CTI.L Regulatory News (CTI)

28 Apr 2008 14:09

Cathay International Holdings Ld28 April 2008 Not for release, publication or distribution in whole or in part, in or into theUnited States of America, Canada, Australia, the Republic of South Africa, Japanor any other jurisdiction if to do so would constitute a violation of therelevant laws of such jurisdiction Cathay International Holdings Limited ('CIH' or the 'Company') Proposed further investments in the Xian Haotian Group CIH today announces proposed further investments into the Xian Haotian Group,which manufactures, markets and sells plant extracts as various activeingredients for pharmaceuticals, food, beverages, cosmetics, dietary supplementsand health products. HIGHLIGHTS • proposed further investments of up to US$44 million into the Xian Haotian Group • potential issue of shares in a subsidiary to the senior management of the Xian Haotian Group (described as the Management Shares up to a maximum of US$12,593,584 and the Earn-out Shares up to a maximum of US$5,630,053) • the investment in the Xian Haotian Group is an important milestone in the development and growth of the CIH Group's pharmaceutical business. • the Further Investments and issue of the Management Shares and Earn-out Shares should enable CIH to expand into the manufacturing and sale of plant extracts, widely used as active ingredients in medical products, diet supplements and health products, food, beverages and cosmetics industries in both the international markets and the domestic market in China. • the investment in the Xian Haotian Group is expected to be earnings neutral in the first full year following completion of such investments but is expected to be earnings enhancing thereafter. A circular setting out further details of the proposed further investments andconvening an SGM is being posted to Shareholders today. For further information contact: Stephen HuntDeputy Chairman, Cathay International HoldingsTel: +852 2828 9289 Gerry Beaney / Fiona KindnessGrant Thornton UK LLPT: +44 20 7383 5100 This press release does not constitute, or form part any invitation to sell orissue, or any solicitation of any offer to purchase or subscribe for, any sharesin the Company nor shall this press release or any part of it, or the fact ofits distribution, form the basis of, or be relied on, in connection with or actas any inducement to enter into any contract or commitment whatsoever. The distribution of the press release in certain jurisdictions may be restrictedby law and therefore persons into whose possession this press release comesshould inform themselves about and observe any such restrictions. Any suchdistribution could result in a violation of the law of such jurisdictions.Neither this press release nor any copy of it may be taken or transmitted ordistributed (directly or indirectly) in or into the United States, Australia,Canada, Japan, the Republic of Ireland or South Africa or to any national,citizen or resident thereof or any corporation, partnership or other entitycreated or organised under the laws thereof. Grant Thornton UK LLP, which is regulated in the United Kingdom by the FinancialServices Authority, is acting as sponsor and financial adviser to CIH and no oneelse in connection with the proposals and will not be responsible to anyoneother than CIH for providing the protections afforded to its customers or forproviding advice in relation to the proposals. This announcement has been issued by the Company and is the sole responsibilityof the Company. It has not been independently verified by Grant Thornton UK LLPor any other person. This announcement does not purport to be comprehensive orto contain all the information that a recipient may need in order to evaluatethe Company. No representation or warranty, express or implied, is given and, sofar as is permitted by law and except in the case of fraud, no responsibility orliability is accepted by any person, with respect to the accuracy orcompleteness of the announcement or its contents or any oral or writtencommunication in connection with the proposals. In particular, but withoutlimitation, no representation or warranty is given as to the achievement orreasonableness of, and no reliance should be placed on, any projections,targets, estimates or forecasts contained in this announcement. In all cases,interested parties should conduct their own investigation and analysis of theCompany and the data contained in this announcement. Certain statements in this announcement are forward-looking statements. Thesestatements relate to the Group's future prospects, developments and businessstrategies. Forward-looking statements are identified by their use of terms andphrases such as "believe", "could", "envisage", "estimate", "intend", "may","plan", "will" or the negative of those, variations or comparable expressions,including references to assumptions. The forward-looking statements in thisannouncement are based on current expectations and are subject to risks anduncertainties that could cause actual results to differ materially from thoseexpressed or implied by those statements. If one or more of the risks oruncertainties described in the circular to shareholders materialises, or ifunderlying assumptions prove incorrect, the Group's actual results may varymaterially from those expected, estimated or projected. Given these risks anduncertainties, potential investors should not place any reliance onforward-looking statements. These forward-looking statements speak only as atthe date of this announcement. Neither the Directors nor the Company undertakeany obligation to update forward-looking statements or risk factors other thanas required by the Listing Rules, Disclosure and Transparency Rules, applicablelegislation or by the rules of any other securities regulatory authority,whether as a result of new information, future events or otherwise. Cathay International Holdings Limited ("CIH" or the "Company") Proposed Further Investments in the Xian Haotian Group and issue of shares in a CIH Group subsidiary to senior management of the Xian Haotian Group Introduction The Company announced on 29 October 2007 that, through its wholly-ownedsubsidiaries, it had entered into various investment agreements with the XianHaotian Group, which manufactures, markets and sells plant extracts as variousactive ingredients for pharmaceuticals, food, beverages, cosmetics, dietarysupplements and health products. The Board believes that the investment in theXian Haotian Group is an important milestone in the development and growth ofthe CIH Group's pharmaceutical business. The purpose of the circular being posted to shareholders ("Circular") is toprovide information on the Xian Haotian Group; provide details of the proposedfurther investments into the Xian Haotian Group and the effect of suchinvestments on the Group; to explain why the Directors believe that the FurtherInvestments into the Xian Haotian Group and issue of the Management Shares andEarn-out Shares are in the best interests of the Group and the Shareholders as awhole and to seek the consent of the Shareholders to the completion of theFurther Investments and issue of the Management Shares and Earn-out Shares. Theapproval of Shareholders is required as the proposed further investmentsconstitute a Class One transaction under the UK Listing Rules. The agreements announced on 29 October 2007 included • a Subscription Agreement setting out the terms of an initial investment of US$6.5 million; and • a Conditional Agreement that contained provision for (i) further equity and working capital investments of up to US$50 million in cash into the Xian Haotian Group; and (ii) the potential issue of shares in Dragon Diligent (having a maximum value of approximately US$18.2 million) to the senior management of the Xian Haotian Group. A further announcement was made on 14 March 2008 regarding the furtherinvestments envisaged under the Conditional Agreement, comprising an equityinvestment into the Xian Haotian Group of US$2.36 million, a working capitalloan of US$1.1 million and a proposed additional working capital facility ofUS$2.54 million which was drawn down on 3 April 2008. The aggregate equity and working capital investments made by the Company intothe Xian Haotian Group to date amount to approximately US$12.5 million and assuch are classified as a Class Two transaction for the purposes of the UKListing Rules. Any further investments in the Xian Haotian Group are dependent upon a number ofconditions, including the approval of the CIH board and the completion of fullscale feasibility studies subject to the satisfaction of the CIH board. Suchfeasibility studies are currently in progress. In the event that the conditionsto further investments in the Xian Haotian Group are not satisfied or CIHdecides not to proceed with such further investments within nine months from thedate of the initial subscription to the Xian Haotian Group (i.e. by 21 July2008) then CIH has the right under a Put and Call Option Agreement to recoup allthe equity investments and any working capital loans provided to the XianHaotian Group together with interest accrued. It is therefore possible that CIH may not make any further investments into theXian Haotian Group and will in fact recoup all cash which has so far beeninvested. However, if the results of the full scale feasibility studies arepositive the Company proposes to proceed with further investments in a timelymanner and is thus seeking Shareholder approval now for the proposals describedin the Circular. These include: • further cash investments into the Xian Haotian Group of up to US$44 million (being the US$50 million in cash described as the Further Investments, less the equity and working capital investments of US$6 million already advanced out of this total as announced on 14 March 2008); and • the potential issue of shares in Dragon Diligent to the senior management of the Xian Haotian Group (described as the Management Shares up to a maximum of US$ 12,593,584 and the Earn-out Shares up to a maximum of US$5,630,053 as detailed more fully later) As noted above, in view of the size of the transactions contemplated, inrelation to the Company, completion of the Further Investments and issue ofManagement Shares and Earn-out Shares requires, amongst other conditions, theapproval of the Shareholders. A notice of the Special General Meeting to be heldat The Westin Paris, 3 Rue De Castiglione, Paris 75001 France on 30 May 2008 at2.30 p.m., at which Shareholder approval will be sought for completion of theFurther Investments and issue of Management Shares and Earn-out Shares, is setout in the Circular. The Board considers the Further Investments and issue of Management Shares andEarn-out Shares as set out in the Resolution to be in the best interests of theCompany and the Shareholders as a whole. Accordingly, the Board unanimouslyrecommends Shareholders to vote in favour of the Further Investments and issueof Management Shares and Earn-out Shares as set out in the Resolution as theDirectors intend to do in respect of their own beneficial holdings amounting inaggregate to 8,370,001 A Shares and 173,970,512 Common Shares, representingapproximately 68.26% of the votes capable of being cast at the Special GeneralMeeting. Background to and reasons for the Further Investments and issue of theManagement Shares and Earn-out Shares The investment in the Xian Haotian Group is an important milestone in thedevelopment and growth of the CIH Group's pharmaceutical business. The FurtherInvestments and issue of the Management Shares and Earn-out Shares should enableCIH to expand into the manufacturing and sale of plant extracts, widely used asactive ingredients in medical products, diet supplements and health products,food, beverages and cosmetics industries in both the international markets andthe domestic market in China. Economic development in China has led to an increasingly affluent population andan increased awareness of the value of diet supplements and health products.The fast growing market in diet supplements and health products in China offersgood business growth potential. CIH believes that it will also benefit from theinvestment, via the Xian Haotian Group, in the manufacturing and sale of activeingredients for diet supplements and health products sold in China. World demand for diet supplements and health product ingredients is expected toincrease due to the clinical and scientific evidence of their health benefits.China is currently one of the largest producers of active ingredients for dietsupplements and health products after the United States. The Xian Haotian Grouphas established and maintained a good business network with its overseascustomers and this should provide a platform to expand further its exportbusiness. One of CIH's business targets is to increase, via the Xian HaotianGroup, its market share in the global supply of active ingredients for dietsupplements and health products. The senior management team of Xian Haotian has extensive experience, expertiseand market knowledge in the plant extract business in China and in overseasmarkets. As Xian Haotian is one of the leading plant extract export companies inChina, CIH's investment in the Xian Haotian Group is expected to position CIH asone of the key players in the industry in China. The export business of theXian Haotian Group should also assist the development of CIH's pharmaceuticaldivision in the international arena. The Company believes that Xian Haotian's professional research and developmentteam should continue to improve Xian Haotian's core technologies and ensure thatXian Haotian will maintain and build upon its market position. Details of the Management Set out below are details of the three key individuals of the Xian HaotianGroup. It is not proposed that these individuals be appointed to the Company'sboard of directors. Mr. Zhang Chengwen, aged 45, is the Chairman and General Manager of XianHaotian. He is the Deputy Chairman of the China Herbal Extract Association andDeputy Head of the China Society of Natural Resources. He was awarded a NationalScientific and Technological Progress Prize (First Class) by the National Bureauof Quality and Technical Supervision and a National Scientific and TechnologicalProgress Prize (Second Class) by the Ministry of Agriculture in China. He hasover 12 years' experience in the management of herbal extract businesses. Mr. Kou Yufeng, aged 36, is the Deputy General Manager of Xian Haotian. He wasformerly head of the sales department, head of the research institute, deputydirector of production, and deputy director of Xi'an Tiancheng Medical andBio-engineering Company, Ltd. He has over 13 years' experience in the marketingand sales of herbal extract products. Mr. Dong Yingjie, aged 44, is the Senior Engineer and General Manager ofShenyang Haotian-Wanjia Medical Technology Company, Ltd, a subsidiary of XianHaotian. He is a director of the Biological Research Department at LiaoningProvincial Medical Industry Research Institute. He has been involved inresearching new medicines for 17 years. He has worked on over 20 nationallyapproved health food products and a number of patents in Chinese and Westernmedical and health products. Information on Xian Haotian Established in 2003, Xian Haotian is engaged in the manufacturing, marketing andsale of plant extracts as various active ingredients for pharmaceuticals, food,beverages, cosmetics, dietary supplements and health products. Currently,approximately 73% of the sales of the Xian Haotian Group are export sales to theUnited States, Europe and Japan, with the remainder to China. Xian Haotian alsoowns a number of subsidiaries, including Yangling Haotian, which together form avertically integrated operation in the plant extract business. Xian Haotian's products include coenzyme Q10, bilberry plant extract, grape seed(skin) extract, octacosanol (derived from sugar cane and wheat germ), blacksoybean hull extract, and 5-hydroxytryptophan (derived from seeds of a WestAfrican medicinal plant). According to the China Chamber of Commerce for Import and Export of Medicinesand Health Products, based on the statistics from the China Customs Office, XianHaotian was one of the leading plant extract export companies in China in 2007.The technologies of Xian Haotian include semi-synthetic coenzyme Q10 processingtechnology and water soluble coenzyme Q10 technology which are applied in theproduction of various plant extract products. The water soluble coenzyme Q10processing technology is a proprietary technology of Xian Haotian. Xian Haotianalso operates conventional technologies in plant extraction, refining andpurification process. Xian Haotian has patents in China relating to theproduction of three plant extract products using its technologies. As notedabove, Xian Haotian has an experienced management team, including 52professionals researching and developing plant extraction, chemical synthesisand fermentation technologies. Feasibility studies are currently underway in relation to certain new plantextract products including Inositol (derived from corn) and HydroxypropylMethylcellulose (derived from cotton) being developed by the Xian Haotian Group. These New Products relate to the planned expansion of Xian Haotian's range ofplant extract products comprising active ingredients for use in diet supplementsand health products. Information on Yangling Haotian Yangling Haotian was established in 2005, as a wholly owned subsidiary of XianHaotian, to house the main production facilities of the Xian Haotian Group. Itis engaged in the production of plant extracts via extraction, refining andpurification. Its production facilities commenced operation in September 2007and comprise plant extraction facilities with an annual production capacity of100 tonnes and facilities using water soluble production technology with anannual production capacity of 20 tonnes. Currently, the plant extractionfacilities are mainly used for the production of bilberry plant extract at anannual production of approximately 50 tonnes. Financial information on the Xian Haotian Group The audited accounts of Xian Haotian and its subsidiaries, including YanglingHaotian, prepared under International Financial Reporting Standards for thefinancial year ended 31 December 2006, reported a consolidated turnover ofUS$10.43 million and a consolidated loss attributable to shareholders of XianHaotian of US$0.72 million. As at 31 December 2006, Xian Haotian and itssubsidiaries, including Yangling Haotian, had consolidated gross assets andconsolidated net assets of US$15.31 million and US$2.86 million respectively. The unaudited management accounts for the Xian Haotian Group for the year ended31 December 2007 (which have been prepared using the accounting policies adoptedby the CIH Group in its last annual consolidated accounts) disclose aconsolidated turnover of US$14.3 million, a consolidated loss attributable toshareholders of Xian Haotian of US$1.2 million. As at 31 December 2007, theunaudited management accounts for the Xian Haotian Group disclose consolidatedgross assets and consolidated net assets of US$21.3 million and US$8.5 millionrespectively. Shareholders should note that these figures are given forinformation purposes only, are based on unaudited management information, andmay be subject to material adjustment. Summary of the terms of the Subscription Agreements, the Put and Call OptionAgreement and the Conditional Agreement The Subscription Agreements announced by CIH on 29 October 2007 comprised: • a subscription of equity by Fair Route in Xian Haotian for cash in the amount of RMB27.58 million (approximately US$3.68 million). As a result of this subscription, CIH effectively owned 51% of the enlarged equity capital of Xian Haotian; and • a subscription of equity by Sino Link in Yangling Haotian for cash in the amount of RMB21.15 million (approximately US$2.82 million). As a result of this subscription in Yangling Haotian and the subscription in its parent, Xian Haotian (as described above), CIH effectively owned 84.27% of the enlarged equity capital of Yangling Haotian. The Subscription Agreements were conditional on, inter alia, the regulatoryapprovals of relevant authorities in China. The final condition to theSubscription Agreements was satisfied on 29 October 2007. Further Cathay International Pharmaceutical (an indirect wholly owned subsidiaryof CIH) entered into the Conditional Agreement which provides for: • the entry into of the Equity Transfer Agreement pursuant to which CIH will indirectly acquire a further 23.39% interest in Xian Haotian's equity capital for cash of US$11,497,325 from the Xian Haotian Selling Shareholders. Upon completion of the Xian Haotian Transfer, CIH would effectively own 74.39% of Xian Haotian with the remaining 25.61% being owned by the Management; and • the entry into of the Shareholders' Agreement detailing (a) the Second Instalment of Investments (a minimum of US$5 million up to a maximum of US$23,502,675) subject to, inter alia, the completion of feasibility studies to the satisfaction of CIH; (b) allotment of up to US$12,593,584 of new shares in Dragon Diligent to the Management; (c) the Equity Transfer Agreement; (d) allotment of additional new shares in Dragon Diligent as earn-out shares to the Management (up to a maximum of US$5,630,053) based on future results performance of the Xian Haotian Group in 2008, 2009 and 2010; and (e) the Third Instalment of the Investments (up to a maximum of US$ 15 million) subject to, inter alia, the completion of feasibility studies to the satisfaction of CIH. When the CIH Group makes the Third Instalment of the Investments (whether instages or in total), then out of such capital contributions, subject to theapproval of the board of Dragon Diligent, Dragon Diligent shall provide theManagement with an interest-bearing loan in an amount not exceeding 8% of eachsuch subsequent contribution by the CIH Group in accordance with the terms ofthe Shareholders' Agreement for the purpose of the Management's subscription ofnew shares in Dragon Diligent to compensate for the dilutionary effect on theManagement's interest in Dragon Diligent as a result of such subsequent capitalcontributions by the CIH Group. As announced on 14 March 2008 Cathay has proceeded with the first phase of theSecond Instalment of the Investments, namely an equity and working capitalinvestment of US$6 million into the Xian Haotian Group. Summary of the investment stages In summary, the Transaction Agreements provide for CIH to make the followinginvestments in the Xian Haotian Group, totalling up to US$56.5 million in cashand up to approximately US$18.2 million in shares in Dragon Diligent, a CIHsubsidiary: Investment Investment already made to be made TOTAL US$ US$ US$Cash investmentsFirst Instalment 6,500,000 - 6,500,000Second Instalment of the Investments - equity 2,360,000 17.502.675 19.862,675subscriptionSecond Instalment of the Investments - working 3,640,000 - 3,640,000capital loansXian Haotian Transfer - 11,497,325 11,497,325Third Instalment of the Investments - 15,000,000 15,000,000Total cash investment 12,500,000 44,000,000 56,500,000 Investment by way of issue of shares in DragonDiligent at US$1 per shareManagement Shares - 12,593,584 12,593,584Earn-out Shares - 5,630,053 5,630,053Total investment by way of share issue - 18,223,637 18,223,637 TOTAL INVESTMENT IN XIAN HAOTIAN 12,500,000 62,223,637 74,723,637 The conditions which must be satisfied for the Further Investments to be madeand the issue of Management Shares and Earn-out Shares to be completed are asfollows: In respect of the remainder of the Second Instalment of the Investments up tothe maximum of US$23.5 million (expected to be completed by the end of 2008): • receipt of all necessary government approvals in China for investments in the Xian Haotian Group and compliance with all necessary relevant procedures; • completion of due diligence on, inter alia, finance, products, technologies, assets, legal issues, and marketing of the Xian Haotian Group to the satisfaction of Cathay International Pharmaceutical; • completion of feasibility studies and implementation plans for all projects as well as implementation reports for enlarged investments in the HPMC and Inositol projects; • execution by Cathay International Pharmaceutical and the Management of the Shareholders' Agreement regarding their future cooperation and setting the terms and conditions applicable to the phases of capital contributions to be made by the CIH Group to Dragon Diligent, the further issue of shares by Dragon Diligent to the Management ("Management Shares") and provision of loans to the Management by Dragon Diligent only for the subscription of shares of Dragon Diligent, as well as incentive schemes ("Earn-out Shares") for the Management upon achievement of certain objectives and profit targets; • issuance of the audit report of the Xian Haotian Group for the financial year 2007; and • approval for completion of the transactions contemplated under the Conditional Agreement by the Board of Directors and Shareholders of CIH as required under the Listing Rules. In respect of the Xian Haotian Transfer (expected in September 2008): • the completion of the first stage of the Second Instalment of the Investments and also to the approval of the Chinese authorities. In respect of the Management Shares (expected by the end of 2008): • the completion of the Second Instalment of the Investments. In respect of the Third Instalment of the Investments (expected by late 2009): • the achievement by the Xian Haotian Group of certain profit targets, the development of a pipeline of new products being ready, and the approval of the Board. In respect of the Earn-out Shares (over 2009, 2010 and 2011 dependent upontiming of annual audits of the Xian Haotian Group) • profits targets of the Xian Haotian Group in 2008, 2009, 2010 being met (as described under paragraph 4 headed "Shareholders' Agreement" in Part IV of the Circular). Summary of the resultant holdings in Dragon Diligent and the Xian Haotian Group The completion of the Xian Haotian Transfer (expected in September 2008) meansCIH indirectly acquires a further 23.39% of the Xian Haotian Group from theselling shareholders giving the CIH Group a 74.39% holding in the Xian HaotianGroup, with the remaining 25.61% being held by the Management. On completion of the Second Instalment of the Investments, in accordance withthe proposed terms of the Shareholders' Agreement (as described in Part IV ofthe Circular) Dragon Diligent may issue Management Shares of up to 12,593,584shares to the Management. Assuming the CIH Group invests the maximum amount of US$23.5 million under theSecond Instalment of the Investment and in the event that the maximum number ofManagement Shares (i.e. the possible 12,593,584 shares of US$1 each in DragonDiligent) are issued to the Management (as described in Part IV of theCircular)) the Management would have a holding of 23.3% in Dragon Diligent andthe CIH Group would have a holding of 76.7% in Dragon Diligent (and hence aconsequential 76.7% interest in the Xian Haotian Group). If CIH went on to issue the maximum possible number of Earn-out Shares in DragonDiligent to the Management, this would result in the Management having up to a25.6% interest in Dragon Diligent, meaning the CIH Group would have at least a74.4% interest in Dragon Diligent (and hence a consequential 74.4% interest inthe Xian Haotian Group) on completion of all of the proposals described in theCircular. During the period prior to the maximum amount of the Second Instalment beingfully invested, based on the investment already made by the CIH Group and uponthe payment of the Xian Haotian Transfer and the issue of the Management Shares,the CIH group will have a 65.6% equity interest in Dragon Diligent (which atthat stage will own 100% of the Xian Haotian Group). Thus the CIH Group willhave an effective 65.6% interest in the Xian Haotian Group. Financing the investment under the Subscription Agreements and the FurtherInvestments The CIH Group has financed the US$12.5 million equity subscriptions and workingcapital loans made to the Xian Haotian Group to date with internal cashresources and bank facilities which were available to the CIH Group on marketterms. If Shareholders approval is received, and CIH decides to proceed with furtherinvestment into the Xian Haotian Group, that would result in the payment ininstalments for the Further Investments including the Xian Haotian Transfer,amounting to a minimum investment of approximately US$11.5 million in cash (theXian Haotian Transfer) and a maximum of approximately US$44 million in cashdepending on the timing of development of the New Products under the FurtherInvestments. It is intended that the minimum consideration of US$11.5 millionpayable by the CIH Group for the Further Investments will be provided by acombination of existing facilities and an additional unsecured loan of up toUS$12 million from Cathay International EW No. 43 Limited, the intermediateparent undertaking of Cathay International Enterprises Limited, which is itselfthe immediate parent undertaking of the Company. It is envisaged that the remaining funding of the Further Investments will bemade in stages in line with the results of the feasibility studies and thetiming of implementation of the New Products and any further new herbal extractproducts in the future. CIH will only proceed with such investments whensufficient financing is available. At the appropriate time it is expected thatthe intermediate parent undertaking of the Company will make further fundingavailable or appropriate bank financing will be put into place. Utilisation of the amounts subscribed under the Subscription Agreements and theFurther Investments Of the US$6.5 million subscribed under the Subscription Agreements, Xian Haotianand Yangling Haotian have applied approximately US$3.68 million of the equitysubscription proceeds to commence production of two of the New Products, namelyInositol and HPMC, and the remaining US$2.82 million equity subscriptionproceeds to repay part of the existing loans of the Xian Haotian Group. The further equity investment into the Xian Haotian Group of US$2.36 million andworking capital loans of US$3.64 million as announced on 14 March 2008 wasapplied to the New Products relating to Inositol and for general working capitalpurposes. The remainder of the Further Investments may amount in aggregate up to a maximumof US$44 million. It is proposed that the remainder of the Further Investmentsamount be utilised as follows: US$ The Xian Haotian Transfer 11,497,325 Remainder of the Second Instalment of the Investments - Investment in New Products 17,502,675and general working capital Third Instalment- potential loans to Management to subscribe for further shares in Dragon Diligent 1,200,000(up to 8% of the Third Instalment of the Investments as described in paragraph 4.2 ofPart IV of the Circular)- investment in further new herbal extract products and general working capital 13,800.000Total 44,000,000 Financial effects of the investments into the Xian Haotian Group The investment in the Xian Haotian Group is expected to be earnings neutral inthe first full year following completion of such investments but is expected tobe earnings enhancing thereafter. This statement is not intended to constitutea profit forecast and should not be interpreted to mean that the actual earningsof the CIH Group for the current or future years will necessarily match orexceed the historic published earnings. Current trading, trends and future prospects CIH Group In the unaudited financial results for the six months ended 30 June 2007,announced by CIH on 14 September 2007, it was stated: "Group turnover for the six months ended 30 June 2007 was US$13,418,000 comparedwith US$7,211,000 for the six months ended 30 June 2006. The increase inturnover was the result of: a further increase in sales of the pharmaceutical production, marketing anddistribution businesses; and the incorporation of the Landmark Hotel's full six months' turnover. Last year,the Hotel was in its "soft" re-opening period until September 2006 and theHotel's turnover during such period was recorded as a reduction of pre-operatingexpenses. The Group's gross profit for the six months period was US$6,537,000 (2006:US$4,442,000); the increase was generated from the sales of pharmaceuticalproducts. The Group recorded an operating loss of US$1,283,000 for the six months period(2006: loss of US$1,603,000). The pharmaceutical production, marketing anddistribution businesses have achieved an increase in operating profit toUS$844,000 for the six months period (2006: profit of US$357,000). Corporateoffice expenses and salaries have been tightly controlled. The Group's loss before income tax for the six months period was US$3,339,000(2006: loss of US$2,961,000). The increased loss in the six months period in2007 was mainly due to increase in finance costs of US$ 698,000." Enlarged Group Trading since 30 June 2007 has been in line with the Directors' expectations.The Directors believe that combining the businesses of the CIH Group and theXian Haotian Group provides an excellent opportunity to capitalise on thebenefits of building a new product pipeline to grow the Group's pharmaceuticalbusiness. In addition to organic growth, the Directors envisage that the Enlarged Groupwill, in the coming years, expand its pharmaceutical business through furtheracquisitions. The CIH Group will examine opportunities to acquire companies thatoffer growth potential ideally with products and/or production facilities thatwould create synergies with the CIH Group's existing products. In view of the benefits outlined above the Board is confident of the financialand trading prospects of the Enlarged Group. Profit estimate for the year ended 31 December 2007 Introduction The Group made a loss before income tax for the six month period ended 30 June2007 of US$3,339,000 and since that period trading has been in line with theDirectors' expectations. The Group has not yet announced its results for thefull year ended 31 December 2007, however it is currently going through theaudit process. Whilst trading has been in line with Directors' expectations,and indeed trading over the second six months of the year when compared to thefirst half year has been better on an operational level, the Directorsanticipate that the pharmaceutical subsidiaries of the CIH Group will adopt amore prudent approach than in previous years and make an increased doubtful debtprovision at the year end. Therefore a provision in relation to doubtful debts of some US$2.7 million willbe made in the profit and loss account which, when combined with the tradingresults for second six month period, will mean that the loss for the second halfof the year will be greater than that for the first half of the year. This information set out above constitutes a profit estimate for the year ended31 December 2007 (the "Profit Estimate") for the purposes of the Listing Rules. Basis of preparation The Profit Estimate has been based upon the unaudited management accounts of theGroup for the year ended 31 December 2007. The Profit Estimate has beenprepared using the accounting policies adopted by the Group in its annualfinancial statements for the year ended 31 December 2006. Since the Profit Estimate has not been audited, the actual results reported maybe affected by revisions required due to changes in circumstances, the impact ofunforeseen events and different judgements made by the Directors at the time ofreporting the audited results for the year ended 31 December 2007. Confirmation The Company confirms that the Profit Estimate has been properly compiled on thebasis of the assumptions stated and the basis of accounting used is consistentwith the accounting policies of the Group. Special General Meeting You will find set out in the Circular is a notice convening a Special GeneralMeeting to be held at The Westin Paris, 3 Rue De Castiglione, Paris 75001 Franceon 30 May 2008 at 2.30 p.m. at which the Resolution will be proposed. The fulltext of the Resolution is set out in the notice. In accordance with the Listing Rules, the Further Investments and issue ofManagement Shares and Earn-out Shares are conditional, owing to their size (onan aggregated basis), on the approval of Shareholders. The Resolution would, ifpassed, provide such approval. Shareholder information session In addition to the Special General Meeting to be held on 30 May 2008, there willalso be an information session for Shareholders to be held on 29 May 2008 atPrivate Suite 3, The Mayfair Hotel, Stratton Street, London W1J 8LT at 3.00p.m.. This will be an opportunity for Shareholders to put questions to theDirectors attending this session about the Further Investments and issue ofManagement Shares and Earn-out Shares. However, there shall not be anopportunity to vote at the information session on the Resolution. Noinformation provided at the information session should be deemed to beinvestment advice or an attempt to influence Shareholders in their decision asto how to vote at the Special General Meeting. If you are in doubt as to whataction you should take, please consult your stockbroker, bank manager,accountant or other independent professional adviser who specialises in advisingon the acquisition of shares or other transferable securities and who is dulyauthorised under the Financial Services and Markets Act 2000. Recommendation The Board considers the Further Investments and issue of Management Shares andEarn-out Shares as set out in the Resolution to be in the best interests of theCompany and the Shareholders as a whole. Accordingly, the Board unanimously recommends Shareholders to vote in favour ofthe Further Investments and issue of Management Shares and Earn-out Shares asset out in the Resolution as the Directors intend to do in respect of their ownbeneficial holdings amounting in aggregate to 8,370,001 A Shares and 173,970,512Common Shares, representing approximately 68.26% of the votes capable of beingcast at the Special General Meeting. Included within such holdings are Sharescontrolled by Cathay Enterprises, which represent approximately 67.46 % of thevotes capable of being cast at the Special General Meeting. Mr. Wu Zhen Tao andmembers of his family are the beneficiaries of the trust which owns CathayEnterprises. Cathay Enterprises has irrevocably undertaken to vote in favour ofthe Resolution. EXPECTED TIMETABLE OF PRINCIPAL EVENTS Latest time and date for receipt of Forms of Proxy 2.30 p.m. on 28 May 2008 Shareholder Information Session 3.00 p.m. on 29 May 2008 Special General Meeting 2.30 pm. on 30 May 2008 Completion of the Investments First Instalment of the Investments 29 October 2007 Second Instalment of the Investments (in tranches) - first tranche (US$6 million as announced by the Company on 14 March by 3 April 20082008)- remainder (subject to a maximum of a further US$17.5 million) by the end of 2008 Xian Haotian Transfer September 2008 Third Instalment of the Investments late 2009 Notes: (1) References to times in this document are to London times unless otherwise stated. DEFINITIONS The following definitions apply throughout this announcement unless the contextotherwise requires: "A Shares" the A shares of US$0.05 each in the capital of CIH"A Shareholders" holders of A Shares"Bermuda Companies Act" the Companies Act 1981 of Bermuda (as amended)"Board" or "Directors" the directors of the Company whose names are set out in paragraph 2 of Part III of the Circular"Cathay Enterprises" Cathay International Enterprises Limited, an exempted company incorporated in Bermuda with limited liability under the Bermuda Companies Act, which is the immediate parent undertaking of the Company. Mr. Wu Zhen Tao and members of his family are the beneficiaries of the trust which owns Cathay Enterprises"Cathay International Pharmaceutical Cathay International Pharmaceutical Limited (an indirect wholly owned" subsidiary of CIH), a company duly established and existing under the laws of the British Virgin Islands with its address at c/o Portcullis TrustNet (IBVI) Limited, Portcullis TrustNet Chambers, P.O. Box 3444, Road Town, Tortola, British Virgin Island and its business address at 25/F Standard Chartered Bank Building, 4-4A Des Voeux Road, Central, Hong Kong;"CIH" or "Company" Cathay International Holdings Limited an exempted company incorporated in Bermuda with limited liability under the Bermuda Companies Act"CIH Group" or "Group" CIH and its subsidiary undertakings"CIH Shares" the Common Shares and A Shares in issue at the date of the Circular"Common Shareholders" holders of Common Shares"Common Shares" the common shares of US$0.05 each in the capital of CIH"Companies Act" the Companies Act 2006 of Great Britain, as amended"Conditional Agreement" the conditional agreement dated 28 September 2007 entered into between Cathay International Pharmaceutical and the Management, the terms of which are summarised in Part IV of the Circular"Dragon Diligent" Dragon Diligent Holdings Limited, an indirect wholly-owned subsidiary of CIH and a limited liability company established in the British Virgin Islands for the purposes of the investments into the Xian Haotian Group"Earn-out Shares" a maximum of 5,630,053 shares of US$1 each in Dragon Diligent to be issued to the Management upon achievement of certain objectives and profit targets for the Xian Haotian Group for the three years ended 31 December 2008, 2009 and 2010 as detailed in the Shareholder Agreement and described in Part IV of the Circular"Enlarged Group" the CIH Group as would be comprised following completion of the Further Investments"Equity Transfer Agreement" the proposed agreement to be entered into between Fair Route and the Xian Haotian Selling Shareholders, the terms of which are summarised in Part IV of the Circular"Fair Route" Fair Route Limited, an indirect wholly-owned subsidiary of Cathay International Pharmaceutical Limited, duly established and existing under the laws of Hong Kong with its registered address at 25/F Standard Chartered Bank Building, 4-4A Des Voeux Road, Central, Hong Kong incorporated for the purposes of investment in Xian Haotian;"First Instalment of the Investments the equity subscription in the Xian Haotian Group by Fair Route and" Sino Link in the aggregate amount of US$6.5 million pursuant to the Subscription Agreements completed on 29 October 2007 "Form of Proxy" the form of proxy accompanying the Circular for use by Shareholders in respect of the Special General Meeting"FSA" the Financial Services Authority"FSMA" the Financial Services and Markets Act 2000, as amended"Further Investments" the Second Instalment of the Investments, the Third Instalment of the Investments and the Xian Haotian Transfer"HPMC" Hydroxypropyl Methylcellulose, a herbal extract derived from cotton"Listing Rules" the listing rules of the UKLA"Management" Messrs. Zhang Chengwen, Kou Yufeng, Meng Xianglin, Lian Jiang, Hu Honglai and Wang Chunyu, together, the existing senior management of the Xian Haotian Group"Management Shares" a maximum of 12,593,584 shares of US$1 each in Dragon Diligent to be issued to the Management (as detailed in the Shareholder Agreement and described in Part IV of the Circular) if the CIH Group completes the Second Instalment of the Investments in part consideration for (i) the Management's procuring the sale and transfer of the equity interest in Xian Haotian to Fair Route under the Equity Transfer Agreement; (ii) the establishment of the key management team of Dragon Diligent; and (iii) the contribution of the Management's expertise relating to the business of the Xian Haotian Group to Dragon Diligent"New Products" new plant extract products being developed by the Xian Haotian Group including Inositol (derived from corn) and HPMC (derived from cotton)"Notice of SGM" The notice convening the Special General Meeting as set out in Part VIII of the Circular"PRC" the People's Republic of China"Prospectus Rules" the Prospectus Rules of the UKLA"Put and Call Option Agreement" the put and call option agreement entered into between Fair Route and Sino Link, Xian Haotian and all the existing shareholders of Xian Haotian, the terms of which are summarized in Part IV of the Circular"Resolution" the resolution to be proposed at the Special General Meeting as set out in the Notice of SGM"RMB" Renminbi, the currency of the PRC"Second Instalment of the the proposed equity subscription in the Xian Haotian Group by DragonInvestments" Diligent in the minimum amount of US$5.0 million and the maximum amount of US$23.5 million pursuant to the Conditional Agreement"Shareholders" the holders of the CIH Shares"Shareholders' Agreement" the shareholders' agreement in relation to Dragon Diligent entered into between the Management and Cathay International Pharmaceutical on 8 April 2008"Sino Link" Sino Link Limited, an indirect wholly-owned subsidiary of Cathay International Pharmaceutical Limited, duly established and existing under the laws of Hong Kong with its registered address at 25/F Standard Chartered Bank Building, 4-4A Des Voeux Road, Central, Hong Kong incorporated for the purposes of investment in Yangling Haotian;"Special General Meeting" or "SGM" the special general meeting of the Company to be held on 30 May 2008, notice of which is set out in Part VIII of the Circular"Subscription Agreements" the agreement dated 21 September 2007 between Fair Route and Xian Haotian relating to the subscription for equity in Xian Haotian and the agreement dated 21 September 2007 between Sino Link and Yangling Haotian relating to the subscription for equity in Yangling Haotian"Third Instalment of the the proposed equity subscription in the Xian Haotian Group by DragonInvestments" Diligent in the amount of US$15 million pursuant to the Conditional Agreement"Transaction Agreements" the Subscription Agreements, the Conditional Agreement, the Put and Call Option Agreement, the Shareholders' Agreement and the Equity Transfer Agreement, the respective terms of which are set out in Part IV of the Circular"UKLA" the Financial Services Authority acting in its capacity as the UK Listing Authority"United Kingdom" or "UK" the United Kingdom of Great Britain and Northern Ireland"United States" or "US" the United States of America, its territories and possessions, any state of the United States of America and the District of Columbia"Xian Haotian" Xian Haotian Bio-Engineering Technology Co. Ltd., a limited liability company established in Xian city, Shaanxi province, PRC"Xian Haotian Group" Xian Haotian and its subsidiaries and associated companies, including Yangling Haotian"Xian Haotian Selling Shareholders" Zhang Chengwen, Qu Xiangjun, Zhang Biqiang, Qin Jingchang and Zhang Yali in respect of their respective equity interest in Xian Haotian of 6.14%, 4.90%, 4.90%, 4.62% and 2.83%"Xian Haotian Transfer" the equity transfer in Xian Haotian pursuant to the terms of the Equity Transfer Agreement"Yangling Haotian" Yangling Haotian Bio-Engineering Technology Co. Ltd, a wholly owned subsidiary of Xian Haotian References to page numbers, paragraphs and Parts are references to such pagenumbers, paragraphs and Parts of the Circular , unless the context requires orindicates otherwise. Where amounts in US$ are shown in brackets after RMB amounts or where a US$equivalent of an amount in RMB is stated, an exchange rate of RMB 7.5: US$1 hasbeen used. This information is provided by RNS The company news service from the London Stock Exchange