Global Market Group Ltd Strategic Investment (2953D)

TIDMGMC

RNS Number : 2953D

Global Market Group Ltd

27 March 2014

Global Market Group Limited

("Global Market", the "Company" or "GMC")

Strategic Investment

Global Market Group Limited ("Global Market" or the "Company") (AIM: GMC), the AIM quoted business-to-business ("B2B") e-commerce service provider, is pleased to announce that it has entered into an agreement (the "Agreement") with Guangzhou Daily Newspaper Business Co., Limited ("Guangzhou Daily"), under which Guangzhou Daily will acquire an initial 10.5% equity interest in Guangzhou Longfei Software Technology Co., ("Guangzhou Longfei") a wholly-owned subsidiary of GMC in the PRC. Guangzhou Longfei was established by GMC in November 2012 to operate FeiFei, an online consumer retail extension of GMC's core B2B operations which GMC originally announced in February 2013 as the M2C China Project.

FeiFei has been undergoing successful market trials since November 2013. Guangzhou Daily will invest RMB40 million in cash (approximately US$6.5 million) into Guangzhou Longfei in consideration for the equity holding. In addition to its monetary investment Guangzhou Daily will also provide marketing and advertising resources valued at a further RMB40 million for the promotion of FeiFei. The Agreement also dictates that GMC will make a RMB40 million cash investment into Guangzhou Longfei. This is a strategic investment, and the new investment funds of RMB80 million and RMB40 million in advertising resources will be used for the further development and marketing of FeiFei. Guangzhou Daily is a wholly-owned subsidiary of China's largest newspaper and online media group Guangdong Guangzhou Daily Media Co., Ltd ("Guangzhou Daily Group").

The Agreement includes an upward and downward price adjustment mechanism linked to Guangzhou Longfei's sales in the period from 1 April 2014 to 31 March 2015 (the "Performance Period"). On the basis of the cash consideration alone, the investment by Guangzhou Daily has been undertaken at a pre-money valuation of Guangzhou Longfei of RMB300million. On completion this will equate to Guangzhou Daily having a 10.5% interest in the enlarged share capital of Guangzhou Longfei. Should sales in the Performance Period be below RMB 100 million the valuation will be adjusted downwards by a ratio of 2 RMB for every 1 RMB of sales, to a minimum valuation of RMB 200 million which would equate to 14.3% of Guangzhou Longfei's equity. Should Guangzhou Longfei's sales exceed RMB 200 million, an upward adjustment of the valuation will be made applying the same ratio up to RMB 400 million which would equate to Guangzhou Daily's interest in Guangzhou Longfei being 8.3%.

The advertising and marketing resources will comprise, but not be restricted to, advertising space across Guangzhou Daily's wide range of print and online publications.

GMC established FeiFei as a natural extension of its core B2B business, www.globalmarket.com, which is an online platform linking quality-audited Chinese manufacturers, now numbering more than 30,000, with international buyers across a range of sectors. Using resources already developed and proven from the operations of the core business, FeiFei represents a logical next step to provide retail consumers with direct-ordering access to items produced by the manufacturers, using a separate portal, www.feifei.com. Initially, FeiFei is only focused on selling household goods, a sector which easily lends itself to online sales and a vertical that GMC has serviced from the beginning with its core B2B business. Also initially, at least, all promotion of FeiFei will remain focussed on Guangdong, the home province of both GMC and the Guangzhou Daily.

Since its soft launch during the final quarter of 2013, FeiFei has managed to attract good quality manufacturers offering a range of stock keeping units that include home appliances, kitchenware, furniture, home decoration products, home textiles and personal care items.

The business model established by GMC for FeiFei means that manufacturers will bear all of the costs occurred ahead of sales to consumers, including product shipping to and storage in warehouses maintained by FeiFei, logistics and the creation of promotional material used on www.feifei.com. At the same time, the costs of sales fulfilment, shipping to buyers and charges associated with online sales will be passed on to consumers. FeiFei will be responsible for managing the supply chain, product quality testing, developing the platform, promotional marketing for the portal, and after-sales services, for which it will charge a service commission based on the retail selling price.

To date, GMC has invested around US$5 million in development and promotional funding, and FeiFei has established an operating and sales team of around 100 people, headed by Simon Chuen. Mr Chuen joined FeiFei in May 2013 with strong commercial, marketing, and supply chain experience gained over more than 30 years in the retail and FMCG sectors in Greater China.

The Agreement also includes the appointment of a new director to the board of Guangzhou Longfei as nominated by Guangzhou Daily. As a result, Ms Wenhua Zhao, who is a Board Director and General Manager of Guangzhou Daily, has been appointed with immediate effect. Ms Wenhua Zhao holds a PhD in management.

Ms Zhao said: "It's great for Guangzhou Daily to become a strategic partner of Global Market Group by investing in FeiFei, which we believe is a unique M2C business. As a large media organisation in China, Guangzhou Daily plans to use its media resources to spread awareness of FeiFei among consumers in China."

Recognising the position of Guangdong as China's number one province for consumer spending, GMC intends to establish solid supplier and consumer bases for FeiFei there before expanding more widely across China. The Company anticipates that by focussing initially on its home province in this way, it will gain valuable early experience of operating costs, logistical controls and consumer behaviour, among other key elements, before using that solid base as a platform for geographic expansion and the introduction of a wider range of product lines. GMC also anticipates that the growth and success of FeiFei will bring positive benefits to its core B2B/M2B business by attracting quality manufacturers.

Guangzhou Daily Group is listed on the Shenzhen Stock Exchange with a current market capitalisation of RMB 11.68 billion (approximately US$1.9 billion). Guangzhou Daily Group's stable of more than 15 newspapers and magazines includes one of the largest and most commercially successful in China, Guangzhou Daily. Alongside its media interests, Guangzhou Daily Group is also engaged in advertising and marketing activities across Southern China and more widely, including ownership of advertising agencies, advertising production and design businesses, and audio-visual production. Guangzhou Daily Group also owns a leading Chinese media portal, www.dayoo.com, and has holdings in the hotel and leisure industries, among other interests.

GMC Chairman and Chief Executive Officer David Ling said: "We are delighted to have agreed this new investment with such a well-positioned nationwide media group, and look forward to the strengthened development of FeiFei. The arrival of Guangzhou Daily creates powerful marketing and advertising synergies we believe will enable us to establish a new revenue stream and accelerate long-term organic growth as a natural extension of our core business activities."

GMC anticipates announcing its financial results for the year to 31 December 2013 during May 2014.

About Global Market Group Limited

Global Market generates revenues by operating the online portal www.globalmarket.com that connects high-quality manufacturers in China with buyers from all over the world. GMC Manufacturers listed on the portal with "GMC" logoundergo independent quality audits conducted by Germany's respected TUV Rhineland group ("TUV") to gain Global Manufacturer Certificate (or "GMC") certification, assuring international buyers they have met demanding and independently-assessed certification standards, thus reducing risk, building trust, and providing a convenient and inexpensive route for manufacturers to access an international buying audience. Manufacturers pay to use the web portal, and international buyers are offered free access.

Mr Simon Chuen has been appointed as Chairman of Guangzhou Longfei. Mr Chuen was previously Chief Executive Officer at Wellcome Taiwan, a leading supermarket chain in Taiwan under Dairy Farm Group. Dairy Farm Group is a Pan-Asian retailer. Dairy Farm Group operates supermarkets, hypermarkets, health and beauty stores, convenience stores, home furnishings stores and restaurants under well-known local brands. Dairy Farm is a member of the Jardine Matheson Group. He has also been Country President at The Home Depot China and Executive Vice President at B&Q China, and worked for Wal-Mart China as the Senior Merchandise Director for over nine years, helping Wal-Mart to set up its retail operations in China.

For further information, please visit www.globalmarket.com or contact:

David Ling/ Cheandy Hu/ Mophy Fan Global Market Group Limited: [phone]

Philip Secrett/ Maureen Tai/ Jen Clarke Grant Thornton UK LLP, Nominated Adviser: [phone]

Richard Baty/ Paul Gillam Westhouse Securities Limited, Broker: [phone]

Allan Piper/ Jiang Lei First City Public Relations: [phone]

This information is provided by RNS

The company news service from the London Stock Exchange

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