CHINA FOOD COMPANY PLC 
By ("China Food" the "Company" or the "Group")
Trading Update
China Food Company Plc (AIM:CFC), the leading Chinese manufacturer of cooking and dipping sauces, today announces that construction of the Company's new Animal Feed factory has now been successfully completed. The facility has been on trial production and commissioning for the last six weeks and the Board has been pleased with the performance of the operations. Accordingly, the facility will become fully operational from 1 March 2013, after the Chinese New Year break.
The capacity for the new plant is 50,000 tonnes of premix and 240,000 tonnes of compound feed, a substantial increase compared to the old factory where capacity was only 15,000 tonnes and 60,000 tonnes respectively. Revenue of the old factory operating at full capacity is £24 million, which compares to an estimated revenue of the new factory operating at full capacity of approximately £100 million. Although the Group's animal feed business was broadly break-even in 2012, the Board anticipates that it will make a positive contribution in 2013 due to the additional capacity and production efficiencies.
The total capital investment for the new factory was approximately £3.5 million, which has been funded from the Company's internal resources. China Food's new factory is equipped with the most advanced and up-to-date feed manufacturing equipment sourced from Buhler Group, a Swiss-based manufacturer of agriculture equipment.
Based on the completion of the animal feed factory and the ongoing delays by Wisehand Planning Co. Ltd, the Board has decided to terminate negotiations and consider action against Wisehand Planning Co. Ltd and its shareholders under the guarantee for breach of its agreement. The Company will now focus its efforts on increasing the new factory's production and reinitiate the sale process in due course/when appropriate.
As a consequence of this, the Company will not be in receipt of feed-sale funds in the short term and the convertible loan note due on 31 January 2013 will now be rolled into a new Loan Note due on 3 November 2014, as previously announced on 2 November
2012. The total amount of outstanding Loan Notes is £4,429,000. The outline terms of the new Loan Note are as follows:
As the disposal has not been completed by 31 January 2013, the Loan Note holders have agreed to further extend the redemption date to 3 November 2014. A redemption premium of 1% of the Loan Note holder's original holding will be payable on redemption. The Company and the Loan Note holders have agreed that interest will be charged at a rate of 12.5% p.a. from 3 November 2012 to 31 January 2013; from 1 February 2013 to
30 June 2013, the rate of interest will rise to 15% p.a.; from 1 July to 30 September 2013 to 17.5% p.a.; from 1 October to 31 December 2013 to 20% p.a. and 25% p.a. thereafter until redemption. The Loan Note holders retain the right not to redeem their holding until maturity of the Loan Notes on 3 November 2014, in which case the interest rate will be fixed at the rate prevailing on the date of the Company's proposed redemption. In the event the Company is unable to transfer funds from the PRC to pay interest when due, the A, B, & C Loan Note holders have agreed that interest charged will be rolled up and compounded semi-annually to maturity.
As the Loan Notes were not redeemed by 31 December 2012, the price at which the Loan Notes are convertible have been reset to 15.5 pence, being the lower of the average mid-market price for the period of 20 December to 31 December 2012 and 19 pence per ordinary share being the closing mid-price on 1 November 2012.
The Board is pleased to confirm that draft management numbers indicate that the condiments business was EBITDA positive in H2 2012. The Group achieved sales of approximately £20 million (2011: £16.9 million) of which Xaka, the Group's premium soya sauce product, accounted for 25% (£5 million) in its first full year of sales.
The Board is encouraged by this performance, particularly because the success of Xaka since its launch has opened new channels and outlets for China Food's middle-range brand, Hao Tai Tai. The increase in distribution channels and retail outlets will form the foundation for growth in both Xaka and Hao Tai Tai in Shandong and in neighbouring provinces in 2013.
John McLean, Chairman of China Food, commented: "The Board is pleased with the ongoing progress of the core condiments business and, in particular, the progress that is being made with our premium product, Xaka. As well as being successful in its own right, this launch has provided access to additional distribution channels for our other products, driving opportunities for further growth.
"The completion of the construction of the new animal feed factory is a positive step for the Company, as a modern new feed operation has been created which will improve operating margins and make it more attractive to potential purchasers.
"Whilst it is disappointing that China Food will not be able to complete the proposed disposal, the new operation is expected to be both profitable and cash generative, thus providing a contribution until the sale process takes place. Enhancing shareholder value remains a top priority for the Board and we look forward to updating shareholders with our progress."
John McLean, Chairman Tel: +44 (0) 7768 031 454
www.chinafoodcompany.com
David Poutney - Head of Corporate Broking Tel: +44 (0) 20 7260 1000
finnCap (Nomad and Joint Broker)
Geoff Nash / Ben Thompson (Corporate Finance) Tel: +44 (0) 20 7220 0500
Simon Starr (Broking)
Henry Harrison-Topham Tel: +44 (0) 20 7398 7702 henry.ht@abchurch-group.com www.abchurch-group.com
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