, the project’s substantial shareholder is Futon, a well-performing company which boasts more than twenty years’ history in adhesive product industry and enjoys a favorable reputation in Guangdong Province, with products sold across the world.

Project purposes

Despite a huge domestic and overseas demand for adhesive tapes and stationery packaging which grows at an annual rate about 15%-20%, due to intense competition, profit margin is severely affected by raw materials and the market is in an unhealthy state. In view of this, the group believes that it is necessary to integrate forces, change existing business pattern, redefine market position and implement upgrades in order to maintain sustainable growth in this industry. Accordingly, it will be necessary to invite downstream wholesalers to join the group and become trade partners in order to gain synergy, to invite upstream raw material suppliers to make strategic investment in the group in order to form an industry chain which integrates supply, production and sale, thus transforming the traditional industrial pattern.

In a changing world where progresses are being made continuously, and in view of the huge potential in both international and domestic markets, it is necessary to engage in innovation in order to gain an upper hand in industry competition. The future offers all kinds of possibilities, and it is expected that the group’s investment will grow rapidly and assets value will increase by three times in five years’ period, and the group’s tangible and intangible asset value is expected to be more than 1.5 billion Yuan in 8 years’ period.

Roles of “Futon” in the project

Thans to good reputation,Fu Fang accumulated a lot of loyal customers.for the needs of development,FUTON Group officially founded in 2005,and set up a production base in Shenzhen.

Futon plays an extremely important role in this project, it is, so to speak, the group’s predecessor, which brought this project into existence through extensive preparatory efforts. Futon will play the following roles respectively during the project construction period and after project completion: (1) During project construction, Futon will undertake all preparatory tasks at the early stage, including project siting, negotiation and fund raising, and Futon will be responsible for all other matters during the construction period; (2) After project completion, Futon’s existing business will be fully integrated into the group, forming the group’s initial business portfolio, and providing a basis in terms of project staff, process technology, sales channel and management expertise. In the future, the group will start full operation as the headquarters.

Scope of project

Project scope includes the purchase of nearly 50 units (sets) of state-of-the-art domestically made and imported manufacturing equipment, including SML LLDPE Stretch film machine from Austria, Bruckner BOPP production line from Germany, Guzzetti high-speed BOPP coating machine and full automatic single-layer slitter from Italy; the construction of a Bruckner BOPP film production line, a high–speed BOPP coating line and 10 slitting-packing integrated lines, a LLDPE stretch film production line, stationery and office supplies production lines.

Main economic and technical indicators
Project scale and objectives

1) Project scale
The project is aimed at producing more than 100,000 tons products annually.
2) Project objective
The project is intended to construct a new production plant in Taishan Industrial Town, introduce an state-of-the-art BOPP film production line from Germany, and expand the production capacity of adhesive tape and stretch film for packaging by means of large scale production. Through purchasing land, constructing modern plant facilities and introducing advanced manufacturing equipment and process, product quality, price/performance ratio and competitiveness will be enhanced, allowing the group to gain greater strength, advantage, and a leading position in domestic soft packaging sector, contributing to local economic growth and social progress.

Advantages of business environment in Taishan
Geographical and transportation advantages:

Taishan is a junction between Pearl River Delta and western Guangdong enjoying a considerable geographical advantage. The Western Guangdong Coastal Expressway and Xinhui-Taishan Expressway connect Taishan to Guangzhou in the north, Zhuhai and Macau in the East, Yangjiang, Maoming and Zhanjiang in the west within one to three hours’ traveling distance. After the completion of Hong Kong-Zhuhai-Macau Bridge, it will only take 1.5 hours to reach Hong Kong; in the future, Taishan will be connected by Guangzhu Railway which is currently under construction, the Western Guangdong Coastal Railway scheduled for commencement at the end of this year, the Xinxing-Guanghai railway currently under planning, as well as Pearl River Delta Intercity Rail. With a coast (island) line of 671 kilometers, 95 islands of various sizes and abundant deep water resources, Taishan has the favorable condition for port construction. Particularly, Chuanshan Archipelago is only 12 sea miles from international shipping line and has more than 30km of deep water coast. According to the survey and findings of the Research Institute of the Ministry of Transportation, Chuanshan Archipelago is suitable for constructing a 200,000-300,000 ton large deep water port owing to little back-silting, wide water space, small waves, short shipping route and long deepwater coastline, and a great scope for the development of harbor area.

Moreover, a class II 2,000-tonnage port for public service is located within Taishan Industrial Town. In the southern part of Taishan, a 10,000 tonnage operation zone has been built in Guanghai Port which is a class I port, and a 50,000-100,000 tonnage deepwater port has been included in China’s 12th Five Year Program.

Abundant land resources and a large-sized electrical energy base:

Currently many of the developed regions in Pearl River Delta has met with “growing pains” such as resource shortage and environmental pollution, while Taishan, being an less-developed region, possess advantages in terms of resources and environment as compared with developed regions. As an electrical energy industry base of China, Taishan enjoys sufficient energy supply which can fully satisfy the production need of companies; moreover, the government of Taishan has released a unique ”direct purchase of electricity” policy, pursuant to which, companies in Taishan with certain amount of power consumption need may directly fix electricity price with Taishan Power Plant through an application and approval process in order to obtain a preferential rate which is about 0.1 Yuan lower than normal grid price per kilowatt hour, thus significantly saving production cost.

Abundant human resources:

With a working-age population of more than 400,000, Taishan is able to provide a rural surplus workforce of than 200,000. Taishan is a leading city of Guangdong in terms of education, owning more than 10 national level and provincial level vocational schools, training more than ten thousands of people annually, and capable of providing sufficient skilled talents to companies.

Excellent ecological resources:

Moreover, due to its proximity to Gudou Mountain in the east, Shihua Mountain in the South, Yaji Mountain and Xihua Mountain in the west, and Tan River in the north, Taishan Industrial Town is endowed with a beautiful and habitable environment which is favorable for business, living and tourism, laying a solid foundation for an eco-friendly development in the Industrial Town.

Complete supporting facilities:

Neighboring the central district of Taishan City, the Industrial Town offers convenient supporting facilities for business and living, including two coastal railway lines (e.g. Shenmao Railway), Taishan Station, a highway network, water and electricity, communication and sewage treatment facilities, moreover, there is also a national level mechanical equipment testing laboratory, the only one in South China region, which will provide a favorable public platform for science and technology innovation to promote companies’ growth.

Competitive advantages of the project

The following table shows a comparison of the company’s various advantages before and after project implementation:

Timeline of investment return
Listing advantages of the project:

Under market economic condition, capital operation represents a fundamental change in companies’ business strategy, and the key is to make strategic choice of capital operation model in order to achieve quick expansion, accumulation and optimal allocation of capital.

There is not a single large company in the world which gained size and growth simply by accumulation of profits instead of capital operation. With the maturing domestic market and intensifying competition, traditional growth pattern has become unable to provide sufficient momentum, and in order to make new breakthroughs, companies will have to circulate, integrate and restructure various resources including products, technology, equipment, plant, trademarks, strategies, services, culture and management team by means of capital operation to optimize their allocations and form a synergy.

Based on the above-mentioned theories, the group has developed the following capital operation strategy in order to gain early access to capital market and receive recognition for the value of technological innovation, and gain capital support to strengthen its ability to carry out horizontal and vertical expansion and achieve high-speed robust growth.