TAIH.L Regulatory News (TAIH)

Taihua plc

("Taihua" or the "Company")

Interim Results for the six months ended 30 June, 2014

Highlights

Loss after tax in 2014 H1 was RMB (326,000) (2013 H1: profit of RMB 164,000)

Operational Cashflow in 2014 H1 was RMB 2,152,000 (2013 H1: 59,000)

Chairman's Statement

The supply of Traditional Chinese Medicine (TCM) raw materials is seasonal. The first half of the year's financial performance is largely as a result of the supply and sale of the Company's Paclitaxel and Homoharringtonine products along with its range of prescription-only finished TCM products.

Forsythia

All costs associated with cultivation during the first half of the year are included in inventory for release when sales are made in the second half of the year. Therefore the forsythia plantation has no effect on the consolidated statement on comprehensive income. As at the end of the reporting period, Trade Debtors generated from forsythia sales were RMB 45,955,000. Approximately RMB 14.6m cash has been received in respect of these Trade Debtors since the end of the reporting period

The Company is aware that the growing conditions in 2014 were not optimal. The region suffered a drought during the Spring. We do not yet have sufficient visibility to determine what, if any, effect this has had on the 2014 harvest. We have engaged the services of a specialist in the cultivation of Forsythia to assess the likely harvest in 2014 and advise what we can do to improve the harvest in subsequent years.

Bian Tong Pian

The problems surrounding GlaxoSmithKline (GSK) in China and associated investigations into the distribution of pharmaceuticals by the Chinese government has left distributors reluctant to take on new products. For the time being, given the government focus on this industry, they prefer to adopt a very conservative approach and only distribute their existing products. As such we have not been able to extend our distribution in the reported period.

Paclitaxel

Paclitaxel sales were 3,600g at an average price of RMB 371 per gram, generating a total revenue of RMB 1,326,000 (2013 H1: RMB 1,907,000). Given the rapid fall in the price of Paclitaxel, this product is no longer profitable without the support of sales of associated by-products.

The two by-products, 10-DAB and 7-Xylosyltaxol, have had successful extraction trials from our raw material and suitable customers have been identified and have taken the by-products for testing.

Homoharringtonine

Sales in the reporting period was RMB 676,000 (RMB 703,000 in 2013 H1)

Whilst the volumes have fallen considerably in the past two years the Company intends to remain in the business of Homoharringtonine supply as there is still, in the opinion of the Board, the possibility that volumes may recover. Homoharringtonine has always been a relatively high Gross Margin % product (2014H1 45.6%) and any upturn in volumes would have a significant positive profit effect.

Consolidated Statement of Financial Position

Despite the poor trading conditions in the Reporting period, the cash position improved by RMB 1,841,000 to RMB 36,353,000. Of the RMB 52,380,000 Trade Debtors outstanding at the end of the Reporting period, RMB 45,955,000 related to the sale of Forsythia. All of this is due to be received in 2014 H2.

Strategic Direction

The Board has successfully realigned the business to TCMs, away from APIs over the past two years. The Board considers that the Company should develop further the following TCM subsectors:

(1) Raw Material cultivation

(2) Finished prescription-only medicines

However, the current market conditions for the marketing of Finished prescription-only medicines remains challenging as China continues to scrutinise the routes that these drugs take from manufacturer to market. This uncertainty leads potential customers unwilling to invest in distribution of new products.

Raw Material Supply

The Board believes that there are considerable difficulties in expanding capacity in the supply of Raw Materials for TCMs. This is primarily due to two factors; unwillingness on the part of Local Government to assign land use rights for plantation cultivation, and, the capital intensive, long lead times from plantation preparation to harvest. The Board has successfully managed its first two plantations and there are other fragmented co-operative plantations. Local Governments often encourage the consolidation of these into single ownership to aid decision making and this is, in the Board's opinion, Taihua's opportunity.

Finished Prescription-Only Medicines

High volume Over the Counter (OTC) TCM products are generally manufactured and distributed by large companies that have the resources to manage these products. Taihua does not want to compete in this field. The smaller market in Prescription-Only medicines, generally administered in specialist TCM hospitals requires much smaller marketing and development budgets and as such is suited to a company of Taihua's size. These products are administered in either injectable or capsule form.

For more information please contact:

Nicholas Lyth, Taihua plc 0776 990 6686

Katy Mitchell, WH Ireland Limited +44 161 832 2174

TAIHUA PLC

UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 30 JUNE, 2014

TAIHUA PLC

UNAUDITED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE, 2014

TAIHUA PLC

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 30 JUNE, 2014

TAIHUA PLC

UNAUDITED CONSOLIDATED STATEMENT OFCASH FLOWS

FOR THE SIX MONTHS ENDED 30 JUNE, 2014

Notes to the Unaudited Consolidated Financial Statements for the six months ended 30 June, 2014

1. ACCOUNTING POLICIES

Basis of preparation

The annual financial statements of Taihua plc for the year ending 31 December, 2014 will be prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted for use in the European Union. Accordingly the interim financial information has been prepared using accounting policies consistent with those which will be adopted by the group in the financial statements.

The interim financial information for the six months ended 30 June, 2014 is unaudited and that for the equivalent period in 2013 is unaudited. The comparatives for the full year ended 31 December, 2013 are not the Group's full statutory accounts for that year. The financial statements for the year ended 31 December, 2013 contained an unqualified auditor's report and did not contain a statement under sections 498(2) or 498(3) of the Companies Act 2006.

Significant accounting policies

The condensed financial statements have been prepared under the historical cost convention.

The same accounting policies, presentation and methods of computation have been followed in these condensed financial statements were applied in the preparation of the group's financial statements for the year ended 31 December 2013.

Foreign currency translation

The functional currency of the subsidiary undertakings is Renminbi ("RMB"), and the financial statements of the subsidiary undertakings have been drawn up in RMB. As sales and purchases are denominated primarily in RMB and receipts from operations are usually retained in RMB, the directors are of the opinion that RMB reflects the economic substance of the underlying events and circumstances relevant to the Group. Monetary assets and liabilities maintained in currencies other than RMB are translated into RMB at the approximate rates of exchange ruling at the balance sheet date. Transactions in currencies other than RMB are translated at rates ruling on the transaction dates.

The presentation currency of the Group is RMB and therefore the financial statements have been translated from GBP and HKD to RMB at the following exchange rates:

Period end rates Average rates

30 June, 2014 GBP1=RMB10.4808 GBP1=RMB10.2455

HKD1=RMB0.7941 HKD1=RMB0.7916

2. REVENUE

Revenue on sale of goods represents the invoiced value of goods sold, net of value added tax ("VAT"), consumption tax ("CT") and other sales taxes, after allowances for goods returns and trade discounts.

An analysis of the Group's turnover and other revenue is set out below :-

3. OPERATING SEGMENTS

For the purposes of resources allocation and performance assessment, the chief operating decision makers, who are the Board of Directors, regularly review revenue and cost of sales for each product.  The financial information provided to the Board of Directors contains profit or loss information of each product line.  Therefore, the operation of the Group constitutes four reportable segments.

The Group's reportable segments under IFRS 8 Operating Segments are as follows:

· Paclitaxel - Paclitaxel is extracted from the bark of the yew tree (Taxus). This drug is one of the main-stream treatments for cancer of the ovaries, breast, certain types of lung cancer, and a cancer of the skin and mucous membranes more commonly found in patients with acquired immunodeficiency syndrome (AIDS).

· Homoharringtonine - Homoharringtonine is an alkaloid extracted from the branches and leaves of the Cephalotaxus tree. This drug has been prescribed for acute myeloid leukaemia and other cancers in China.

· TCM products - Traditional Chinese Medicine has recognition as a viable alternative health treatment and has been recognised by the World Health Organisation for its effectiveness in the treatment of certain forms of illnesses and diseases. The Company currently manufactures eight TCM products which are Gengnianan Tablet, Duzhong Pingya Tablet, Zaoren Anshen Keli, Bunao Anshen Tablet, Jiangzi Jianfei Tablet, Dabaidu Capsule, Runing Tablet and Bian Tong Pian.

· Forsythia - Known as lian qiao in PRC, is a flowering shrub. The seeds and seed cases of this are harvested and, when dried, form the basis of TCM preparations. Forsythia TCMs are primarily sold to alleviate flu and cold like symptons.

The Group's revenues are significantly impacted by the seasonality of the forsythia sales. Forsythia is mainly harvested during autumn every year and therefore sales of forsythia are recognised in the fourth quarter. Costs incurred to 30 June with regard to the forsythia plantations have been included in inventories for release when the forsythia is harvested later in the year.