30 Sep 2008 13:17
Taihua plc
("Taihua" or the "Company")
Interim Results for the six months ended 30 June 2008
Chief Executive's Statement
Impacted by a temporary Chinese government restriction, beyond our control, it is disappointing to report that both our sales and profits dipped during the first half of the year. Following a series of fake drug scandals across the country, the Chinese government ordered its provincial SFDA offices to review the production of traditional Chinese medicines (TCMs), in February, in all companies that received GMP certification after 2005 and implemented an immediate ban on the production of these medicines pending their findings. This ban has now been lifted, but while it remained in force it meant that our subsidiary, Taihua Natural Plant Pharmaceutical Co. Ltd ("TNP") was unable to continue with sales into a domestic market that remained fundamentally strong. That production gap, combined with the effects of a strengthening Renminbi exchange rate on export sales, meant that although our sales of the anti-cancer active pharmaceutical ingredients, Paclitaxel and Homoharringtonine, remained strong, revenues for the half slipped by 11% to RMB 29.8 million, pulling pre-tax profits back to RMB 14.6 million from RMB 18.1 million for the same period a year earlier.
I am pleased to report, however, that, as announced on 29 August 2008, the Company is now selling TCMs again to meet market demand following the resumption of production after the Government lifted its ban. In this sector of the market we can now move forward with the renewed confidence of having had our certificate of Good Manufacturing Practice reconfirmed following the review by the State Food and Drug Administration ("SFDA").
Sales of Paclitaxel and Homoharringtonine during the period remained healthy, with Paclitaxel sales up 22 per cent to 11,700 gram.(2007: 9570gram), and Homoharringtonine rising to 6,600 gram from 6,120 during the first half of 2007. While demand for Homoharringtonine within the domestic Chinese market remained firm, we also progressed steadily with our plans for the expansion of Paclitaxel in overseas markets, boosting export sales to Russia and South America to RMB 12.1 million, whilst the pre-marketing trials in South Korea continue.
Shareholders are already aware that Europe, too, is a key focus of our current expansion plans. As we announced following our Annual General Meeting, our application to obtain a certificate of suitability for sales of Paclitaxel has been in the hands of the European Directorate for the Quality of Medicines (EDQM) since earlier this year. We remain confident that once secured, clearance will open the way to a market in which demand for generic paclitaxel-based drugs is solidly established. We are meanwhile continuing with work to ensure that our production lines and staff operating procedures at Luonan comply with European standards.
Overall, against a background of strained global market conditions, your Board believes that despite the setbacks forced upon the Company during the first half, we now remain well-positioned to move forward over the next few months.
Yunwu Liu
Chief Executive Officer
For further information contact:
| David Youngman, W H Ireland Ltd: | +44 (0) 161 832 2174 |
| Allan Piper, First City Financial Public Relations: | +44 (0) 20 7242 2666 |
| Jiang Lei, First City (China) Public Relations: | +852 2854 2666 / +852 6419 2915 |
INDEPENDENT REVIEW REPORT TO TAIHUA PLC
We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2008 which comprises the Unaudited Consolidated Income Statement, Unaudited Consolidated Balance Sheet, Unaudited Consolidated Statement of Changes in Equity and Unaudited Consolidated Cash Flow Statement and the related notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
This report is made solely to the company in accordance with the terms of our engagement. Our review has been undertaken so that we might state to the company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this report, or for the conclusions we have reached.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the AIM Rules of the London Stock Exchange.
As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared using accounting policies consistent with those to be applied in the next annual financial statements.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2008 is not prepared, in all material respects, in accordance with the AIM Rules of the London Stock Exchange.
PKF (UK) LLP
Chartered Accountants
Leeds
30 September 2008
UNAUDITED CONSOLIDATED INCOME STATEMENT
FOR THE SIX MONTHS ENDED 30 JUNE, 2008
| Six months ended | Six months ended | Year ended | ||
| 30 June 2008 | 30 June 2007 | 31 December 2007 | ||
| (unaudited) | (unaudited) | (audited) | ||
| RMB'000 | RMB'000 | RMB'000 | ||
| Revenue | 29,800 | 33,630 | 71,793 | |
| Cost of sales | (11,005) | (10,222) | (21,855) | |
| Gross profit | 18,795 | 23,408 | 49,938 | |
| Other revenue | 307 | - | 407 | |
| Selling expenses | (2,502) | (3,544) | (5,009) | |
| General and administrative expenses | (1,955) | (1,722) | (5,544) | |
| Operating profit | 14,645 | 18,142 | 39,792 | |
| Finance costs | - | (10) | - | |
| Profit before income tax | 14,645 | 18,132 | 39,792 | |
| Income tax expense | (4,031) | (2,886) | (5,908) | |
| Profit for the period/year | 10,614 | 15,246 | 33,884 | |
| Attributable to : | ||||
| Equity holders of the company | 10,614 | 15,246 | 33,884 | |
| Earnings per share : | ||||
| Basic (RMB per share) | 0.13 | 0.19 | 0.42 | |
| Diluted (RMB per share) | 0.13 | 0.19 | 0.41 |
UNAUDITED CONSOLIDATED BALANCE SHEET
AS AT 30 JUNE, 2008
| As at | As at | As at | |
| 30 June 2008 | 30 June 2007 | 31 December 2007 | |
| (unaudited) | (unaudited) | (audited) | |
| RMB'000 | RMB'000 | RMB'000 | |
| ASSETS | |||
| NON-CURRENT ASSETS | |||
| Property, plant and equipment | 3,138 | 3,868 | 3,511 |
| Land use rights | 1,582 | 1,654 | 1,601 |
| Biological assets | 830 | 830 | 830 |
| 5,550 | 6,352 | 5,942 | |
| CURRENT ASSETS | |||
| Inventories | 4,898 | 5,879 | 8,104 |
| Trade receivables | 17,603 | 10,309 | 20,903 |
| Other receivables | 662 | 89 | 689 |
| Deposits and prepayments | 18,788 | 18,043 | 18,549 |
| Amounts due from related companies | 27 | - | 29 |
| Land use rights | 39 | 39 | 39 |
| Cash and cash equivalents | 82,271 | 60,491 | 64,446 |
| 124,288 | 94,850 | 112,759 | |
| TOTAL ASSETS | 129,838 | 101,202 | 118,701 |
| LIABILITIES | |||
| CURRENT LIABILITIES | |||
| Trade payables | 531 | 291 | 302 |
| Receipts in advance | 156 | 111 | 156 |
| Accrued expenses and other payables | 3,904 | 6,135 | 4,216 |
| Amounts due to directors | 65 | 95 | 86 |
| Income tax payable | 1,935 | 1,503 | 1,388 |
| 6,591 | 8,135 | 6,148 | |
| NET CURRENT ASSETS | 117,697 | 86,715 | 106,611 |
| TOTAL LIABILITIES | 6,591 | 8,135 | 6,148 |
| NET ASSETS | 123,247 | 93,067 | 112,553 |
| EQUITY | |||
| CAPITAL AND RESERVES ATTRIBUTABLE TO | |||
| EQUITY HOLDERS OF THE COMPANY | |||
| Share capital | 12,347 | 12,280 | 12,347 |
| Other reserves | 20,640 | 15,196 | 18,746 |
| Retained profits | 90,260 | 65,591 | 81,460 |
| TOTAL EQUITY | 123,247 | 93,067 | 112,553 |
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE SIX MONTHS ENDED 30 JUNE 2008
| Foreign | ||||||||||||
| Merger | Reverse | General | Enterprise | currency | Share | |||||||
| Share | relief | Share | acquisition | reserve | expansion | translation | Warrants | options | Retained | |||
| capital | reserve | premium | reserve | fund | fund | reserve | reserve | reserve | profits | Total | ||
| RMB'000 | RMB'000 | RMB'000 | RMB'000 | RMB'000 | RMB'000 | RMB'000 | RMB'000 | RMB'000 | RMB'000 | RMB'000 | ||
| At 1 January, 2007 | 12,280 | 64,364 | 3,163 | (63,408) | 5,926 | 2,963 | (1,096) | 928 | 18 | 52,632 | 77,770 | |
| Exchange difference | - | - | - | - | - | - | 51 | - | - | - | 51 | |
| Profit for the period | - | - | - | - | - | - | - | - | - | 15,246 | 15,246 | |
| Transferred to statutory reserves | - | - | - | - | 1,525 | 762 | - | - | - | (2,287) | - | |
| At 30 June, 2007 | 12,280 | 64,364 | 3,163 | (63,408) | 7,451 | 3,725 | (1,045) | 928 | 18 | 65,591 | 93,067 | |
| Issue of ordinary shares by exercise of warrants | 67 | - | 772 | - | - | - | - | (166) | - | - | 673 | |
| Exchange difference | - | - | - | - | - | - | (181) | - | - | - | (181) | |
| Share-based payments | - | - | - | - | - | - | - | - | 356 | - | 356 | |
| Profit for the period | - | - | - | - | - | - | - | - | - | 18,638 | 18,638 | |
| Transferred to statutory reserves | - | - | - | - | 1,846 | 923 | - | - | - | (2,769) | - | |
| At 31 December, 2007 | 12,347 | 64,364 | 3,935 | (63,408) | 9,297 | 4,648 | (1,226) | 762 | 374 | 81,460 | 112,553 | |
| Exchange difference | - | - | - | - | - | - | (82) | - | - | - | (82) | |
| Share-based payments | - | - | - | - | - | - | - | - | 162 | - | 162 | |
| Profit for the period | - | - | - | - | - | - | - | - | - | 10,614 | 10,614 | |
| Transferred to statutory reserves | - | - | - | - | 1,209 | 605 | - | - | - | (1,814) | - | |
| At 30 June, 2008 | 12,347 | 64,364 | 3,935 | (63,408) | 10,506 | 5,253 | (1,308) | 762 | 536 | 90,260 | 123,247 | |
UNAUDITED CONSOLIDATED CASH FLOW STATEMENT
FOR THE SIX MONTHS ENDED 30 JUNE, 2008
| Six months ended | Six months ended | Year ended | |
| 30 June 2008 | 30 June 2007 | 31 December 2007 | |
| (unaudited) | (unaudited) | (audited) | |
| RMB'000 | RMB'000 | RMB'000 | |
| CASH FLOWS FROM OPERATING ACTIVITIES | |||
| Operating profit | 14,645 | 18,142 | 39,792 |
| Adjustments for :- | |||
| Provision for bad debts | - | - | 824 |
| Amortisation on land use rights | 19 | (15) | 38 |
| Depreciation | 373 | 395 | 744 |
| Share-based payments | 162 | - | 356 |
| Interest income | (307) | - | (407) |
| Operating cash flows before working capital changes | 14,892 | 18,522 | 41,347 |
| Decrease/(increase) in inventories | 3,206 | 271 | (1,954) |
| Decrease/(increase) in accounts receivable | 3,300 | (4,418) | (15,802) |
| Decrease/(increase) in other receivables | 27 | (16) | (650) |
| Increase in deposits and prepayments | (239) | (701) | (1,207) |
| Decrease/(increase) in amounts due from related companies | 2 | - | (29) |
| Increase/(decrease) in accounts payable | 229 | (85) | (74) |
| Decrease in receipts in advance | - | (122) | (77) |
| Decrease in accrued expenses and other payables | (312) | (4,077) | (6,452) |
| Decrease in amounts due to directors | (21) | (304) | (313) |
| Cash generated from operations | 21,084 | 9,070 | 14,789 |
| Interest received | 307 | - | 407 |
| Profits tax paid | (3,484) | (2,886) | (5,566) |
| NET CASH GENERATED FROM OPERATING ACTIVITIES | 17,907 | 6,184 | 9,630 |
| CASH FLOWS FROM INVESTING ACTIVITIES | |||
| Purchase of fixed assets | - | (99) | (91) |
| NET CASH USED IN INVESTING ACTIVITIES | - | (99) | (91) |
| CASH FLOWS FROM FINANCING ACTIVITIES | |||
| Issue of shares | - | - | 673 |
| Interest paid | - | (10) | - |
| NET CASH GENERATED FROM FINANCING ACTIVITIES | - | (10) | 673 |
| NET INCREASE IN CASH AND CASH EQUIVALENTS | 17,907 | 6,075 | 10,212 |
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 64,446 | 54,364 | 54,364 |
| Effect of foreign exchange change | (82) | 51 | (130) |
| CASH AND CASH EQUIVALENTS AT END OF PERIOD | 82,271 | 60,490 | 64,446 |
| ANALYSIS OF THE BALANCES OF CASH AND CASH EQUIVALENTS | |||
| Cash and bank balances | 82,271 | 60,490 | 64,446 |
Notes to the Unaudited Financial Statements for the six months ended 30 June 2008
ACCOUNTING POLICIES
1. Basis of preparation
The annual financial statements of Taihua plc for the year ending 31 December 2008 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 2008 is unaudited and that for the equivalent period in 2007 is unaudited. The comparatives for the full year ended 31 December 2007 are not the Group's full statutory accounts for that year. The financial statements for the year ended 31 December 2007 contained an unqualified auditors' report in accordance with s235 of the Companies Act 1985.
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 2008 | GBP1=RMB13.7121 | GBP1=RMB13.9701 |
| HKD1=RMB0.8809 | HKD1=RMB0.9072 |
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 :-
| Six months ended | Six months ended | Year ended | |||||
| 30 Jun, 2008 | 30 Jun, 2007 | 31 Dec, 2007 | |||||
| (unaudited) | (unaudited) | (audited) | |||||
| RMB'000 | RMB'000 | RMB'000 | |||||
| Revenue | 29,800 | 33,630 | 71,793 | ||||
| Other income | |||||||
| Interest income | 307 | - | 407 | ||||
| Total revenue | 30,107 | 33,630 | 72,200 |
3. EARNINGS PER SHARE
Basic earnings per share
Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the period.
|
| Six months ended 30 Jun. 2008 （unaudited）RMB'000 | Six months ended 30 Jun.2007（unaudited）RMB'000 | Year ended 31 Dec.2007 （audited） RMB'000 |
| Profit attributable to equity holders of the company (RMB'000) | 10,614 | 15,246 | 33,884 |
| Weighted average number of ordinary shares in issue (thousands) | 81,647 | 82,211 | 81,296 |
| Earnings per share ( RMB per share ) | 0.13 | 0.19 | 0.42 |
Diluted earnings per share
The company has two categories of dilutive potential ordinary shares-share options and warrants. A calculation is undertaken to determine the number of shares deemed to be issued for no consideration in respect of these options and warrants.
|
| Six months ended 30 Jun. 2008 （unaudited）RMB'000 | Six months ended 30 Jun.2007（unaudited）RMB'000 | Year ended 31 Dec.2007 （audited） RMB'000 |
| Profit attributable to equity holders of the company
| 10,614 | 15,246 | 33,884 |
| Weighted average number of ordinary shares in issue (thousands) | 81,647 | 81,211 | 81,296 |
| Adjustment for share options and warrants (thousands) | 683 | 555 | 1,396 |
| Weighted average number of ordinary shares for diluted earnings (thousands) | 82,330 | 81,766 | 82,692 |
| Diluted earnings per share ( RMB per share ) | 0.13 | 0.19 | 0.41 |