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. CNC HOLDINGS LIMITED 中國新華電視控股有限公司 (incorporated in the Cayman Islands with limited liability) (stock code: 8356) CONTINUING CONNECTED TRANSACTION CRU AGREEMENTS WITH CNC CHINA AND FURTHER INFORMATION ON PRICING POLICY UNDER THE CRU FRAMEWORK AGREEMENT This announcement is made by the Company on a voluntary basis. The Board is pleased to announce that, in order to implement the CRU Framework, on 22 July 2013, Xinhua TV Asia-Pacific (an indirect wholly-owned subsidiary of the Company) entered into the MOFCOM CRU and the Wuliangye CRU with CNC China, pursuant to which Xinhua TV Asia-Pacific agreed to provide advertising resources on its television channels to CNC China for broadcasting advertisements of the MOFCOM Department of Foreign Investment Administration and Yibin Wuliangye Liquor Sales Co., Ltd., respectively. This announcement is made by the Company on a voluntary basis. 1. INTRODUCTION Reference is made to the announcement of the Company dated 22 July 2013. On 22 July 2013, the Company and CNC China entered into the CRU Framework, pursuant to which the Company will, and will procure its subsidiaries to, provide advertising resources on the television channels controlled by the Company to CNC China and its associates for the advertisement businesses of independent third party clients undertook by them. As consideration, CNC China and its associates will pay advertisement broadcasting fees to the Company and its subsidiaries. The Board is pleased to announce that, in order to implement the CRU Framework, on 22 July 2013, Xinhua TV Asia-Pacific (an indirect wholly-owned subsidiary of the Company) entered into the MOFCOM CRU and the Wuliangye CRU 1
with CNC China, pursuant to which Xinhua TV Asia-Pacific agreed to provide advertising resources on its television channels to CNC China for broadcasting advertisements of the MOFCOM Department of Foreign Investment Administration and Yibin Wuliangye Liquor Sales Co., Ltd., respectively. 2. INFORMATION ON THE MOFCOM CRU AGREEMENT Date: 22 July 2013 Parties to the MOFCOM CRU : (a) Xinhua TV Asia-Pacific; and (b) CNC China. Key Terms The key terms of the MOFCOM CRU are set out below: (i) (ii) (iii) Xinhua TV Asia-Pacific will provide advertising resources on its television channels for broadcasting advertisements of the MOFCOM Department of Foreign Investment Administration, on the terms and subject to the conditions of the MOFCOM Advertisement Broadcasting ; As consideration for using such advertising resources, CNC China will pay Xinhua TV Asia-Pacific 50% of the advertisement broadcasting fees (after deducting applicable PRC taxes) it receives from the MOFCOM Department of Foreign Investment Administration under the MOFCOM Advertisement Broadcasting (including those received before the effectiveness of the MOFCOM CRU ); and If Xinhua TV Asia-Pacific obtains additional broadcasting rights in other jurisdictions, the parties will adjust the advertising resources and the advertisement broadcasting fees after arm s length negotiation. Term The MOFCOM CRU became effective on 22 July 2013 and will end on 31 March 2016. 3. INFORMATION ON THE WULIANGYE CRU AGREEMENT Date: 22 July 2013 Parties to the Wuliangye CRU : (a) Xinhua TV Asia-Pacific; and 2
(b) CNC China. Key Terms The key terms of the Wuliangye CRU are set out below: (i) (ii) (iii) Xinhua TV Asia-Pacific will provide advertising resources on its television channels for broadcasting advertisements of Yibin Wuliangye Liquor Sales Co., Ltd., on the terms and subject to the conditions of the Wuliangye Advertisement Broadcasting ; As consideration for using such advertising resources, CNC China will pay Xinhua TV Asia-Pacific 50% of the advertisement broadcasting fees (after deducting applicable PRC taxes) it receives from Sichuan Branch of Xinhua News Agency under the Wuliangye Advertisement Broadcasting Authorisation (including those received before the effectiveness of the Wuliangye CRU ). Such advertisement broadcasting fees that CNC China are entitled to equal to 30% of the advertisement broadcasting fees that Sichuan Branch of Xinhua News Agency receives from Yibin Wuliangye Liquor Sales Co., Ltd. under the Wuliangye Advertisement Broadcasting (including those received before the effectiveness of the Wuliangye Advertisement Broadcasting Authorisation ); and If Xinhua TV Asia-Pacific obtains additional broadcasting rights in other jurisdictions, the parties will adjust the advertising resources and the advertisement broadcasting fees after arm s length negotiation. Term The Wuliangye CRU became effective on 22 July 2013 and will end on 31 March 2016. 4. REASONS FOR AND BENEFITS OF ENTERING INTO THE MOFCOM CRU AGREEMENT AND THE WULIANGYE CRU AGREEMENT Selling advertising airtime on its TV channels is meant to become part of the Company s ordinary course of business in due course. The Company s cooperation with CNC China will further improve and diversify the Company s commercial advertisement operations. On the basis of such successful experience, the Company will be able to earn its share in the commercial advertising industry. Since the Company s acquisition of the entire equity interests in Xinhua TV Asia-Pacific and its subsidiaries in December 2011, the Company has been exploring the ways to broaden its sources of income. As part of the CRU Framework, the MOFCOM CRU and the Wuliangye CRU are in line with the common market practice in the television broadcasting industry and provides opportunities for the future developments of the Company s commercial advertisement operations. The Company believes that the MOFCOM CRU and the Wuliangye CRU will bring and boost the advertising revenue of the Company in further support of its television broadcasting business. 3
5. FURTHER INFORMATION ON PRICING POLICY UNDER THE CRU FRAMEWORK AGREEMENT Reference is made to the CRU Framework Announcement, in which the pricing basis for the provision of advertising resources under the CRU Framework is determined by reference to: (i) the government-prescribed prices; (ii) the governmentguided prices where there are no government-prescribed prices; (iii) the market prices where there is neither government-prescribed prices nor government-guided prices; and (iv) where none of the aforesaid is applicable, the prices to be negotiated and agreed between the relevant parties on the basis of fairness, which shall be the reasonable costs incurred in providing the same plus reasonable profit margin (for this purpose, reasonable costs means such costs as confirmed by both parties after negotiations). Entering into the CRU Framework is one of the first steps for the Company to develop its commercial advertisement broadcasting business on the TV channels it controls by leveraging on CNC China s extensive resources in procuring commercial advertising from independent third party clients. The Company is exploring opportunities to sell more advertising resources through cooperation with CNC China and independent third party clients, and develop detailed pricing policy, especially point (iii) of the above pricing policy, during the expansion of its commercial advertisement broadcasting business. In addition, point (i) and point (ii) of the pricing policy are only likely to be applied to limited cases where CNC China, being a state-owned enterprise, may need to follow the governmentprescribed or government-guided prices under certain specific circumstances. Therefore, the Board expects that a majority of the channel resources usage agreements under the CRU Framework will be based on point (iv) of the pricing policy. Under point (iv) of the pricing policy, when determining the reasonable costs and reasonable profit margin during negotiation, the Company will take into account, among other things, the advertising resources it controls compared to the aggregate advertising resources controlled by CNC China, to obtain a reasonable allocation of advertisement broadcasting fees received by CNC China from independent third party clients. The Board expects that the advertisement broadcasting fees that the Company will receive from the transactions contemplated under the CRU Framework will account for no less than 15% of the total advertisement broadcasting fees that CNC China will receive from independent third party clients (the Expected Allocation ). In reaching the Expected Allocation, the Board takes into account, among other things, the following factors: (i) (ii) the total number of regional channel(s) controlled by the Company as a percentage of those controlled by CNC China; and the geographic coverage of TV channel(s) controlled by the Company in the context of the coverage of those controlled by CNC China. The Directors (including the independent non-executive Directors) are of the view that the CRU Framework has been entered into on normal commercial terms and in the ordinary and usual course of business of the Group, and the terms contained therein are fair and reasonable and in the interests of the Company and its Shareholders as a whole. 4
As disclosed in the CRU Framework Announcement, each separate channel resources usage agreement will be negotiated on an arm s length basis between the Company (including its subsidiaries) and CNC China (including its associates) and set out the advertisement broadcasting specifications as well as the relevant advertisement broadcasting fees. 6. INFORMATION ABOUT THE GROUP AND CNC CHINA The Group is principally engaged in the provision of waterworks engineering services, road works and drainage services and site formation works for the public sector in Hong Kong, and television broadcasting business in the Asia-Pacific region (excluding the PRC) and outdoor mass media advertising business in return for advertising and related revenue. CNC China, a wholly-owned subsidiary of Xinhua News Agency, is principally engaged in advertising business, developing of multi-media broadcasting terminal technology, data integration services, information gathering and processing. 7. DEFINITIONS In this announcement, unless the context otherwise requires, the following expressions shall have the following meanings when used herein: Board CNC China Company CRU Framework CRU Framework Announcement Director(s) Group the board of Directors of the Company 中國新華新聞電視網有限公司, a company incorporated in the PRC and a wholly-owned subsidiary of Xinhua News Agency ( 新華社 ) CNC Holdings Limited ( 中國新華電視控股有限公司 ), a company incorporated in the Cayman Islands with limited liability on 15 March 2010, the issued shares of which are listed on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited (Stock Code: 8356) the channel resources usage framework agreement dated 22 July 2013 entered into between the Company and CNC China in relation to the provision of advertising resources of the televisions channels controlled by the Company to CNC China and its associates for the advertisement businesses of independent third party clients undertook by them the announcement dated 22 July 2013 published by the Company in relation to the CRU Framework with CNC China the directors of the Company the Company and its subsidiaries 5
Hong Kong MOFCOM MOFCOM Advertisement Broadcasting MOFCOM CRU PRC or China Xinhua TV Asia- Pacific Wuliangye Advertisement Broadcasting Wuliangye Advertisement Broadcasting Authorisation Wuliangye CRU the Hong Kong Special Administrative Region of the PRC the Ministry of Commerce of the PRC the advertisement broadcasting agreement dated 19 December 2012 entered into between CNC China and the MOFCOM Department of Foreign Investment Administration ( 商務部外國投資管理司 ) in relation to the provision of advertising resources of the television channels controlled by CNC China to broadcast advertisements of the MOFCOM Department of Foreign Investment Administration the channel resources usage agreement dated 22 July 2013 entered into between Xinhua TV Asia-Pacific and CNC China in relation to the provision of advertising resources of the television channels controlled by Xinhua TV Asia-Pacific to CNC China for broadcasting advertisements of the MOFCOM Department of Foreign Investment Administration the People s Republic of China, for the purpose of this announcement, excluding Hong Kong, the Macau Special Administrative Region of the PRC and Taiwan Xinhua TV Asia-Pacific Operating Co., Limited ( 新華電視亞太台運營有限公司 ), a company incorporated in Hong Kong with limited liability on 22 December 2009 and an indirect wholly-owned subsidiary of the Company the advertisement broadcasting agreement dated 25 December 2012 entered into between Sichuan Branch of Xinhua News Agency and Yibin Wuliangye Liquor Sales Co., Ltd. ( 宜賓五糧液酒類銷售有限責任公司 ) in relation to the provision of advertising resources of the television channels controlled by CNC China to broadcast advertisements of Yibin Wuliangye Liquor Sales Co., Ltd. the advertisement broadcasting authorisation agreement dated 22 July 2013 entered into between CNC China and Sichuan Branch of Xinhua News Agency in relation to the provision of advertising resources of the television channels controlled by CNC China to broadcast advertisements of Yibin Wuliangye Liquor Sales Co., Ltd. the channel resources usage agreement dated 22 July 2013 entered into between Xinhua TV Asia-Pacific and CNC China in relation to the provision of advertising resources of the television channels controlled by Xinhua TV Asia-Pacific to CNC China for broadcasting advertisements of Yibin Wuliangye Liquor Sales Co., Ltd. 6
By Order of the Board CNC Holdings Limited Zou Chen Dong CEO and Executive Director Hong Kong, 2 August 2013 As at the date of this announcement, the Board comprises the following Directors: Executive Directors: Mr. Wu Jin Cai Dr. Lee Yuk Lun Mr. Zou Chen Dong Mr. Kan Kwok Cheung Mr. Chia Kar Hin, Eric John Non-executive Directors: Mr. Li Yong Sheng Ms. Liang Hui Independent non-executive Directors: Mr. Chan Hon Yuen Mr. Chu Siu Lun, Ivan Mr. Hau Chi Kit Mr. Jin Hai Tao This announcement, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the GEM Listing Rules for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquiries, confirm that, to the best of their knowledge and belief, the information contained in this announcement is accurate and complete in all material respects and not misleading or deceptive and there are no other matters the omission of which would make any statement herein or this announcement misleading. This announcement will remain on the GEM website at http://www.hkgem.com on the Latest Company Announcements page for at least seven days from the date of its posting and the Company s website at http://www.cnctv.hk. 7