Execution of Lease & Expansion of TCM Strategy (3632Z)
January 12 2011 - 9:59AM
UK Regulatory
TIDMTAIH
RNS Number : 3632Z
Taihua Plc
12 January 2011
Taihua plc
("Taihua" or the "Company")
Execution of Lease
Expansion of TCM Strategy
Taihua announces that on 11 January 2011, it executed a 20 year
lease with the Qin Bang Forsythia Cooperative in respect of 893
hectares of Forsythia plantation in the Luonan region of the Shanxi
province, close to the Company's TCM factory(the "Plantation") (the
"Lease").
In addition to the 893 hectares under lease there are another
900 hectares of Forsythia plantation in the area. It is the
intention of Taihua to maximise the development of the current
lease and then consider whether to take a further lease over the
remaining land.
Pursuant to the terms of the Lease, Taihua will manage the
cultivation and benefit from the harvest from the plantation. The
annual lease cost is RMB1.3m per annum, but it is a term of the
Lease that all 20 years are paid in advance (being RMB26m). It is
therefore agreed that the Company will pay the first instalment of
RMB10 million within 15 days of the date of the Lease and a second
instalment of RMB16 million will be paid by the Company after the
formal handover of the land. These payments will represent full and
complete settlement of the 20 year term.
Forsythia (Forsythia Suspensae) seeds and husks are one of the
40 key ingredients of Traditional Chinese Medicines and are listed
as main ingredients in 31 TCMs in Chinese Pharmacopoeia 2000.
It is used in China as a means of alleviating the symptoms of
Colds and Influenza, improving blood circulation, leptospirosis,
vasopermeability, hepatic injury, anti-inflammatory, pain relief
and antioxidation
The plantation has been the subject of professional independent
assessment by Shangluo Changda Limited Liability Accounting firm.
In summary their assessment was as follows:
a) 160 hectares of cultivated plantation land is planted at a
density of 3,345 bushes per hectare. Each bush has an average
harvest of 1kg per annum
b) 733 hectares of uncultivated land. The forsythia grows here
at a density of 1,650 bushes per hectare. Each bush has an average
harvest of 0.6kg per annum
The typical harvest is therefore 1,327 Tonnes per annum.
Forsythia is hardy and drought resistant and is indigenous to the
region.
The Forsythia harvest is currently sold to TCM raw material
distributors and directly to pharmacies. The price of Forsythia has
increased considerably in recent years as demand has outstripped
supply, particularly since the H1N1 outbreaks. The historical
average wholesale price, as verified by the Shanxi Agricultural
Research Institute is as follows:
RMB/kg
2010 30
2009 22
2008 12
2007 12
2006 8
Under the terms of the Lease, Taihua is responsible for all
security, management, harvesting, packaging and distribution costs
associated with Forsythia. The main costs are security (preventing
animals eating the bushes and fire protection in the dry season),
maintenance and harvesting. Based on detailed discussions with Qin
Bang Forsythia Cooperative the Board estimate that costs will
amount to approximately RMB18m per annum including RMB1.3m per
annum lease costs. This equates to a total cost of RMB13.6 per kg
based on typical harvest quantities.
The directors of Taihua do not believe there will be a
significant increase in supply of Forsythia in China in the short
to medium term as Government regulations currently forbid the
cultivation of Forsythia unless the appropriate Forestry Rights
Licence has been issued by local government. The directors believe
that local governments prefer to only grant these rights over the
steepest and most mountainous land as this cannot be used for crop
cultivation. Therefore, it would appear that the available land for
Forsythia production is largely limited by topography and the
directors believe there is very little land readily available that
is not currently licensed. In addition, the minimum time from
planting to harvesting is 3 years, during which time much of the
fixed costs of security and maintenance must be paid, making
establishing a new plantation a capital intensive project.
Taihua plc currently has Forsythia-based TCMs in its range but
the Forsythia requirement is relatively small, approximately 50T
per annum.
Taihua's strategy is to develop TCMs that will utilise output
from the plantation and thus ultimately sell the TCM as well as the
TCM raw material. In discussions with the China Academy of Chinese
Medical Sciences it has identified a low-side effect,
Forsythia-based TCM currently under their development. It is
Taihua's intention to licence this product once it is fully
developed. When this product is in full production it is
anticipated that it will require approximately 50% of the total
harvest of Forsythia.
Non-Executive Chairman, Nicholas Lyth commented as follows:
"TCMs generally, and Forsythia specifically, are an important
part of our ongoing strategy. Given our manufacturing expertise and
location we are ideally placed to take advantage of opportunities
in this sector. We are confident that the fundamentals of supply
and demand for Forsythia will remain robust and, as such, this
product will contribute significantly to shareholder value. To have
such a potentially lucrative platform from which to develop our own
major Forsythia-based TCM is an excellent position to be in.
Paclitaxel and Homoharringtonine are and will be major
components of our business and we expect that our market
penetration using these products will continue to develop. At the
same time, our TCM range is maturing. The Board believes that there
are opportunities to further extend Taihua's TCM range and will
continue to seek out products that will add shareholder value."
For more information please contact:
Nicholas Lyth, Taihua plc 0776 990 6686
Katy Mitchell, WH Ireland Limited 0161 832 2174
This information is provided by RNS
The company news service from the London Stock Exchange
END
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