DONGJIANG ENVIRONMENTAL COMPANY LIMITED Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, 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 announcement.
DONGJIANG ENVIRONMENTAL COMPANY LIMITED*東江環保股份有限公司
(a joint stock limited company incorporated in the People's Republic of China)
(Stock Code: 00895) FURTHER ANNOUNCEMENT AND PROFIT FORECAST IN RESPECT TO THE ACQUISITION OF 60% EQUITY INTEREST IN XIAMEN OASIS
Reference is made to the announcements of the Company dated 18 June 2014 and 7 January
2015 in relation to, among others, the Capital Increase and Share Transfer Agreement entered into between the Company, the Vendors and Xiamen Oasis on 18 June 2014 and the Supplemental Agreement entered into between the Company and Party B respectively (the "Announcements"). Unless otherwise specified, capitalized terms used in this announcement shall have the same meanings as set out in the Announcements.
The Company would like to provide further information on, among others, the calculation of RMB6.6 million compensation under the Supplemental Agreement and its basis and the view of the independent non-executive Directors on the terms under the Supplemental Agreement.
According to the Capital Increase and Share Transfer Agreement, the 2014 Profit Guarantee shall not be less than RMB35 million. According to the unaudited consolidated financial statements of Xiamen Oasis and its subsidiaries in 2014, the unaudited net profit of Xiamen Oasis was approximately RMB33 million in 2014. As the shortfall between the unaudited net profit of Xiamen Oasis in 2014 and the 2014 Profit Guarantee is approximately RMB2 million and the Company holds 60% of the equity interests in Xiamen Oasis, as such, according to the Capital Increase and Share Transfer Agreement, an amount of RMB1.2 million shall be compensated to the Company in cash.
Pursuant to the Capital Increase and Share Transfer Agreement, the 2015 Profit Guarantee shall not be less than RMB50 million. In negotiating the terms of the Supplemental Agreement and in respect to the estimated net profit of Xiamen Oasis for 2015 (the "2015 Profit Estimate"), it is estimated that the 2015 Profit Estimate would be approximately RMB41 million and thus there would be a projected shortfall of RMB9 million as compared to the 2015 Profit Guarantee resulting in an amount of RMB5.4 million to be compensated to the Company in cash. The following factors have been taken into account in arriving the 2015 Profit Estimate:
(i) there have been no material changes in the internal and external operating environment of
Xiamen Oasis and it will remain under normal operation on an ongoing basis;
(ii) the operation of Xiamen Oasis will continue to adopt the current operating direction and model in 2015;
(iii) the current market share, scope of business and continual growth of Xiamen Oasis; and
(iv) the estimation of the operating costs and financial expenses of Xiamen Oasis taking into account the latest market condition.
The aforesaid assumptions are consistent with the assumptions that were considered for the 2015
Profit Guarantee at the time of entering into the Capital Increase and Share Transfer Agreement, except for the change of market condition of electronic waste and electrical equipment dismantling business, which leads to an increase of average acquisition costs per unit as compared to that at the time of entering into the Capital Increase and Share Transfer Agreement in 2014. Taking into consideration the relevant factors including taxation, the 2015 Profit Estimate has been revised to approximately RMB41 million.
Upon review of the Capital Increase and Share Transfer Agreement, the Supplemental Agreement and other relevant documents, as well as further communication with the relevant officers, the following factors have been considered by the independent non-executive Directors when reviewing the terms of the Supplemental Agreement:
(i) the compensation amount under the Supplemental Agreement was calculated in accordance with the Capital Increase and Share Transfer Agreement, as it was calculated based on the difference between the actual/estimated net profit and the 2014 Profit Guarantee and 2015
Profit Guarantee respectively and the portion of equity interests the Company held in
Xiamen Oasis;
(ii) no material amendment to the Capital Increase and Share Transfer Agreement was made by the Supplemental Agreement and the Supplemental Agreement was entered into after due consideration of the current operating conditions of Xiamen Oasis and is considered to be a supplement to the terms of the Capital Increase and Share Transfer Agreement;
(iii) pursuant to the Supplemental Agreement, the management team led by the general manager of Xiamen Oasis who will be nominated by the Company will be responsible for the management of the daily operations of Xiamen Oasis which will strengthen the Company's internal management to Xiamen Oasis. This will enable the daily operations of Xiamen Oasis to meet the management standard and business philosophy of the Company and to enhance the profitability of Xiamen Oasis and achieve its business objectives by leveraging on the technology and market advantages of the Company.
Thus, having considered the factors set out above, the independent non-executive Directors consider that the Supplemental Agreement was on normal commercial terms and in the interests of the Company and the shareholders as a whole, and thus the Supplemental Agreement and the
transactions contemplated thereunder were fully exempted from requirements under Chapter
14A of the Listing Rules.
In view of the adoption of the income approach for the forecast of the 2015 Profit Estimate and the 2015 Profit Estimate constitutes a profit forecast under the Listing Rules, accordingly, the requirements under Rules 14.62 of the Listing Rules are applicable. In preparing the 2015 Profit Estimate, the Company has reviewed the unaudited management account of Xiamen Oasis and set out below are the details of the valuation assumptions, including commercial assumptions, and limiting conditions upon which the estimated net profit of Xiamen Oasis in 2015 were based:-
(I) General assumptions and restricted conditions
(1) It was assumed the ownership of appraised assets of Xiamen Oasis is valid and the assets could be liquidated in the market; furthermore they were not subject to any lien or easement and they were not encroached or had any other incumbent limitations;
(2) all licenses, usage permits, letters of consent or other legal or administrative authorization documents that were signed and issued by relevant local and national government organizations and groups, and the way in which the assets of Xiamen Oasis were used, are legally valid within the period of validity. It was assumed that the said licenses, files, etc, will be approved and renewed at any time when their validity terms expire;
(3) It was assumed that Xiamen Oasis has fully complied with any relevant local and national laws and regulations;
(4) It was assumed that all improvements on the relevant assets performed by Xiamen Oasis are in line with relevant laws and regulations related to other laws, plans, or engineering codes set by relevant competent departments at higher levels;
(5) It was assumed that there is no significant change to the existing taxation laws, the applicable tax rate remains unchanged under the laws and policies for the purpose of estimation, all applicable regulations are complied, and there is no significant change to the applicable interest rate, exchange rate, tax evaluation criteria and charge levied under the policies;
(6) There are no significant changes in the relevant laws, regulations, guiding policies of the state currently in force and the macro-economic conditions of the state would not deteriorate;
(7) There will be no material change in political, economic and social environments where the parties to the transaction are located;
(8) There will be no any other material adverse effects as a result of any unpredictable factors or
force majeure; and
(9) Inflation is excluded.
(1) there have been no material changes in the internal and external operating environment of
Xiamen Oasis and it will remain under normal operation on an ongoing basis;
(2) the operation of Xiamen Oasis will continue to adopt the current operating direction and model in 2015;
(3) the current market share, scope of business and continual growth of Xiamen Oasis;
(4) the estimation of the operating costs and financial expenses of Xiamen Oasis taking into account the latest market condition; and
(5) The change of market condition of electronic waste and electrical equipment dismantling business of Xiamen Oasis, which leads to an increase of average acquisition costs per unit as compared to that at the time of entering into the Capital Increase and Share Transfer Agreement in 2014. Taking into consideration the relevant factors including taxation, the
2015 Profit Estimate has been revised to approximately RMB41 million.
The qualification of the expert who has given its opinion and advice in this announcement is as follow:
Name Qualification
SHINEWING Certified Public Accountants Certified Public Accountants
(the "Reporting Accountants")
To the best of the Directors' knowledge, information and belief, having made all reasonable enquiries, the Reporting Accountants are third parties independent of the Group and its connected persons (as defined under the Listing Rules).
As at the date of this announcement, the Reporting Accountants have no shareholding in any member of the Group and have no right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.
The Reporting Accountants have given and have not withdrawn their consent to the publication of this announcement with the inclusion of their opinion and advice and all references to their name in the form and context in which they are included.
By order of the Board
Dongjiang Environmental Company Limited* Zhang Wei YangChairman
Shenzhen, the People's Republic of China, 23 January 2015
As at the date of this announcement, the Board comprises three executive Directors, being Mr. Zhang Wei Yang, Mr. Chen Shu Sheng and Mr. Li Yong Peng; two non-executive Directors, being Mr. Feng Tao and Ms. Sun Ji Ping; and three independent non-executive Directors, being Mr. Qu Jiu Hui, Mr. Wong Hin Wing and Mr. Wang Ji De.
*For identification purpose only
APPENDIX I - LETTER FROM THE BOARD RELATING TO THE 2015 PROFIT ESTIMATEThe following is the text of a letter prepared for the purpose of incorporation in this announcement, executed by the Board.
DONGJIANG ENVIRONMENTAL COMPANY LIMITED*東江環保股份有限公司
(a joint stock limited company incorporated in the People's Republic of China)
(Stock Code: 00895)
23 January 2015
The Listing Division
The Stock Exchange of Hong Kong Limited
11/F, One International Finance Centre
1 Harbour View Street
Hong Kong
Dear Sirs,
We refer to the announcement of the Company dated 23 January 2015 (the ''Announcement'') of which this letter forms part. Unless the context otherwise requires, terms defined in the Announcement shall have the same meanings when used herein.
In accordance with the requirements under Rule 14.62(3) of the Listing Rules, we confirm that the 2015 Profit Estimate in relation to 廈門綠洲環保産業股份有限公司 (Xiamen Oasis
Environmental Industry Stock Company Limited) have been made after due and careful enquiry by us.
Yours faithfully,
For and on behalf of the Board
Director
APPENDIX II - LETTER FROM THE REPORTING ACCOUNTANTS RELATING TO THE 2015 PROFIT ESTIMATE
The following is the text of the letter received by the Directors from the reporting accountants of our Company, SHINEWING Certified Public Accountants, prepared for the purpose of incorporation in this announcement in connection with the profit forecast.
XYZH/2015SZA10002
We are appointed to review the accounting policy and the calculation method of the relevant profit forecast (hereafter referred to as the "Profit Forecast")adopted in the business valuation of the supplementary agreement of the Capital Increase and Share Transfer Agreement of Xiamen Oasis Environmental Industrial Company Limited (《關於廈門綠洲環保產業股份有限公司的 增資及股轉協議》) (hereafter referred to as the "Capital Increase and Share Transfer Agreement") performed by Dongjiang Environmental Company Limited (hereafter referred to as the "Company").
The Company's directors (the "Directors") are solely responsible for the preparation of the Underlying Forecast, including the assumptions for the 2015 profit. The Underlying Forecast has been prepared using a set of assumptions that include hypothetical assumptions about future events and management's actions that are not necessarily expected to occur. Even if the events anticipated occur, actual results are still likely to be different from the Underlying Forecast and the variation may be material. The Directors are responsible for the reasonableness and validity of the assumptions.
II. Responsibilities of the certified public accountant
It is our responsibility to form an opinion, based on our review on the Underlying Forecast and to report our opinion solely to you, as a body, solely for the purpose of reporting under Rule
14.62 of Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong
Limited and for no other purpose. We have not reviewed, considered or conducted any work on
the reasonableness and the validity of the assumptions and express no opinion on the reasonableness and validity of the assumptions on which the Underlying Forecast is based and we accept no responsibility to any other person.
We conducted our work in accordance with the "PRC CPA Standards on Other Assurance Engagements No. 3101 - Assurance Engagements Other Than Audits or Reviews of Historical Financial Information", the Hong Kong Standard on Assurance Engagements 3000 "Assurance Engagements Other Than Audits or Review of Historical Financial Information" issued by the Hong Kong Institute of Certified Public Accountants and with reference to the procedures specified in Auditing Guideline 3.341 "Accountants' Report on Profit Forecasts". We examined the consistency of accounting policies adopted and the arithmetical accuracy of the Underlying Forecast. Our work has been undertaken solely to assist the Directors in evaluating whether the Underlying Forecast, so far as the accounting policies and calculations are concerned, has been properly compiled in accordance with the Assumptions made by the Directors. Our work does not constitute any valuation of Xiamen Oasis Environmental Industrial Company Limited.
In our opinion, so far as the accounting policies and calculations are concerned, the Underlying Forecast has been properly compiled in accordance with the Assumptions made by the Directors as set out in the Announcement and is presented on a basis consistent in all material aspects with the accounting policies currently adopted by the Company.
SHINEWING Certified Public Accountants China Certified Public Account Wang Jianxin
China Certified Public Account: Qiu Lequn
Beijing PRC 23 January 2015
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