Powerland AG / Key word(s): Miscellaneous/Share Buyback 15.07.2013 18:01 Dissemination of an Ad hoc announcement according to § 15 WpHG, transmitted by DGAP - a company of EQS Group AG. The issuer is solely responsible for the content of this announcement. --------------------------------------------------------------------------- Auditor informs Powerland AG of factors hindering it from issuing an audit opinion; The Management Board and Supervisory Board of Powerland AG decide on share buyback Frankfurt/Main, 15 July 2013 - The Management Board of Powerland AG has received draft audit reports for its unconsolidated and consolidated financial statements for 2012 from its auditor, BDO AG Wirtschaftsprüfungsgesellschaft In a conference call held today in which the Management Board was heard on the draft audit report, representatives of the auditor did, also after having heard the position of the Management Board, not indicate that the final reports will contain different reasons for denying audit opinions for both financial statements than set out in the draft audit reports. According to the draft report, the denial of an Audit Opinion for the consolidated financial statements is based on certain factors hindering the audit (so-called 'Prüfungshemmnisse'). This means, that the auditor was not able to form an opinion with sufficient reliability as to whether the consolidated financial statements comply with the IFRS standards, as the following circumstances could not be completely clarified: - Export revenues: According to the assessment of our auditor, revenues from the export business with two South African customers amounting to EUR 35.2 million and the corresponding receivable balance of EUR 5.5 million as at the financial year end have not been proved satisfactorily. The auditor derives this from the fact that the delivery addresses on the shipping consignment notes for the supply of goods to these customers were inconsistent. In a number of cases, the consignees did not reside at the indicated delivery address. In addition, Powerland Group has almost exclusively received direct payments from these end-customers of these South African customers except for November and December 2012. The auditor claims that it had not been possible to attribute the incoming payments to individual orders or invoices as the payments have been made by way of batch money transfers. Additionally, our auditor pointed out that a payment in the amount of USD 800,000.00 by one of the South African customers was, according to the declaration form for revenues from abroad, instructed by Mr. Shunyuan Guo, the chairman of the Management Board of Powerland AG. The Management Board of Powerland AG comments on this factor hindering the audit as follows: The Management Board has provided BDO with a full package of evidence and supporting documents for revenue recognition of export business in South Africa, including delivery order, custom declaration, shipping bill, bill of lading and banking slips. Furthermore, BDO has paid an on-site visit to South African customers as well as the Chinese tax bureau and shipping agent to acquire supporting documents. Confirmations of the accounts receivable on the outstanding receivables of EUR 5.5 million as at 31 December 2012 were sent by the two South African customers directly to the auditor. All accounts receivables in question have been settled in full in the meantime. Due to the above facts, Management Board deems the revenue recognition of its business with the two South African customers and accounts receivable balance in its consolidated financial statements to be fairly stated. The Management Board of Powerland AG deems the name of the consignee as well as the delivery address to be irrelevant for the recognition of revenues. The names of the consignee as well as the delivery addresses have been provided by both South African customers to Powerland Group and Management Board did not see a reason to examine and verify this information. Direct payments by the end-customers to the supplier of a trading company are very customary in international trade. Collective payments by the two South African customers for multiple deliveries are a well-established business practice with the customers who have been doing business with the Powerland Group for years. The payment of USD 800,000.00 was a loan granted by CEO Mr. Shunyuan Guo to Powerland's South African client. This customer instructed CEO Mr. Shunyuan Guo to directly pay the money to Powerland Guangzhou. That specific customer has been doing business with Powerland for years. This special move was to maintain its credit ratings in Powerland and to settle the due payment on time. However, this borrowing has been repaid by the South African client to Mr. Shunyuan Guo directly. - Cash and demand deposits: According to the assessment of our auditor, cash and demand deposits with banks amounting to a total of EUR 61.1 million have not been proved satisfactorily. The auditor states that legal representatives of Powerland AG have not agreed to visits of the headquarters of the account-keeping Chinese Banks by the auditor to enable a verification of the cash and demand deposits position mentioned above. The Management Board of Powerland AG comments on this factor hindering the audit as follows: Upon the auditors' request, representatives of Powerland Group visited all of the six account-keeping branches of Chinese banks where Powerland Group has deposits and borrowings together with representatives of the auditor. During these visits, officers of the respective banks provided written documentation directly to the representatives of the auditor, confirming the amounts of the deposits and borrowings as stated in the consolidated financial statements. Auditors requested further inquiries with the headquarters of the respective banks to verify the account balances. The Management Board deems this request as very uncustomary for audit procedures in China. In addition, the request by the auditors is beyond the scope of what Powerland Group could possibly coordinate as Powerland has no relationships with the central headquarters of these banks. - Long-term bank borrowings: According to the assessment of our auditor, long-term bank borrowings amounting to EUR 3.7 million and short-term bank borrowings amounting to EUR 32.7 million have not been proved satisfactorily. According to our auditor, the legal representatives of Powerland AG had not agreed to the use of the so-called 'Borrowing Card' which would grant comprehensive information by the Chinese Central Bank of the credit lines which have been drawn. The Management Board of Powerland AG comments on this factor hindering the audit as follows: As stated above, the confirmation documents from the banks have fully proven the entire long-term and short-term bank borrowings balances. The Management Board of Powerland AG therefore deems it unnecessary to provide supplementary documents to verify the borrowings. In addition, the Management Board is worried that such in-depth-auditing could jeopardize Powerland Group's relationship with the lending banks and create negative impacts on Powerland's future business. - Group of related parties: According to the assessment of our auditor the delineation of the group of related parties as per IAS 24 has not been proved satisfactorily: - The legal representative of a Chinese company, being a distributor of leather handbags in the luxury segment of Powerland Group, has received a monthly salary payment in an amount of RMB 5,500.00. The reason that the auditor claims it was provided with the information that it had been intended to support the distributing company and that, in order to simplify the matter, Powerland Group had continued to pay this salary, although the legal representative of the Chinese company had not been employed by Powerland Group since September 2009. In addition, the sales manager of Powerland Group had owned the distributing company until January 2010. - In addition, the auditor claims that in December 2012, a loan in the amount of RMB 30 million, which had been granted to Powerland Group, was paid out to a Chinese company whose managing director received salary payments of Powerland Group from February to December 2012. The auditor was provided with the information that in the meantime, the loan amount had been fully forwarded to Powerland Group. Even though the loan was intended to pre-finance the establishment of an e-commerce platform for the trademark 'Sotto' by the above-mentioned Chinese company, the auditor claims that Powerland has not been presented with invoices issued by this company to Powerland Group. The Management Board of Powerland AG comments on this factor hindering the audit as follows: The legal representative of the Chinese distribution company was a former employee of the Powerland Group. In return, Powerland Group paid her a salary to compensate her for consulting services, market research, business development and marketing campaign for the Powerland Group. In addition, the participation in the Chinese distribution company owned by Powerland Group's current sales director had been fully transferred in January 2010 and is therefore irrelevant for the year 2012 as the period under review. The loan over RMB 30 million was paid out via an intermediate at the request of the lending bank. The RMB 910,000.00 that initially remained with the Chinese company of a former employee were intended to fund the establishment of an e-commerce platform for the distribution of 'Sotto' labelled products by such Company were later on also forwarded to Powerland Group as the e-commerce platform project did not materialize. In addition, the respective Chinese company did not have any trade transaction with Powerland Group. Mainly with reference to the factors hindering the audit as presented above and their potential impact on the value of the (direct and indirect) holdings of Powerland AG in its subsidiaries, our auditor does not see itself in a position to provide an audit opinion also with regard to the unconsolidated financial statements of Powerland AG. The Management Board of Powerland AG will analyse the audit reports thoroughly. In order to decide on measures to be taken, the Supervisory Board of Powerland AG decided to instruct an independent and neutral auditor to review the above factors hindering the audit and carry out a detailed assessment. Amongst other things, a discussion with BDO AG Wirtschaftsprüfungsgesellschaft about the possibility and requirements of a subsequent audit of amended financial statements according to § 316 para. 3 of the German Commercial Code (Handelsgesetzbuch) is to be held. The Management Board remains committed to continue active communication with BDO. The members of the Supervisory Board together with the CEO, Mr. Shunyuan Guo, are in intense talks with possible candidates for the CFO position at Powerland AG. It is also the Supervisory Board's intention to finalize the selection process as soon as possible and to assign the new CFO within a short time. In addition, the Management Board and the Supervisory Board have decided to initiate a Share Buyback Programme and buy back up to 1,500,000 Powerland AG shares through the stock exchange starting 25 July 2013 until the end of 2013 at a price per share that does not exceed EUR 8.00 per share, as the current share price does not reflect the intrinsic value of Powerland Group. The value per share paid by the company must not exceed the opening price in XETRA trading on the trading day at Frankfurt Stock Exchange by more than 10% and must not undercut it by more than 10%. Powerland AG will redeem these shares and reduce the statutory capital or hold these shares and use the shares as compensation for acquisition purposes, to meet obligations under the stock option programme 2011, as investment opportunity for strategic partners or to sell these shares later on again on the stock market. For further information please contact: Powerland AG Jiangbin He Investor Relations Director Lyoner Strasse 14 60528 Frankfurt am Main Germany Phone: +49 (0) 69 66 554 - 459 Fax: +49 (0) 69 66 554 - 276 email: [email protected] Home: http://www.powerland.ag 15.07.2013 DGAP's Distribution Services include Regulatory Announcements, Financial/Corporate News and Press Releases. Media archive at www.dgap-medientreff.de and www.dgap.de --------------------------------------------------------------------------- Language: English Company: Powerland AG Lyoner Straße 14 60528 Frankfurt am Main Germany Phone: +49 69 - 66554-459 Fax: +49 69 - 66554-276 E-mail: [email protected] Internet: www.powerland.ag ISIN: DE000PLD5558 WKN: PLD555 Listed: Regulierter Markt in Frankfurt (Prime Standard); Freiverkehr in Berlin, Düsseldorf, Hamburg, München, Stuttgart End of Announcement DGAP News-Service ---------------------------------------------------------------------------